**UNITED STATES****SECURITIES ANDEXCHANGE COMMISSION****Washington, D.C.  20549**

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)****OF THESECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended October 2, 2004**

 

**or**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES****EXCHANGE ACT OF1934**

 

**For thetransition period from                         to                         **

 

**CommissionFile Number:**

 

**The Wornick Company**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                                     | ** ** | **30-0225741**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or  other jurisdiction  of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |
|                                                             |       |                                  |
| **10825 Kenwood Road, Cincinnati, Ohio**                         | ** ** | **42542**                             |
| (Address of  principal executive offices)                        |       | (Zip Code)                            |

 

**(513)794-9800**

(Registrant’s telephone number,including area code)

 

**N/A**

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  o  Yes    ý  No

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  o  Yes    ý  No

 

On November 16, 2004, one share ofRegistrant’s common stock was outstanding.

 

 

----

 

**THEWORNICK COMPANY**

 

**Table ofContents**

 
| **PART I - FINANCIAL INFORMATION**                                                                                               |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|
| ** **                                                                                                                       |   |
| Item 1. Financial Statements                                                                                                     |   |
|                                                                                                                             |   |
| Consolidated Balance Sheet at December 31, 2003 and October 4,  2004                                                   |   |
|                                                                                                                             |   |
| Consolidated Statements of Income for the  Quarterly and Nine-Month Periods Ended October 4, 2003 and  October 2, 2004 |   |
|                                                                                                                             |   |
| Consolidated Statements of Cash Flows for  the Nine-Month Periods Ended October 4, 2003 and October 2, 2004            |   |
|                                                                                                                             |   |
| Notes to Consolidated Financial Statements                                                                                       |   |
|                                                                                                                             |   |
| Item 2. Management’s Discussion and  Analysis of Financial Condition and Results of Operations                              |   |
|                                                                                                                             |   |
| Item 3. Quantitative and Qualitative  Disclosures About Market Risk                                                              |   |
|                                                                                                                             |   |
| Item 4. Controls and Procedures                                                                                                  |   |
|                                                                                                                             |   |
| Forward-Looking Statements                                                                                                       |   |
|                                                                                                                             |   |
| **PART II - OTHER INFORMATION**                                                                                                  |   |
|                                                                                                                             |   |
| Item 1. Legal Proceedings                                                                                                        |   |
|                                                                                                                             |   |
| Item 2. Unregistered Sales of Equity  Securities and Use of Proceeds                                                             |   |
|                                                                                                                             |   |
| Item 3. Defaults Upon Senior Securities                                                                                          |   |
|                                                                                                                             |   |
| Item 4. Submission of Matters to a Vote of  Security Holders                                                                     |   |
|                                                                                                                             |   |
| Item 5. Other Information                                                                                                        |   |
|                                                                                                                             |   |
| Item 6. Exhibits                                                                                                                 |   |
|                                                                                                                             |   |
| Signatures                                                                                                                       |   |

 

----

 

**PART I - FINANCIAL INFORMATION**

**Item1.****                                                           FinancialStatements.**

**THEWORNICK COMPANY**

**CONSOLIDATED BALANCE SHEET**

 
| ** **                                                                                                                                                                                                        | ** **   | **The Wornick  Company  Nevada** | ** **   | **The Wornick  Company  Delaware** | ** **   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------|--------------|------------------------------------|--------------|
| ** **                                                                                                                                                                                                        | ** **   | **Predecessor**                  | ** **   | **Successor**                      | ** **   |
| ** **                                                                                                                                                                                                        | ** **   | **December 31,  2003**      | ** **   | **October 2,  2004**          | ** **   |
| *** ***                                                                                                                                                                                                      | *** *** | ** **                       | *** *** | **(unaudited)**                    | *** *** |
| **Assets**                                                                                                                                                                                                        |         |                             |         |                               |         |
| Current  assets                                                                                                                                                                                                   |         |                             |         |                               |         |
| Cash and  cash equivalents                                                                                                                                                                                        |         | $                                | 5,290,667    |                               | $            | 385,118 |   |
| Investments                                                                                                                                                                                                       |         | 8,993,000                        |         | —                             |         |
| Trade  accounts receivable                                                                                                                                                                                        |         | 14,686,678                       |         | 13,804,595                         |         |
| Inventories                                                                                                                                                                                                       |         | 20,050,043                       |         | 22,270,218                         |         |
| Prepaid  expenses and other current assets                                                                                                                                                                        |         | 1,086,400                        |         | 695,251                            |         |
| Notes  receivable, current portion                                                                                                                                                                                |         | 1,532,647                        |         | —                             |         |
| Total  current assets                                                                                                                                                                                             |         | 51,639,435                       |         | 37,155,182                         |         |
| Property and  equipment, net                                                                                                                                                                                      |         | 21,717,606                       |         | 30,116,125                         |         |
| Goodwill                                                                                                                                                                                                          |         | 10,856,253                       |         | 78,202,197                         |         |
| Intangible  assets                                                                                                                                                                                                |         | —                           |         | 22,996,354                         |         |
| Notes  receivable, excluding current portion                                                                                                                                                                      |         | 1,102,527                        |         | —                             |         |
| Other  noncurrent assets                                                                                                                                                                                          |         | 1,392,876                        |         | 5,172,856                          |         |
| Total assets                                                                                                                                                                                                      |         | $                                | 86,708,697   |                               | $            | 173,642,714 |   |
| **Liabilities  and Stockholder’s Equity**                                                                                                                                                                    |         |                             |         |                               |         |
| Current  liabilities                                                                                                                                                                                              |         |                             |         |                               |         |
| Book  overdraft                                                                                                                                                                                                   |         | $                                | 747,665      |                               | $            | 206,475 |   |
| Current  maturities of long-term debt                                                                                                                                                                             |         | 2,494,819                        |         | —                             |         |
| Trade  accounts payable                                                                                                                                                                                           |         | 2,241,206                        |         | 5,826,685                          |         |
| Accrued  expenses                                                                                                                                                                                                 |         | 6,910,792                        |         | 1,893,905                          |         |
| Accrued  interest                                                                                                                                                                                                 |         | —                           |         | 3,398,438                          |         |
| Total  current liabilities                                                                                                                                                                                        |         | 12,394,482                       |         | 11,325,503                         |         |
| Accrued  stock compensation                                                                                                                                                                                       |         | 13,827,478                       |         | —                             |         |
| Accrued  incentive compensation                                                                                                                                                                                   |         | 833,269                          |         | —                             |         |
| Long-term  debt, excluding current maturities                                                                                                                                                                     |         | 2,498,519                        |         | 125,000,000                        |         |
| Total  liabilities                                                                                                                                                                                                |         | 29,553,748                       |         | 136,325,503                        |         |
| **Commitments  and Contingencies**                                                                                                                                                                                |         |                             |         |                               |         |
| Stockholder’s  equity                                                                                                                                                                                        |         |                             |         |                               |         |
| Common stock  $0.01 par value; 10,000,000 shares authorized (Predecessor)/1,000 shares  authorized (Successor); 5,000,000 shares issued and outstanding  (Predecessor)/1 share issued and outstanding (Successor) |         | 50,000                           |         | —                             |         |
| Additional  paid-in capital                                                                                                                                                                                       |         | 33,637,668                       |         | 37,500,000                         |         |
| Unearned  shares of Employee Stock Ownership Trust                                                                                                                                                                |         | (10,163,571                      | )            | —                             |         |
| Retained  earnings (accumulated deficit)                                                                                                                                                                          |         | 33,630,852                       |         | (182,789                           | )            |
| Total  stockholder’s equity                                                                                                                                                                                  |         | 57,154,949                       |         | 37,317,211                         |         |
| Total  liabilities and stockholder’s equity                                                                                                                                                                  |         | $                                | 86,708,697   |                               | $            | 173,642,714 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

1

----

 

**THEWORNICK COMPANY**

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                    | ** ** | **The Wornick Company**                                | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                    | ** ** | **Quarterly Period**                                   | ** ** | **Nine-Month Period** | ** ** |
| ** **                                    | ** ** | **July 6,  2003  through  October 4,  2003** | ** ** | **July 1,********2004********through  October 2,  2004** | ** ** | **January 1,  2003  through  October 4,  2003** | ** ** | **January 1,  2004  through  June 30,  2004** | ** ** | **July 1,  2004  through  October 2,  2004** | ** ** |
| ** **                                    | ** ** | **(Predecessor)**                                      | ** ** | **(Successor)** | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| ** **                                    | ** ** | **(unaudited)**                                        | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** | **(unaudited****)** | ** ** |
| * *                                      | * *   | * *                                               | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Net sales                                     |       | $                                                      | 45,920,458 |   | $ | 51,077,176 |   | $ | 233,383,359 |   | $ | 80,923,839 |   | $ | 51,077,176 |   |
| Cost of  sales                                |       | 35,468,647                                             |       | 43,422,124 |   | 189,715,825 |   | 67,752,882 |   | 43,422,124 |   |
| Gross profit                                  |       | 10,451,811                                             |       | 7,655,052 |   | 43,667,534 |   | 13,170,957 |   | 7,655,052 |   |
| Selling,  general and administrative expenses |       | 3,857,518                                              |       | 4,237,990 |   | 17,757,282 |   | 12,458,600 |   | 4,237,990 |   |
| Operating  profit                             |       | 6,594,293                                              |       | 3,417,062 |   | 25,910,252 |   | 712,357 |   | 3,417,062 |   |
| Other  (expense) income                       |       |                                                   |       |   |   |   |   |   |   |   |   |
| Interest  expense                             |       | (52,418                                                | )          | (3,597,165 | ) | (429,191 | ) | (99,791 | ) | (3,597,165 | ) |
| Interest  income                              |       | 2,677                                                  |       | 32,422 |   | 98,182 |   | 506,553 |   | 32,422 |   |
| Other income  (expense), net                  |       | 339,345                                                |       | (13,159 | ) | 1,025,997 |   | 369,274 |   | (13,159 | ) |
| Total other  (expense) income                 |       | 289,604                                                |       | (3,577,902 | ) | 694,988 |   | 776,036 |   | (3,577,902 | ) |
| Income/(loss)  before income taxes            |       | 6,883,897                                              |       | (160,840 | ) | 26,605,240 |   | 1,488,393 |   | (160,840 | ) |
| Income tax  expense                           |       | 141,776                                                |       | 21,949 |   | 409,532 |   | 41,052 |   | 21,949 |   |
| Net  income/(loss)                            |       | $                                                      | 6,742,121  |   | $ | (182,789 | ) | $ | 26,195,708 |   | $ | 1,447,341 |   | $ | (182,789 | ) |
|                                          |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pro forma  income data (unaudited)            |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  before income taxes                   |       | $                                                      | 6,883,897  |   |   |   |   | $ | 26,605,240 |   | $ | 1,488,393 |   |   |   |   |
| Pro forma  income tax expense                 |       | 2,793,136                                              |       |   |   |   | 10,300,147 |   | 949,825 |   |   |   |   |
| Pro forma  net income                         |       | $                                                      | 4,090,761  |   |   |   |   | $ | 16,305,093 |   | $ | 538,568 |   |   |   |   |
|                                               |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

2

----

 

