**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **
| x          | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES** |
|------------|------------------------------------------------------------------------------|
| ** ** | **EXCHANGE ACT OF 1934**                                                     |

** **

**Forthe quarterly period ended April 1, 2006**

**or**

 
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES** |
|------------|-------------------------------------------------------------------------------|
| ** ** | **EXCHANGE ACT OF 1934**                                                      |

** **

**Forthe transition period from            to**

 

**CommissionFile Number: 333-119336**

 

**The Wornick Company**

 

(Exact name of registrant as specified in its charter)
| ** Delaware**                                     | **30-0225741**                        |
|--------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of                       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                        |                                  |
|                                                   |                                  |
| **4701  Creek Road, Suite 200, Cincinnati, Ohio** | **42542**                             |
| (Address of  principal executive offices)              | (Zip Code)                            |

 

**(513)794-9800**

 

(Registrant’stelephone number, including area code)

**N/A**

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

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of The Exchange Act.

 

Large accelerated filer  o   accelerated filer  o   Non-accelerated filer  x

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). o  Yes    x  No

 

On May 7, 2006, oneshare of registrant’s common stock was outstanding.

 

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**THE WORNICK COMPANY**

**Table of Contents**
| **PART I—FINANCIAL  INFORMATION** |   |                                                                                                                              |
|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|                                        |   |                                                                                                                              |   |   |
| Item 1.                                     |   | Financial Statements  (unaudited)                                                                                                 |   |   |
|                                        |   |                                                                                                                              |   |   |
|                                        |   | Unaudited Condensed Consolidated Balance Sheet  at December 31, 2005 and April 1, 2006                                  |   |   |
|                                        |   |                                                                                                                              |   |   |
|                                        |   | Unaudited Condensed Consolidated Statement of  Operations for  the thirteen weeks Ended April 2, 2005 and April 1, 2006 |   |   |
|                                        |   |                                                                                                                              |   |   |
|                                        |   | Unaudited Condensed Consolidated Statement of Cash  Flows for  the thirteen weeks Ended April 2, 2005 and April 1, 2006 |   |   |
|                                        |   |                                                                                                                              |   |   |
|                                        |   | Notes to Unaudited Condensed 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.                                     |   | Submissions of  Matters to a Vote of Security Holders                                                                             |   |   |
|                                        |   |                                                                                                                              |   |   |
| Item 5.                                     |   | Other Information                                                                                                                 |   |   |
|                                        |   |                                                                                                                              |   |   |
| Item  6.                                    |   | Exhibits                                                                                                                          |   |   |
|                                        |   |                                                                                                                              |   |   |
| Signatures                                  |   |                                                                                                                              |

 

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**Part I — FinancialInformation**

**Item I                                                                                Financial Statements**

**THE WORNICK COMPANY**

**Condensed Consolidated Balance Sheet**

**(Unaudited)**

** **
| ** **                                       | ** ** | **December 31, 2005** | ** **  | **April 1, 2006** | ** ** |
|--------------------------------------------------|------------|---------------------------------|-------------|-----------------------------|------------|
| **Assets**                                       |       |                            |        |                        |       |
| Current assets                                   |       |                            |        |                        |       |
| Cash and cash equivalents                        |       | $                               | 17,330,761  |                        | $          | 3,007,761 |   |
| Trade accounts receivable, net                   |       | 19,186,813                      |        | 14,962,723                  |       |
| Inventories                                      |       | 27,954,296                      |        | 23,957,554                  |       |
| Prepaid expenses and other current assets        |       | 625,975                         |        | 918,194                     |       |
| Deferred income taxes                            |       | 1,403,035                       |        | 1,403,035                   |       |
| Total current assets                             |       | 66,500,880                      |        | 44,249,267                  |       |
| Property and  equipment, net                     |       | 42,914,227                      |        | 42,941,138                  |       |
| Goodwill                                         |       | 77,573,207                      |        | 77,573,207                  |       |
| Intangible  assets, net                          |       | 17,128,127                      |        | 15,954,481                  |       |
| Other noncurrent  assets                         |       | 5,054,735                       |        | 4,663,061                   |       |
| Total assets                                     |       | $                               | 209,171,176 |                        | $          | 185,381,154 |   |
| **Liabilities and Stockholder’s  Equity**   |       |                            |        |                        |       |
| Current liabilities                              |       |                            |        |                        |       |
| Trade accounts payable                           |       | 19,802,450                      |        | 9,708,291                   |       |
| Accrued expenses                                 |       | 8,331,770                       |        | 5,630,618                   |       |
| Accrued interest                                 |       | 6,276,896                       |        | 2,878,463                   |       |
| Taxes payable                                    |       | 977,237                         |        | —                      |       |
| Total current liabilities                        |       | 35,388,353                      |        | 18,217,372                  |       |
| Deferred income  taxes and other liabilities     |       | 4,022,627                       |        | 4,475,137                   |       |
| Other  liabilities                               |       | 433,848                         |        | 675,285                     |       |
| Long-term debt                                   |       | 125,000,000                     |        | 125,000,000                 |       |
| Total liabilities                                |       | 164,844,828                     |        | 148,367,794                 |       |
| **Commitments and Contingencies**                |       |                            |        |                        |       |
| ** **                                       |       |                            |        |                        |       |
| Stockholder’s equity                        |       |                            |        |                        |       |
| Common stock                                     |       | —                          |        | —                      |       |
| Additional paid-in capital                       |       | 37,732,680                      |        | 37,774,449                  |       |
| Retained earnings (deficit)                      |       | 6,593,668                       |        | (761,089                    | )          |
| Total stockholder’s equity                  |       | 44,326,348                      |        | 37,013,360                  |       |
| Total  liabilities and stockholder’s equity |       | $                               | 209,171,176 |                        | $          | 185,381,154 |   |

 

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

1

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**THE WORNICK COMPANY**

**Condensed Consolidated Statement of Operations**

**(Unaudited)**

 

 
| ** **                                    | ** ** | **Thirteen Weeks Ended** | ** ** |
|-----------------------------------------------|------------|------------------------------------|------------|
| ** **                                    | ** ** | **January 1, 2005**      | ** ** | **January 1, 2006** | ** ** |
| ** **                                    | ** ** | **through**                        | ** ** | **through** | ** ** |
| ** **                                    | ** ** | **April 2, 2005**        | ** ** | **April 1, 2006** | ** ** |
| Net sales                                     |       | $                                  | 58,832,215 |   | $ | 65,750,688 |   |
| Cost of sales                                 |       | 52,383,525                         |       | 61,278,441 |   |
| Gross profit                                  |       | 6,448,690                          |       | 4,472,247 |   |
| Selling, general  and administrative expenses |       | 4,852,250                          |       | 8,007,032 |   |
| Operating profit/(loss)                       |       | 1,596,440                          |       | (3,534,785 | ) |
| Other (expense) income                        |       |                               |       |   |   |
| Interest expense                              |       | (3,573,917                         | )          | (3,266,249 | ) |
| Interest income                               |       | 33,781                             |       | 63,369 |   |
| Other income, net                             |       | 80,439                             |       | (154,462 | ) |
| Total other expense                           |       | (3,459,697                         | )          | (3,357,342 | ) |
| Loss before  income taxes                     |       | (1,863,257                         | )          | (6,892,127 | ) |
| Provision for  income taxes                   |       | 556,120                            |       | 462,630 |   |
| Net loss                                      |       | $                                  | (2,419,377 | ) | $ | (7,354,757 | ) |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

