**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

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

 

**For thequarterly period ended October 1, 2005**

 

**or**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from            to            **

 

**CommissionFile Number: 333-119336**

 

**The Wornick Company**

(Exact name of registrant asspecified in its charter)

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

 

**(513) 794-9800**

(Registrant’s telephonenumber, including area code)

 

**N/A**

(Former name, former addressand 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.  ý  Yes    o  No

 

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

 

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

 

On November 15, 2005,one share of Registrant’s common stock was outstanding.

 

 

----

 

The Wornick Company

Table of Contents

 
| **PART I - FINANCIAL INFORMATION**                                                             | ** **                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                |                                                                                                                                                                                                                          |   |
| Item 1. Financial Statements  (unaudited)                                                           |                                                                                                                                                                                                                          |
|                                                                                                | Unaudited  Condensed Consolidated Balance Sheets at December 31, 2004 and October 1,  2005                                                                                                                          |   |
|                                                                                                |                                                                                                                                                                                                                          |   |
|                                                                                                | Unaudited  Condensed Consolidated Statements of Operations of the Successor for the  thirteen week period ended October 2, 2004 and October 1, 2005 and  for the thirty-nine week period ended October 1, 2005 |   |
|                                                                                                |                                                                                                                                                                                                                          |   |
|                                                                                                | Unaudited Condensed Statement of Operations of the  Predecessor for the twenty-six week period ended June 30, 2004                                                                                                       |   |
|                                                                                                |                                                                                                                                                                                                                          |   |
|                                                                                                | Unaudited  Condensed Consolidated Statements of Cash Flows of the Successor for the  thirteen week period ended October 2, 2004 and thirty nine week period  ended October 1, 2005                                  |   |
|                                                                                                |                                                                                                                                                                                                                          |   |
|                                                                                                | Unaudited Condensed Consolidated Statement of Cash Flows of  the Predecessor for the twenty-six week period ended June 30, 2004                                                                                          |   |
|                                                                                                |                                                                                                                                                                                                                          |   |
|                                                                                                | 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 Disclousres 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                                                                                          |                                                                                                                                                                                                                          |

 

----

 

Part I –FINANCIAL INFORMATION

 

Item 1.                                                                                                                                                                                                                                                                           FinancialStatements

THE WORNICK COMPANYCondensed Consolidated BalanceSheets

(Unaudited)

 
| ** **                                       | ** ** | **Successor**         | ** **  |
|--------------------------------------------------|------------|-----------------------|-------------|
| ** **                                       | ** ** | **December 31,** | ** **  | **October 1,** | ** ** |
| ** **                                       | ** ** | **2004**              | ** **  | **2005** | ** ** |
| **Assets**                                       | ** ** | ** **            | ** **  | ** ** | ** ** |
| Current  assets                                  |       |                  |        |   |   |
| Cash and  cash equivalents                       |       | $                     | 3,289,030   |   | $ | 394,174 |   |
| Trade  accounts receivable, net                  |       | 13,856,294            |        | 20,355,354 |   |
| Inventories                                      |       | 24,132,116            |        | 25,816,342 |   |
| Prepaid  expenses and other current assets       |       | 531,106               |        | 729,399 |   |
| Total  current assets                            |       | 41,808,546            |        | 47,295,269 |   |
| Property and  equipment, net                     |       | 32,794,239            |        | 40,911,353 |   |
| Goodwill                                         |       | 77,573,207            |        | 77,573,207 |   |
| Intangible  assets, net                          |       | 21,822,710            |        | 18,301,773 |   |
| Other  noncurrent assets                         |       | 5,675,939             |        | 5,235,697 |   |
| Total assets                                     |       | $                     | 179,674,641 |   | $ | 189,317,299 |   |
|                                             |       |                  |        |   |   |
| **Liabilities  and Stockholder’s Equity**   | ** ** | ** **            | ** **  | ** ** | ** ** |
| Current  liabilities                             |       |                  |        |   |   |
| Book  overdraft                                  |       | $                     | —      |   | $ | 1,718,497 |   |
| Trade  accounts payable                          |       | 6,167,826             |        | 14,026,482 |   |
| Accrued  expenses                                |       | 3,122,446             |        | 5,739,812 |   |
| Accrued  interest                                |       | 6,796,875             |        | 2,832,032 |   |
| Taxes  payable                                   |       | 51,950                |        | — |   |
| Total  current liabilities                       |       | 16,139,097            |        | 24,316,823 |   |
| Deferred tax  liabilitiy                         |       | 912,067               |        | 2,280,067 |   |
| Long-term  debt, excluding current maturities    |       | 125,000,000           |        | 125,000,000 |   |
| Total  liabilities                               |       | 142,051,164           |        | 151,596,890 |   |
|                                             |       |                  |        |   |   |
| **Commitments  and Contingencies**               | ** ** | ** **            | ** **  | ** ** | ** ** |
| Stockholder’s  equity                       |       |                  |        |   |   |
| Common stock                                     |       | —                |        | — |   |
| Additional  paid-in capital                      |       | 37,646,400            |        | 37,678,815 |   |
| Retained  earnings (Deficit)                     |       | (22,923               | )           | 41,594 |   |
| Total  stockholder’s equity                 |       | 37,623,477            |        | 37,720,409 |   |
| Total  liabilities and stockholder’s equity |       | $                     | 179,674,641 |   | $ | 189,317,299 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

1

----

 

THE WORNICK COMPANY

Condensed Consolidated Statements of Operations

(Unaudited)

 
| ** **                                    | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **Successor**            | ** ** | **Predecessor**             | ** ** | **Successor** | ** ** | **Successor** | ** ** |
| ** **                                    | ** ** | **July 1, 2004**    | ** ** | **July 2, 2005**       | ** ** | **January 1, 2004** | ** ** | **July 1, 2004** | ** ** | **January 1, 2005** | ** ** |
| ** **                                    | ** ** | **through**              | ** ** | **through October**         | ** ** | **through** | ** ** | **through** | ** ** | **through October** | ** ** |
| ** **                                    | ** ** | **October 2, 2004** | ** ** | ** 1, 2005**           | ** ** | **June 30, 2004** | ** ** | **October 2, 2004** | ** ** | **1, 2005** | ** ** |
| Net sales                                     |       | $                        | 51,077,176 |                        | 56,731,139 |   | $ | 80,923,839 |   |   | $ | 51,077,176 |   | $ | 159,956,301 |   |
| Cost of  sales                                |       | 43,422,124               |       | 43,699,206                  |       | 67,668,529 |   |   | 43,422,124 |   | 132,501,162 |   |
| Gross profit                                  |       | 7,655,052                |       | 13,031,933                  |       | 13,255,310 |   |   | 7,655,052 |   | 27,455,139 |   |
| Selling,  general and administrative expenses |       | 4,237,990                |       | 5,807,460                   |       | 12,458,600 |   |   | 4,237,990 |   | 15,289,094 |   |
| Operating  profit                             |       | 3,417,062                |       | 7,224,473                   |       | 796,710 |   |   | 3,417,062 |   | 12,166,045 |   |
| Other  (expense) income                       |       |                     |       |                        |       |   |   |   |   |   |   |   |
| Interest  income                              |       | 32,422                   |       | 26,545                      |       | 506,553 |   |   | 32,422 |   | 125,479 |   |
| Interest  expense                             |       | (3,597,165               | )          | (3,638,583                  | )          | (99,791 | ) |   | (3,597,165 | ) | (10,781,637 | ) |
| Other  income(expense), net                   |       | (13,159                  | )          | (97,354                     | )          | 284,921 |   |   | (13,159 | ) | (124,579 | ) |
| Total other  income (expense)                 |       | (3,577,902               | )          | (3,709,392                  | )          | 691,683 |   |   | (3,577,902 | ) | (10,780,737 | ) |
| Income(loss)  before income taxes             |       | (160,840                 | )          | 3,515,081                   |       | 1,488,393 |   |   | (160,840 | ) | 1,385,308 |   |
| Income tax  expense                           |       | 21,949                   |       | 360,621                     |       | 41,052 |   |   | 21,949 |   | 1,320,791 |   |
| Net  income/(loss)                            |       | (182,789                 | )          | 3,154,460                   |       | 1,447,341 |   |   | (182,789 | ) | 64,517 |   |
|                                          |       |                     |       |                        |       |   |   |   |   |   |   |
| Pro forma income data (unaudited)             |       |                     |       |                        |       |   |   |   |   |   |   |
| Income  before income taxes                   |       |                     |       |                        |       | $ | 1,488,393 |   |   |   |   |   |   |
| Pro forma income tax expense                  |       |                     |       |                        |       | 949,825 |   |   |   |   |   |   |
| Pro forma  net income                         |       |                     |       |                        |       | $ | 538,568 |   |   |   |   |   |   |
|                                               |            |                          |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

2

----

 