**THEWORNICK COMPANY**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                             | ** ** | **The Wornick Company**                                   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **Nine-Month Period**                                     | ** ** |
| ** **                                                                                             | ** ** | **January 1,  2003  through  October 4,  2003** | ** ** | **January 1,  2004  through  June 30,  2004** | ** ** | **July 1,  2004  through  October 2,  2004** | ** ** |
| ** **                                                                                             | ** ** | **(Predecessor)**                                         | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| ** **                                                                                             | ** ** | **(unaudited)**                                           | ** ** | **(unaudited)** | ** ** | **(unaudited****)** | ** ** |
| **Cash  flows from operating activities**                                                              | ** ** | ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                                     |       | $                                                         | 26,195,708 |   | $ | 1,447,341 |   | $ | (182,789 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities    |       |                                                      |       |   |   |   |   |
| Depreciation  of property and equipment                                                                |       | 1,906,850                                                 |       | 1,386,904 |   | 864,329 |   |
| Amortization  of intangible assets                                                                     |       | —                                                    |       | — |   | 1,173,645 |   |
| Amortization  of inventory step-up                                                                     |       | —                                                    |       | — |   | 1,767,037 |   |
| Amortization  of debt issuance cost                                                                    |       | —                                                    |       | — |   | 150,054 |   |
| Deferred  income tax expense                                                                           |       | 181,500                                                   |       | — |   | — |   |
| Compensation  expense for Employee Stock Ownership Trust shares released and committed to  be released |       | 3,507,947                                                 |       | 2,344,292 |   | — |   |
| Compensation  expense for stock options                                                                |       | 5,364,485                                                 |       | 713,433 |   | — |   |
| Other  stock-based compensation expense                                                                |       | —                                                    |       | 3,266,814 |   | — |   |
| Stock  compensation plans                                                                              |       | 833,269                                                   |       | (4,270,995 | ) | — |   |
| Changes in  assets and liabilities, net of acquisitions                                                |       |                                                      |       |   |   |   |   |
| Trade  accounts receivable                                                                             |       | (1,118,397                                                | )          | 1,189,462 |   | (13,804,595 | ) |
| Inventories                                                                                            |       | (2,574,494                                                | )          | (4,693,075 | ) | 3,025,521 |   |
| Prepaid  expenses and other current assets                                                             |       | (49,475                                                   | )          | 162,149 |   | (695,251 | ) |
| Other  noncurrent asset                                                                                |       | (4,370                                                    | )          | (56,901 | ) | (18,132 | ) |
| Trade  accounts payable                                                                                |       | (1,651,291                                                | )          | (1,961,207 | ) | 5,826,685 |   |
| Accrued  liabilities                                                                                   |       | (1,451,589                                                | )          | — |   | 5,292,343 |   |
| Other  payable                                                                                         |       | (273,347                                                  | )          | — |   | — |   |
| Net cash  provided by (used in) operating activities                                                   |       | 30,866,796                                                |       | (471,783 | ) | 3,398,847 |   |
| **Cash  flows from investing activities**                                                              |       |                                                      |       |   |   |   |   |
| Payments  received on notes receivable                                                                 |       | 557,874                                                   |       | 610,100 |   | — |   |
| Proceeds  from the sale of investments                                                                 |       | 3,000,000                                                 |       | 19,988,514 |   | — |   |
| Purchases of  investments                                                                              |       | (2,000,000                                                | )          | (30,007,514 | ) | — |   |
| Business  acquired                                                                                     |       | —                                                    |       | — |   | (165,060,252 | ) |
| Capital  expenditures                                                                                  |       | (9,941,062                                                | )          | (2,382,720 | ) | (659,952 | ) |
| Net cash  used in investing activities                                                                 |       | (8,383,188                                                | )          | (11,791,620 | ) | (165,720,204 | ) |
| **Cash  flows from financing activities**                                                              |       |                                                      |       |   |   |   |   |
| Change in  book overdrafts                                                                             |       | 2,257,229                                                 |       | 243,027 |   | 206,475 |   |
| Net  (decrease) increase in the line of credit                                                         |       | (9,400,000                                                | )          | 8,700,000 |   | — |   |
| Proceeds  from issuance of long-term debt                                                              |       | 61,653                                                    |       | — |   | 125,000,000 |   |
| Proceeds  from the issuance of common stock                                                            |       | —                                                    |       | — |   | 37,500,000 |   |
| Principal payments  on long-term debt                                                                  |       | (1,767,130                                                | )          | (629,305 | ) |   |   |
| Net cash  (used in) provided by financing activities                                                   |       | (8,848,248                                                | )          | 8,313,722 |   | 162,706,475 |   |
| Net increase  (decrease) in cash and cash equivalents                                                  |       | 13,635,360                                                |       | (3,949,681 | ) | 385,118 |   |
| **Cash and  cash equivalents**                                                                         |       |                                                      |       |   |   |   |   |
| Beginning of  period                                                                                   |       | 1,042,371                                                 |       | 5,290,667 |   | — |   |
| End of  period                                                                                         |       | $                                                         | 14,677,731 |   | $ | 1,340,986 |   | $ | 385,118 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

3

----

 

**THEWORNICK COMPANY**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**                          BusinessDescription

 

TheWornick Company, a Delaware corporation (the “Company” or “Successor”), anacquisition vehicle formed by The Veritas Capital Fund II, L.P., and its generalpartner, Veritas Capital Management II, L.L.C., entered into an Assets Purchaseand Sale Contract with The Wornick Company, a Nevada corporation (the “Predecessor”),and its subsidiaries, The Wornick Company Right Away Division, a Nevadacorporation, The Wornick Company Right Away Division, L.P., a Texas limitedpartnership, and Right Away Management Corporation, a Texas corporation.  The Assets Purchase and Sale Contract wasconsummated on June 30, 2004, and resulted in the purchase by theSuccessor and its subsidiaries, and the sale by the Predecessor and itssubsidiaries, of the business of the Predecessor and its subsidiaries as agoing concern, including substantially all of the operating assets of thePredecessor and its subsidiaries.

 

TheCompany produces, packages and distributes extended shelf-life foods, bothshelf stable and frozen, in flexible pouches and semi-rigid containers,primarily for the U.S. Department of Defense and commercial customers, as wellas for its own consumer-branded products.

 

**2.**                          Basis ofPresentation

 

Theaccompanying unaudited interim consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and the instructionsto Form 10-Q and Article 10 of Regulation S-X under the SecuritiesExchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotesnormally included in financial statements prepared in conformity with accountingprinciples generally accepted in the United States of America. In the opinionof management, the interim consolidated financial statements reflect alladjustments of a normal recurring nature considered necessary for a fairpresentation of the results for the periods presented.  Operating results for interim periods are notnecessarily indicative of results that may be expected for the fiscal year as awhole.  The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues, expenses,and related disclosures at the date of the financial statements and during thereporting period.  Actual amounts coulddiffer from these estimates.  Theseunaudited interim consolidated financial statements should be read inconjunction with the Predecessor’s audited consolidated financial statementsand notes thereto for the year ended December 31, 2003, included in theCompany’s Registration Statement on Form S-4 (File No. 333-119336) filed withthe Securities and Exchange Commission.

 

Asdiscussed in Note 1 above, the Assets Purchase and Sale Contract wasconsummated on June 30, 2004.  Assuch, the financial information presented represents: (i) the ConsolidatedBalance Sheet of the Predecessor at December 31, 2003 and the ConsolidatedBalance Sheet of the Successor at October 2, 2004, (ii) theConsolidated Statements of Income of the Predecessor for the quarterly andnine-month periods ended October 4, 2003, (iii) the Consolidated Statementof Income of the Predecessor for the six-month period ended June 30, 2004and the Consolidated Statement of Income of the Successor for the quarterlyperiod ended October 2, 2004, (iv) the Consolidated Statement of CashFlows of the Predecessor for the nine-month period ended October 4, 2003and (v) the Consolidated Statement of Cash Flows of the Predecessor for thesix-month period ended June 30, 2004 and the Consolidated Statement ofCash Flows of the Successor for the quarterly period ended October 2,2004.

 

4

----

TheSuccessor has conformed its interim accounting periods to those of thePredecessor.  As such, its fiscal interimperiod began on July 4, 2004 and ended on October 2, 2004.  For financial reporting purposes, theoperating activity of the Successor for the period from July 1, 2004through July 3, 2004 is included in the results of the period ended October 2,2004. Its impact was not significant as operations were substantially shut downduring the period from July 1, 2004 through July 3, 2004 toaccommodate the closing of the June 30, 2004 acquisition.

 

Forthe purpose of these financial statements, references to the quarterly periodended October 4, 2003, include the period from July 6, 2003 through October 4,2003 and references to the nine-month period ended October 4, 2003,include the period from January 1, 2003 through October 4, 2003.  In addition, references to the quarterlyperiod ended October 2, 2004, include the period from July 1, 2004through October 2, 2004.  Forpresentation purposes, references to the nine-month period ended October 2,2004, reflect the results of operations of the Predecessor for the period from January 1,2004 through June 30, 2004, and the results of operations of the Successorfor the period from July 1, 2004 through October 2, 2004.

 

**3.**                          Acquisition

 

OnJune 30, 2004 (the “Acquisition Date”), pursuant to the Assets Purchaseand Sale Contract described above in Note 1, the Company acquired all of theoperating assets of the Predecessor.  Theacquisition was financed through a combination of debt and equity issuances.  The purchase price of $165.1 million includedapproximately $10.1 million of transaction costs.  Goodwill of $78.2 million represented theexcess of the acquisition costs over the estimated fair value of theidentifiable assets acquired.  Theidentifiable intangible assets relate to the value of existing long-termcustomer supply contracts in place at the acquisition date.  The purchase price has been allocated to theassets acquired in accordance with the purchase method of accounting asfollows:

 
| Inventory                     |   | $          | 27,062,776  |   |
|-------------------------------|--------|------------|-------------|--------|
| Property and  equipment, net  |   | 30,320,502 |        |
| Intangible  assets            |   | 24,170,000 |        |
| Goodwill                      |   | 78,202,197 |        |
| Deferred  debt issuance costs |   | 3,855,000  |        |
| Other  noncurrent assets      |   | 1,449,777  |        |
|                          |   | $          | 165,060,252 |   |

 

Infinancing the acquisition, the Company received $165.5 million of proceeds fromdebt and equity financing, including a $ 3.0 million advance on the workingcapital line.

 

Summaryselected pro forma information as though the transaction were completed at thebeginning of the respective period presented (and as though the Company weretaxed as a C-corporation) is as follows (in thousands):

 
| ** **         | ** ** | **Nine-month  Period Ended  October 4, 2003** | ** ** | **Six-month  Period Ended  June 30, 2004** | ** ** | **Quarterly Period  Ended  October 2, 2004** | ** ** |
|--------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **(In thousands)**                                 | ** ** |
| ** **         | ** ** | **(Predecessor)**                                  | ** ** | **(Predecessor)**                               | ** ** | **(Successor)**                                   | ** ** |
| Net sales          |       | $                                                  | 233,383    |                                            | $          | 80,924                                            |       | $ | 51,077 |   |
| Net income  (loss) |       | 6,572                                              |       | (5,950                                          | )          | (183                                              | )          |
|                    |            |                                                    |            |                                                 |            |                                                   |            |  |  |  |

 

5

----

 

**4.**                          SupplementalBalance Sheet Information

 

**Inventories**

Asummary of inventories is as follows:

 
| ** **       | ** **   | **Predecessor**             | ** **   | **Successor**             | ** **   |
|------------------|--------------|-----------------------------|--------------|---------------------------|--------------|
| ** **       | ** **   | **December 31,  2003** | ** **   | **October 2,  2004** | ** **   |
| *** ***     | *** *** | ** **                  | *** *** | **(unaudited)**           | *** *** |
|             |         |                        |         |                      |         |
| Raw  materials   |         | $                           | 13,226,080   |                      | $            | 13,902,043 |   |
| Work in  process |         | 1,272,545                   |         | 1,441,526                 |         |
| Finished  goods  |         | 5,551,418                   |         | 6,926,649                 |         |
|             |         | $                           | 20,050,043   |                      | $            | 22,270,218 |   |

 

**Property and Equipment, Net**

Asummary of property and equipment, net is as follows:

 
| ** **                                       | ** **   | **Predecessor**             | ** **   | **Successor**             | ** **   |
|--------------------------------------------------|--------------|-----------------------------|--------------|---------------------------|--------------|
| ** **                                       | ** **   | **December 31,  2003** | ** **   | **October 2,  2004** | ** **   |
| *** ***                                     | *** *** | *** ***                | *** *** | **(unaudited)**           | *** *** |
|                                             |         |                        |         |                      |         |
| Leasehold  improvements                          |         | $                           | 2,995,982    |                      | $            | 1,827,532 |   |
| Machinery  and equipment                         |         | 24,543,406                  |         | 19,262,075                |         |
| Office equipment,  fixtures and vehicles         |         | 2,687,186                   |         | 4,378,039                 |         |
| Construction  in progress                        |         | 4,795,341                   |         | 5,512,808                 |         |
|                                             |         | 35,021,915                  |         | 30,980,454                |         |
| Less:  Accumulated depreciation and amortization |         | (13,304,309                 | )            | (864,329                  | )            |
|                                             |         | $                           | 21,717,606   |                      | $            | 30,116,125 |   |

 

**5.**                          Intangible Assets

 

Inconnection with the acquisition described in Note 3, a portion of the purchaseprice was allocated to identifiable intangible assets related to the value oflong-term customer supply contracts in place at the acquisition date.  The original value of these contracts was$24,170,000 and their useful lives range from three to eight years.  Expenses related to amortization ofintangible assets for the period from July 1, 2004 through October 2,2004 amounted to $1,173,645.