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**THEWORNICK COMPANY**

**Condensed Consolidated Statement of Cash Flows**

**(Unaudited)**

 

 
| ** **                                         | ** ** | **Thirteen Weeks Ended** | ** ** |
|----------------------------------------------------|------------|------------------------------------|------------|
| ** **                                         | ** ** | **January 1, 2005**      | ** ** | **January 1, 2006** | ** ** |
| ** **                                         | ** ** | **through**                        | ** ** | **through** | ** ** |
| ** **                                         | ** ** | **April 2, 2005**        | ** ** | **April 1, 2006** | ** ** |
| **Cash flows from operating  activities**          |       |                               |       |   |   |
| Net income  (loss)                                 |       | $                                  | (2,419,377 | ) | $ | (7,354,757 | ) |
| Adjustments to  reconcile net income to net cash   |       |                               |       |   |   |
| provided by (used in)  operating activities:       |       |                               |       |   |   |
| Depreciation of property and equipment             |       | 947,794                            |       | 1,883,510 |   |
| Amortization of intangibles and bond issuance cost |       | 1,344,346                          |       | 1,041,452 |   |
| Deferred income tax expense                        |       | 456,000                            |       | 452,510 |   |
| Other equity based compensation plans              |       | (43,920                            | )          | 41,769 |   |
| Changes in  assets and liabilities                 |       |                               |       |   |   |
| Trade accounts receivable                          |       | 1,314,849                          |       | 4,224,090 |   |
| Inventories                                        |       | 1,122,779                          |       | 3,996,742 |   |
| Prepaid expenses and other current assets          |       | (608,669                           | )          | (292,219 | ) |
| Other noncurrent assets                            |       | (21,710                            | )          | 523,868 |   |
| Trade accounts payable and accrued expenses        |       | 276,859                            |       | (12,795,311 | ) |
| Accrued bond interest                              |       | (3,964,844                         | )          | (3,398,433 | ) |
| Taxes payable                                      |       | —                             |       | (977,237 | ) |
| Other liabilities                                  |       | —                             |       | 241,437 |   |
| Net cash used in operating activities              |       | (1,595,893                         | )          | (12,412,579 | ) |
| **Cash flows from investing  activities**          |       |                               |       |   |   |
| Capital  expenditures                              |       | (1,801,687                         | )          | (1,910,421 | ) |
| Net cash used in investing activities              |       | (1,801,687                         | )          | (1,910,421 | ) |
| **Cash flows from financing  activities**          |       |                               |       |   |   |
| Change in book  overdrafts                         |       | 108,550                            |       | — |   |
| Net cash provided by financing activities          |       | 108,550                            |       | — |   |
| Net (decrease) in cash and cash equivalents        |       | (3,289,030                         | )          | (14,323,000 | ) |
| **Cash and cash equivalents**                      |       |                               |       |   |   |
| Beginning of  period                               |       | 3,289,030                          |       | 17,330,761 |   |
| End of period                                      |       | $                                  | —     |   | $ | 3,007,761 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

3

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**THE WORNICK COMPANY**

**Notes to theUnaudited Consolidated Financial Statements**

***1.***               Organization

TheWornick Company, a Delaware corporation (the “Company” or “Successor”), anacquisition vehicle formed by The Veritas Capital Fund II, L.P., and itsgeneral partner, Veritas Capital Management II, L.L.C. (collectively “Veritas”),entered into an Assets Purchase and Sale Contract with The Wornick Company, aNevada corporation (the “Predecessor”), and its subsidiaries, The WornickCompany Right Away Division, a Nevada corporation, The Wornick Company RightAway Division, L.P., a Texas limited partnership, and Right Away ManagementCorporation, a Texas corporation, which was consummated on June 30, 2004,(the “Acquisition Date”) and resulted in 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 the operating assets of the Predecessor and itssubsidiaries.

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 (“DoD”) and commercial customers,as well as for its own consumer-branded products.

**2.**               Basis of Presentation

Theaccompanying unaudited interim condensed consolidated financial statements,also referred to as our interim or unaudited “consolidated financialstatements,” have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialinformation and the instructions to Form 10-Q and Article 10 ofRegulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly,they do not include all of the information and footnotes normally included infinancial statements prepared in conformity with accounting principlesgenerally accepted in the United States of America. In the opinion ofmanagement, 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 forinterim periods are not necessarily indicative of results that may be expectedfor the fiscal year as a whole. The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenues, expenses, and relateddisclosures at the date of the financial statements and during the reportingperiod. Actual amounts could differ from these estimates. These unauditedinterim consolidated financial statements should be read in conjunction withthe audited consolidated financial statements for the year ended December 31,2005 and notes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005 filed with the Securities andExchange Commission.

**3.**               Restructuring (Exit) Cost

On February 6, 2006 we announced plans to relocate our assemblyoperations of our Right Away Division in McAllen, Texas to our Cincinnati, Ohiolocation in order to better position the Company’s production and assemblyoperations from a geographical standpoint, simplify our logistics and reducecost and delivery times to our customers. We anticipate that our consolidationwill be completed at the end of the third quarter 2006.

We anticipate total pretax charges incurred to complete therestructuring will be approximately $4.1 million. Of the $4.1 million,$1.3 million will be paid out to the 244 employees (under pay to stayseverance arrangements) currently located at our McAllen, Texas assemblyfacilities all of which we anticipate will be terminated upon completion of theconsolidation. The remaining expenditures

4

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are related to accelerated depreciation on our property &equipment of approximately $2.8 million which we anticipate will be abandonedupon our exit from the McAllen.

During the thirteen weeks ended April 1, 2006 we recorded totalpretax charges of $1,186,085, all of which was recorded in the RAD Segment. Ofthe $1,186,085 in pretax charges, $353,471 included in Selling, General andAdministrative expense, was incurred related to employee pay to stay severancearrangements, none of which had been terminated as of April 1, 2006, and$832,614 related to accelerated depreciation on assets to be abandoned includedin cost of goods sold.

A summary of the cost incurred related to therestructuring plan is as follows:

|                     | ** ** | ** **     | ** ** | ** **  | ** ** | **Non-Cash** | ** ** | ** **   | ** ** | ** **   | ** ** |
|---------------------|------------|----------------|------------|-------------|------------|--------------|------------|--------------|------------|--------------|------------|
| ** **          | ** ** | **12/31/2005** | ** ** | **Charges** | ** ** | **Charges**  | ** ** | **Payments** | ** ** | **4/1/2006** | ** ** |
| Asset  write-downs  |       | $              | —     |        | $          | 832,614      |       | $            | (832,614   | )            | $          | — |   | $ | — |   |
| Employee cost       |       | —         |       | 353,471     |       | —       |       | —       |       | 352,471      |       |
| Remaining Liability |       | $              | —     |        | $          | 1,186,085    |       | $            | (832,614)  |         | $          | — |   | $ | 352,471 |   |

** **

**4.**               SupplementalBalance Sheet Information

*** ***

**Inventories**

 

       A summary of inventories is as follows:

 

|                 | ** ** | **December 31,  2005** | ** ** | **April 1,  2006** | ** ** |
|-----------------|------------|-----------------------------|------------|-------------------------|------------|
| Raw materials   |       | $                           | 17,389,308 |                    | $          | 16,100,254 |   |
| Work in process |       | 1,593,696                   |       | 993,120                 |       |
| Finished goods  |       | 8,971,292                   |       | 6,864,180               |       |
|            |       | $                           | 27,954,296 |                    | $          | 23,957,554 |   |

 

**Property and Equipment, Net**

** **

       A summaryof property and equipment, net is as follows:

|                                                  | ** ** | **December 31,  2005** | ** ** | **April 1,  2006** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Leasehold  improvements                          |       | $                           | 1,784,800  |                    | $          | 1,784,800 |   |
| Machinery and  equipment                         |       | 30,166,266                  |       | 31,751,732              |       |
| Office  equipment, fixtures and vehicles         |       | 2,640,021                   |       | 2,640,021               |       |
| Construction in  progress                        |       | 14,005,059                  |       | 14,378,224              |       |
|                                             |       | 48,596,146                  |       | 50,554,777              |       |
|                                             |       |                        |       |                    |       |
| Less:  Accumulated depreciation and amortization |       | 5,681,919                   |       | 7,613,639               |       |
|                                             |       | $                           | 42,914,227 |                    | $          | 42,941,138 |   |

 

Depreciation expense for the thirteen week periodsended April 2, 2005 and April 1, 2006 was approximately $948,000 and$1,884,000, respectively (See Note 11 for further details regarding accelerateddepreciation changes).

5

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**5.****                                      IntangibleAssets**

In connection with the acquisition described inNote 1, a portion of the purchase price was allocated to identifiableintangible assets related to the value of long-term customer supply contractsin 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. Aggregateaccumulated amortization of intangibles at December 31, 2005 and April 1,2006 amounted to $7,041,873 and $8,215,519 respectively. Expense related toamortization of intangible assets for the thirteen week periods ended April 2,2005 and April 1, 2006 amounted to $1,173,646, respectively.