THE WORNICK COMPANY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
| ** **                                                                                   | ** ** | **Thirty-Nine Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                   | ** ** | **(Predecessor)**           | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** |
| ** **                                                                                   | ** ** | **January 1, 2004**    | ** ** | ** ** | **July1, 2004** | ** ** | **January 1, 2005** | ** ** |
| ** **                                                                                   | ** ** | **through**                 | ** ** | ** ** | **through October** | ** ** | **through October** | ** ** |
| ** **                                                                                   | ** ** | **June 30, 2004**      | ** ** | ** ** | **2, 2004** | ** ** | **1, 2005** | ** ** |
|                                                                                         |       |                        |       |   |   |   |   |   |
| **Cash  flows from operating activities**                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                           |       | $                           | 1,447,341  |   |   | $ | (182,789 | ) | $ | 64,517 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities |       |                        |       |   |   |   |   |   |
| Depreciation  of property and equipment                                                      |       | 1,386,904                   |       |   | 864,329 |   | 2,907,021 |   |
| Amortization  of intangibles                                                                 |       | —                      |       |   | 1,173,645 |   | 3,520,937 |   |
| Amortization  of inventory step-up                                                           |       | —                      |       |   | 1,767,037 |   | — |   |
| Amortization  of bond issuance cost                                                          |       | —                      |       |   | 150,054 |   | 512,100 |   |
| Deferred  income tax expense                                                                 |       | —                      |       |   | — |   | 1,368,000 |   |
| Compensation  expense for Employee Stock                                                     |       |                        |       |   |   |   |   |   |
| Ownership  Trust shares released and committed to be released                                |       | 2,344,292                   |       |   | — |   | — |   |
| Compensation  expense for stock options                                                      |       | 713,433                     |       |   | — |   | 32,415 |   |
| Other  stock-based compensation expense                                                      |       | 3,266,814                   |       |   | — |   | — |   |
| Stock  compensation plans                                                                    |       | (4,270,995                  | )          |   | — |   | — |   |
| Changes in  assets and liabilities                                                           |       |                        |       |   |   |   |   |   |
| Trade  accounts receivable                                                                   |       | 1,189,462                   |       |   | (13,804,595 | ) | (6,499,060 | ) |
| Inventories                                                                                  |       | (4,693,075                  | )          |   | 3,025,521 |   | (1,684,225 | ) |
| Prepaid expenses  and other current assets                                                   |       | 162,149                     |       |   | (695,251 | ) | (198,293 | ) |
| Other  noncurrent asset                                                                      |       | (56,901                     | )          |   | (18,132 | ) | (71,858 | ) |
| Trade  accounts payable and accrued expenses                                                 |       | (1,961,207                  | )          |   | 7,570,535 |   | 10,476,022 |   |
| Accrued bond  interest                                                                       |       | —                      |       |   | 3,548,493 |   | (3,964,843 | ) |
| Taxes  payable                                                                               |       | —                      |       |   | — |   | (51,950 | ) |
| Net cash  (used in) provided by operating activities                                         |       | (471,783                    | )          |   | 3,398,847 |   | 6,410,783 |   |
| **Cash  flows from investing activities**                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments  received on notes receivable                                                       |       | 610,100                     |       |   | — |   | — |   |
| Proceeds  from the sale of investments                                                       |       | 19,988,514                  |       |   | — |   | — |   |
| Purchase of  investments                                                                     |       | (30,007,514                 | )          |   | — |   | — |   |
| Business  acquired                                                                           |       | —                      |       |   | (165,060,252 | ) | — |   |
| Capital  expenditures                                                                        |       | (2,382,720                  | )          |   | (659,952 | ) | (11,024,135 | ) |
| Net cash (used  in) investing activities                                                     |       | (11,791,620                 | )          |   | (165,720,204 | ) | (11,024,135 | ) |
| **Cash  flows from financing activities**                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Change in  book overdrafts                                                                   |       | 243,027                     |       |   | 206,475 |   | 1,718,496 |   |
| Net increase  in the line of credit                                                          |       | 8,700,000                   |       |   | — |   | — |   |
| Proceeds  from issuance of long-term debt                                                    |       | —                      |       |   | 125,000,000 |   | — |   |
| Principal  payments on long-term debt                                                        |       | (629,305                    | )          |   | — |   | — |   |
| Proceeds  from issuance of common stock                                                      |       | —                      |       |   | 37,500,000 |   | — |   |
| Net cash  provided by financing activities                                                   |       | 8,313,722                   |       |   | 162,706,475 |   | 1,718,496 |   |
| Net  (decrease) increase in cash and cash equivalents                                        |       | (3,949,681                  | )          |   | 385,118 |   | (2,894,856 | ) |
| **Cash and  cash equivalents**                                                               | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning of  period                                                                         |       | 5,290,667                   |       |   | — |   | 3,289,030 |   |
| End of  period                                                                               |       | $                           | 1,340,986  |   |   | $ | 385,118 |   | $ | 394,174 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

3

----

 

**TheWornick Company**

**Notes to the Unaudited Consolidated Financial Statements**

 

**1.****                                     ****Organization**

 

TheWornick Company, a Delaware corporation (the “Company” or “Successor”), an acquisitionvehicle formed by The Veritas Capital Fund II, L.P., and its general partner,Veritas Capital Management II, L.L.C. (collectively “Veritas”), entered into anAssets Purchase and Sale Contract with The Wornick Company, a Nevadacorporation (the “Predecessor”), and its subsidiaries, The Wornick CompanyRight Away Division, a Nevada corporation, The Wornick Company Right AwayDivision, 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 normallyincluded in financial statements prepared in conformity with accountingprinciples generally accepted in the United States of America. In the opinionof management, the interim consolidated financial statements reflect alladjustments of a normal recurring nature considered necessary for a fairpresentation of the results for the periods presented.  Operating resultsfor interim periods are not necessarily indicative of results that may beexpected for the fiscal year as a whole.  The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues, expenses,and related disclosures at the date of the financial statements and during thereporting period.  Actual amounts could differ from these estimates. These unaudited interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2004 and notes thereto included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2004 filed withthe Securities and Exchange Commission.

 

Asdiscussed in Note 1 above, the Assets Purchase and Sale Contract wasconsummated on June 30, 2004.  As such, the unaudited financialinformation presented represents: (i) the Condensed Consolidated BalanceSheet of the Successor at December 31, 2004 and October 1, 2005, (ii) theCondensed Consolidated Statement of Operations of the Predecessor for thetwenty-six week period ended June 30, 2004, (iii) the CondensedConsolidated Statements of Operations of the Successor for the thirteen weekperiod ended October 2, 2004, (iv) the Condensed ConsolidatedStatement of Operations of the Successor for the thirteen and thirty-nine weekperiods ended October 1, 2005, (v) the Condensed ConsolidatedStatement of Cash Flows of the Predecessor for the twenty-six week period endedJune 30, 2004, (vi) the Condensed Consolidated Statement of CashFlows of the Successor for the thirteen week period ended October 2, 2004and (vii) the Condensed Consolidated Statement of Cash Flows of theSuccessor for the thirty-nine week period ended October 1, 2005.

 

4

----

 

Forthe purpose of these financial statements, references to the Predecessor twenty-sixweek period ended June 30, 2004, reflect the result of operations for theperiod from January 1, 2004 to June 30, 2004.

 

Certainitems in the predecessor statement of operations have been reclassified toconform to current year presentations. These reclassifications had no impact onpreviously reported net income or stockholder’s equity.

 

**3.****                                     ****Acquisition**

 

OnJune 30, 2004 (the “Acquisition Date”), pursuant to the Assets Purchaseand Sale Contract described above in Note 1, the Company acquired all of theoperating assets of the Predecessor.  The acquisition was financed througha combination of debt and equity issuances. The purchase price of $165.0million included approximately $10.1 million of transaction costs. Goodwill of $77.6 million represents the excess of the acquisition cost overthe estimated fair value of the identifiable assets acquired.  Theidentifiable intangible assets relate to the value of existing long-termcustomer supply contracts in place at the Acquisition Date.  The purchaseprice has been allocated to the assets acquired in accordance with the purchasemethod of accounting as follows:

 
| Inventory                    |   | $          | 27,062,776  |   |
|------------------------------|--------|------------|-------------|--------|
| Property and  equipment      |   | 30,320,502 |        |
| Intangible  assets           |   | 24,170,000 |        |
| Goodwill                     |   | 77,573,207 |        |
| Deferred  debt issuance cost |   | 4,458,990  |        |
| Other  noncurrent assets     |   | 1,449,777  |        |
|                         |   | $          | 165,035,252 |   |

 

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

 

Summaryselected pro forma information of the Predecessor as though the transactionwere completed at the beginning of the respective period presented (and asthough the Company were taxed as a C-Corporation) is as follows:

 
| **(in thousands of dollars)** |   | **Twenty-Six  Week  Period Ended  June 30, 2004** |   |
|-------------------------------|--------|--------------------------------------------------------|--------|
|                          |   | **(Predecessor)**                                      |   |
| Net sales                     |   | $                                                      | 80,924 |   |
| Net income  (loss)            |   | (5,950                                                 | )      |
|                               |        |                                                        |        |  |

 

5

----

 

**4.****                                     ****Supplemental Balance SheetInformation**

 

**Inventories**

Asummary of inventories is as follows:

 
| ** **       | ** ** | **Successor**         | ** ** |
|------------------|------------|-----------------------|------------|
| ** **       | ** ** | **December 31,** | ** ** | **October 1,** | ** ** |
| ** **       | ** ** | **2004**              | ** ** | **2005** | ** ** |
|             |       |                  |       |   |   |
| Raw  materials   |       | $                     | 15,187,856 |   | $ | 14,551,138 |   |
| Work in  process |       | 1,838,828             |       | 1,913,576 |   |
| Finished  goods  |       | 7,105,432             |       | 9,351,628 |   |
|             |       | $                     | 24,132,116 |   | $ | 25,816,342 |   |

 

**Property and Equipment, Net**

Asummary of property and equipment, net is as follows:

 
| ** **                                       | ** ** | **Successor**         | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **December 31,** | ** ** | **October 1,** | ** ** |
| ** **                                       | ** ** | **2004**              | ** ** | **2005** | ** ** |
|                                             |       |                  |       |   |   |
| Leasehold  improvements                          |       | $                     | 1,771,322  |   | $ | 2,684,250 |   |
| Machinery  and equipment                         |       | 26,166,475            |       | 28,556,844 |   |
| Office  equipment, fixtures and vehicles         |       | 2,395,476             |       | 1,881,820 |   |
| Construction  in progress                        |       | 4,216,827             |       | 12,451,321 |   |
|                                             |       | 34,550,100            |       | 45,574,235 |   |
|                                             |       |                  |       |   |   |
| Less:  Accumulated depreciation and amortization |       | 1,755,861             |       | 4,662,882 |   |
|                                             |       | $                     | 32,794,239 |   | $ | 40,911,353 |   |

 

Depreciationexpense for the thirteen week periods ended October 2, 2004 and October 1,2005 was approximately $864,000 and $996,000, respectively.  Depreciation expense for the thirty-nine weekperiod ended October 1, 2005 was approximately $2,907,000.