 

Scheduledamortization of these assets is as follows:

 
| October 3,  2004 through December 31, 2004 |   | $         | 1,173,644  |   |
|------------------------------------------------------|--------|-----------|------------|--------|
| 2005                                                 |   | 4,694,580 |       |
| 2006                                                 |   | 4,694,580 |       |
| 2007                                                 |   | 4,627,918 |       |
| 2008                                                 |   | 4,856,248 |       |
| Thereafter                                           |   | 2,949,384 |       |
|                                                 |   | $         | 22,996,354 |   |

 

6

----

 

**6.**                          NotesPayable and Long-Term Debt

 

At December 31, 2003,the Predecessor had debt facilities of $10.0 million and $16.0 million pursuantto revolving loan agreements.  Suchrevolving loan agreements were subject to borrowing base limitations and boreinterest at The Wall Street Journal’s prime rate (4.00% at December 31,2003) and were set to expire on August 28, 2004.  There was no outstanding balance at December 31,2003.  As described further below, inconnection with the acquisition these revolving loan agreements were replacedwith separate $15.0 million and $10.0 million revolving loan facilities withthe same lender.

 

Asummary of long-term debt at December 31, 2003 and October 2, 2004 isas follows:

 
| ** **                                                                                                                     | ** **   | **Predecessor**             | ** **   | **Successor**             | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------|--------------|---------------------------|--------------|
| ** **                                                                                                                     | ** **   | **December 31,  2003** | ** **   | **October 2,  2004** | ** **   |
| *** ***                                                                                                                   | *** *** | *** ***                | *** *** | **(unaudited)**           | *** *** |
|                                                                                                                           |         |                        |         |                      |         |
| Note payable  to a bank in quarterly installments of $618,095 plus interest (4.25% at December 31,  2003); due 2005       |         | $                           | 4,944,763    |                      | $            | — |   |
| Note payable  to a third party in monthly installments of $1,868 plus interest (4.00% at December 31,  2003); due in 2006 |         | 48,575                      |         | —                    |         |
|                                                                                                                           |         |                        |         |                      |         |
| 10-7/8%  senior secured notes; due 2011                                                                                        |         | —                      |         | 125,000,000               |         |
|                                                                                                                           |         | 4,993,338                   |         | 125,000,000               |         |
| Less:  Current maturities                                                                                                      |         | 2,494,819                   |         | —                    |         |
| Long-term  debt, excluding current maturities                                                                                  |         | $                           | 2,498,519    |                      | $            | 125,000,000 |   |

 

Inconnection with the financing of the acquisition described in Note 3, theCompany issued $125,000,000 10-7/8% Senior Secured Notes due 2011 and alsosecured additional financing through a Revolving Loan Agreement which providesthe Company $15,000,000 of revolving loan financing through June 30, 2009,with an additional revolving credit facility of $10,000,000 becoming availableupon certain events.  Amounts outstandingunder the Revolving Loan Agreements ($0 at October 2, 2004) are due June 30,2009, and amounts outstanding are subject to limitations as determined by acalculated borrowing base.

 

Intereston amounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (4.75% at October 2,2004) as published daily by The Wall Street Journal.  Amounts outstanding under the Revolving LoanAgreement are collateralized by substantially all of the operating assets ofthe Company.  The lien on such collateralis senior to the lien on the collateral that secures the senior securednotes.  In connection with completing theacquisition, the Company borrowed $3.0 million against the revolving loanfacility to fund the acquisition and initial working capital of theSuccessor.  There are no amountsoutstanding under the revolving loan agreement at October 2, 2004.

 

7

----

 

Thesenior secured notes are collateralized by substantially all assets and otherproperty of the Company.  The lien onsuch collateral, however, is subordinate to the lien on the collateral securingthe Revolving Loan Agreement.  Intereston the senior secured notes is payable semi-annually. Interest expense on thesenior secured notes and revolving credit facilities for the quarterly periodended October 2, 2004 amounted to $3,548,493 and $48,672, respectively.

 

Amountsdue under the senior secured notes and the revolving loan facility are subjectto an intercreditor agreement.  TheCompany is required to meet certain financial covenants related primarily tominimum working capital amounts and minimum working capital ratios as well asminimum profitability and minimum net worth calculations.

 

**7.****                         ****Income Taxes**

 

Inconnection with the transaction discussed in Note 1, the Successor entity willbe taxed as a C- Corporation whereas the Predecessor was a pass-through entityqualified under Subchapter S of the Internal Revenue Code.  The Company has not recorded any federal taxbenefits related to the operating loss for the quarterly period ended October 2,2004 as management believes that it is more likely than not that these taxbenefits may not be realizable based upon the existing uncertainty regardingwhether the Company will generate future taxable income due to the additionalcharges related to amortization of intangible assets, debt issuance costs, andgoodwill.  However, the cumulative amountof the net operating losses and the related deferred tax benefit are notsignificant.

 

**8.**                          OperatingSegment Information

 

The Company has twooperating segments: Right Away Division (“RAD”) and Prepared Foods Division (“PFD”).  RAD is located in Texas and primarily sellsits product to the U.S. Department of Defense. PFD is located in Ohio and also sells directly to the U.S. Department ofDefense as well as to commercial branded food companies and inter-segment salesto RAD.  Management evaluates segmentperformance based on several factors, including operating profit.

 

Consistent with thepredecessor Company’s internal management reporting, corporate operations for thepredecessor Company include investment and interest income, compensationexpense for The Wornick Company (Predecessor) Employee Stock Ownership Trust (“ESOT”),stock options and other stock-based compensation expense and overheadcosts.  Corporate assets primarilyinclude investments in subsidiary guarantors (which are eliminated inconsolidation), other investments and goodwill. Other significant noncash items include compensation expense for ESOTshares released and committed to be released as well as compensation expenserelated to stock options and other stock-based compensation plans.

 

The Company’s sales byproduct line for the periods indicated are as follows (in thousands):

 
| ** **              | ** ** | **Quarterly Period Ended** | ** ** | **Nine-Month Period Ended**                  | ** ** |
|-------------------------|------------|----------------------------|------------|----------------------------------------------|------------|
| ** **              | ** ** | ** **                 | ** ** | **January 1 to  October 4,  2003** | ** ** | **January 1 to  June 30,  2004** | ** ** | **July 1 to  October 2,  2004** | ** ** |
| ** **              | ** ** | **October 4,  2003**  | ** ** | **October 2,  2004**                    | ** ** | ** ** | ** ** | ** ** |
| **(in  thousands)**     | ** ** | ** **                 | ** ** | ** **                                   | ** ** | ** ** |
| ** **              | ** ** | **(Predecessor)**          | ** ** | **(Successor)**                              | ** ** | **(Predecessor)** | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| Meals Ready-to-Eat      |       | $                          | 27,661     |                                         | $          | 27,860 |   | $ | 114,317 |   | $ | 39,078 |   | $ | 27,860 |   |
| Unitized  Group Rations |       | 7,005                      |       | 12,051                                       |       | 70,665 |   | 24,518 |   | 12,051 |   |
| Tray-Pack               |       | 3,852                      |       | 1,847                                        |       | 19,082 |   | 2,410 |   | 1,847 |   |
| Co-manufactured         |       | 6,653                      |       | 5,533                                        |       | 20,634 |   | 10,329 |   | 5,533 |   |
| Branded                 |       | 694                        |       | 1,469                                        |       | 1,503 |   | 2,359 |   | 1,469 |   |
| Other                   |       | 55                         |       | 2,317                                        |       | 7,182 |   | 2,230 |   | 2,317 |   |
|                    |       | $                          | 45,920     |                                         | $          | 51,077 |   | $ | 233,383 |   | $ | 80,924 |   | $ | 51,077 |   |

 

8

----

 

During the quarter ended October 2,2004 and October 4, 2003, the Company had one major customer, whichaccounted for approximately $41,758,000 and $38,518,000, or 81.8% and 83.9% ofnet revenue, respectively.  Approximately$10,220,000, or 74.0%, and $9,702,000, or 73.2%, of net receivables,respectively, were attributed to this customer.

 

Unaudited reportableoperating segment financial information for the quarterly and nine-monthperiods ended October 4, 2003 and October 2, 2004, is as follows (inthousands):

 
| ** **                                                 | ** ** | **(unaudited)**    | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|
| **Operating Segments**                                     | ** ** | **Trade  Revenue** | ** ** | **Inter-segment  Revenue** | ** ** | **Operating  Profit** | ** ** |
| ** **                                                 | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Right  Away Division**                                   |       |               |       |   |   |   |   |
| Quarterly  period ended October 4, 2003 (Predecessor) |       | $                  | 33,803     |   | $ | — |   | $ | 3,976 |   |
| Quarterly  period ended October 2, 2004 (Successor)   |       | 40,886             |       | — |   | 2,985 |   |
| **Prepared  Foods**                                        |       |               |       |   |   |   |   |
| Quarterly  period ended October 4, 2003 (Predecessor) |       | 12,117             |       | 13,078 |   | 2,135 |   |
| Quarterly  period ended October 2, 2004 (Successor)   |       | 10,191             |       | 13,505 |   | 1,646 |   |
| **Corporate**                                              |       |               |       |   |   |   |   |
| Quarterly  period ended October 4, 2003 (Predecessor) |       | —             |       | — |   | 483 |   |
| Quarterly  period ended October 2, 2004 (Successor)   |       | —             |       | — |   | (173 | ) |
| **Eliminations**                                           |       |               |       |   |   |   |   |
| Quarterly  period ended October 4, 2003 (Predecessor) |       | —             |       | (13,078 | ) | — |   |
| Quarterly  period ended October 2, 2004 (Successor)   |       | —             |       | (13,505 | ) | (1,041 | ) |
| **Total  Company**                                         |       |               |       |   |   |   |   |
| Quarterly  period ended October 4, 2003 (Predecessor) |       | 45,920             |       | — |   | 6,594 |   |
| Quarterly  period ended October 2, 2004 (Successor)   |       | 51,077             |       | — |   | 3,417 |   |
|                                                            |            |                    |            |  |  |  |  |  |  |  |

 

9

----

 
| ** **                                                  | ** ** | **(unaudited)**    | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|
| **Operating Segments**                                      | ** ** | **Trade  Revenue** | ** ** | **Inter-segment  Revenue** | ** ** | **Operating  Profit** | ** ** | **Total  Assets** | ** ** |
| ** **                                                  | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Right  Away Division**                                    |       |               |       |   |   |   |   |   |   |
| January 1,  2003 to October 4, 2003 (Predecessor) |       | $                  | 190,888    |   | $ | — |   | $ | 21,191 |   | $ | 40,146 |   |
| January 1,  2004 to June 30, 2004 (Predecessor)   |       | 65,267             |       | — |   | 4,274 |   |   |   |
| July 1,  2004 to October 2, 2004 (Successor)      |       | 40,886             |       | — |   | 2,985 |   | 33,278 |   |
|                                                        |       |               |       |   |   |   |   |   |   |
| **Prepared  Foods**                                         |       |               |       |   |   |   |   |   |   |
| January 1,  2003 to October 4, 2003 (Predecessor) |       | 42,495             |       | 59,129 |   | 14,983 |   | 35,837 |   |
| January 1,  2004 to June 30, 2004 (Predecessor)   |       | 15,657             |       | 19,816 |   | 4,413 |   |   |   |
| July 1,  2004 to October 2, 2004 (Successor)      |       | 10,191             |       | 13,505 |   | 1,646 |   | 62,921 |   |
|                                                        |       |               |       |   |   |   |   |   |   |
| **Corporate**                                               |       |               |       |   |   |   |   |   |   |
| January 1,  2003 to October 4, 2003 (Predecessor) |       | —             |       | — |   | (10,264 | ) | 17,896 |   |
| January 1,  2004 to June 30, 2004 (Predecessor)   |       | —             |       | — |   | (7,975 | ) |   |   |
| July 1,  2004 to October 2, 2004 (Successor)      |       | —             |       | — |   | (173 | ) | 167,338 |   |
|                                                        |       |               |       |   |   |   |   |   |   |
| **Eliminations**                                            |       |               |       |   |   |   |   |   |   |
| January 1,  2003 to October 4, 2003 (Predecessor) |       | —             |       | (59,129 | ) | — |   | (6,140 | ) |
| January 1,  2004 to June 30, 2004 (Predecessor)   |       | —             |       | (19,816 | ) | — |   |   |   |
| July 1,  2004 to October 2, 2004 (Successor)      |       | —             |       | (13,505 | ) | (1,041 | ) | (89,894 | ) |
|                                                        |       |               |       |   |   |   |   |   |   |
| **Total  Company**                                          |       |               |       |   |   |   |   |   |   |
| January 1,  2003 to October 4, 2003 (Predecessor) |       | 233,383            |       | — |   | 25,910 |   | 87,739 |   |
| January 1,  2004 to June 30, 2004 (Predecessor)   |       | 80,924             |       | — |   | 712 |   |   |   |
| July 1,  2004 to October 2, 2004 (Successor)      |       | 51,077             |       | — |   | 3,417 |   | 173,643 |   |
|                                                             |            |                    |            |  |  |  |  |  |  |  |  |  |  |