Scheduled amortization of these assets is as follows:

 

| April 2, 2006 through  December 31, 2006 |   | $         | 3,520,934  |   |
|------------------------------------------|--------|-----------|------------|--------|
| 2007                                     |   | 4,627,918 |       |
| 2008                                     |   | 4,856,248 |       |
| 2009                                     |   | 2,421,226 |       |
| 2010                                     |   | 496,296   |       |
| Thereafter                               |   | 31,859    |       |
|                                     |   | $         | 15,954,481 |   |

** **

**6.**               Notes Payable and Long-termDebt

 

|                                               | ** ** | **December 31,** | ** **  | **April 1,** | ** ** |
|-----------------------------------------------|------------|-----------------------|-------------|-------------------|------------|
| ** **                                    | ** ** | **2005**              | ** **  | **2006**          | ** ** |
|                                          |       |                  |        |              |       |
| 10-7/8% Senior  secured notes; due 2011       |       | $                     | 125,000,000 |              | $          | 125,000,000 |   |
|                                          |       |                  |        |              |       |
| Less: Current  maturities                     |       | —                |        | —            |       |
| Long-term debt,  excluding current maturities |       | $                     | 125,000,000 |              | $          | 125,000,000 |   |

 

TheCompany also has a Revolving Loan Agreement which provides the Company$15.0 million of revolving loan financing through June 30, 2009, withan additional revolving credit facility of $10.0 million becomingavailable upon certain events. Amounts outstanding under the Revolving LoanAgreements ($0 at December 31, 2005 and April 1, 2006) 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 (7.25% at December 31,2005 and 7.75% at April 1, 2006) as published daily by The Wall StreetJournal. Amounts outstanding under the Revolving Loan Agreement arecollateralized by substantially all of the operating assets of the Company andits subsidiaries. The lien on such collateral is senior to the lien on thecollateral that secures the Senior Secured Notes

TheSenior Secured Notes are collateralized by substantially all assets and otherproperty of the Company and its subsidiaries. The lien on such collateral,however, is subordinate to the lien on the collateral securing the RevolvingLoan Agreement. Interest on the Senior Secured Notes is payable semi-annually.

6

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Amountsdue under the Senior Secured Notes and the revolving loan facility are subjectto an intercreditor agreement. The Company is required to meet certainfinancial covenants related primarily to minimum working capital amounts andminimum working capital ratios as well as minimum profitability and minimum networth calculations. At April 1, 2006 we were in compliance with allfinancial covenants.

On February 11,2005 our parent, TWC Holding LLC (the “Parent Company”) , and its wholly-ownedfinance subsidiary, TWC Holding Corp., co-issued their 13.875% Senior PIK Notesdue 2011, or the “Senior PIK Notes,” in the approximate aggregate principalamount of $62,259,000 with a discount of approximately $36,259,000. The SeniorPIK Notes earn interest at the rate of 13.875% per annum, mature on August 15,2011 and are unsecured obligations of TWC Holding LLC and TWC Holding Corp. Neitherthe Company nor any of its subsidiaries guaranteed the Senior PIK notes. Thenotes limit the Company’s ability to incur additional indebtedness and paydividends or make other distributions as well as to make certain investmentsand sell certain assets or merge with or into other companies. Because ourParent Company is a holding company with no operations and has only its investmentin the Company, and because TWC Holding Corp. has no independent operations orassets, future cash flows or assets of the Company through 2011 may be requiredto service the $62.3 million Senior PIK notes upon their maturity.

**7.             Income Taxes**

TheCompany provides for income taxes utilizing the asset liability method, currentincome tax expense or benefit represents income taxes expected to be payable orrefundable for the current period. Deferred income taxes are recognized for thetax consequences in future years as a result of differences between the tax andfinancial reporting bases of assets and liabilities and for the expected futuretax benefit to be derived from tax credit and loss carry-forwards. Valuationallowances are established when necessary to reduce deferred tax assets to theamounts management believes are more likely than not to be realized in futuretax returns. Tax rate changes are reflected in the period such changes areenacted. The Company recorded additional valuation allowances on deferred taxassets of approximately $453,000 during the period ended April 1, 2006 dueto the indefinite reversal period related to goodwill amortization.

**8.             Share Based Compensation Plan**

On January 1,2006, we adopted SFAS No. 123 (Revised 2004) *Share-Based Payments* (“SFAS No. 123R”), using theprospective adoption method, which requires the application of the accountingstandard  on the first day of the Company’s fiscal year 2006 for grantsissued or modified subsequent to the date of adoption.  The adoption of this new accounting standardhad no impact on the company’s consolidated financial statements for the periodended April 1, 2006 since there were no new awards issued or modifiedduring this period.

Ourparent company, TWC Holding LLC has two classes of membership interests, Class Ainterests and Class B interests. Certain members of our management andoutside directors have received Class B interests. The Class Binterests are subject to a five-year vesting schedule with any unvestedinterest reverting to the holders of Class A interests. Because these Class Binterests were issued to members of management and directors of the Company,these awards are considered to be compensatory to our Company over the vestingperiod. Compensation expense related to these awards was $41,769 for thethirteen weeks ended April 1, 2006. For the period ended April 2,2005 these compensation arrangements resulted in a benefit of $43,920 due tothe recapture of previously expensed amounts resulting from the employmentterminations of certain management members during the period.

7

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**9.****                                      OperatingSegment Information**

TheCompany has two operating segments: the Right Away Division (“RAD”) and thePrepared 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 alsosells directly to the U.S. Department of Defense as well as to commercialbranded food companies and inter-segment sales to RAD. Management evaluatessegment performance based on several factors, including operating profit.

Duringthe period ended April 1, 2006 the RAD segment incurred $1,186,085 ofrestructuring related charges.

The Company’s sales by product line for the periodsindicated are as follows:

 

|                                              | ** ** | **(Unaudited)**                               | ** ** |
|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                   | ** ** | **Thirteen Week Period Ended** | ** ** |
| **(in thousands of dollars)** | ** ** | **April 2, 2005**                   | ** ** | **April 1, 2006** | ** ** |
| DoD Sales                                    |       |                                          |       |   |   |
| Meals Ready-to-Eat ("MRE")         |       | $                                             | 33,693     |   | $ | 32,979 |   |
| Unitized Group Rations-A ("UGR-A") |       | 14,585                                        |       | 16,332 |   |
| Military Other                               |       | 1,248                                         |       | 668 |   |
| Total DoD sales                              |       | 49,526                                        |       | 49,979 |   |
| Co-manufactured                              |       | 8,204                                         |       | 14,390 |   |
| Specialty and  Other                         |       | 1,102                                         |       | 1,382 |   |
|                                         |       | $                                             | 58,832     |   | $ | 65,751 |   |

 

Duringthe thirteen week periods ended April 2, 2005 and April 1, 2006, theCompany had one major customer, DoD, which accounted for approximately$49,526,000 and $49,979,000 or 84.2% and 76.0% of net revenue, respectively. Approximately$9,369,000 or 74.7% and $9,440,000 or 63.2%, of net receivables wereattributable to this customer at April 2, 2005 and April 1, 2006,respectively.