 

**5.****                                     ****Intangible Assets**

 

Inconnection with the acquisition described in Note 3, a portion of thepurchase price was allocated to identifiable intangible assets related to thevalue of long-term customer supply contracts in place at the AcquisitionDate.  The original value of these contracts was $24,170,000 and theiruseful lives range from three to eight years.  Aggregate accumulatedamortization of intangibles at December 31, 2004 and October 1, 2005amounted to $2,347,290 and $5,868,227 respectively.  Expense related toamortization of intangible assets for the thirteen week periods ended October 2,2004 and October 1, 2005 amounted to $1,173,645, respectively.

 

6

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Scheduledamortization of these assets is as follows:

 
| October 2,  2005 through December 31, 2005 |   | $         | 1,173,643  |   |
|------------------------------------------------------|--------|-----------|------------|--------|
| 2006                                                 |   | 4,694,580 |       |
| 2007                                                 |   | 4,627,918 |       |
| 2008                                                 |   | 4,856,248 |       |
| 2009                                                 |   | 2,421,226 |       |
| Thereafter                                           |   | 528,158   |       |
|                                                 |   | $         | 18,301,773 |   |

 

**6.****                                     ****Notes Payable and Long-Term Debt**

 

Asummary of long-term debt at December 31, 2004 and October 1, 2005,is as follows:

 
| ** **                                    | ** ** | **December 31,** | ** **  | **October 1,** | ** ** |
|-----------------------------------------------|------------|-----------------------|-------------|---------------------|------------|
| ** **                                    | ** ** | **2004**              | ** **  | **2005**            | ** ** |
|                                          |       |                  |        |                |       |
| 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 |   |

 

Inconnection with the financing of the acquisition described in Note 3, theCompany issued $125.0 million 10-7/8% Senior Secured Notes due 2011 andalso secured additional financing through a Revolving Loan Agreement whichprovides the Company $15.0 million of revolving loan financing through June 30,2009, with an additional revolving credit facility of $10.0 millionbecoming available upon certain events.  Amounts outstanding under theRevolving Loan Agreements ($0 at December 31, 2004 and October 1,2005) are due June 30, 2009, and amounts outstanding are subject tolimitations as determined by a calculated borrowing base.

 

Intereston amounts outstanding under the Revolving Loan Agreement will vary at afluctuating rate per annum that is equal to the prime rate (5.25% at December 31,2004 and 6.75% at October 1, 2005) as published daily by The WallStreet Journal.  Amounts outstanding under the Revolving LoanAgreement are collateralized by substantially all of the operating assets ofthe Company and its subsidiaries.  The lien on such collateral is seniorto the lien on the collateral that secures the Senior Secured Notes.  Inconnection with completing the acquisition, the Company borrowed $3.0 millionagainst the revolving loan facility to fund the acquisition and initial workingcapital of the Successor.  This amount was subsequently repaid prior to December 31,2004.  As of October 1, 2005 we are in compliance with all covenantssupporting our revolving loan agreement and our $125 million Senior SecuredNotes.

 

TheSenior Secured Notes are collateralized by substantially all assets and otherproperty of the Company and its subsidiaries.  The lien on suchcollateral, however, is subordinate to the lien on the collateral securing theRevolving Loan Agreement.  Interest on the Senior Secured Notes is payablesemi-annually.  Interest expense on the Senior Secured Notes and revolvingloan facility for the thirty-nine week period ended October 1, 2005amounted to $10,195,313 and $75,162, respectively.

 

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

 

7

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minimumprofitability and minimum net worth calculations.  At October 1, 2005we were in compliance with all financial covenants.

 

OnFebruary 11, 2005 our parent, TWC Holding LLC (the “Parent Company”) , andits wholly-owned finance subsidiary, TWC Holding Corp., co-issued their 13.875%Senior PIK Notes due 2011, or the “Senior PIK Notes,” in the approximateaggregate principal amount of $62,259,000 with a discount of approximately$36,259,000.  The Senior PIK Notes earn interest at the rate of 13.875%per annum, mature on August 15, 2011 and are unsecured obligations of TWCHolding LLC and TWC Holding Corp.  Neither the Company nor any of itssubsidiaries guaranteed the Senior PIK notes.  The notes limit the Company’sability to incur additional indebtedness and pay dividends or make otherdistributions as well as to make certain investments and sell certain assets ormerge with or into other companies.  Because our Parent Company is aholding company with no operations and has only its investment in the Company,and because TWC Holding Corp. has no independent operations or assets, futurecash flows or assets of the Company through 2011 may be required to service the$62.3 million Senior PIK notes upon their maturity.

 

Thepro forma effect of the additional interest expense on our net income assumingthe Company issued the Senior PIK notes and such issuance took place at thebeginning of the year would have resulted in interest expense (pre-tax) ofapproximately $1,046,000 and $3,021,000 for the thirteen and thirty-nine weekperiods ended October 1, 2005, respectively.

 

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

 

Inconnection with the transactions described in Note 3, the Successor is taxed asa C-Corporation whereas the Predecessor was a pass-through entity qualifiedunder Subchapter S of the Internal Revenue Code.  The Company provides for income taxesutilizing the asset liability method, current income tax expense or benefitrepresents income taxes expected to be payable or refundable for the currentperiod.  Deferred income taxes are recognized for the tax consequences infuture years as a result of differences between the tax and financial reportingbases of assets and liabilities and for the expected future tax benefit to bederived from tax credit and loss carry-forwards.  Valuation allowances areestablished when necessary to reduce deferred tax assets to the amountsmanagement believes are more likely than not to be realized in future taxreturns.  Tax rate changes are reflected in the period such changes areenacted.  The Company has recorded a deferred tax liability ofapproximately $2,280,000 related to the indefinite reversal period related togoodwill.

 

**8.****                                     ****Successor Company StockCompensation Plan**

 

Ourparent company, TWC Holding LLC has two classes of membership interests, Class Ainterests and Class B interests. In connection with completing theAcquisition, certain members of our management and outside directors received Class Binterests. Pursuant to the terms of the operating agreement governing TWCHolding LLC, the holders of Class B interests are entitled to receive upto 7.875%, in aggregate, of all distributions made by TWC Holding LLC after theholders of Class A interests have received a return of their investedcapital provided that the holders of the Class A interests have receivedan 8% per annum internal rate of return on their invested capital. The Class Binterests are subject to a five-year vesting schedule with any unvested interestreverting 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. The total fair value of these class B interests as of theirissuance date was determined to be $1,464,000. During the period ended April 2,2005, certain members of management terminated their employment with Wornickand forfeited their class B interests. In addition subsequent to October 1, 2005 certain members of managementrelinquished their class B interests.  Assuch, previously recognized compensation expense of approximately $78,000 wasreversed in the 

 

8

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thirteenweek period ended April 2, 2005 related to the vesting provisions of theseClass B interests. As it relates to members of management thatrelinquished their class B interests in November 2005, previously recognizedcompensation expense of approximately $34,000 was reversed during the thirteenweek period ended October 1, 2005.

 

OnApril 11, 2005 and November 11, 2005, TWC Holding LLC issuedadditional Class B membership interests to recently retained seniormanagement of the Wornick.  These Class Bmembership interests will vest over a five year period.  Approximately $145,000 of compensationexpense was recognized in the thirty-nine week period ended October 1,2005 related to all outstanding class B units, resulting in net compensationexpense for Class B membership interests for the thirty-nine week periodended October 1, 2005 of $32,415.

 

**9.****                                     ****Operating Segment Information**

 

TheCompany has two operating segments: the Right Away Division (“RAD”) and thePrepared Foods Division (“PFD”).  RAD is located in Texas and primarilysells its product to the U.S. Department of Defense.  PFD is located inOhio and also sells directly to the U.S. Department of Defense as well as tocommercial branded food companies and inter-segment sales to RAD. Management evaluates segment performance based on several factors, includingoperating profit.

 

Consistentwith the Predecessor’s internal management reporting, corporate operations forthe Predecessor include investment and interest income, compensation expensefor The Wornick Company (Predecessor) Employee Stock Ownership Trust (“ESOT”),stock options and other stock-based compensation expense and overheadcosts.  Corporate assets primarily include investments in subsidiaryguarantors (which are eliminated in consolidation), other investments andgoodwill.