 

**9.**                          CondensedConsolidating Financial Information

 

In connection with thefinancing of the acquisition described in Note 3, the Company issued$125,000,000 of Senior Secured Notes due 2011 (the “Senior Secured Notes”).  These notes were sold to qualifiedinstitutional buyers under the provisions of Rule 144A under the Securities Actof 1933, to institutional accredited investors and to non-U.S. persons underthe provisions of Regulation S under the Securities Act of 1933.  As required by a registration rightsagreement entered into in connection with the issuance of the original SeniorSecured Notes, on September 28, 2004 the Successor filed a registrationstatement on Form S-4 with the Securities and Exchange Commission with respectto an exchange offer (the “Exchange Offer”) by which the original SeniorSecured Notes will be exchanged for new Senior Secured Notes.  This registration statement became effectiveon October 29, 2004. The terms of the new Senior Secured Notes areidentical in all material respects to the original Senior Secured Notes(including principal amount, interest rate, maturity and guarantees), exceptfor certain transfer restrictions and registration rights related to theoriginal Senior Secured Notes.  TheExchange Offer was launched on October 29, 2004 and unless voluntarilyextended by the Company will be completed on November 30, 2004.  The Senior Secured Notes are generalobligations of the Successor and are jointly and severally, irrevocably andunconditionally, guaranteed on a senior secured basis by each of the Successor’spresent and future subsidiaries.

 

The following informationpresents the unaudited condensed consolidating balance sheet for the Successorat October 2, 2004, the unaudited condensed consolidating statement ofincome (quarterly and nine-month) and statement of cash flows data (nine-month)for the Predecessor and the unaudited condensed consolidated statements ofincome and cash flow data for the six-month period from January 1, 2004through June 30, 2004 of the Predecessor and the period from July 1,2004 through October 2, 2004 of the Successor.

 

10

----

 

Condensed consolidatedbalance sheet at October 2, 2004 (unaudited):

 
| ** **                                       | ** ** | **Successor** | ** **  |
|--------------------------------------------------|------------|---------------|-------------|
| ** **                                       | ** ** | **Parent**    | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Assets**                                       | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and  cash equivalents                       |       | $             | 199,492     |   | $ | 185,626 |   | $ | — |   | $ | 385,118 |   |
| Accounts  receivable – Trade                |       | 4,736,658     |        | 9,067,937 |   | — |   | 13,804,595 |   |
| Accounts  receivable – Inter-Company        |       | 3,756,318     |        | — |   | (3,756,318 | ) | — |   |
| Prepaids                                         |       | 268,224       |        | 427,027 |   | — |   | 695,251 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Inventory                                        |       |          |        |   |   |   |   |   |   |
| Raw  materials                                   |       | 4,854,230     |        | 6,766,102 |   | — |   | 11,620,332 |   |
| Work-in  process                                 |       |          |        | 4,581,415 |   | — |   | 4,581,415 |   |
| Finished  goods                                  |       | 5,383,511     |        | 1,725,808 |   | (1,040,848 | ) | 6,068,471 |   |
| Total  inventories                               |       | 10,237,741    |        | 13,073,325 |   | (1,040,848 | ) | 22,270,218 |   |
| Total  current assets                            |       | 19,198,433    |        | 22,753,915 |   | (4,797,166 | ) | 37,155,182 |   |
| Investments  in Subsidiaries                     |       | 27,399,449    |        | — |   | (27,399,449 | ) | — |   |
| Property and  equipment, net                     |       | 23,328,418    |        | 6,787,707 |   | — |   | 30,116,125 |   |
| Goodwill                                         |       | 78,202,197    |        | — |   | — |   | 78,202,197 |   |
| Intangible  assets                               |       | 19,402,187    |        | 3,594,167 |   | — |   | 22,996,354 |   |
| Other  noncurrent assets                         |       | 5,030,688     |        | 142,168 |   | — |   | 5,172,856 |   |
| Total assets                                     |       | $             | 172,561,372 |   | $ | 33,277,957 |   | $ | (32,196,615 | ) | $ | 173,642,714 |   |
|                                             |       |          |        |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Stockholder’s Equity**   |       |          |        |   |   |   |   |   |   |
| Liabilities                                      |       |          |        |   |   |   |   |   |   |
| Current  liabilities                             |       |          |        |   |   |   |   |   |   |
| Book  overdraft                                  |       | $             | 206,475     |   | $ | — |   | $ | — |   | $ | 206,475 |   |
| Account  payable – Trade                    |       | 4,275,264     |        | 1,551,421 |   | — |   | 5,826,685 |   |
| Accounts  payable – Inter-Company           |       | 110,343       |        | 3,645,975 |   | (3,756,318 | ) | — |   |
| Accrued  liabilities                             |       | 4,611,231     |        | 681,112 |   | — |   | 5,292,343 |   |
| Total  current liabilities                       |       | 9,203,313     |        | 5,878,508 |   | (3,756,318 | ) | 11,325,503 |   |
| Long-term  debt                                  |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total  liabilities                               |       | 134,203,313   |        | 5,878,508 |   | (3,756,318 | ) | 136,325,503 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Stockholder’s  equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                     |       |          |        |   |   |   |   |   |   |
| Additional  paid-in capital                      |       | 37,500,000    |        | 26,624,729 |   | (26,624,729 | ) | 37,500,000 |   |
| Retained  earnings (accumulated deficit)         |       | 858,059       |        | 774,720 |   | (1,815,568 | ) | (182,789 | ) |
| Total  stockholder’s equity                 |       | $             | 38,358,059  |   | 27,399,449 |   | (28,440,297 | ) | 37,317,211 |   |
| Total  liabilities and stockholder’s equity |       | $             | 172,561,372 |   | $ | 33,277,957 |   | $ | (32,196,615 | ) | $ | 173,642,714 |   |

 

11

----

 

Condensed consolidatedstatement of income for the quarterly period from July 6, 2003 through October 4,2003 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $               | 25,195,150 |   | $ | 33,803,299 |   | $ | (13,077,991 | ) | $ | 45,920,458 |   |
| Cost of  sales                                |       | 20,061,749      |       | 28,484,889 |   | (13,077,991 | ) | 35,468,647 |   |
| Gross profit                                  |       | 5,133,401       |       | 5,318,410 |   | — |   | 10,451,811 |   |
| Selling,  general and administrative expenses |       | 2,515,139       |       | 1,342,379 |   | — |   | 3,857,518 |   |
| Operating  profit                             |       | 2,618,262       |       | 3,976,031 |   | — |   | 6,594,293 |   |
| Other income  (expense)                       |       |            |       |   |   |   |   |   |   |
| Interest  expense                             |       | (52,418         | )          | — |   | — |   | (52,418 | ) |
| Interest  income                              |       | 2,677           |       | — |   | — |   | 2,677 |   |
| Executive/administration  income (expense)    |       | 243,455         |       | (243,455 | ) | — |   | — |   |
| Other  income, net                            |       | —          |       | 339,345 |   | — |   | 339,345 |   |
| Equity in  earnings of subsidiary guarantors  |       | 4,071,921       |       | — |   | (4,071,921 | ) | — |   |
| Total other  income                           |       | 4,265,635       |       | 95,890 |   | (4,071,921 | ) | 289,604 |   |
| Income  before income taxes                   |       | 6,883,897       |       | 4,071,921 |   | (4,071,921 | ) | 6,883,897 |   |
| Income tax  expense                           |       | 141,776         |       | — |   | — |   | 141,776 |   |
| Net income                                    |       | $               | 6,742,121  |   | $ | 4,071,921 |   | (4,071,921 | ) | $ | 6,742,121 |   |
|                                               |            |                 |            |  |  |  |  |  |  |  |  |  |  |

 

 

Condensed consolidatedstatement of income for the quarterly period from July 1, 2004 through October 2,2004 (unaudited):

 
| ** **                                    | ** ** | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------|------------|
| ** **                                    | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $             | 23,695,244 |   | $ | 40,886,565 |   | $ | (13,504,633 | ) | $ | 51,077,176 |   |
| Cost of  sales                                |       | 19,369,835    |       | 36,516,074 |   | (12,463,785 | ) | 43,422,124 |   |
| Gross profit                                  |       | 4,325,409     |       | 4,370,491 |   | (1,040,848 | ) | 7,655,052 |   |
| Selling,  general and administrative expenses |       | 2,852,984     |       | 1,385,006 |   | — |   | 4,237,990 |   |
| Operating  profit                             |       | 1,472,425     |       | 2,985,485 |   | (1,040,848 | ) | 3,417,062 |   |
| Other income  (expense)                       |       |          |       |   |   |   |   |   |   |
| Interest  expense                             |       | (3,575,860    | )          | (21,305 | ) | — |   | (3,597,165 | ) |
| Interest  income                              |       | —        |       | 32,422 |   | — |   | 32,422 |   |
| Executive/administration  income (expense)    |       | 2,291,501     |       | (2,291,501 | ) | — |   | — |   |
| Other income  (expense), net                  |       | (82,778       | )          | 69,619 |   | — |   | (13,159 | ) |
| Equity in  earnings of subsidiary guarantors  |       | 774,720       |       | — |   | (774,720 | ) | — |   |
| Total other  income (expense)                 |       | (592,417      | )          | (2,210,765 | ) | (774,720 | ) | (3,577,902 | ) |
| Income  (loss) before income taxes            |       | 880,008       |       | 774,720 |   | (1,815,568 | ) | (160,840 | ) |
| Income tax  expense                           |       | 21,949        |       | — |   | — |   | 21,949 |   |
| Net income  (loss)                            |       | $             | 858,059    |   | $ | 774,720 |   | $ | (1,815,568 | ) | $ | (182,789 | ) |

 

12

----

 

Condensed consolidatedstatement of income for the nine-month period from January 1, 2003 throughOctober 4, 2003 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** **  |
|-----------------------------------------------|------------|-----------------|-------------|
| ** **                                    | ** ** | **Parent**      | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | ** **      | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $               | 101,623,710 |   | $ | 190,888,999 |   | $ | (59,129,350 | ) | $ | 233,383,359 |   |
| Cost of  sales                                |       | 82,547,992      |        | 166,297,183 |   | (59,129,350 | ) | 189,715,825 |   |
| Gross profit                                  |       | 19,075,718      |        | 24,591,816 |   | — |   | 43,667,534 |   |
|                                          |       |            |        |   |   |   |   |   |   |
| Selling,  general and administrative expenses |       | 14,356,192      |        | 3,401,090 |   | — |   | 17,757,282 |   |
| Operating  profit                             |       | 4,719,526       |        | 21,190,726 |   | — |   | 25,910,252 |   |
|                                          |       |            |        |   |   |   |   |   |   |
| Other income  (expense)                       |       |            |        |   |   |   |   |   |   |
| Interest  expense                             |       | (374,956        | )           | (54,235 | ) | — |   | (429,191 | ) |
| Interest  income                              |       | 31,632          |        | 66,550 |   | — |   | 98,182 |   |
| Executive/administration  income (expense)    |       | 745,373         |        | (745,373 | ) | — |   | — |   |
| Other  income, net                            |       | —          |        | 1,025,997 |   | — |   | 1,025,997 |   |
| Equity in  earnings of subsidiary guarantors  |       | 20,915,971      |        | — |   | (20,915,971 | ) | — |   |
| Total other  income                           |       | 21,318,020      |        | 292,939 |   | (20,915,971 | ) | 694,988 |   |
| Income  before income taxes                   |       | 26,037,546      |        | 21,483,665 |   | (20,915,971 | ) | 26,605,240 |   |
| Income tax  (benefit) expense                 |       | (158,162        | )           | 567,694 |   | — |   | 409,532 |   |
| Net income                                    |       | $               | 26,195,708  |   | $ | 20,915,971 |   | $ | (20,915,971 | ) | $ | 26,195,708 |   |

 

 