8

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Unauditedreportable operating segment financial information for the thirteen weekperiods ended April 2, 2005 and April 1, 2006, is as follows:
| ** **                  | ** ** | ** ** | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **        | ** ** | ** **       | ** ** | ** **  | ** ** |
|-----------------------------|------------|------------|------------|-------------------|------------|---------------|------------|-------------------|------------|------------------|------------|-------------|------------|
| ** **                  | ** ** | **Trade**  | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** | **Depreciation/** | ** ** | **Total**        | ** ** | **Capital** | ** ** |
| **Operating Segments** | ** ** | ** ** | ** ** | **Revenue**       | ** ** | **Revenue**   | ** ** | **(Loss)**        | ** ** | **Amortization** | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                        |       |       |       |              |       |          |       |              |       |             |       |        |       |
| **Right Away Division**     |       |       |       |              |       |          |       |              |       |             |       |        |       |
| April 2,  2005         |       | 48,967,837 |       | —            |       | 4,886,899     |       | 531,688           |       | 33,526,344       |       | 155,945     |       |
| April 1,  2006         |       | 50,342,272 |       |              |       | 3,703,095     |       | 1,366,166         |       | 32,333,106       |       | 213         |       |
| **Prepared Foods**          |       |       |       |              |       |          |       |              |       |             |       |        |       |
| April 2,  2005         |       | 9,864,378  |       | 12,653,613        |       | (2,236,284    | )          | 1,589,752         |       | 60,052,135       |       | 1,645,742   |       |
| April 1,  2006         |       | 15,408,416 |       | 11,219,703        |       | (776,568      | )          | 1,690,989         |       | 76,058,269       |       | 1,910,208   |       |
| **Corporate**               |       |       |       |              |       |          |       |              |       |             |       |        |       |
| April 2,  2005         |       | —     |       | —            |       | (1,054,175    | )          | 170,700           |       | 111,521,825      |       | —      |       |
| April 1,  2006         |       | —     |       |              |       | (6,461,312    | )          | (132,193          | )          | 102,040,551      |       |        |       |
| **Eliminations**            |       |       |       |              |       |          |       |              |       |             |       |        |       |
| April 2,  2005         |       | —     |       | (12,653,613       | )          | —        |       | —            |       | (30,742,397      | )          | —      |       |
| April 1,  2006         |       | —     |       | (11,219,703       | )          |          |       |              |       | (25,050,772      | )          |        |       |
| **Total Company**           |       |       |       |              |       |          |       |              |       |             |       |        |       |
| April 2,  2005         |       | 58,832,215 |       | —            |       | 1,596,440     |       | 2,292,140         |       | 174,357,907      |       | 1,801,687   |       |
| April 1, 2006          |       | 65,750,688 |       | —            |       | (3,534,785    | )          | 2,924,962         |       | 185,381,154      |       | 1,910,421   |       |
|                             |            |            |            |                   |            |               |            |                   |            |                  |            |             |            |  |  |

 

**10.****                               Condensed Consolidating Financial Information**

Thefollowing information presents the unaudited condensed consolidating balancesheets at December 31, 2005 and April 1, 2006, the unauditedcondensed consolidating statements of operations for the thirteen weeks ended April 2,2005 and April 1, 2006, the unaudited condensed consolidating statementsof cash flows for the thirteen weeks ended April 2, 2005 and April 1,2006, respectively.

9

----

 

Condensedconsolidated balance sheet at December 31, 2005 (unaudited);
| ** **                                       | ** ** | ** **  | ** **  | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** **  |
|--------------------------------------------------|------------|-------------|-------------|----------------|------------|------------------|------------|-------------|-------------|
| ** **                                       | ** ** | **Parent**  | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** **  |
| **Assets**                                       |       |        |        |           |       |             |       |        |        |
| Current assets                                   |       |        |        |           |       |             |       |        |        |
| Cash and cash equivalents                        |       | $           | 509,176     |           | $          | 16,821,585       |       | $           | —      |   | $ | 17,330,761 |   |
| Trade accounts receivable                        |       | 4,891,849   |        | 14,294,964     |       | —           |       | 19,186,813  |        |
| Interdivision receivables                        |       | 3,784,303   |        | (3,784,303     | )          | —           |       | —      |        |
| Inventories                                      |       | 12,043,759  |        | 15,910,537     |       | —           |       | 27,954,296  |        |
| Prepaid expenses and other current assets        |       | 234,304     |        | 391,671        |       | —           |       | 625,975     |        |
| Deferred income taxes                            |       | 1,403,035   |        | —         |       | —           |       | 1,403,035   |        |
| Total current assets                             |       | 22,866,426  |        | 43,634,454     |       |             |       | 66,500,880  |        |
| Investments in  subsidiary guarantors            |       | 38,298,917  |        | —         |       | (38,298,917      | )          | —      |        |
| Property and  equipment, net                     |       | 36,850,845  |        | 6,063,382      |       | —           |       | 42,914,227  |        |
| Goodwill                                         |       | 77,573,207  |        | —         |       |             |       | 77,573,207  |        |
| Intangible  assets, net                          |       | 14,563,125  |        | 2,565,002      |       |             |       | 17,128,127  |        |
| Other noncurrent  assets                         |       | 4,884,798   |        | 169,937        |       | —           |       | 5,054,735   |        |
| Total assets                                     |       | $           | 195,037,318 |           | $          | 52,432,775       |       | $           | (38,298,917 | ) | $ | 209,171,176 |   |
| **Liabilities and Stockholder’s  Equity**   |       |        |        |           |       |             |       |        |        |
| Current liabilities                              |       |        |        |           |       |             |       |        |        |
| Trade accounts payable                           |       | $           | 9,743,912   |           | $          | 10,058,538       |       | $           | —      |   | $ | 19,802,450 |   |
| Accrued expenses                                 |       | 4,256,450   |        | 4,075,320      |       | —           |       | 8,331,770   |        |
| Accrued interest                                 |       | 6,276,896   |        | —         |       | —           |       | 6,276,896   |        |
| Taxes payable                                    |       | 977,237     |        | —         |       | —           |       | 977,237     |        |
| Total current liabilities                        |       | 21,254,495  |        | 14,133,858     |       | —           |       | 35,388,353  |        |
|                                             |       |        |        |           |       |             |       |        |        |
| Deferred income  tax and other liabilities       |       | $           | 4,022,627   |           | —     |             | —     |        | $           | 4,022,627 |   |
| Other  liabilities                               |       | 433,848     |        |           |       |             |       | 433,848     |        |
| Long-term debt,  excluding current maturities    |       | 125,000,000 |        | —         |       | —           |       | 125,000,000 |        |
| Total liabilities                                |       | 150,710,970 |        | 14,133,858     |       | —           |       | 164,844,828 |        |
| Stockholder’s equity                        |       |        |        |           |       |             |       |        |        |
| Common stock                                     |       | —      |        | —         |       | —           |       |        |        |
| Additional paid-in capital                       |       | 37,732,680  |        | 26,624,729     |       | (26,624,729      | )          | 37,732,680  |        |
| Retained earnings                                |       | 6,593,668   |        | 11,674,188     |       | (11,674,188      | )          | 6,593,668   |        |
| Total stockholder’s equity (deficit)        |       | 44,326,348  |        | 38,298,917     |       | (38,298,917      | )          | 44,326,348  |        |
| Total  liabilities and stockholder’s equity |       | $           | 195,037,318 |           | $          | 52,432,775       |       | $           | (38,298,917 | ) | $ | 209,171,176 |   |

 

10

----

 