 

TheCompany’s sales by product line for the periods indicated are as follows:

 
| ** **                    | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|-------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | ** **               | ** ** | ** **                  | ** ** | **January1, 2004** | ** ** | ** ** | **July 1, 2004** | ** ** | **January 1, 2005** | ** ** |
| ** **                    | ** ** | **October 2,**      | ** ** | **October 1,**         | ** ** | **through** | ** ** | ** ** | **through** | ** ** | **through** | ** ** |
| **(in thousands of dollars)** | ** ** | **2004**                 | ** ** | **2005**                    | ** ** | **June 30, 2004** | ** ** | ** ** | **October 2, 2004** | ** ** | **October 1, 2005** | ** ** |
| ** **                    | ** ** | **Successor**            | ** ** | **Successor**               | ** ** | **Predecessor** | ** ** | ** ** | **Successor** | ** ** | **Successor** | ** ** |
| DOD Sales                     |       |                     |       |                        |       |   |   |   |   |   |   |   |
| Meals  Ready-to-Eat           |       | $                        | 27,589     |                        | $          | 25,200 |   | $ | 39,078 |   |   | $ | 27,589 |   | $ | 83,964 |   |
| Unitized  Group Rations       |       | 12,050                   |       | 13,842                      |       | 24,518 |   |   | 12,050 |   | 36,143 |   |
| Tray-Pack                     |       | 1,847                    |       | 2,446                       |       | 2,410 |   |   | 1,847 |   | 4,663 |   |
| Military  Other               |       | 874                      |       | 1,339                       |       | 793 |   |   | 874 |   | 2,656 |   |
| Total DOD  sales              |       | 42,360                   |       | 42,827                      |       | 66,799 |   |   | 42,360 |   | 127,426 |   |
| Co-manufactured               |       | 5,533                    |       | 11,741                      |       | 10,329 |   |   | 5,533 |   | 28,515 |   |
| Branded                       |       | 1,443                    |       | 1,604                       |       | 2,359 |   |   | 1,443 |   | 2,993 |   |
| Other                         |       | 1,741                    |       | 559                         |       | 1,437 |   |   | 1,741 |   | 1,022 |   |
|                          |       | $                        | 51,077     |                        | $          | 56,731 |   | $ | 80,924 |   |   | $ | 51,077 |   | $ | 159,956 |   |

 

During the thirteen week periods ended October 2,2004 and October 1, 2005, the Company had one major customer, (DoD), whichaccounted for approximately $42,360,000 and $42,827,000 or 82.9% and 75.5% ofnet revenue, respectively.  This customeraccounted for approximately $127,426,000 or 79.7% of sales for the thirty-nineweek period ended October 1, 2005.  Approximately$10,220,000 or 74.0%% and $12,631,000 or 62.1%, of net receivables wereattributable to this customer at October 2, 2004 and October 1, 2005,respectively.

 

9

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Unaudited reportable operating segment financialinformation for the Successor thirteen week periods ended October 2, 2004and October 1, 2005, is as follows:

 
| ** **               | ** ** | **Successor** | ** ** |
|--------------------------|------------|---------------|------------|
| ** **               | ** ** | ** **    | ** ** | ** ** | ** ** | **Operating** | ** ** |
| ** **               | ** ** | **Trade**     | ** ** | **Inter-segment** | ** ** | **Profit** | ** ** |
| **Operating Segments**   | ** ** | **Revenue**   | ** ** | **Revenue** | ** ** | **(Loss)** | ** ** |
|                     |       |          |       |   |   |   |   |
| **Right  Away Division** | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| October 2,  2004    |       | 40,886,565    |       | — |   | 2,985,485 |   |
| October 1,  2005    |       | 40,020,057    |       | — |   | 8,588,604 |   |
| **Prepared  Foods**      | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| October 2,  2004    |       | 10,190,611    |       | 13,504,633 |   | 1,645,425 |   |
| October 1,  2005    |       | 16,711,082    |       | 7,986,602 |   | 3,045,671 |   |
| **Corporate**            | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| October 2,  2004    |       | —        |       | — |   | (173,000 | ) |
| October 1,  2005    |       | —        |       | — |   | (4,409,802 | ) |
| **Eliminations**         | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| October 2,  2004    |       | —        |       | (13,504,633 | ) | (1,040,848 | ) |
| October 1,  2005    |       | —        |       | (7,986,602 | ) |   |   |
| **Total  Company**       | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| October 2,  2004    |       | 51,077,176    |       | — |   | 3,417,062 |   |
| October 1,  2005    |       | 56,731,139    |       | — |   | 7,224,473 |   |

 

10

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Unaudited reportable operating segmentinformation for the thirty-nine week periods ended October 2, 2004 and October 1,2005, is as follows;

 
| ** **                                                | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------------------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|
| ** **                                                | ** ** | **Trade**   | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** | ** **       | ** ** | ** **       | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating Segments**                                    | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Depreciation** | ** ** | **Amortization** | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                                                      |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| **Right Away Division**                                   | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** |
| January 1, 2004 to June 30, 2004  (Predecessor) |       | 65,266,652  |       | —            |       | 4,358,847     |       | 486,473          |       | —           |       | —      |       | 773,591          |       |
| July 1, 2004 to October 2, 2004  (Successor)    |       | 40,886,565  |       | —            |       | 2,985,485     |       | 369,329          |       | 652,930          |       | —      |       | 116,557          |       |
| January 1, 2005 to October 1, 2005  (Successor) |       | 122,615,594 |       | —            |       | 20,666,404    |       | 994,741          |       | 617,500          |       | 32,594,130  |       | 427,366          |       |
| **Prepared Foods**                                        | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** |
| January 1, 2004 to June 30, 2004  (Predecessor) |       | 15,657,187  |       | 19,815,600        |       | 4,413,202     |       | 891,518          |       | —           |       | —      |       | 1,609,129        |       |
| July 1, 2004 to October 2, 2004  (Successor)    |       | 10,190,611  |       | 13,504,633        |       | 1,645,425     |       | 495,000          |       | 2,287,752        |       | —      |       | 543,395          |       |
| January 1, 2005 to October 1, 2005  (Successor) |       | 37,340,707  |       | 28,106,199        |       | (2,018,861    | )          | 1,912,280        |       | 2,903,437        |       | 73,898,785  |       | 10,596,769       |       |
| **Corporate**                                             | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** |
| January 1, 2004 to June 30, 2004  (Predecessor) |       | —      |       | —            |       | (7,975,339    | )          | 8,913            |       | —           |       | —      |       | —           |       |
| July 1, 2004 to October 2, 2004  (Successor)    |       | —      |       | —            |       | (173,000      | )          | —           |       | 150,054          |       | —      |       | —           |       |
| January 1, 2005 to October 1, 2005  (Successor) |       | —      |       | —            |       | (6,481,498    | )          | —           |       | 512,100          |       | 106,600,443 |       | —           |       |
| **Eliminations**                                          | ** ** | ** **  | ** ** | ** **        | ** ** | ** **    | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** |             | ** ** |
| January 1, 2004 to June 30, 2004  (Predecessor) |       | —      |       | (19,815,600       | )          | —        |       | —           |       | —           |       | —      |       | —           |       |
| July 1, 2004 to October 2, 2004  (Successor)    |       | —      |       | (13,504,633       | )          | (1,040,848    | )          | —           |       | —           |       | —      |       | —           |       |
| January 1, 2005 to October 1, 2005  (Successor) |       | —      |       | (28,106,199       | )          | —        |       | —           |       | —           |       | (23,776,059 | )          | —           |       |
| **Total Company**                                         |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| January 1, 2004 to June 30, 2004  (Predecessor) |       | 80,923,839  |       | —            |       | 796,710       |       | 1,386,904        |       | —           |       | —      |       | 2,382,720        |       |
| July 1, 2004 to October 2, 2004 (Successor)     |       | 51,077,176  |       | —            |       | 3,417,062     |       | 864,329          |       | 3,090,736        |       | —      |       | 659,952          |       |
| January 1, 2005 to October 1, 2005  (Successor) |       | 159,956,301 |       | —            |       | 12,166,045    |       | 2,907,021        |       | 4,033,037        |       | 189,317,299 |       | 11,024,135       |       |

 

11

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**10.****                              ****Condensed Consolidating FinancialInformation**

 

Thefollowing information presents the unaudited condensed consolidating balancesheets of the Successor at December 31, 2004 and October 1, 2005, theunaudited condensed consolidating statements of operations of the Predecessorfor the twenty-six week period ended June 30, 2004, the unauditedcondensed consolidating statements of operations of the Successor for the thirteenweek period ended October 2, 2004, the unaudited condensed consolidatingstatements of operations of the Successor for the thirteen and thirty-nine weekperiods ended October 1, 2005, the unaudited statement of cash flows ofthe Predecessor for the twenty-six week period ended June 30, 2004, theunaudited statement of cash flows of the Successor for the thirteen week periodended October 2, 2004 and the unaudited statement of cash flows of thesuccessor for the thirty-nine week period ended October 1, 2005,respectively.

 

Condensedconsolidated balance sheet at December 31, 2004 (unaudited);