Condensed consolidatedstatement of income for the six-month period from January 1, 2004 through June 30,2004 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                     |       | $               | 35,472,787 |   | $ | 65,266,652 |   | $ | (19,815,600 | ) | $ | 80,923,839 |   |
| Cost of  sales                                |       | 28,838,375      |       | 58,730,107 |   | (19,815,600 | ) | 67,752,882 |   |
| Gross profit                                  |       | 6,634,412       |       | 6,536,545 |   | — |   | 13,170,957 |   |
|                                          |       |            |       |   |   |   |   |   |   |
| Selling,  general and administrative expenses |       | 10,196,549      |       | 2,262,051 |   | — |   | 12,458,600 |   |
| Operating  (loss) profit                      |       | (3,562,137      | )          | 4,274,494 |   | — |   | 712,357 |   |
|                                          |       |            |       |   |   |   |   |   |   |
| Other income  (expense)                       |       |            |       |   |   |   |   |   |   |
| Interest  expense                             |       | (95,403         | )          | (4,388 | ) | — |   | (99,791 | ) |
| Interest  income                              |       | 483,029         |       | 23,524 |   | — |   | 506,553 |   |
| Executive/administration  income (expense)    |       | 483,000         |       | (483,000 | ) | — |   | — |   |
| Other  income, net                            |       | 92,912          |       | 276,362 |   | — |   | 369,274 |   |
| Equity in  earnings of subsidiary guarantors  |       | 4,086,992       |       | — |   | (4,086,992 | ) | — |   |
| Total other  income (expense)                 |       | 5,050,530       |       | (187,502 | ) | (4,086,992 | ) | 776,036 |   |
| Income  before income taxes                   |       | 1,488,393       |       | 4,086,992 |   | (4,086,992 | ) | 1,488,393 |   |
|                                          |       |            |       |   |   |   |   |   |   |
| Income tax  expense                           |       | 41,052          |       | — |   | — |   | 41,052 |   |
| Net income                                    |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |

 

13

----

 

 

Condensed consolidatedstatement of cash flows for the nine-month period from January 1, 2003through October 4, 2003 (unaudited):

 
| ** **                                                                                             | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                             | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                                              | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $               | 26,195,708 |   | $ | 20,915,971 |   | $ | (20,915,971 | ) | $ | 26,195,708 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities                      |       |            |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                                                |       | 1,336,197       |       | 570,653 |   | — |   | 1,906,850 |   |
| Equity in  earnings of subsidiary guarantors                                                           |       | (20,915,971     | )          | — |   | 20,915,971 |   | — |   |
| Deferred  income tax expense                                                                           |       | 181,500         |       | — |   | — |   | 181,500 |   |
| Compensation  expense for Employee Stock Ownership Trust shares released and committed to  be released |       | 3,507,947       |       | — |   | — |   | 3,507,947 |   |
| Compensation  expense for stock options                                                                |       | 5,364,485       |       | — |   | — |   | 5,364,485 |   |
| Other  stock-based compensation expense                                                                |       | 833,269         |       | — |   | — |   | 833,269 |   |
| Changes in  assets and liabilities                                                                     |       |            |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                                             |       | 824,397         |       | (1,942,794 | ) | — |   | (1,118,397 | ) |
| Interdivisional  receivables, net                                                                      |       | (1,108,109      | )          | 1,108,109 |   | — |   | — |   |
| Inventories                                                                                            |       | (52,522         | )          | (2,521,972 | ) | — |   | (2,574,494 | ) |
| Prepaid  expenses and other current assets                                                             |       | 442,304         |       | (491,779 | ) |   |   | (49,475 | ) |
| Other  noncurrent asset                                                                                |       | —          |       | (4.370 | ) | — |   | (4,370 | ) |
| Trade  accounts payable                                                                                |       | (476,141        | )          | (1,175,150 | ) | — |   | (1,651,291 | ) |
| Accrued  expenses                                                                                      |       | (1,690,085      | )          | 238,496 |   | — |   | (1,451,589 | ) |
| Taxes  payable                                                                                         |       | (6,635          | )          | (266,712 | ) | — |   | (273,347 | ) |
| Net cash  provided by operating activities                                                             |       | 14,436,344      |       | 16,430,452 |   | — |   | 30,866,796 |   |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                                              |       |            |       |   |   |   |   |   |   |
| Payments  received on notes receivable                                                                 |       | 557,874         |       | — |   | — |   | 557,874 |   |
| Proceeds  from the sale of investments                                                                 |       | 1,000,000       |       | 2,000,000 |   | — |   | 3,000,000 |   |
| Purchase of  investments                                                                               |       | (2,000,000      | )          | — |   | — |   | (2,000,000 | ) |
| Capital  expenditures                                                                                  |       | (7,845,373      | )          | (2,095,689 | ) | — |   | (9,941,062 | ) |
| Net cash  used in investing activities                                                                 |       | (8,287,499      | )          | (95,689 | ) | — |   | (8,383,188 | ) |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                                              |       |            |       |   |   |   |   |   |   |
| Change in  book overdrafts                                                                             |       | 1,020,376       |       | 1,236,853 |   | — |   | 2,257,229 |   |
| Net decrease  in the line of credit                                                                    |       | (5,500,000      | )          | (3,900,000 | ) | — |   | (9,400,000 | ) |
| Proceeds  from issuance of long-term debt                                                              |       | —          |       | 61,653 |   | — |   | 61,653 |   |
| Principal  payments on long-term debt                                                                  |       | (1,757,788      | )          | (9,342 | ) | — |   | (1,767,130 | ) |
| Net cash  used in financing activities                                                                 |       | (6,237,412      | )          | (2,610,836 | ) | — |   | (8,848,248 | ) |
| Net increase  (decrease) in cash and cash equivalents                                                  |       | (88,567         | )          | 13,723,927 |   | — |   | 13,635,360 |   |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash and  cash equivalents**                                                                         |       |            |       |   |   |   |   |   |   |
| Beginning of  period                                                                                   |       | 650,522         |       | 391,849 |   | — |   | 1,042,371 |   |
| End of  period                                                                                         |       | $               | 561,955    |   | $ | 14,115,776 |   | $ | — |   | $ | 14,677,731 |   |

 

14

----

 

Condensed consolidated statement of cash flows for the six-month periodfrom January 1, 2004 through June 30, 2004 (unaudited):

 
| ** **                                                                                             | ** ** | **Predecessor** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                             | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                                              | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities                      |       |            |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                                                |       | 900,431         |       | 486,473 |   | — |   | 1,386,904 |   |
| Equity in  earnings of subsidiary guarantors                                                           |       | (4,086,992      | )          | — |   | 4,806,992 |   | — |   |
| Compensation  expense for Employee Stock Ownership Trust shares released and committed to  be released |       | 2,344,292       |       | — |   | — |   | 2,344,292 |   |
| Compensation  expense for stock options                                                                |       | 713,433         |       | — |   | — |   | 713,433 |   |
| Other  stock-based compensation expense                                                                |       | 3,266,814       |       | — |   | — |   | 3,266,814 |   |
| Stock compensation  plans                                                                              |       | (4,270,995      | )          | — |   | — |   | (4,270,995 | ) |
| Changes in  assets and liabilities                                                                     |       |            |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                                             |       | (1,294,593      | )          | 2,484,055 |   | — |   | 1,189,462 |   |
| Interdivisional  receivables, net                                                                      |       | 3,768,359       |       | (3,768,359 | ) | — |   | — |   |
| Inventories                                                                                            |       | (1,351,831      | )          | (3,341,244 | ) | — |   | (4,693,075 | ) |
| Prepaid  expenses and other current assets                                                             |       | 7,032           |       | 155,117 |   | — |   | 162,149 |   |
| Other  noncurrent asset                                                                                |       | (36,950         | )          | (19,951 | ) | — |   | (56,901 | ) |
| Trade  accounts payable and accrued expenses                                                           |       | 59,727          |       | (2,020,934 | ) | — |   | (1,961,207 | ) |
| Taxes  payable                                                                                         |       |            |       |   |   |   |   |   |   |
| Net cash  provided by (used in) operating activities                                                   |       | 1,466,068       |       | (1,937,851 | ) | — |   | (471,783 | ) |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                                              |       |            |       |   |   |   |   |   |   |
| Payments  received on notes receivable                                                                 |       | 610,100         |       | — |   | — |   | 610,100 |   |
| Proceeds  from the sale of investments                                                                 |       | 19,988,514      |       | — |   | — |   | 19,988,514 |   |
| Purchase of  investments                                                                               |       | (30,007,514     | )          | — |   | — |   | (30,007,514 | ) |
| Capital  expenditures                                                                                  |       | (1,609,129      | )          | (773,591 | ) | — |   | (2,382,720 | ) |
| Net cash  used in investing activities                                                                 |       | (11,018,029     | )          | (773,591 | ) | — |   | (11,791,620 | ) |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                                              |       |            |       |   |   |   |   |   |   |
| Change in  book overdrafts                                                                             |       | 990,692         |       | (747,665 | ) | — |   | 243,027 |   |
| Net decrease  in the line of credit                                                                    |       | 8,700,000       |       | — |   | — |   | 8,700,000 |   |
| Principal  payments on long-term debt                                                                  |       | (618,096        | )          | (11,209 | ) | — |   | (629,305 | ) |
| Net cash  provided by (used in) financing activities                                                   |       | 9,072,596       |       | (758,874 | ) | — |   | 8,313,722 |   |
| Net increase  (decrease) in cash and cash equivalents                                                  |       | (479,365        | )          | (3,470,316 | ) | — |   | (3,949,681 | ) |
|                                                                                                   |       |            |       |   |   |   |   |   |   |
| **Cash and  cash equivalents**                                                                         |       |            |       |   |   |   |   |   |   |
| Beginning of  period                                                                                   |       | 1,652,570       |       | 3,638,097 |   | — |   | 5,290,667 |   |
| End of  period                                                                                         |       | $               | 1,173,205  |   | $ | 167,781 |   | $ | — |   | $ | 1,340,986 |   |

 

15

----

 

Condensed consolidated statement of cash flows for the quarterly periodfrom July 1, 2004 through October 2, 2004 (unaudited):

 
| ** **                                                                        | ** ** | **Successor** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                        | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                |       | $             | 858,059    |   | $ | 774,720 |   | $ | (1,815,568 | ) | $ | (182,789 | ) |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |          |       |   |   |   |   |   |   |
| Depreciation  of property and equipment                                           |       | 495,000       |       | 369,329 |   | — |   | 864,329 |   |
| Amortization  of intangible assets                                                |       | 967,812       |       | 205,833 |   | — |   | 1,173,645 |   |
| Amortization  of inventory step-up                                                |       | 1,319,940     |       | 447,097 |   | — |   | 1,767,037 |   |
| Amortization  of debt issuance cost                                               |       | 150,054       |       | — |   | — |   | 150,054 |   |
| Equity in  earnings of subsidiary guarantors                                      |       | (774,720      | )          | — |   | 774,720 |   | — |   |
| Changes in  assets and liabilities                                                |       |          |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | (4,736,658    | )          | (9,067,937 | ) | — |   | (13,804,595 | ) |
| Interdivisional  receivables, net                                                 |       | (3,756,318    | )          | — |   | 3,756,318 |   | — |   |
| Inventories                                                                       |       | (139,282      | )          | 2,123,955 |   | 1,040,848 |   | 3,025,521 |   |
| Prepaid  expenses and other current assets                                        |       | (268,224      | )          | (427,027 | ) | — |   | (695,251 | ) |
| Other  noncurrent asset                                                           |       | (15,837       | )          | (2,295 | ) | — |   | (18,132 | ) |
| Trade  accounts payable                                                           |       | 4,275,264     |       | 1,551,421 |   | — |   | 5,826,685 |   |
| Interdivisional  payables, net                                                    |       | 110,343       |       | 3,645,975 |   | (3,756,318 | ) | — |   |
| Accrued  liabilities                                                              |       | 4,611,231     |       | 681,112 |   | — |   | 5,292,343 |   |
| Net cash  provided by operating activities                                        |       | 3,096,664     |       | 302,183 |   | — |   | 3,398,847 |   |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash  flows from investing activities**                                         |       |          |       |   |   |   |   |   |   |
| Business  acquired                                                                |       | (165,060,252  | )          | — |   | — |   | (165,060,252 | ) |
| Capital  expenditures                                                             |       | (543,395      | )          | (116,557 | ) | — |   | (659,952 | ) |
| Net cash  used in investing activities                                            |       | (165,603,647  | )          | (116,557 | ) | — |   | (165,720,204 | ) |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash  flows from financing activities**                                         |       |          |       |   |   |   |   |   |   |
| Change in  book overdrafts                                                        |       | 206,475       |       | — |   | — |   | 206,475 |   |
| Proceeds  from borrowings                                                         |       | 125,000,000   |       | — |   | — |   | 125,000,000 |   |
| Proceeds  from the issuance of common stock                                       |       | 37,500,000    |       | — |   | — |   | 37,500,000 |   |
| Net cash  provided by financing activities                                        |       | 162,706,475   |       | — |   | — |   | 162,706,475 |   |
| Net increase  (decrease) in cash and cash equivalents                             |       | 199,492       |       | 185,626 |   | — |   | 385,118 |   |
|                                                                              |       |          |       |   |   |   |   |   |   |
| **Cash and  cash equivalents**                                                    |       |          |       |   |   |   |   |   |   |
| Beginning of  period                                                              |       | —        |       | — |   | — |   | — |   |
| End of  period                                                                    |       | $             | 199,492    |   | $ | 185,626 |   | $ | — |   | $ | 385,118 |   |