Condensedconsolidated balance sheet at April 1, 2006 (unaudited):
| ** **                                       | ** ** | ** **  | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **  | ** ** |
|--------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------|------------|
| ** **                                       | ** ** | **Parent**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
| ** **                                       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
| **Assets**                                       |       |        |       |           |       |             |       |        |       |
| Current assets                                   |       |        |       |           |       |             |       |        |       |
| Cash and cash equivalents                        |       | (1,623,817  | )          | $              | 4,631,578  |             | $          | —      |       | $ | 3,007,761 |   |
| Trade accounts receivable                        |       | 5,311,844   |       | 9,650,879      |       | —           |       | 14,962,723  |       |
| Interdivision receivables                        |       | 171,317     |       | (171,317       | )          | —           |       | —      |       |
| Inventories                                      |       | 13,765,963  |       | 10,191,591     |       | —           |       | 23,957,554  |       |
| Prepaid expenses and other current assets        |       | 318,656     |       | 599,538        |       | —           |       | 918,194     |       |
| Deferred income taxes                            |       | 1,403,035   |       | —         |       | —           |       | 1,403,035   |       |
| Total current assets                             |       | 19,346,998  |       | 24,902,269     |       | —           |       | 44,249,267  |       |
|                                             |       |        |       |           |       |             |       |        |       |
| Investments in  subsidiary guarantors            |       | 25,050,772  |       | —         |       | —           |       | (25,050,772 | )          |
| Property and  equipment, net                     |       | 38,037,876  |       | 4,903,262      |       | —           |       | 42,941,138  |       |
| Goodwill                                         |       | 77,573,207  |       | —         |       | —           |       | 77,573,207  |       |
| Intangible  assets, net                          |       | 13,595,312  |       | 2,359,169      |       | —           |       | 15,954,481  |       |
| Other noncurrent  assets                         |       | 4,494,655   |       | 168,406        |       | —           |       | 4,663,061   |       |
| Total assets                                     |       | 178,098,820 |       | $              | 32,333,106 |             | $          | (25,050,772 | )          | $ | 185,381,154 |   |
| ** **                                       |       |        |       |           |       |             |       |        |       |
| **Liabilities  and Stockholder’s Equity**   |       |        |       |           |       |             |       |        |       |
| Current  liabilities                             |       |        |       |           |       |             |       |        |       |
| Trade accounts payable                           |       | 5,548,420   |       | $              | 4,159,871  |             | $          | —      |       | $ | 9,708,291 |   |
| Accrued expenses                                 |       | 2,508,155   |       | 3,122,463      |       | —           |       | 5,630,618   |       |
| Accrued interest                                 |       | 2,878,463   |       |           |       | —           |       | 2,878,463   |       |
| Taxes payable                                    |       | —      |       | —         |       | —           |       | —      |       |
| Total current liabilities                        |       | 10,935,038  |       | 7,282,334      |       | —           |       | 18,217,372  |       |
|                                             |       |        |       |           |       |             |       |        |       |
| Deferred income  taxes                           |       | 4,475,137   |       | —         |       | —           |       | 4,475,137   |       |
| Other  liabilities                               |       | 675,285     |       | —         |       | —           |       | 675,285     |       |
| Long-term debt,  excluding current maturities    |       | 125,000,000 |       | —         |       | —           |       | 125,000,000 |       |
| Total liabilities                                |       | 141,085,460 |       | 7,282,334      |       | —           |       | 148,367,794 |       |
| Stockholder’s  equity                       |       |        |       |           |       |             |       |        |       |
| Common stock                                     |       | —      |       | —         |       | —           |       | —      |       |
| Additional paid-in capital                       |       | 37,774,449  |       | 26,624,729     |       | (26,624,729      |       | 37,774,449  |       |
| Retained earnings (deficit)                      |       | (761,089    | )          | (1,573,957     | )          | (1,573,957       | )          | (761,089    | )          |
| Total stockholder’s equity (deficit)        |       | 37,013,360  |       | 25,050,772     |       | (25,050,772      | )          | 37,013,360  |       |
| Total  liabilities and stockholder’s equity |       | 178,098,820 |       | $              | 32,333,106 |             | $          | (25,050,772 | )          | $ | 185,381,154 |   |

 

 

11

----

 

Condensed consolidated statement of operations for thethirteen week period from January 1, 2005 through April 2, 2005(unaudited):
|                                                     | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations**   | ** ** | **Total**  | ** **  |
|-----------------------------------------------------|------------|------------|------------|----------------------------|------------|--------------------|------------|------------|-------------|
| Net sales                                           |       | $          | 22,517,991 |                       | $          | 48,967,837         |       | $          | (12,653,613 | ) | $ | 58,832,215 |   |
| Cost of sales                                       |       | 22,430,223 |       | 42,606,915                 |       | (12,653,613        | )          | 52,383,525 |        |
| Gross profit                                        |       | 87,768     |       | 6,360,922                  |       | —   |       | 6,448,690  |        |
| Selling, general  and administrative expenses  |       | 3,378,227  |       | 1,474,023                  |       | —             |       | 4,852,250  |        |
| Operating profit                                    |       | (3,290,459 | )          | 4,886,899                  |       | —             |       | 1,596,440  |        |
| Other income (expense)                              |       |       |       |                       |       |               |       |       |        |
| Interest expense                                    |       | (3,573,823 | )          | (94                        | )          | —             |       | (3,573,917 | )           |
| Interest income                                     |       | 6,415      |       | 27,366                     |       | —             |       | 33,781     |        |
| Executive/administration income (expense)           |       | 4,094,152  |       | (4,094,152                 | )          | —             |       | —     |        |
| Other (expense) income, net                         |       | (70,692    | )          | 151,131                    |       | —             |       | 80,439     |        |
| Equity in earnings of subsidiary guarantor     |       | 971,150    |       | —                     |       | (971,150           | )          | —     |        |
| Total other income (expense)                        |       | 1,427,202  |       | (3,915,749                 | )          | (971,150           | )          | (3,459,697 | )           |
| Income before income taxes                          |       | (1,863,257 | )          | 971,150                    |       | (971,150           | )          | (1,863,257 | )           |
| Income tax  expense                                 |       | 556,120    |       | —                     |       | —             |       | 556,120    |        |
| Net income                                          |       | $          | (2,419,377 | )                          | $          | 971,150            |       | $          | (971,150    | ) | $ | (2,419,377 | ** ** |

 

Condensed consolidated statement of operations for thethirteen week period from January 1, 2006 through April 1, 2006(unaudited):
|                                                     | ** ** | **Parent**  | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** **  |
|-----------------------------------------------------|------------|-------------|------------|----------------------------|------------|------------------|------------|------------|-------------|
| Net sales                                           |       | $           | 26,628,119 |                       | $          | 50,342,272       |       | $          | (11,219,703 | ) | $ | 65,750,688 |   |
| Cost of sales                                       |       | 27,056,479  |       | 45,441,665                 |       | (11,219,703      | )          | 61,278,441 |        |
| Gross profit                                        |       | (428,360    | )          | 4,900,607                  |       | —           |       | 4,472,247  |        |
| Selling, general  and administrative expenses  |       | 6,809,520   |       | 1,197,512                  |       | —           |       | 8,007,032  |        |
| Operating (loss) profit                             |       | (7,237,880  | )          | 3,703,095                  |       | —           |       | (3,534,785 | )           |
| Other income (expense)                              |       |        |       |                       |       |             |       |       |        |
| Interest expense                                    |       | (3,266,249  | )          | —                     |       | —           |       | (3,266,249 | )           |
| Interest income                                     |       | 14,609      |       | 48,760                     |       | —           |       | 63,369     |        |
| Executive/administration income (expense)           |       | 17,000,000  |       | (17,000,000                | )          | —           |       | —     |        |
| Other income(expense), net                          |       | (154,462    | )          | —                     |       | —           |       | (154,462   | )           |
| Equity in earnings of subsidiary guarantor     |       | (13,248,145 | )          | —                     |       | 13,248,145       |       | —     |        |
| Total other  income (expense)                       |       | 345,753     |       | (16,951,240                | )          | 13,248,145       |       | (3,357,342 | )           |
| Income before income taxes                          |       | (6,892,127  | )          | (13,248,145                | )          | 13,248,145       |       | (6,892,127 | )           |
| Income tax  expense                                 |       | 462,630     |       | —                     |       | —           |       | 462,630    |        |
| Net income                                          |       | $           | (7,354,757 | )                          | $          | (13,248,145      | )          | $          | 13,248,145  |   | $ | (7,354,757 | ** ** |

 

12

----

 