 
| ** **                                       | ** ** | **Successor** | ** **  |
|--------------------------------------------------|------------|---------------|-------------|
| ** **                                       | ** ** | ** **    | ** **  | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Parent**    | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                             |       |          |        |   |   |   |   |   |   |
| **Assets**                                       | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and cash  equivalents                       |       | $             | 1,085,474   |   | $ | 2,203,556 |   | $ | — |   | $ | 3,289,030 |   |
| Trade  accounts receivable                       |       | 4,413,429     |        | 9,442,865 |   | — |   | 13,856,294 |   |
| Interdivision  receivables (payables)            |       | 4,720,661     |        | (4,720,661 | ) | — |   | — |   |
| Inventories                                      |       | 10,491,680    |        | 13,640,436 |   | — |   | 24,132,116 |   |
| Prepaid  expenses and other current assets       |       | 246,316       |        | 284,790 |   | — |   | 531,106 |   |
| Total  current assets                            |       | 20,957,560    |        | 20,850,986 |   | — |   | 41,808,546 |   |
| Investments  in subsidiary guarantors            |       | 28,579,956    |        | — |   | (28,579,956 | ) | — |   |
| Property and  equipment, net                     |       | 25,845,617    |        | 6,948,622 |   | — |   | 32,794,239 |   |
| Goodwill                                         |       | 77,573,207    |        | — |   | — |   | 77,573,207 |   |
| Intangible  assets, net                          |       | 18,434,375    |        | 3,388,335 |   |   |   | 21,822,710 |   |
| Other  noncurrent assets                         |       | 5,531,183     |        | 144,756 |   | — |   | 5,675,939 |   |
| Total assets                                     |       | $             | 176,921,898 |   | $ | 31,332,699 |   | $ | (28,579,956 | ) | $ | 179,674,641 |   |
| **Liabilities  and Stockholder’s Equity**   | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  liabilities                             |       |          |        |   |   |   |   |   |   |
| Trade  accounts payable                          |       | $             | 4,556,681   |   | $ | 1,611,145 |   | $ | — |   | $ | 6,167,826 |   |
| Accrued  expenses                                |       | 1,980,848     |        | 1,141,598 |   | — |   | 3,122,446 |   |
| Accrued  interest                                |       | 6,796,875     |        | — |   | — |   | 6,796,875 |   |
| Taxes  payable                                   |       | 51,950        |        | — |   | — |   | 51,950 |   |
| Total  current liabilities                       |       | 13,386,354    |        | 2,752,743 |   | — |   | 16,139,097 |   |
|                                             |       |          |        |   |   |   |   |   |   |
| Deferred tax  liabilities                        |       | $             | 912,067     |   | — |   | — |   | $ | 912,067 |   |
| Long-term  debt, excluding current maturities    |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total  liabilities                               |       | 139,298,421   |        | 2,752,743 |   | — |   | 142,051,164 |   |
| Stockholder’s  equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                     |       | —        |        | — |   | — |   | — |   |
| Additional  paid-in capital                      |       | 37,646,400    |        | 26,624,729 |   | (26,624,729 | ) | 37,646,400 |   |
| Retained  earnings (deficit)                     |       | (22,923       | )           | 1,955,227 |   | (1,955,227 | ) | (22,923 | ) |
| Total  stockholder’s equity (deficit)       |       | 37,623,477    |        | 28,579,956 |   | (28,579,956 | ) | 37,623,477 |   |
| Total  liabilities and stockholder’s equity |       | $             | 176,921,898 |   | $ | 31,332,699 |   | $ | (28,579,956 | ) | $ | 179,674,641 |   |
|                                                  |            |               |             |  |  |  |  |  |  |  |  |  |  |  |

 

12

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Condensedconsolidated balance sheet at October 1, 2005 (unaudited):

 
| ** **                                       | ** ** | **Successor** | ** **  |
|--------------------------------------------------|------------|---------------|-------------|
| ** **                                       | ** ** | ** **    | ** **  | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | **Parent**    | ** **  | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                             |       |          |        |   |   |   |   |   |   |
| **Assets**                                       | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and  cash equivalents                       |       | $             | —      |   | $ | 394,174 |   | $ | — |   | $ | 394,174 |   |
| Trade  accounts receivable                       |       | 5,882,394     |        | 14,472,960 |   | — |   | 20,355,354 |   |
| Interdivision  receivables (payables)            |       | 3,074,766     |        | (3,074,766 | ) | — |   | — |   |
| Inventories                                      |       | 14,721,469    |        | 11,094,873 |   | — |   | 25,816,342 |   |
| Prepaid  expenses and other current assets       |       | 336,612       |        | 392,787 |   | — |   | 729,399 |   |
| Total  current assets                            |       | 24,015,241    |        | 23,280,028 |   | — |   | 47,295,269 |   |
| Investments  in subsidiary guarantors            |       | 23,776,059    |        | — |   | (23,776,059 | ) | — |   |
| Property and  equipment, net                     |       | 34,530,106    |        | 6,381,247 |   | — |   | 40,911,353 |   |
| Goodwill                                         |       | 77,573,207    |        | — |   | — |   | 77,573,207 |   |
| Intangible  assets, net                          |       | 15,530,938    |        | 2,770,835 |   | — |   | 18,301,773 |   |
| Other  noncurrent assets                         |       | 5,073,677     |        | 162,020 |   | — |   | 5,235,697 |   |
| Total assets                                     |       | $             | 180,499,228 |   | $ | 32,594,130 |   | $ | (23,776,059 | ) | $ | 189,317,299 |   |
| ** **                                       | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Liabilities and Stockholder’s Equity**    | ** ** | ** **    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current  liabilities                             |       |          |        |   |   |   |   |   |   |
| Book  overdraft                                  |       | $             | 1,718,497   |   | $ | — |   | $ | — |   | $ | 1,718,497 |   |
| Trade  accounts payable                          |       | 6,941,317     |        | 7,085,165 |   | — |   | 14,026,482 |   |
| Accrued  expenses                                |       | 4,006,906     |        | 1,732,906 |   | — |   | 5,739,812 |   |
| Accrued  interest                                |       | 2,832,032     |        | — |   | — |   | 2,832,032 |   |
| Total  current liabilities                       |       | 15,498,752    |        | 8,818,071 |   | — |   | 24,316,823 |   |
| Deferred tax  liabilities                        |       | 2,280,067     |        | — |   | — |   | 2,280,067 |   |
| Long-term  debt, excluding current maturities    |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total  liabilities                               |       | 142,778,819   |        | 8,818,071 |   | — |   | 151,596,890 |   |
| Stockholder’s  equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                     |       | —        |        | — |   | — |   | — |   |
| Additional  paid-in capital                      |       | 37,678,815    |        | 26,624,730 |   | (26,624,730 | ) | 37,678,815 |   |
| Retained  earnings (deficit)                     |       | 41,594        |        | (2,848,671 | ) | 2,848,671 |   | 41,594 |   |
| Total  stockholder’s equity (deficit)       |       | 37,720,409    |        | 23,776,059 |   | (23,776,059 | ) | 37,720,409 |   |
| Total  liabilities and stockholder’s equity |       | $             | 180,499,228 |   | $ | 32,594,130 |   | $ | (23,776,059 | ) | $ | 189,317,299 |   |

 

13

----

 

Condensed consolidated statement of operations ofthe Successor for the thirteen week period from July 1, 2004 through October 2,2004 (unaudited):

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

 

Condensed consolidated statement of operations ofthe Successor for the thirteen week period from July 3, 2005 through October 1,2005 (unaudited):

 
| ** **                                    | ** ** | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------|------------|
| ** **                                    | ** ** | ** **    | ** ** | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Parent**    | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |          |       |   |   |   |   |   |   |
| Net sales                                     |       | $             | 24,697,684 |   | $ | 40,020,057 |   | $ | (7,986,602 | ) | $ | 56,731,139 |   |
| Cost of  sales                                |       | $             | 21,443,261 |   | $ | 30,242,547 |   | $ | (7,986,602 | ) | $ | 43,699,206 |   |
| Gross profit                                  |       | $             | 3,254,423  |   | $ | 9,777,510 |   | $ | — |   | $ | 13,031,933 |   |
| Selling,  general and administrative expenses |       | $             | 4,618,554  |   | $ | 1,188,906 |   | $ | — |   | $ | 5,807,460 |   |
| Operating  profit                             |       | $             | (1,364,131 | ) | $ | 8,588,604 |   | $ | — |   | $ | 7,224,473 |   |
|                                          |       |          |       |   |   |   |   |   |   |
| Other income  (expense)                       |       |          |       |   |   |   |   |   |   |
| Interest  income                              |       | $             | 4,761      |   | $ | 21,784 |   | $ | — |   | $ | 26,545 |   |
| Interest  expense                             |       | $             | (3,638,583 | ) | $ | — |   | $ | — |   | $ | (3,638,583 | ) |
| Executive/administration  (income) expense    |       | $             | 15,842,002 |   | $ | (15,842,002 | ) | $ | — |   | $ | — |   |
| Other  income, net                            |       | $             | (101,354   | ) | $ | 4,000 |   | $ | — |   | $ | (97,354 | ) |
| Equity in  earnings of subsidiary guarantors  |       | $             | (7,227,614 | ) | $ | — |   | $ | 7,227,614 |   | $ | — |   |
| Total other  income                           |       | $             | 4,879,212  |   | $ | (15,816,218 | ) | $ | 7,227,614 |   | $ | (3,709,392 | ) |
| Income  before income taxes                   |       | $             | 3,515,081  |   | $ | (7,227,614 | ) | $ | 7,227,614 |   | $ | 3,515,081 |   |
|                                          |       |          |       |   |   |   |   |   |   |   |   |   |   |
| Income tax  expense (benefit)                 |       | $             | 360,621    |   | $ | — |   | $ | — |   | $ | 360,621 |   |
| Net income                                    |       | $             | 3,154,460  |   | $ | (7,227,614 | ) | $ | 7,227,614 |   | $ | 3,154,460 |   |

 

14

----

 

Condensed consolidated statement of operations ofthe Predecessor for the twenty six week period from January 1, 2004through June 30, 2004 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | ** **      | ** ** | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Parent**      | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |            |       |   |   |   |   |   |   |
| Net sales                                     |       | $               | 35,472,787 |   | $ | 65,266,652 |   | $ | (19,815,600 | ) | $ | 80,923,839 |   |
| Cost of  sales                                |       | 28,838,375      |       | 58,645,754 |   | (19,815,600 | ) | 67,668,529 |   |
| Gross profit                                  |       | 6,634,412       |       | 6,620,898 |   | — |   | 13,255,310 |   |
| Selling,  general and administrative expenses |       | 10,196,549      |       | 2,262,051 |   | — |   | 12,458,600 |   |
| Operating  (loss) profit                      |       | (3,562,137      | )          | 4,358,847 |   | — |   | 796,710 |   |
|                                          |       |            |       |   |   |   |   |   |   |
| Other income  (expense)                       |       |            |       |   |   |   |   |   |   |
| Interest  income                              |       | 483,029         |       | 23,524 |   | — |   | 506,553 |   |
| Interest  expense                             |       | (95,403         | )          | (4,388 | ) | — |   | (99,791 | ) |
| Executive/administration  income (expense)    |       | 483,000         |       | (483,000 | ) | — |   | — |   |
| Other  income, net                            |       | 92,912          |       | 192,009 |   | — |   | 284,921 |   |
| Equity in  earnings of subsidiary guarantors  |       | 4,086,992       |       | — |   | (4,086,992 | ) | — |   |
| Total other  income (expense)                 |       | 5,050,530       |       | (271,855 | ) | (4,086,992 | ) | 691,683 |   |
| Income  before income taxes                   |       | 1,488,393       |       | 4,086,992 |   | (4,086,992 | ) | 1,488,393 |   |
| Income tax  expense                           |       | 41,052          |       | — |   | — |   | 41,052 |   |
| Net income                                    |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |

 

Condensed consolidated statement of operations ofthe Successor for the thirty-nine week period from January 1, 2005 throughOctober 1, 2005 (unaudited):

 
| ** **                                    | ** ** | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------|------------|
| ** **                                    | ** ** | ** **    | ** ** | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Parent**    | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |          |       |   |   |   |   |   |   |
| Net sales                                     |       | $             | 65,446,906 |   | $ | 122,615,594 |   | $ | (28,106,199 | ) | $ | 159,956,301 |   |
| Cost of  sales                                |       | 62,681,340    |       | 97,926,021 |   | (28,106,199 | ) | 132,501,162 |   |
| Gross profit                                  |       | 2,765,566     |       | 24,689,573 |   | — |   | 27,455,139 |   |
| Selling,  general and administrative expenses |       | 11,265,925    |       | 4,023,169 |   | — |   | 15,289,094 |   |
| Operating  profit                             |       | (8,500,359    | )          | 20,666,404 |   | — |   | 12,166,045 |   |
|                                          |       |          |       |   |   |   |   |   |   |
| Other income  (expense)                       |       |          |       |   |   |   |   |   |   |
| Interest  income                              |       | 15,339        |       | 110,140 |   | — |   | 125,479 |   |
| Interest  expense                             |       | (10,781,543   | )          | (94 | ) | — |   | (10,781,637 | ) |
| Executive/administration  (income) expense    |       | 25,723,152    |       | (25,723,152 | ) | — |   | — |   |
| Other  income, net                            |       | (267,383      | )          | 142,804 |   | — |   | (124,579 | ) |
| Equity in  earnings of subsidiary guarantors  |       | (4,803,898    | )          | — |   | 4,803,898 |   | — |   |
| Total other  income                           |       | 9,885,667     |       | (25,470,302 | ) | 4,803,898 |   | (10,780,737 | ) |
| Income  before income taxes                   |       | 1,385,308     |       | (4,803,898 | ) | 4,803,898 |   | 1,385,308 |   |
| Income tax  expense (benefit)                 |       | 1,320,791     |       | — |   | — |   | 1,320,791 |   |
| Net income                                    |       | $             | 64,517     |   | $ | (4,803,898 | ) | $ | 4,803,898 |   | $ | 64,517 |   |

 

15

----

 

Condensed consolidated statement of cash flows ofthe Predecessor for the twenty six week period from January 1, 2004 throughJune 30, 2004 (unaudited):

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

 

16

----

 

Condensed consolidated statement of cash flows ofthe Successor for the thirteen week period from July 1, 2004 through October 2,2004 (unaudited):

 
| ** **                                                                                  | ** ** | **Successor** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                                  | ** ** | ** **    | ** ** | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                  | ** ** | **Parent**    | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                                                                        |       |          |       |   |   |   |   |   |   |
| **Cash  flows from operating activities**                                                   | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                                           |       | $             | 858,059    |   | $ | 774,720 |   | $ | (1,815,568 | ) | $ | (182,789 | ) |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities |       |          |       |   |   |   |   |   |   |
| Equity in earnings of  subsidiary guarantors                                                |       | (774,720      | )          | — |   | 774,720 |   | — |   |
| Depreciation of property  and equipment                                                     |       | 495,000       |       | 369,329 |   | — |   | 864,329 |   |
| Amortization of intangibles                                                                 |       | 967,812       |       | 205,833 |   |   |   | 1,173,645 |   |
| Amortization of inventory  step-up                                                          |       | 1,319,940     |       | 447,097 |   | — |   | 1,767,037 |   |
| Amortization of bond  issuance cost                                                         |       | 150,054       |       | — |   | — |   | 150,054 |   |
| Changes in assets and  liabilities                                                          |       |          |       |   |   |   |   |   |   |
| Trade accounts receivable                                                                   |       | (4,736,658    | )          | (9,067,937 | ) | — |   | (13,804,595 | ) |
| Interdivisional  receivables/payables, net                                                  |       | (3,645,975    | )          | 3,645,975 |   | — |   | — |   |
| Inventories                                                                                 |       | (139,282      | )          | 2,123,955 |   | 1,040,848 |   | 3,025,521 |   |
| Prepaid expenses and other  current assets                                                  |       | (268,224      | )          | (427,027 | ) | — |   | (695,251 | ) |
| Other noncurrent asset                                                                      |       | (15,837       | )          | (2,295 | ) | — |   | (18,132 | ) |
| Trade accounts payable and  accrued expenses                                                |       | 5,338,002     |       | 2,232,533 |   | — |   | 7,570,535 |   |
| Accrued bond interest                                                                       |       | 3,548,493     |       | — |   | — |   | 3,548,493 |   |
| Net cash  provided by operating activities                                                  |       | 3,096,664     |       | 302,183 |   | — |   | 3,398,847 |   |
| ** **                                                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities**                                                   | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Business acquired                                                                           |       | (165,060,252  | )          | — |   | — |   | (165,060,252 | ) |
| Capital expenditures                                                                        |       | (543,395      | )          | (116,557 | ) | — |   | (659,952 | ) |
| Net cash  (used in) investing activities                                                    |       | (165,603,647  | )          | (116,557 | ) | — |   | (165,720,204 | ) |
| ** **                                                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from financing activities**                                                   | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Change in book overdrafts                                                                   |       | 206,475       |       | — |   | — |   | 206,475 |   |
| Proceeds from issuance of  long-term debt                                                   |       | 125,000,000   |       | — |   | — |   | 125,000,000 |   |
| Proceeds from issuance of  common stock                                                     |       | 37,500,000    |       | — |   | — |   | 37,500,000 |   |
| Net cash  provided by financing activities                                                  |       | 162,706,475   |       | — |   | — |   | 162,706,475 |   |
| Net increase  in cash and cash equivalents                                                  |       | 199,492       |       | 185,626 |   | — |   | 385,118 |   |
| ** **                                                                                  | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash and  cash equivalents**                                                              | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning of  period                                                                        |       | —        |       | — |   | — |   | — |   |
| End of  period                                                                              |       | $             | 199,492    |   | $ | 185,626 |   | $ | — |   | $ | 385,118 |   |

 

17

----

 

Condensed consolidated statement of cash flows ofthe Successor for the thirty-nine week period from January 1, 2005 throughOctober 1, 2005 (unaudited):

 
| ** **                                                                        | ** ** | **Successor** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                        | ** ** | ** **    | ** ** | **Subsidiary** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                        | ** ** | **Parent**    | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash  flows from operating activities**                                         | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                |       | $             | 64,517     |   | $ | (4,803,898 | ) | $ | 4,803,898 |   | $ | 64,517 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |          |       |   |   |   |   |   |   |
| Equity in  earnings of subsidiary guarantors                                      |       | 4,803,898     |       | — |   | (4,803,898 | ) | — |   |
| Depreciation  of property and equipment                                           |       | 1,912,280     |       | 994,741 |   | — |   | 2,907,021 |   |
| Amortization  of intangibles                                                      |       | 2,903,437     |       | 617,500 |   | — |   | 3,520,937 |   |
| Amortization  of bond issuance cost                                               |       | 512,100       |       | — |   | — |   | 512,100 |   |
| Deferred tax  liability                                                           |       | 1,368,000     |       | — |   | — |   | 1,368,000 |   |
| Compensation  expense for stock options                                           |       | 32,415        |       | — |   | — |   | 32,415 |   |
| Changes in  assets and liabilities                                                |       |          |       |   |   |   |   |   |   |
| Trade  accounts receivable                                                        |       | (1,468,965    | )          | (5,030,095 | ) | — |   | (6,499,060 | ) |
| Interdivisional  receivables/payables, net                                        |       | 1,645,895     |       | (1,645,895 | ) | — |   | — |   |
| Inventories                                                                       |       | (4,229,789    | )          | 2,545,564 |   | — |   | (1,684,225 | ) |
| Prep aid  expenses and other current assets                                       |       | (90,296       | )          | (107,997 | ) | — |   | (198,293 | ) |
| Other  noncurrent asset                                                           |       | (54,594       | )          | (17,264 | ) | — |   | (71,858 | ) |
| Trade  accounts payable and accrued expenses                                      |       | 4,410,694     |       | 6,065,328 |   | — |   | 10,476,022 |   |
| Accrued bond  cost and LOC interest                                               |       | (3,964,843    | )          | — |   | — |   | (3,964,843 | ) |
| Taxes  payable                                                                    |       | (51,950       | )          | — |   | — |   | (51,950 | ) |
| Net cash  provided by (used in) operating activities                              |       | 7,792,799     |       | (1,382,016 | ) | — |   | 6,410,783 |   |
| ** **                                                                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities**                                         | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital  expenditures                                                             |       | (10,596,769   | )          | (427,366 | ) | — |   | (11,024,135 | ) |
| Net cash  (used in) investing activities                                          |       | (10,596,769   | )          | (427,366 | ) | — |   | (11,024,135 | ) |
| ** **                                                                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  flows from financing activities**                                         | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Change in book overdraft                                                          |       | 1,718,496     |       | — |   | — |   | 1,718,496 |   |
| Net cash  provided by financing activities                                        |       | 1,718,496     |       | — |   | — |   | 1,718,496 |   |
| Net  (decrease) in cash and cash equivalents                                      |       | (1,085,474    | )          | (1,809,382 | ) | — |   | (2,894,856 | ) |
| ** **                                                                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash and  cash equivalents**                                                    | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Beginning of  period                                                              |       | 1,085,474     |       | 2,203,556 |   | — |   | 3,289,030 |   |
| End of  period                                                                    |       | $             | —     |   | $ | 394,174 |   | $ | — |   | $ | 394,174 |   |

 

18

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**Item 2.****          ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

As a result of theacquisition transaction discussed below and in Note 3, to our unauditedConsolidated Financial Statements, the following discussion relates to thefinancial condition and results of operation of our Company, or the “Successor,”as of and for the periods ended October 1, 2005.  Included in our discussions are the resultsof operations of our predecessor company, or the “Predecessor” for the twenty-sixweek period ended June 30, 2004 (the “Acquisition Date”).  This section should be read inconjunction with our unaudited Consolidated Financial Statements and consideredwith “ – Quantitative and Qualitative Disclosures About Market Risk” and “Forward-LookingStatements,” included elsewhere in our filing.