 

16

----

 

**Item2.****                                                           Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

**OurCompany**

 

We are the leading supplier of individual andgroup military field rations to the Department of Defense (the “DoD”). Wespecialize in the production, packaging and distribution of extendedshelf-life, shelf stable and frozen foods in flexible pouches and semi-rigidcontainers. With over 30 years of experience in the food manufacturing and foodprocessing businesses, we believe we have a reputation for superior quality andservice in developing and producing unique meal solutions for the military andfor the consumer and foodservice markets. We are a primary supplier to the DoD ofMeals, Ready-to-Eat, Unitized Group Rations-A and the polymeric trays used inthe Unitized Group Rations-Heat & Serve program. Our customersalso include Kraft Foods Inc., Gerber Products Company, Quaker Oats Company,the Canadian Ministry of Defense, retail stores including Walgreen Co.,Wal-Mart Stores, Inc. and 7-Eleven, Inc., and grocery stores such as The KrogerCo., Publix Super Markets and Meijer.

 

**The Transactions**

 

On December 3, 2003, The Wornick Company, aDelaware corporation (the “Successor”), an acquisition vehicle formed by TheVeritas Capital Fund II, L.P., and its general partner, Veritas CapitalManagement II, L.L.C., entered into an Assets Purchase and Sale Contract withThe Wornick Company, a Nevada corporation (the “Predecessor”), and itssubsidiaries, The Wornick Company Right Away Division, a Nevada corporation,The Wornick Company Right Away Division, L.P., a Texas limited partnership, andRight Away Management Corporation, a Texas corporation. The Assets Purchase andSale Contract, as amended, provided for the purchase by the Successor and itssubsidiaries, and the sale by the Predecessor and its subsidiaries, of thebusiness of the Predecessor and its subsidiaries as a going concern, includingsubstantially all of their operating assets, and the assumption of certain ofthe liabilities of the Predecessor and its subsidiaries (the “Acquisition”).The gross purchase price for the Acquisition, which is subject to apost-closing purchase price adjustment, is $155 million, of which$150 million was paid to the sellers at the closing and the remaining$5 million was paid to an escrow agent. The Acquisition closed on June 30, 2004.

 

The Successor funded the Acquisition price and therelated fees and expenses with the proceeds of its offering of 10 7/8%Senior Secured Notes due 2011 (the “Senior Secured Notes”) and the equityinvestments in TWC Holding LLC, the parent of the Successor, as follows:

 

•                  thepurchase by the equity investors of Class A interests in TWC Holding LLCfor $37.5 million in cash;

 

•                  thecontribution by TWC Holding LLC to the capital of the Successor of all cash receivedby it from the equity investors; and

 

•                  grossproceeds to the Successor of $125 million from the issuance and sale ofits Senior Secured Notes.

 

The closing of the offering of the Senior SecuredNotes occurred simultaneously with the closing of the Acquisition, our newworking capital facility (described below) and the other financing transactionsdescribed above.

 

As required by a registration rightsagreement entered into in connection with the issuance of the original SeniorSecured Notes, on September 28, 2004 we filed a registration statement onForm S-4 with the Securities and Exchange Commission with respect to anexchange offer (the “Exchange Offer”) by which the original Senior SecuredNotes will be exchanged for new Senior Secured Notes.  This registration statement became effectiveon October 29, 2004. The terms of the new Senior Secured Notes areidentical in all material respects to the original Senior Secured Notes(including principal amount, interest rate,

 

17

----

 

maturity and guarantees), except for certain transfer restrictions andregistration rights related to the Senior Secured Notes.  The Exchange Offer was launched onOctober 29, 2004 and unless voluntarily extended by us will be completedon November 30, 2004.  The SeniorSecured Notes are general obligations of the Successor and are jointly andseverally, irrevocably and unconditionally, guaranteed on a senior securedbasis by each of the Successor’s present and future subsidiaries.

 

We entered into a new senior secured revolvingworking capital credit facility of up to $25 million concurrently with theclosing of the Acquisition and the offering. We have the option to pay intereston amounts borrowed under the facility at an annual adjustable interest ratecalculated in accordance with the applicable promissory note.

 

We refer to the Acquisition, the offering, ourentering into the new working capital facility and the other financingtransactions described above collectively as the “Transactions.”

 

**Results of Operations**

 

***Comparison of the quarter ended October 2,2004 to the quarter ended October 4, 2003***

 

*Net Sales.*  Our net sales for the quarter ended October2, 2004 were $51.1 million, representing an increase of $5.2 million, or11.2%, compared to net sales of $45.9 million for the quarter endedOctober 4, 2003. The increase in net sales resulted primarily from a $4.5million increase in sales to the DoD ($5.0 million increase in sales ofUnitized Group Rations-A (UGR-As), $1.5 million increase in MREs and a $2.0million reduction in Tray Pack).  Salesto the Canadian DND increased by $856,000, due to contract timing, and Brandsales increased by $737,000.  Partlyoffsetting these increases were a reduction in Co-manufacturing sales of $1.2million due mainly to cessation of a product line by one of ourco-manufacturing customers in the forth quarter 2003.

 

*Gross Profit.*  Our gross profit for the quarter endedOctober 2, 2004 was $7.7 million, representing a decrease of $2.8 million, or 26.8%, comparedto gross profit of $10.5 million for the quarter ended October 4, 2003. As apercentage of net sales, our gross profit was 15.1% and 22.9% for the quarterended October 2, 2004 and the quarter ended October 4, 2003, respectively.  A non-operating charge of $1.8 million ofamortization of inventory step-up charges adversely impacted gross profit forthe period.  The inventory step-upcharges were related to the application of purchase accounting which requiredus to value the inventory at fair market value as opposed to “cost  to produce” as of the date ofacquisition.  After taking this intoaccount, we experienced a $1.0 million reduction in gross profit fromoperations.  Gross profit on sales to theDoD decreased by $1.8 million (UGRA decreased by $584,000 due to competitivepressure on OCONUS shipments, MRE decreased by $1.1 million due to a higherpercentage of add-on volume relative to base contract volumes, and Tray Packdecreased by $165,000 due to reduction in volume).  Gross profit on Co-manufacturing increased by$792,000 and gross profit on Branded sales increased by $60,000.

 

*Selling, General andAdministrative Expenses.*  Our selling, general and administrativeexpenses for the quarter ended October 2, 2004 were $4.2 million, representingan increase of approximately $380,000, or 9.9%, compared to selling,general and administrative expenses of $3.9 million for the quarter endedOctober 4, 2003. This increase was primarily attributable to theapplication of purchase accounting to the acquisition completed onJune 30, 2004, which resulted in a charge of approximately $1.2 millionrelating to the additional amortization of intangible assets which was recordedunder selling general and administrative expenses.  The increase attributable to amortizationexpense was partly offset by charges recorded in the third quarter of2003 relating to value of shares of the Predecessor committed to be released tothe ESOT, which charges did not recur in the third quarter of 2004. Selling, general and administrative expenses were 8.3% of net sales forthe quarter ended October 2, 2004 as compared to 8.4% in the quarter endedOctober 4, 2003.

 

*Operating Profit.*  Ourprofit from operations was approximately $3.4 million for the quarter endedOctober 2, 2004, representing a decrease of $3.2 million, or 48.2%,compared to a profit of $6.6 million for the quarter ended October 4,2003. This decrease in profit from operations resulted from increased amortizationof intangible assets of approximately $1.2 million, which was recorded underselling, general and administrative expenses as described above, and theincreased inventory step-up charges of approximately $1.8 million describedabove.

 

18

----

 

*Interest Expense.*  Ourinterest expense for the quarter ended October 2, 2004 was approximately$3.6 million, representing an increase of approximately $3.5 million comparedto interest expense of approximately $52,000 for the quarter endedOctober 4, 2003. The increase in interest expense resulted from theissuance of the $125 million principal amount of our long-term debt, whichaccounts for approximately $3.4 million of interest expense, approximately$150,000 in bond cost amortization and $49,000 in interest expense related toborrowings under our line of credit.

 

*Interest Income.*  Ourinterest income for the quarter ended October 2, 2004 was approximately$32,000, representing an increase of approximately $29,000 compared to interestincome of approximately $3,000 for the quarter ended October 4, 2003. Theincrease in interest income resulted from interest on late government paymentsfor trade receivables which were delayed by government system problems(resulting from the installation of new payment system software).

 

*Other Income (Expense), Net.*  Ourother income (expense), net for the quarter ended October 2, 2004 wasapproximately $(13,000), representing a decrease of approximately $352,000compared to other income (expense), net of approximately $339,000 for thequarter ended October 4, 2003.  Thedecrease in other income was partially the result of the reduction of $100,000of U.S. government payments from the Value Engineering Change program (the “VEprogram”).  The VE program providesincentives for U.S. Government contractors to make cost savings proposals tothe DSCP. Once the DSCP accepts a contractor’s VE proposal, the contractor isawarded 50% of the resulting industry-wide savings for a period of three yearsfollowing the issuance by the Defense Supply Center, Philadelphia, which isresponsible for the procurement of military field rations for the DoD, of acontract modification requiring implementation of the proposed change asoutlined in the accepted VE proposal. Other income was also impacted by $85,000relating to management and trustee fees as well as the settlement of U.S.government contracts entered into in prior periods, at an amount less than thereserved amount, which resulted in additional income of approximately $189,000in the third quarter of 2003. These contract liabilities have no impact on ourfinancial statements for the third quarter of 2004 or for future periods, asthe liabilities were not assumed as part of the acquisition.

 

*Income Tax Expense.*  Theprovision for state and local income taxes in the quarter ended October 2,2004 was approximately $22,000, (Blue Ash location) compared to approximately$142,000 for the quarter ended October 4, 2003. The Company has notrecorded federal tax benefits related to the operating loss for the quarter endedOctober 2, 2004 as management believes that it is more likely than notthat these tax benefits may not be realizable based upon the existinguncertainty regarding whether the Company will generate future taxable incomedue to the additional charges related to amortization of intangible assets,debt issuance costs, and goodwill.

 

*Net Income (Loss).*  As aresult of the foregoing, we incurred a net loss of approximately $183,000 forthe quarter ended October 2, 2004, representing a decrease in net income of$6.9 million compared to net income of $6.7 million in the quarter endedOctober 4, 2003.