Condensed consolidated statement of cash flows for thethirteen week period from January 1, 2005 through April 2, 2005(unaudited):
|                                                                                     | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|------------------|------------|------------|------------|
| **Cash flows from operating  activities**                                           |       |       |       |                       |       |             |       |       |       |
| Net income                                                                          |       | $          | (2,419,377 | )                          | $          | 971,150          |       | $          | (971,150   | ) | $ | (2,419,377 | ) |
| Adjustments to  reconcile net income to net                                         |       |       |       |                       |       |             |       |       |       |
| cash (used-in)  operating activities:                                               |       |       |       |                       |       |             |       |       |       |
| Depreciation of property and equipment                                         |       | 621,940    |       | 325,854                    |       | —           |       | 947,794    |       |
| Amortization of intangibles                                                         |       | 967,812    |       | 205,834                    |       | —           |       | 1,173,646  |       |
| Amortization of bond issuance cost                                                  |       | 170,700    |       | —                     |       | —           |       | 170,700    |       |
| Equity in earnings of subsidiary guarantors           |       | (971,150   | )          | —                     |       | 971,150          |       | —     |       |
| Deferred tax liability                                                              |       | 456,000    |       |                       |       |             |       | 456,000    |       |
| Compensation for stock options                                                      |       | (43,920    | )          |                       |       |             |       | (43,920    | )          |
| Changes in  assets and liabilities                                                  |       |       |       |                       |       |             |       |       |       |
| Trade accounts receivable                                                           |       | 921,203    |       | 393,646                    |       | —           |       | 1,314,849  |       |
| Interdivisional receivables/payables, net        |       | 3,608,293  |       | (3,608,293                 | )          | —           |       | —     |       |
| Inventories                                                                         |       | 1,238,029  |       | (115,250                   | )          | —           |       | 1,122,779  |       |
| Prepaid expenses and other current assets                  |       | (290,057   | )          | (318,612                   | )          | —           |       | (608,669   | )          |
| Other noncurrent asset                                                              |       | (9,642     | )          | (12,068                    | )          | —           |       | (21,710    | )          |
| Trade accounts payable and accrued expenses                                    |       | (882,894   | )          | 1,159,753                  |       | —           |       | 276,859    |       |
| Accrued interest                                                                    |       | (3,964,844 | )          | —                     |       | —           |       | (3,964,844 | )          |
| Net cash (used in) operating activities          |       | (597,907   | )          | (997,986                   | )          | —           |       | (1,595,893 | )          |
| **Cash flows from investing  activities**                                           |       |       |       |                       |       |             |       |       |       |
| Capital  expenditures                                                               |       | (1,645,742 | )          | (155,945                   | )          | —           |       | (1,801,687 | )          |
| Net cash (used in) investing activities          |       | (1,645,742 | )          | (155,945                   | )          | —           |       | (1,801,687 | )          |
| **Cash flows from financing  activities**                                           |       |       |       |                       |       |             |       |       |       |
| Change in book  overdraft                                                           |       | 1,158,175  |       | (1,049,625                 | )          |             |       | 108,550    |       |
| Net cash provided by (used in) financing activities                                 |       | 1,158,175  |       | (1,049,625                 | )          | —           |       | 108,550    |       |
| Net (decrease) in cash and cash equivalents                                    |       | (1,085,474 | )          | (2,203,556                 | )          | —           |       | (3,289,030 | )          |
| **Cash and cash equivalents**                                                       |       |       |       |                       |       |             |       |       |       |
| Beginning of  period                                                                |       | 1,085,474  |       | 2,203,556                  |       | —           |       | 3,289,030  |       |
| End of period                                                                       |       | $          | —     |                       | $          | —           |       | $          | —     |   | $ | — |   |

 

13

----

 

Condensed consolidated statement of cash flows for thethirteen week period from January 1, 2006 through April 1, 2006(unaudited):
|                                                                                   | ** ** | **Parent** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|----------------------------|------------|------------------|------------|-------------|------------|
| **Cash flows from operating  activities**                                         |       |       |       |                       |       |             |       |        |       |
| Net income                                                                        |       | $          | (7,354,757 | )                          | $          | (13,248,145      | )          | $           | 13,248,145 |   | $ | (7,354,757 | ) |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |       |       |                       |       |             |       |        |       |
| Depreciation of property and equipment                                            |       | 723,177    |       | 1,160,333                  |       | —           |       | 1,883,510   |       |
| Amortization of intangibles and bond issuance cost                                |       | 835,619    |       | 205,833                    |       | —           |       | 1,041,452   |       |
| Equity in earnings of subsidiary guarantors                                       |       | 13,248,145 |       | —                     |       | (13,248,145      | )          | —      |       |
| Deferred tax liability                                                            |       | 452,510    |       | —                     |       | —           |       | 452,510     |       |
| Compensation expense for stock options                                            |       | 41,769     |       | —                     |       | —           |       | 41,769      |       |
| Changes in assets and liabilities                                                 |       |       |       |                       |       |             |       | —      |       |
| Trade accounts receivable                                                         |       | (419,996   | )          | 4,644,086                  |       | —           |       | 4,224,090   |       |
| Interdivisional receivables/payables, net                                         |       | 3,612,986  |       | (3,612,986                 | )          | —           |       | —      |       |
| Inventories                                                                       |       | (1,722,204 | )          | 5,718,946                  |       | —           |       | 3,996,742   |       |
| Prepaid expenses and other current assets                                         |       | (84,352    | )          | (207,867                   | )          | —           |       | (292,219    | )          |
| Other noncurrent asset                                                            |       | 522,337    |       | 1,531                      |       | —           |       | 523,868     |       |
| Trade accounts payable and accrued expenses                                  |       | (5,943,786 | )          | (6,851,525                 | )          | —           |       | (12,795,311 | )          |
| Accrued interest                                                                  |       | (3,398,433 | )          | —                     |       | —           |       | (3,398,433  | )          |
| Taxes payable                                                                     |       | (977,237   | )          | —                     |       | —           |       | (977,237    | )          |
| Other liabilities                                                                 |       | 241,437    |       | —                     |       | —           |       | 241,437     |       |
| Net cash used in operating activities                                             |       | (222,785   | )          | (12,189,794                | )          | —           |       | (12,412,579 | )          |
| **Cash flows from investing  activities**                                         |       |       |       |                       |       |             |       |        |       |
| Capital  expenditures                                                             |       | (1,910,208 | )          | (213                       | )          | —           |       | (1,910,421  | )          |
| Net cash used in investing activities                                             |       | (1,910,208 | )          | (213                       | )          | —           |       | (1,910,421  | )          |
| Net increase in cash and cash equivalents                          |       | (2,132,993 | )          | (12,190,007                | )          | —           |       | (14,323,000 | )          |
| **Cash and cash equivalents**                                                     |       |       |       |                       |       |             |       |        |       |
| Beginning of  period                                                              |       | 509,176    |       | 16,821,585                 |       | —           |       | 17,330,761  |       |
| End of period                                                                     |       | $          | (1,623,817 | )                          | $          | 4,631,578        |       | $           | —     |   | $ | 3,007,761 |   |

 

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**Item 2.** Management’sDiscussion and Analysis of Financial Condition and Results of Operations

**Our Company**

We arethe leading supplier of individual and group military field rations to theDepartment of Defense (the “DoD”). We specialize in the production, packagingand distribution of extended shelf-life, shelf stable and frozen foods inflexible pouches and semi-rigid containers. With over 30 years of experience inthe food manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservice markets.We are a primary supplier to the DoD of Meals Ready-to-Eat, Unitized GroupRations-A and the polymeric trays used in the Unitized Group Rations-Heat &Serve program. Our customers also include Kraft Foods, Inc., GerberProducts Company, Quaker Oats Company, Delmonte and the Canadian Ministry ofDefense.

**Restructuring**

On February 6,2006 we announced plans to relocate our assembly operations of our Right AwayDivision in McAllen, Texas to our Cincinnati, Ohio location in order to betterposition the Company’s production and assembly operations from a geographicalstandpoint, simplify our logistics and reduce cost and delivery times to ourcustomers. We anticipate that our consolidation will be completed at the end ofthe third quarter 2006 and will provide us with annual cost savings ofapproximately $10 million going forward.

We anticipatetotal pretax charges incurred to complete the restructuring will beapproximately $4.1 million and will invest additional capital spending ofapproximately $10.5 million to build-out these relocated assembly operations atour Cincinnati, Ohio location. Of the $4.1 million, $1.3 million will bepaid out to the 244 employees (under pay to stay severance arrangements)currently located at our McAllen, Texas assembly facilities all of which weanticipate will be terminated upon completion of the consolidation. Theremaining expenditures are related to accelerated depreciation on our property &equipment of approximately $2.8 million which we anticipate will be abandonedupon our exit from the McAllen facilities.

Duringthe thirteen weeks ended April 1, 2006 we recorded total pretax charges of$1,186,085. Of the $1,186,085 in pretax charges, $353,471 included in Selling,General and Administrative expense, was incurred related to employee pay tostay severance arrangements, none of which had been terminated as of April 1,2006, and $832,614 related to accelerated depreciation on assets to beabandoned included in cost of goods sold. We anticipate that majority of theliabilities incurred will occur during the second and third quarters of 2006and will be settled during the same time period with funds from operations andtemporay borrowings against our working line of capital. For more informationrelated to our restructuring liabilities, see Note 11 in our financialstatements for a reconciliation of liabilities at April 2, 2006.

Inaddition, we expect to incur approximately $900,000 of cost in connection withthe relocation of inventory and other assets as well as the conversion of ourCincinnati facilities to absorb these assembly operations. These cost do notqualify as restructuring (exit) cost as they have or will be incurred tobenefit future periods. They are however non recurring cost that will impactour 2006 operations. During the period ended April 1, 2006 we incurredapproximately $192,000 of such cost which are included as a component ofselling, general and administration.