 

As a result of theacquisition transaction in which we acquired our business and relatedfinancings, the historical consolidated financial data of the Predecessor maynot be comparable to the Successor’s consolidated financial data.  Most notably, the liquidity position of theSuccessor is substantially different than that of the Predecessor, includingthe overall level of debt and resulting amount of interest expense in fiscalperiods subsequent to June 30, 2004, as well as the revaluation of theassets and liabilities as a result of applying purchase accounting.

 

In order to provideinvestors with a more meaningful thirty-nine week period-to-period comparison,we have combined the results of the Predecessor for the twenty-six week periodended June 30, 2004 with that of the Successor Company for the thirteenweek period ended October 2, 2004 in our discussion below.

 

Accordingly, the combinedpro forma financial information for the thirty-nine week period ended October 2,2004 combines results of operations under two separate bases of accounting, thePredecessor’s basis and the Successor’s basis. We have combined the financial information for the six months ended June 30,2004 of the Predecessor and the thirteen weeks ended October 2, 2004 ofthe Successor on an unaudited pro forma basis in which we combined therespective financial information as originally presented.  The pro formainformation provided in the tables below in “—Results of Operations” does notpurport to represent what our consolidated results of operations would havebeen if the Company had actually been formed on January 1, 2004, nor havewe made any attempt to either include or exclude expenses or income that wouldhave resulted had the acquisition actually occurred on January 1, 2004.

 

Percentagechange calculations may differ due to rounding. Where possible, management has used the information as provided in thefinancial statements and supplemental pro forma tables in determining itscalculations.  Management views anyrounding differences to be inconsequential to our discussion and analysis.

 

**Our Company**

 

We are the leading supplierof individual and group military field rations to the Department of Defense(the “DoD”). We specialize in the production, packaging and distribution ofextended shelf-life, shelf stable and frozen foods in flexible pouches andsemi-rigid containers. With over 30 years of experience in the food manufacturingand food processing businesses, we believe we have a reputation for superiorquality and service in developing and producing unique meal solutions for themilitary and for the consumer and foodservice markets. We are a primarysupplier to the DoD of Meals Ready-to-Eat, Unitized Group Rations-A and thepolymeric trays used in the Unitized Group Rations-Heat & Serveprogram. Our customers also include Kraft Foods, Inc., Gerber ProductsCompany, Quaker Oats Company, Delmonte and the Canadian Ministry of Defense.

 

**The Transaction**

 

On December 3, 2003, the Successor and Veritas Capital ManagementII, L.L.C. (“Veritas”) entered into an Assets Purchase and Sale Contract withthe Predecessor and its subsidiaries, The Wornick 

 

19

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Company Right Away Division, a Nevada corporation,The Wornick Company Right Away Division, L.P., a Texas limited partnership, andRight Away Management Corporation, a Texas corporation.  The grosspurchase price of the business was $155 million, of which $150 million was paidto the sellers at the closing and the remaining $5 million was paid to anescrow agent as escrow for the sellers’ obligations under the Assets Purchaseand Sale Contract.  The acquisition transaction closed on June 30,2004.

 

The Successor funded the purchase price and the related fees andexpenses with the proceeds of its offering of the original notes and the equityinvestments in TWC Holding LLC, the parent of the Successor, as follows:

 

•                  the purchase by the equity investors of Class Ainterests in TWC Holding LLC for $37.5 million in cash; and

 

•                  the contribution by TWC Holding LLC to thecapital of the Successor of all cash received by it from the equity investors;and

 

•                  net proceeds to the Successor of approximately$121.0 million from the issuance and sale of the original $125.0 millionof senior notes; and

 

•                  advance of $3.0 million under the Successor’sworking capital facility.

 

The closing of the offering of the original notes occurredsimultaneously with the closing of the Acquisition, our new working capitalfacility (described below) and the other financing transactions describedabove.

 

We entered into a new seniorsecured revolving working capital credit facility of up to $25 millionconcurrently with the closing of the Acquisition and the offering. We makemonthly interest payments on amounts borrowed under the facility at an annualadjustable interest rate calculated in accordance with the terms of theapplicable promissory note.

 

**Results of Operations**

 

**Comparison of the thirteen weeks ended October 1, 2005 to thethirteen weeks ended October 2, 2004**

 

Net Sales.  Our net sales for the thirteen weeks ended October 1,2005 were $56.7 million, representing an increase of approximately $5.7million, or 11.1%, compared to net sales of $51.1 for the thirteen week periodended October 2, 2004.  The increasein net sales resulted from increased co-manufacturing sales of approximately$6.2 million ($5.0 million on new business initiatives in fiscal year 2005 andincreased sales to Gerber and Kraft of $1.2 million and higher sales to the DoDof approximately $467,000 (increased sales of UGR-A, Tray Pack and OtherMilitary sales of approximately $2.9 million offset by lower sales of MRE’s ofapproximately $2.4 million) and further offset by lower sales of our specialtyand other products of approximately $1.0 million.

 

Gross Profit.  Our gross profit for the thirteen weeks endedOctober 1, 2005 was $13.0 million, representing an increase ofapproximately $5.4 million, or 70.2%, compared to gross profit of $7.7 millionfor the thirteen weeks ended October 2, 2004.  As a percentage of net sales, our grossprofit was 23.0% and 15.0%, respectively, for the thirteen week periods ended October 1,2005 and October 2, 2004.  Grossprofit on sales to the DoD increased approximately $4.4 million or 64.5%(approximately $11.1 million and $6.8 million, for the thirteen week periodsended October 1, 2005 and October 2, 2004, respectively) due tohigher prices on the current MRE-25 base contract, which began during thesecond quarter 2005 and surge volumes in the first quarter 2005 as compared toadd-on pricing under the MRE-24 contract for the thirteen week period ended October 2,2004.  Contributing to the increase inDoD gross profit was additional gross profit earned on UGR-A, Tray Pack and othermilitary sales of approximately $694,000 due primarily to higher prices.  Gross profit on co-manufacturing sales was16.6% versus 14.3% for the thirteen weeks 

 

20

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ended October 1, 2005 and October 2, 2004,respectively.  This represents andincrease of approximately $1.2 million largely attributable to new start upinitiatives with Quaker and Delmonte. Gross profit on specialty and other products decreased approximately$138,000 due to start up efficiencies of new products and lower sales volumesto the Canadian Department of Defense.

 

Selling, General andAdministrative Expenses.  Our selling,general and administrative expenses for the thirteen weeks ended October 1,2005 were $5.8 million, representing an increase of approximately $1.6 million,or 37.0%, compared to selling, general and administrative expenses of $4.2million for the thirteen weeks ended October 2, 2004.  Selling, general and administrative expenseswere 10.2% of net sales for the thirteen week period ended October 1, 2005as compared to 8.3% of net sales for the thirteen week period ended October 2,2004.  The increase in selling, generaland administrative expenses was largely due to increased employee-related costsassociated with hiring, consultant and professional fees paid to support newproject initiatives and other expenses associated with the new corporatefacility.

 

Operating Profit.  Our profit from operations was approximately$7.2 million for the thirteen weeks ended October 1, 2005, representing anincrease of approximately $3.8 million, compared to an operating profit ofapproximately $3.4 million for the thirteen weeks ended October 2,2004.  This increase in profit fromoperations resulted from increased gross profit and offset by higher spendingon selling, general and administrative expenses which were described above.

 

Interest Expense.  Our interest expense for the thirteen weeksended October 1, 2005 was approximately $3,639,000, representing anapproximate increase of $41,000 compared to interest expense of approximately$3,597,000 for the thirteen weeks ended October 2, 2004.  The increase in interest expense is relatedto borrowings on the working line of capital and was a function of longerpayback periods and higher interest rates during the thirteen weeks ended October 1,2005 as compared to October 2, 2004.

 

Interest Income.  Our interest income for the thirteen weeksended October 1, 2005 was approximately $27,000, representing a decreaseof approximately $6,000 compared to interest income of approximately $32,000for the thirteen weeks ended October 2, 2004.  The decrease in interest income resulted fromgenerally lower daily cash balances invested at overnight fund rates.