 

***Comparison of theunaudited pro forma nine months ended October 2, 2004 to the nine monthsended October 4, 2003***

 

As a result of the June 30, 2004 transactiondescribed above, we do not have financial information for the Successor for thenine-month period ended October 2, 2004. In order to present Management’s Discussion and Analysis in a way thatoffers investors a meaningful period-to-period comparison, we have combined thecurrent year Predecessor information with current year Successor information,as each were originally presented, on an unaudited pro forma combinedbasis.  The unaudited pro forma combineddata and segment information consist of unaudited Predecessor information forthe nine months ended October 4, 2003, the six-month period endedJune 30, 2004 and unaudited Successor information for the quarter endedOctober 2, 2004.  The pro formainformation for the nine-month period ended October 2, 2004 do not purportto represent what our consolidated results of operations would have been if theSuccessor had actually been formed on January 1, 2004, nor have we madeany attempt to either include or 

 

19

----

 

exclude expenses or income that would have resulted had the acquisitionactually occurred on January 1, 2004. The pro forma information was compiled as follows:

 
| ** **                                    | ** ** | **Nine-Month  Period Ended  October 4, 2003** | ** ** | **Six-Month  Period Ended  June 30, 2004** | ** ** | **Quarterly  Period Ended  October 2, 2004** | ** ** | **Pro Forma  Nine-Month  Period Ended  October 2, 2004** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(Predecessor)**                                  | ** ** | **(Predecessor)**                               | ** ** | **(Successor)**                                   | ** ** | **(Successor)**                                               | ** ** |
| ** **                                    | ** ** | **(unaudited)**                                    | ** ** |
| ** **                                    | ** ** | **(in thousands)**                                 | ** ** |
| Net sales                                     |       | $                                                  | 233,383    |                                            | $          | 80,924                                            |       | $                                                             | 51,077     |   | $ | 132,001 |   |
| Gross profit                                  |       | 43,668                                             |       | 13,171                                          |       | 7,655                                             |       | 20,826                                                        |       |
| Selling,  general and administrative expenses |       | (17,757                                            | )          | (12,459                                         | )          | (4,238                                            | )          | (16,697                                                       | )          |
| Operating  profit                             |       | 25,910                                             |       | 712                                             |       | 3,417                                             |       | 4,129                                                         |       |
| Interest  expense                             |       | (429                                               | )          | (100                                            | )          | (3,597                                            | )          | (3,697                                                        | )          |
| Interest  income                              |       | 98                                                 |       | 507                                             |       | 32                                                |       | 539                                                           |       |
| Other income  (expense), net                  |       | 1,026                                              |       | 369                                             |       | (13                                               | )          | 356                                                           |       |
| Income tax  expense                           |       | (410                                               | )          | (41                                             | )          | (22                                               | )          | (63                                                           | )          |
| Net income  (loss)                            |       | $                                                  | 26,196     |                                            | $          | 1,447                                             |       | $                                                             | (183       | ) | $ | 1,264 |   |

 

*Net Sales.*  Ournet sales for the pro forma nine months ended October 2, 2004 were $132.0million, representing a decrease of $101.4 million, or 43.4%, compared tonet sales of $233.4 million for the nine months ended October 4, 2003. Thedecrease in net sales resulted primarily from a decrease in sales to the DoD byapproximately $96.9 million.  Thisdecrease was due mostly to higher military sales volumes in 2003 associatedwith surge production efforts to support the war in Iraq during the first twoquarters of 2003, which were reduced in 2004. Co-manufacturing sales decreasedby $4.8 million.  The discontinuation ofone of our co-manufactured products resulted in a reduction of net sales by$6.9 million, which was partially offset by increases in sales of otherco-manufacturing lines of $2.1 million. Net sales of our branded business increased for the period by $2.3million.

 

*Gross Profit.*  Ourgross profit for the pro forma nine months ended October 2, 2004 was $20.8million, representing a decrease of $22.8 million, or 52.3%, compared togross profit of $43.7 million for the nine months ended October 4, 2003.The decrease in gross profit was due primarily to the decreased sales volumesin our military business and increased cost of additional amortization from thestep-up in inventory charges of $1.8 million and fixed asset cost associated withthe Acquisition.  As a percentage of netsales, our gross profit was 15.8% and 18.7% for the pro forma nine months endedOctober 2, 2004 and the nine months ended October 4, 2003,respectively, with the decrease related primarily to the higher military salesvolumes in 2003 and amortization expense.

 

*Selling, General andAdministrative Expenses.*  Our pro forma selling, general andadministrative expenses for the nine months ended October 2, 2004 were$16.7 million, representing a decrease of $1.1 million, or 6.0%, compared toselling, general and administrative expenses of $17.8 million for the ninemonths ended October 4, 2003. Selling, general and administrative expenses increased to 12.6% of netsales for the pro forma nine months ended October 2, 2004 from 7.6% of netsales for the nine months ended October 4, 2003. This increase wasprimarily attributable to increased costs associated with the acquisition andthe application of purchase accounting to the acquisition, which resulted in acharge of approximately $1.2 million relating to the amortization of intangibleassets, which was recorded under selling, general and administrative expenses.

 

*Operating Profit.*  Ourpro forma profit from operations was approximately $4.1 million for the proforma nine months ended October 2, 2004, representing a decrease of $21.8million compared to operating profit of $25.9 million for the nine months endedOctober 4, 2003. The decrease in operating profit resulted

 

20

----

 

from our return to non-surge production volumes, and the increase incost of sales and selling, general and administrative expenses due to costsassociated with the June 30, 2004 acquisition and charges of approximately$3.1 million related to the amortization of intangible assets and the step-upin inventory value noted above. Operating profit decreased to 3.1% for the pro forma nine months endedOctober 2, 2004 as compared to operating profit of 11.1% for the nine monthsended October 4, 2003 primarily due to decreased sales volume.

 

*Interest Expense.*  Ourpro forma interest expense for the nine months ended October 2, 2004 wasapproximately $3.7 million, representing an increase of approximately $3.3million, compared to interest expense of approximately $429,000 for the ninemonths ended October 4, 2003. The increase in interest expense was due toapproximately $3.4 million in interest expense resulting from the issuance ofthe $125 million 10 7/8% Senior Secured Notes, $150,000in amortization of bond issuance cost and $49,000 in interest expense relatingto our working capital facilities.

 

*Interest Income.*  Ourpro forma interest income for the nine months ended October 2, 2004 wasapproximately $539,000, representing an increase of approximately $441,000 comparedto interest income of approximately $98,000 for the nine months endedOctober 4, 2003. The increase in interest income resulted primarily fromthe increased cash invested in short-term investments held by the Predecessorin the first six months of 2004 and interest on government receivables.

 

*Other Income, Net.*  Ourpro forma other income for the nine months ended October 2, 2004 wasapproximately $356,000, representing a decrease of approximately $670,000,compared to other income of $1.0 million for the nine months endedOctober 4, 2003. This decrease in other income was a result of decreasedgovernment payments on the VE program of approximately $426,000. The remainingdecrease is attributable to the settlement of U.S. government contracts enteredinto in prior periods, at an amount less than the reserved amount, whichresulted in additional income of $189,000 in the third quarter of 2003.  These contract liabilities have no impact onour financial statements for the third quarter of 2004 or for future periods,as the liabilities were not assumed as part of the acquisition.

 

*Income Tax Expense.*  Thepro forma provision for state and local income taxes for the nine months endedOctober 2, 2004 was approximately $63,000, or 4.7% of pro forma pretax incomeof $1.3 million, compared to approximately $410,000, or 1.5% of pretax incomeof $26.6 million, for the nine months ended October 4, 2003.

 

*Net Income. *As a result of the foregoing, we had pro forma net income ofapproximately $1.3 million for the nine months ended October 2, 2004,representing a decrease of $24.9 million, or 95.2%, compared to $26.2million for the nine months ended October 4, 2003.

 

**Operating Segment Results**

 

**Comparison of the quarter endedOctober 2, 2004 to the quarter ended October 4, 2003**

 

*Net Sales.*  Netsales for our Right Away Division (“RAD”) segment increased by $7.1 million dueto an increase in sales to the DoD.  Netsales for our Prepared Foods Division (“PFD”) segment (excluding inter-segmentsales of $13.5 million, which increased by $427,000) declined by $1.9 milliondue primarily to reductions in sales of tray-packs to the DoD of approximately$2.0 million.  The discontinuation of oneof our co-manufactured products resulted in a reduction of net sales by $1.1million, which was partially offset by increased sales in our branded productlines for the quarter ended October 2, 2004.

 

21

----

 

*Operating Profit.* Profit from operations decreased by $1.0 million for the RAD segment.  The pricing pressure on UGR-A sales outside ofthe continental United States, changes in the mix between sales of add-on andbase MRE cases, and the impact of the amortization of the step-up in inventoryand intangible assets accounted for most of the decrease. Profit fromoperations decreased by approximately $489,000 for the PFD segment.  This decrease was primarily due to thecharges related to amortization of the step-up of inventory and intangibleassets, which were partially offset by increased sales of our co-manufacturingand branded products.

 

***Comparison of theunaudited pro forma nine months ended October 2, 2004 to the nine monthsended October 4, 2003***

 
| ** **               | ** ** | **Nine-Month  Period Ended  October 4, 2003** | ** ** | **Six-Month  Period Ended  June 30, 2004** | ** ** | **Quarterly  Period Ended  October 2, 2004** | ** ** | **Pro Forma  Nine-Month  Period Ended  October 2, 2004** | ** ** |
|--------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **               | ** ** | **(Predecessor)**                                  | ** ** | **(Predecessor)**                               | ** ** | **(Successor)**                                   | ** ** | **(Successor)**                                               | ** ** |
| ** **               | ** ** | **(unaudited)**                                    | ** ** |
| ** **               | ** ** | **(in thousands)**                                 | ** ** |
| Net sales                |       |                                               |       |                                            |       |                                              |       |                                                          |       |
| Right Away  Division     |       | $                                                  | 190,888    |                                            | $          | 65,267                                            |       | $                                                             | 40,886     |   | $ | 106,153 |   |
| Prepared  Foods Division |       | 101,624                                            |       | 35,473                                          |       | 23,696                                            |       | 59,169                                                        |       |
| Corporate                |       | —                                             |       | —                                          |       | —                                            |       | —                                                        |       |
| Eliminations             |       | (59,129                                            | )          | (19,816                                         | )          | (13,505                                           | )          | (33,321                                                       | )          |
| Total  Company           |       | $                                                  | 233,383    |                                            | $          | 80,924                                            |       | $                                                             | 51,077     |   | $ | 132,001 |   |
|                     |       |                                               |       |                                            |       |                                              |       |                                                          |       |
| Operating  profit        |       |                                               |       |                                            |       |                                              |       |                                                          |       |
| Right Away  Division     |       | $                                                  | 21,191     |                                            | $          | 4,274                                             |       | $                                                             | 2,985      |   | $ | 7,259 |   |
| Prepared  Foods Division |       | 14,983                                             |       | 4,413                                           |       | 1,646                                             |       | 6,059                                                         |       |
| Corporate                |       | (10,264                                            | )          | (7,975                                          | )          | (173                                              | )          | (8,148                                                        | )          |
| Eliminations             |       | —                                             |       | —                                          |       | (1,041                                            | )          | (1,041                                                        | )          |
| Total  Company           |       | $                                                  | 25,910     |                                            | $          | 712                                               |       | $                                                             | 3,417      |   | $ | 4,129 |   |

 

*Net Sales.*  Netsales for the RAD segment declined by $84.7 million due to decreased sales tothe DoD.  Net sales for the PFD segment(excluding inter-segment sales of $33.3 million in the pro forma nine-monthperiod ended October 2, 2004, which declined by $25.8 million) declined by$16.6 million. The decrease in PFD sales is attributable to the reduction ofMRE and tray-pack sales to the DoD by approximately $25.8 million and $14.8million, respectively, and decreased sales of commercial products byapproximately $1.8 million.  The decreasein sales of our commercial products was mainly due to the discontinuation of aco-manufacturing product in the fourth quarter of 2003.

 

*Operating Profit.* Profit from operations decreased by $13.9 million for the RAD segmentprimarily due to decreased sales to the DoD and a return to non-surgeproduction, as well as to charges of $652,000 relating to amortization ofinventory step-up and intangible assets. Profit from operations decreased by $8.9 million for the PFD segmentprimarily due to decreased sales to the DoD, decreased inter-segment sales andthe discontinuation of a co-manufacturing product line, as well as to chargesof $2.3 million as relating to amortization of inventory step-up and intangibleassets.