**Results of Operations**

**Comparison of the thirteen weeks ended April 1, 2006 tothe thirteen weeks ended April 2, 2005**

***NetSales***.   Our net sales for the thirteen weeks ended April 1,2006 were $65.8 million, representing an increase of approximately $6.9million, or 11.8%, compared to net sales of $58.8 for the thirteen week periodended April 2, 2005. The increase in net sales resulted primarily fromincreased co-manufacturing

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salesof approximately $6.2 million. Sales to the Department of Defense (“DoD”)increased modestly by approximately $453,000, with the remaining increase dueto specialty and other miscellaneous sales of approximately $279,000.

***GrossProfi***t.   Our gross profit for the thirteen weeksended April 1, 2006 was $4.5 million, representing a decrease ofapproximately $2.0 million, or 30.6%, compared to gross profit of $6.5 millionfor the thirteen weeks ended April 2, 2005. Gross profit decreased for thethirteen weeks ended April 1, 2006 due to increased cost related toadditional depreciation of approximately $936,000 ($832,000 related to McAllen,Texas due to consolidation of facilities and $104,000 related to additionalequipment placed in service), and unfavorable variances of approximately$1.1million, $600,000 of which was primarily in support of DoD surge shipmentsof MRE and UGR-A orders and startup inefficiencies on new co-manufacturinginitiatives and $500,000 of which related to an increase in our valuationallowance related to our spare parts on hand which supports our manufacturingoperations.

***Selling,General and Administrative Expenses***.   Our selling,general and administrative expenses were $8.0 million for the thirteen weeksended April 1, 2006 as compared to $4.9 million for the thirteen weeksended April 2, 2005, representing an increase of $3.2 million. Theincrease in selling, general and administrative expenses was attributable toincreased employee related cost for additional headcount, salary and wagesincreases and increased cost of fringe benefits of approximately $2.5 million,increased corporate administration cost of approximately $1.0 million associated with maintaining the new corporatefacility, Professional and consulting services, Advertising and promotionexpenditures (offset by savings at our McAllen, Texas facility) andapproximately $353,000 of severance and $192,000 of conversion costs for ourongoing Cincinnati operations in connection with the relocation of the Texasassembly operation.

***OperatingProfit***.   As a result of the foregoing discussionsabove on the impact gross profit and selling, general and administrativeexpenses, for the thirteen weeks ended April 1, 2006 we incurred anoperating loss of approximately $3.5 million, representing a decrease of $5.1million compared to our operating profit of $1.6 million for the thirteen weeksended April 2, 2005.

***InterestExpense***.   Our interest expense for the thirteenweeks ended April 1, 2006 was approximately $3.3 million, representing adecrease of $308,000 as compared to interest expense of $3.6 million for thethirteen weeks ended April 2, 2005. The decrease is due primarily tointerest cost on advances under our revolving line of credit during thethirteen week period ended April 2, 2005 that did not recur in 2006.

***InterestIncome***.   Our interest income for the thirteen weeksended April 1, 2006 was approximately $63,000 as compared to interestincome of $34,000 for the thirteen weeks ended April 2, 2005. The increasein interest income is due to higher interest earned on average daily balancesmaintained in fiscal 2006 as compared to fiscal 2005.

***OtherIncome (Expense), Net***.   Our other expense, net forthe thirteen weeks ended April 1, 2006 was approximately $154,000representing a decrease of $235,000 as compared to other income, net ofapproximately $80,000 for the thirteen weeks ended April 2, 2005. Thedecrease in other income (expense), net is attributable to no VE income beingearned in fiscal 2006 as compared to fiscal 2005 and the additional recordingof approximately $80,000 in additional amortization expense associated withasset retirement obligations on machinery and equipment located within leasedfacilities.

***IncomeTax Expense***.   Expenses related to federal, state andlocal taxes for the thirteen weeks ended April 1, 2006 was approximately$463,000 as compared to $556,000 for the thirteen weeks ended April 2,2005. No tax benefit has been recognized associated with the operating lossesas management believes that it is more likely than not that these tax benefitswill not be realized based on the existing uncertainty whether the Company willgenerate future taxable income due to ongoing additional tax deductions relatedto goodwill amortization. As such, we have recorded approximately $453,000 ofadditional valuation allowance on net deferred tax assets associated with theindefinite reversal period related to Goodwill amortization.

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***NetIncome (loss)***.   As a result of the foregoing, we hadnet losses of approximately $7.4 million for the thirteen weeks ended April 1,2006, representing a decrease to net income of approximately $4.9 millioncompared to the net loss of approximately 2.4 million for the thirteen weeksended April 2, 2005.

**OperatingSegment Results**

**Comparisonof the thirteen weeks ended April 1, 2006 to the thirteen weeks ended April 2,2005**

***NetSales***.   Net sales for our Right Away Divison (“RAD”)segment increased by approximately $1.4 million primarily due to an increase insales to the DoD $1.1 million (decreased MRE sales $714,000, increased UGR-Asales $1.7 and other military sales of approximately $60,000) and sales ofspecialty and other of approximately $421,000. Net sales for our Prepared FoodsDivision (“PFD”) increased approximately $5.5 million (excluding inter-segmentsales of approximately $11.2 million and $12.7 million for the thirteen weekperiods ended April 1, 2006 and April 2, 2005, respectively). Theincrease in sales was primarily attributable to increased co-manufacturingsales of approximately $6.2 million and offset by lower tray pack sales to theDoD of $640,000.

***OperatingProfit***.   Profit from operations decreased byapproximately $1.2 million for the RAD segment for the thirteen weeks ended April 1,2006 as compared to April 2, 2005. The net decrease in profit fromoperations was primarily the result of accelerated depreciation expenses ofapproximately $832,000 related to our decision to relocate our assemblyoperations from McAllen, Texas to Cincinnati, Ohio and approximately $353,000related to pay to stay severance arrangements. Profit from Operations increasedby approximately $1.5 million for the PFD segment for the thirteen weeks ended April 1,2006 as compared to the thirteen weeks ended April 2, 2005. The increasein operating profit is primarily attributable to approximately $2.0 million inselling, general and administrative expenses transferred to the new corporateheadquarters and offset by approximately $509,000 in additional spare partsexpense.

**Liquidityand Capital Resources**

Thefollowing table summarizes our net cash provided by or (used in) our operating,investing and financing activities and our capital expenditures for thethirteen weeks ended April 1, 2006 and April 2, 2005, respectively.

 
| ** **                       | ** ** | **13 Week**            | ** ** | **13 Week**            | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **Period Ended**       | ** ** | **Period Ended**       | ** ** |
| ** **                       | ** ** | **April 2, 2005** | ** ** | **April 1, 2006** | ** ** |
| Net cash provided by  (used-in): |       |                        |       |                        |       |
| Operating activities             |       | $                           | (1,595,893 | )                           | $          | (12,412,579 | ) |
| Investing activities             |       | (1,801,687                  | )          | (1,910,421                  | )          |
| Financing activities             |       | 108,550                     |       | —                      |       |
| Capital expenditures             |       | (1,801,687                  | )          | (1,910,421                  | )          |
|                                  |            |                             |            |                             |            |  |  |

 

***OperatingActivities***. Net cash used in operating activities wasapproximately $12.4 million and $1.6 million for the thirteen weeks ended April 1,2006 and April 2, 2005, respectively. Cash generated from operatingactivities decreased during the first thirteen weeks of 2006 as compared to2005 due primarily to payments made against outstanding current trade accountspayable of $12.8 million resulting from increased fourth quarter 2005 workingcapital requirements and income taxes payments of approximately $1.0 millionoffset by increased receivables from co-manufacturing customers and uses ofworking capital assets.

***InvestingActivities***. Net cash used in investing activities wasapproximately $1.9 million and $1.8 million for the thirteen weeks ended April 1,2006 and April 2, 2005, respectively and primarily attributable to capitalexpenditures in support of additional capacity and improvement of both militaryand co-manufacturing lines as well as infrastructure.