 

22

----

 

**Liquidity and Capital Resources**

 

The following table summarizes our net cash providedby or used in our operating activities, investing activities and financingactivities and our capital expenditures for the nine months endedOctober 4, 2003, the six-month period ended June 30, 2004 and the quarterlyperiod ended October 2, 2004:

 
| ** **                       | ** ** | **Nine months  ended  October 4,  2003** | ** ** | **Six-Month  Period  Ended  June 30,  2004** | ** ** | **Quarterly  Period Ended  October 2,  2004** | ** ** |
|----------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                       | ** ** | **Predecessor**                               | ** ** | **Predecessor**                                   | ** ** | **Successor**                                      | ** ** |
| ** **                       | ** ** | **(unaudited)**                               | ** ** |
| ** **                       | ** ** | **(in thousands)**                            | ** ** |
| Net cash  provided by (used in): | ** ** | ** **                                    | ** ** | ** **                                        | ** ** | ** **                                         | ** ** |
| Operating  activities            |       | $                                             | 30,867     |                                              | $          | (472                                               | )          | $ | 2,258 |   |
| Investing  activities            |       | (8,383                                        | )          | (11,792                                           | )          | (166,160                                           | )          |
| Financing  activities            |       | (8,848                                        | )          | 8,314                                             |       | 162,706                                            |       |
| Capital  expenditures            |       | (9,941                                        | )          | (2,383                                            | )          | (660                                               | )          |
|                                  |            |                                               |            |                                                   |            |                                                    |            |  |  |  |

 

*Operating Activities.*Net cash provided by (used in) operatingactivities was approximately $2.3 million, $(0.5) million and $30.9 million forthe Successor quarterly period ended October 2, 2004, the six-monthPredecessor period from January 1, 2004 to June 30, 2004 and thenine-month Predecessor period ended October 4, 2003, respectively.  Cash generated from operations decreasedduring the first nine months of 2004 compared to the Predecessor nine monthsended October 4, 2003 due mostly to higher military sales volumes for thenine months ended October 4, 2003 associated with surge production tosupport the war in Iraq, which were subsequently reduced in 2004.  In addition, for the Predecessor six-monthperiod ended June 30, 2004, the Predecessor used additional cash to makepayments relating to settlement of certain stock options and stock-basedcompensation plans and to build inventories as required to meet militarycontract commitments.

 

*Investing Activities.*Net cash (used in) investing activities was$(166.2) million, $(11.8) million and $(8.4) million for the Successor quarterlyperiod ended October 2, 2004, the Predecessor six months endedJune 30, 2004 and the Predecessor nine months ended October 4, 2003,respectively. The increase in the Successor quarterly period endedOctober 2, 2004 was primarily the result of the acquisition, whichaccounts for approximately $165.5 million. Significant investment activity during 2003 and the first two quartersof 2004 related to surge production and commercial product line projects andincreased investments during the first and second quarters of 2004 inshort-term investments, which did not recur in the third quarter of 2004.  Capital expenditures were $0.7 million, $2.4million and $9.9 million for the periods ended October 2, 2004,June 30, 2004 and October 4, 2003, respectively.

 

*Financing Activities*. Net cash provided by (used in) financingactivities was $162.7 million, $8.3 million and $(8.8) million for theSuccessor quarterly period ended October 2, 2004, the Predecessor sixmonths ended June 30, 2004 and the Predecessor nine months endedOctober 4, 2003, respectively.  Inthe quarterly period ended October 2, 2004, the Company issued $125.0million of Senior Secured Notes and received a capital contribution ofapproximately $37.5 million to fund the acquisition.  In the six-month period ended June 30,2004, the Predecessor increased borrowings on its line of credit to fundcapital projects and to build inventories, and generated additional cashthrough the liquidation of short-term investments.   Amounts used in financing activities duringthe nine months ended October 4, 2003 resulted from the short-terminvestment of cash generated by operations.

 

23

----

 

*Long-Term Debt Expenditures*

 

Immediately prior to the consummation of theTransactions on June 30, 2004, we had $13.0 million of debtoutstanding.  Of this amount,approximately $4.2 million was related to the financing of the Predecessor’s EmployeeStock Ownership Plan (with $2.4 million classified as current and $1.8 millionclassified as non-current)  and $8.7million was owed under the Predecessor’s working capital facility.  We paid interest of approximately $49,000during the quarterly period ended June 30, 2004.

 

In connection with the closing of the Transactions,our then-existing long-term debt was repaid, and we issued $125 million inSenior Secured Notes and entered into our new working capital facility. As aresult, we will continue to incur significant debt service payments includinginterest in future years. Total cash interest payments related to the SeniorSecured Notes will be approximately $13.6 million on an annual basis.  We incurred $3.5 million of interest expenserelating to the Senior Secured Notes and our working capital facilities in the quarterlyperiod ended October 2, 2004. To the extent we have borrowings outstandingunder our new working capital facility, we will have additional cash interestpayments.

 

The indenture governing the Senior Secured Notes,and our new working capital facility, impose significant operating andfinancial restrictions on us. These restrictions limit or prohibit, among otherthings, our ability to incur additional indebtedness, repay indebtedness priorto stated maturities, pay dividends on or redeem or repurchase our stock, issuecapital stock, make investments, create liens, sell certain assets or mergewith or into other companies, enter into certain transactions with stockholdersand affiliates, make capital expenditures, sell stock in our subsidiaries andrestrict dividends, distributions or other payments from our subsidiaries. Inaddition, our new working capital facility requires us to meet certainfinancial ratios and financial condition tests.

 

We expect our capital expenditures in 2004 to beapproximately $6.5 million, primarily to support plant renewal, efficiencyimprovements and expansion of our co-manufacturing business.

 

Our principal sources of liquidity are cash flowgenerated from operations and borrowings under our new working capitalfacility.  As of October 2, 2004, wehad no borrowings under the working capital facility.  We have incurred approximately $31,000 ininterest expense on the working capital facility since October 2,2004.  In addition to fluctuations inbusiness volume, cash flows from operations are affected by contract terms forbilling and collection. Our liquidity will also continue to be dependent on a numberof other factors, including the timing of collection on our contractreceivables, processing of weekly and bi-weekly payroll and associated taxes,payment to our suppliers and weekly reimbursement of group insurance claims.Our principal uses of cash will be to meet debt service requirements, financeour capital expenditures and provide working capital. Based on our currentlevel of operations and our anticipated growth, we believe that the cashproceeds from the issuance of our Senior Secured Notes, our cash fromoperations and other available sources of liquidity will be sufficient to fundour operations for the next 12 months and for our currently anticipatedneeds beyond that period. Our future operating performance and ability toextend or refinance our indebtedness will be dependent on future economicconditions and financial, business and other factors that are beyond ourcontrol.

 

**Item 3.****                                                           Quantitativeand Qualitative Disclosures about Market Risks.**

 

We are exposed to market risk, primarily fromthe impact of interest rate changes on our use of variable rate debt. Ourexposure to market risks from foreign currency and commodity price fluctuationsis limited since most of our purchases and sales are denominated in U.S.dollars and raw commodities do not comprise a significant percentage of ourcosts. As a result, we generally do not hedge our exposure to foreign currencyand commodity price risks (with the exception of foreign currency forwardcontracts which we enter into on occasion to manage certain exposures tofluctuations in foreign currency exchange rates for the Canadian dollar, theimpact of which is not significant). We do not hold any derivatives for tradingor speculative purposes. Changes in the fair value of derivatives are recorded incurrent earnings along with the change in the fair value of the underlyinghedged item.

 

24

----

 

All of our outstanding bank debt bearsinterest at variable interest rates tied to the prime interest rate. The use ofvariable rate debt to finance our operations and capital improvements exposesus to variability in interest payments due to changes in interest rates.

 

We had exposure to variable rates onapproximately $5.4 million of debt at December 31, 2003. A hypothetical 1%increase in interest rates on our variable rate debt for a one-year periodwould have decreased net income by approximately $54,000.  There was no significant change in ourexposure to market risk during the nine months ended October 2, 2004.

 

**Item 4.**                                                           **Controls and Procedures**

 

Based on a recent evaluation, as of the endof the period covered by the Quarterly Report on Form 10-Q, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’sdisclosure controls and procedures as defined in the Exchange Act Rules13a-15(e) and 15d-15(e) are effective in timely alerting them to materialinformation relating to the Company required to be included in periodic reportsfiled or submitted under the Securities Exchange Act of 1934, as amended.

 

There were no changes in the Company’sinternal control over financial reporting that occurred during the Company’slast fiscal quarter that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

25

----

 

**FORWARD-LOOKINGSTATEMENTS**

 

Thisreport includes “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements are thosethat do not relate solely to historical fact. They include, but are not limitedto, any statement that may predict, forecast, indicate or imply future results,performance, achievements or events. They may contain words such as “believe,”“anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,” orwords or phrases of similar meaning. They may relate to, among other things:

 

•                  our liquidity and capital resources;

 

•                  our contracts with the U.S. Government;

 

•                  the U.S. Department of Defense budget ingeneral and U.S. military activity in particular;

 

•                  our co-manufacturing plans;

 

•                  competitive pressures and trends in ourindustry;

 

•                  prevailing interest rates;

 

•                  legal proceedings and regulatory matters;

 

•                  other risks related to our Senior SecuredNotes (including the value of the collateral);

 

•                  statements with respect to the Transactions(as defined herein);

 

•                  general economic conditions; and

 

•                  our development and expansion plans andexpectations for the future.

 

These forward-looking statements reflect our currentviews with respect to future events and are based on assumptions and subject torisks and uncertainties, including, but not limited to, economic, competitiveand governmental factors outside of our control, that may cause actual resultsto differ materially from trends, plans or expectations set forth in theforward-looking statements and may adversely affect us. It is not possible forus to predict all of these risks, nor can we assess the extent to which anyfactor, or combination of factors, may cause actual results to differ fromthose contained in forward-looking statements. 

 

26

----

 

**PART II -OTHER INFORMATION**

 

**Item 1.****                                                           LegalProceedings.**

 

None.

 

**Item2.****                                                           UnregisteredSales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item 3.****                                                           DefaultsUpon Senior Securities.**

 

None.

 

**Item4.****                                                           Submissionof Matters to a Vote of Security Holders.**

 

None.

 

**Item 5.****                                                           OtherInformation.**

 

The Company was awarded an eight-year contractto supply UGR-A meals to the DoD effective July 19, 2004. The Company wasone of four contractors awarded an eight-year contract for UGR-A and receivedthe highest market share of the awarded contractors according to the estimatedannual quantities provided by the DSCP for continental United States (“CONUS”)UGR-A sales. The contract includes specific CONUS military base destinationsthat the Company will serve exclusively for the eight-year period.  In addition, the Company will be eligible tobid for UGR-A requirements outside of the continental United States during theeight-year contract.

 

**Item 6.****                                                           Exhibits.**

 
| **No.** | ** ** | **Description**                                                                                                                                                                                                                                                                       | ** ** |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1*    |       | Certificate of Incorporation of the  Registrant, filed with the Delaware Secretary of State on November 24,  2003                                                                                                                                                                |       |
| 3.2*    |       | Bylaws of the Registrant                                                                                                                                                                                                                                                              |       |
| 4.1*    |       | Indenture, dated as of June 30, 2004,  by and among the Registrant, The Wornick Company Right Away Division, The  Wornick Company Right Away Division, L.P., Right Away Management Corporation  and U.S. Bank National Association                                               |       |
| 4.2*    |       | Registration Rights Agreement, dated as of  June 30, 2004, by and among the Registrant, The Wornick Company Right  Away Division, The Wornick Company Right Away Division, L.P., Right Away  Management Corporation, Jefferies & Company, Inc. and CIBC World Markets  Corp. |       |
| 4.3*    |       | Form of 10 7/8%  Senior Secured Notes due 2011                                                                                                                                                                                                                                        |       |
| 4.4*    |       | Form of Guarantee                                                                                                                                                                                                                                                                     |       |
| 10.1**  |       | Contract No. SPM300-04-D-Z217 (UGR-A  Contract), effective July 19, 2004, between Defense Supply Center  Philadelphia and The Wornick Company Right Away Division, as modified                                                                                                   |       |
| 31.1    |       | Certification pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer)                                                                                                                                                                 |       |
| 31.2    |       | Certification pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)                                                                                                                                                                               |       |
| 32.1    |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (President and Chief Executive Officer)                                                                                                            |       |
| 32.2    |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (Chief Financial Officer)                                                                                                                          |       |

 

27

----

 

----

*  Incorporated herein byreference to the Registrant’s Registration Statement on Form S-4 (File No.333-119336) filed with the Commission on September 28, 2004.

 

** Incorporated herein by reference to Amendment No. 1 to theRegistrant’s Registration Statement on Form S-4 (File No. 333-119336) filedwith the Commission on October 27, 2004.

 

28

----

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|                              | THE WORNICK COMPANY |
|-----------------------------------|---------------------|
|                              | (Registrant)        |
|                              |                |
|                              |                |   |
| Date: November 16, 2004 | By:                 | /s/ LARRY L. ROSE |   |
|                              |                | Larry L. Rose |
|                              |                | President and Chief Executive Officer |
|                              |                | (Principal Executive Officer) |
|                              |                |   |
|                              |                |   |
| Date: November 16, 2004 | By:                 | /s/ JOHN F. MCQUAY |   |
|                              |                | John F. McQuay |
|                              |                | Chief Financial Officer and Treasurer |
|                              |                | (Principal Financial Officer and  Principal Accounting Officer) |

 

29

----