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***Financing Activities***.   For the thirteen week period ended April 1, 2006 there were nocash flows from financing activities since there was no activity on our line ofcredit and we have funded all capital expenditures with cash from operations. Forthe thirteen week period ended April 2, 2005, we were in a cash overdraftposition due to timing differences between funding inventory and collection ofreceivables related to UGR-A orders shipped at the end of the first thirteenweeks of 2005.

***Long-TermDebt Expenditures***.   In connection with our $125million Senior Secured Notes and our working capital facility, we will continue to incur significant debtservice payments including interest in future years. Total cash interestpayments related to the Senior Secured Notes will be approximately$13.6 million on an annual basis. We incurred approximately $3.3 millionof interest expense (including bond amortization cost) relating to the SeniorSecured Notes and our working capital facilities in the thirteen week periodended April 1, 2006. To the extent we have borrowings outstanding underour working capital facility, we will have additional cash interest payments.Our borrowings against our working capital facility was $0 at April 1,2006.

Theindenture governing the Senior Secured Notes, and our working capital facility,impose significant operating and financial restrictions on us. Theserestrictions limit or prohibit, among other things, our ability to incuradditional indebtedness, repay indebtedness prior to stated maturities, paydividends on or redeem or repurchase our stock, issue capital stock, makeinvestments, create liens, sell certain assets or merge with or into othercompanies, enter into certain transactions with stockholders and affiliates,make capital expenditures, sell stock in our subsidiaries and restrictdividends, distributions or other payments from our subsidiaries. In addition,our new working capital facility requires us to meet certain financial ratiosand financial condition tests. At April 1, 2006, we were in compliancewith all covenants related to our Senior Secured Notes and working capitalfacility.

On February 11,2005 our parent, TWC Holding LLC (the “Parent Company”) , and its wholly-ownedfinance subsidiary, TWC Holding Corp., co-issued their 13.875% Senior PIK Notesdue 2011, or the “Senior PIK Notes,” in the approximate aggregate principalamount of $62,259,000 net of a discount of approximately $36,259,000. TheSenior PIK Notes earn interest at the rate of 13.875% per annum, mature on August 15,2011 and are unsecured obligations of TWC Holding LLC and TWC Holding Corp. Neitherthe Company nor any of its subsidiaries guaranteed the Senior PIK notes. Thenotes limit the Company’s ability to incur additional indebtedness and paydividends or make other distributions as well as to make certain investmentsand sell certain assets or merge with or into other companies. Because ourParent Company is a holding company with no operations and has only itsinvestment in the Company and because TWC Holding Corp. has no independentoperations or assets, future cash flows or assets of the Company through 2011may be required to service the $62.3 million Senior PIK notes, upon theirmaturity.

Weexpect our remaining capital expenditures in 2006 to be approximately$13.0 million, primarily related to support plant renewal andconsolidations, efficiency improvements and expansion of our co-manufacturingbusiness.

Ourprincipal sources of liquidity are cash flow generated from operations andborrowings under our new working capital facility. As of April 1, 2006, wehad no borrowings under the working capital facility.  In addition to fluctuations in businessvolume, cash flows from operations are affected by contract terms for billingand collection. Our liquidity will also continue to be dependent on a number ofother factors, including the timing of collection on our contract receivables,processing of weekly and bi-weekly payroll and associated taxes and payment toour suppliers. Our principal uses of cash will meet debt service requirements,finance our capital expenditures and provide working capital. Based on ourcurrent level of operations, our revolving line of credit facility and ouranticipated growth, we believe that the cash flows generated by operations andour revolving line of credit will be sufficient to fund our operations for thenext 12 months and for our currently anticipated needs beyond that period.Our future operating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions and financial,business and other factors that are beyond our control.

 

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

We areexposed to market risk, primarily from the impact of interest rate changes onour potential use of variable rate debt ($0 at April 2, 2006). Ourexposure to market risks from foreign currency and commodity price fluctuationsis limited since all of our fiscal year 2006 and 2005 purchases and sales aredenominated in U.S. dollars and raw commodities do not comprise a significantpercentage of our costs. Other than with respect to our sales to the Canadianmilitary, we generally do not have exposure to foreign currency risk. Inaddition, because our customary contract terms pass through increase in cost ofcommodities underlying our products to our customers, we generally do not haveexposure to commodity price risk. Other than with respect to potential hedgeson sales to the Canadian military, we do not hedge our exposure to foreigncurrency or commodity price risk. We do not hold any derivatives for trading orspeculative purposes. Changes in the fair value of derivatives are recorded incurrent earnings along with the change in the fair value of the underlyinghedged item.

All ofour outstanding bank debt bears interest at variable interest rates tied to theprime interest rate. The use of variable rate debt to finance our operationsand capital improvements exposes us to variability in interest payments due tochanges in interest rates. We had no exposure to variable rates at April 1,2006. We believe that a hypothetical 1% increase in interest rates on ourvariable rate debt for a one-year period would have had no significant impacton our net income.

**Item 4.** Controlsand Procedures

Basedon a recent evaluation, as of the end of the period covered by the QuarterlyReport on Form 10-Q, the Company’s Chief Executive Officer and ChiefFinancial Officer have concluded that the Company’s disclosure controls andprocedures as defined in the Exchange Act Rules 13a-15(e) and15d-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 and Exchange Act of 1934, as amended.

Therewere no changes in the Company’s internal control over financial reporting thatoccurred during the thirteen week period ended April 1, 2006, constitutingthe Company’s latest fiscal quarter, that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

**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,” or words or phrasesof similar meaning. They may relate to, among other things:

·  ourliquidity and capital resources;

·  ourcontracts with the U.S. Government;

·  theU.S. Department of Defense budget in general and U.S. military activity inparticular;

·  ourco-manufacturing plans;

·  competitivepressures and trends in our industry;

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·  prevailinginterest rates;

·  legalproceedings and regulatory matters;

·  otherrisks related to our Senior Secured Notes (including the value of thecollateral);

·  statementswith respect to the Transactions (as defined herein);

·  generaleconomic conditions; and

·  ourdevelopment and expansion plans and expectations for the future.

Theseforward-looking statements reflect our current views with respect to futureevents and are based on assumptions and subject to risks and uncertainties,including, but not limited to, economic, competitive and governmental factorsoutside of our control, that may cause actual results to differ materially fromtrends, plans or expectations set forth in the forward-looking statements andmay adversely affect us. It is not possible for us to predict all of theserisks, nor can we assess the extent to which any factor, or combination offactors, may cause actual results to differ from those contained inforward-looking statements. The foregoing list of important factors and otherrisk detailed from time to time in the Company’s reports filed with theSecurities and Exchange Commission are not exhaustive.

**PART II—OTHERINFORMATION**

**Item 1.**   Legal Proceedings.

We area defendant in various legal actions arising in the normal course of business,the outcomes of which, in the opinion of management, neither individually norin the aggregate are likely to result in a material adverse effect on ourbusiness, results of operations, financial position or cash flows.

**Item 2.**   Unregistered Sales ofEquity Securities and Use of Proceeds.

None.

**Item 3.**   Defaults Upon SeniorNotes.

None.

**Item 4.**   Submission of Matters to aVote of Securities Holders.

None.

**Item 5.**   Other Information.

None.

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**Item 6.**   Exhibits.

 
| No.    | ** ** | ** **                                                                | ** ** | Description | ** ** | ** ** |
|--------|------------|---------------------------------------------------------------------------|------------|-------------|------------|------------|
| 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)                                                        |

 

**Signatures**

Pursuantto the requirements of the Securities and Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                     |   | THE WORNICK COMPANY |                                  |
|--------------------------|--------|---------------------|---------------------------------------|
|                     |   | (Registrant)        |                                  |
|                     |   |                |                                  |
| Date:  May 16, 2006 |   | By:                 | /s/ MICHAEL M. THOMPSON               |   |
|                     |   |                | Michael M. Thompson                   |   |
|                     |   |                | President and Chief Executive Officer |   |
|                     |   |                | (Principal Executive Officer)         |   |
|                     |   |                |                                  |
| Date:  May 16, 2006 |   | By:                 | /s/ Brian A.  Lutes                   |   |
|                     |   |                | Brian A. Lutes                        |   |
|                     |   |                | Chief Financial Officer and Treasurer |   |
|                     |   |                | (Principal Financial Officer and      |   |
|                     |   |                | Principal Accounting Officer)         |   |

 

 

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