 

Other Income (Expense),Net.  Our other income (expense), net forthe thirteen weeks ended October 1, 2005 was approximately ($97,000),representing an increase of approximately $84,000, compared to other income(expense), net of approximately ($13,000) for the thirteen weeks ended October 2,2004.  The decrease in other income(expense), net was partially the result of the reductions of approximately$66,000 of U.S. government payments from the Value Engineering Change program(the “VE program”).  The VE program provides incentives for U.S.Government contractors to make cost savings proposals to the Defense SupplyCenter Philadelphia (“DSCP”). Once the DSCP accepts a contractor’s VE proposal,the contractor is awarded 50% of the resulting industry-wide savings for aperiod of three years following the issuance by the DSCP, which is responsiblefor the procurement of military field rations for the DoD, of a contractmodification requiring implementation of the proposed change as outlined in theaccepted VE proposal.  Other expense was also increased as a result of$22,000 property and equipment disposals in the current period and offset byother income of approximately $3,000.

 

Income Tax Expense.  Expenses related to federal, state and localtaxes for the thirteen weeks ended October 1, 2005 was approximately $361,000,compared to approximately $22,000 for the thirteen weeks ended October 2,2004.  As described further in note 7 toour financial statements, the Predecessor Company was qualified underSubchapter-S of the Internal Revenue Code, and therefore not subject to FederalTax whereas the Successor Company is taxed as a C-Corporation.  During thethirteen weeks ended October 1, 2005, we recorded approximately $456,000of deferred tax liabilities associated with the indefinite reversal periodrelated to Goodwill and approximately $95,000 of tax benefits related toreversals of state, local and city taxes at our Prepared Foods Division ($84,000State Franchise Tax, $11,000 State Property Tax).

 

21

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Net Income (loss).  As a result of the foregoing, we had netincome of approximately $3.2 million for the thirteen weeks ended October 1,2005, representing an increase in net income of approximately $3.3 millioncompared to the net loss of approximately ($183,000) for the thirteen weeksended October 2, 2004.

 

**Comparison of the thirty-nine weeks ended October 1, 2005 to the thirty-nineweeks ended October 2, 2004**

 

As described in the introductionto this section, we do not have financial information for the Successor for thethirty-nine week period ended October 2, 2004.  In order to present Management’s Discussionand Analysis in a way that offers investors a meaningful period-to-periodcomparison, we have combined the prior year Predecessor information for thetwenty six week period ended June 30, 2004 with the Successor pior yearinformation for the thirteen weeks ended October 2, 2004, as each wereoriginally presented, on an unaudited pro forma combined basis.  The unaudited pro forma combined data andsegment information for the thirty-nine week period ended October 2, 2004do not purport to represent what our consolidated results would have been ifthe Successor Company had actually been formed on January 1, 2004, norhave we made any attempt to either include or exclude expenses or income thatwould have resulted had the acquisition transaction actually occurred on January 1,2004.  The pro forma information wascompiled as follows:

 
| ** **                                    | ** ** | **Unaudited**         | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | ** **            | ** ** | ** ** | ** ** | **Pro Forma Thirty** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Twenty Six Week**   | ** ** | **Thirteen Week** | ** ** | **Nine Week Period** | ** ** | **Thirty Nine Week** | ** ** |
| ** **                                    | ** ** | **Period Ended June** | ** ** | **Period Ended** | ** ** | **Ended October 2,** | ** ** | **Period Ended** | ** ** |
| **(in thousands)**                            | ** ** | **30, 2004**          | ** ** | **October 2, 2004** | ** ** | **2004** | ** ** | **October 1, 2005** | ** ** |
| ** **                                    | ** ** | **(Predecessor)**     | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** |
| Net sales                                     |       | 80,924                |       | 51,077 |   | 132,001 |   | 159,956 |   |
| Gross Profit                                  |       | 13,255                |       | 7,655 |   | 20,910 |   | 27,455 |   |
| Selling,  general and administrative expenses |       | (12,459               | )          | (4,238 | ) | (16,697 | ) | (15,289 | ) |
| Operating  profit                             |       | 797                   |       | 3,417 |   | 4,214 |   | 12,166 |   |
| Interest  expense                             |       | (100                  | )          | (3,597 | ) | (3,697 | ) | (10,782 | ) |
| Interest  income                              |       | 507                   |       | 32 |   | 539 |   | 125 |   |
| Other income  (expense), net                  |       | 285                   |       | (13 | ) | 272 |   | (125 | ) |
| Income tax  expense                           |       | (41                   | )          | (22 | ) | (63 | ) | (1,321 | ) |
| Net income  (loss)                            |       | 1,447                 |       | (183 | ) | 1,264 |   | 65 |   |

 

Net Sales.  Our net sales for the thirty-nine weeks endedOctober 1, 2005  were $160.0million, representing an increase of approximately $28.0 million, or 21.2%,compared to pro forma net sales of approximately $132.0 million for the thirty-nineweek period ended October 2, 2004. The increase in net sales resultedprimarily from increased sales to the DoD of approximately $18.3 million(increased net sales of MRE $17.3 million, increased Military Other sales ofapproximately $1.0 million). Co-manufacturing net sales increased approximately $12.7 million dueprimarily to new Co-manufacturing projects of approximately $9.2 million(Quaker $3.5 million, Keefe $2.9 million and Delmonte $2.9 million) andincreased sales of Co-manufacturing products to existing customers ofapproximately $3.4 million (Gerber $2.2 million and Kraft $1.2 million) whichwere offset by decreased specialty and other sales of approximately $3.0 (decreasednet sales of Specialty products approximately $809,000, decreased net sales tothe Canadian Department of Defense approximately $945,000 and decreased netsales of Scrap and other miscellaneous sales of approximately $1.2 million).

 

Gross Profit.  Our gross profit for the thirty-nine weeksended October 1, 2005 was $27.5 million, representing an increase ofapproximately $6.6 million, or 31.3%, compared to pro forma gross profit of$20.9 million for the thirty-nine week period ended October 2, 2004.  As a percentage of net sales, our grossprofit was 17.2% and 15.8% for the thirty-nine week period ended October 1,2005 and October 2, 2004, respectively. Gross profit on sales to the DoD increased by approximately $6.7million, or 36.8% 

 

22

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(approximately $24.9 million and $18.2 million, forthe thirty-nine week periods ending October 1, 2005 and October 2,2004, respectively) due to higher volumes and higher base prices on MRE 25contract sales as compared to pricing on add-on and surge pricing under the MRE24 contract.  Additionally, higher priceson UGR-A sales and higher volume for our other military products contributed anadditional $1.0 million to our gross profit for the thirty-nine week periodended October 1, 2005. Co-manufacturing gross profit increased approximately $1.4 million, or62.6% (approximately $3.6 million and $2.2 million, for the thirty-nine weekperiod ended October 2, 2005 as compared to the pro forma thirty-nine weekperiod October 2, 2004, respectively) but was offset by decreases inSpecialty and Other Products gross profit of approximately $1.5 million for thethirty-nine week period ended October 1, 2005 which was attributable tolower sales.

 

Selling, General andAdministrative Expenses.  Our selling,general and administrative expenses for the thirty-nine week period ending October 1,2005 were $15.3 million representing a decrease of approximately $1.4 million,or 8.4% as compared to $16.7 million for the pro forma thirty-nine week periodended October 2, 2004.  Selling,general and administrative expenses were approximately 9.6% of net sales forthe thirty-nine week period ended October 1, 2005 as compared to 12.7% forthe pro forma thirty-nine week period ended October 2, 2004.  The decrease in selling, general andadministrative expense was largely attributable to equity based compensationcharges recorded by the Predecessor relating to the value of shares committedto be released to the ESOT and other compensatory stock plans maintained by thePredecessor, which did not recur in 2005 and which were partially offset by depreciationand amortization related to the acquisition, increased employee related costassociated with hiring and consultant and professional fees paid to support newproject initiatives and other expenses associated with our new corporatefacility for the third quarter 2005.

 

Operating Profit.  Our profit from operations was $12.2 millionfor the thirty-nine week period ended October 1, 2005, representing anincrease of approximately $8.0 million compared to pro forma operating profitof $4.2 million for the thirty-nine weeks ended October 2, 2004.  This increase in operating profit primarilyresulted from higher sales volumes and prices on sales of MRE’s, UGR-A’s and othermilitary products to the DoD as noted above and which were offset by increasedcosts in depreciation and amortization of intangibles associated with theacquisition.  Acquisition-related costwere partially offset by decreases in selling, general and administrativeexpenses associated with the Predecessor relating to the value of sharescommitted to be released to the ESOT and other compensatory stock plans thatdid not recur in 2005.

 

Interest Expense.  Our interest expense for the thirty-nineweeks ended October 1, 2005 was approximately $10.8 million, representingan increase of approximately $7.1 million, compared to pro forma interestexpense of $3.7 million for the thirty-nine weeks ended October 2,2004.  The increase in interest expensewas due to approximately $6.8 million in interest expense resulting for theissuance of the $125 million 10 7/8 Senior Secured Notes, approximately$362,000 in related bond cost amortization and offset by decreased interestexpense on other secured borrowing of the Predecessor and working line ofcapital of the Successor of approximately $74,000.

 

Interest Income.  Our interest income for the thirty-nine weekperiod ended October 1, 2005 was approximately $125,000, representing adecrease of approximately $414,000 as compared to pro forma interest income ofapproximately $539,000 for the thirty-nine weeks ended October 2,2004.  The decrease in interest incomeresulted primarily from short-term investments held by the Predecessor thatwere not acquired in the acquisition on June 30, 2004.

 

Other Income (Expense), Net.  Our other income (expense), net for the thirty-nineweeks ended October 1, 2005 was approximately ($125,000), representing adecrease of approximately $397,000 as compared to pro forma other income(expense), net of $272,000 for the thirty-nine week period ended October 2,2004.  This decrease in other income(expense) was the result of final settlement on prior period U.S. Governmentcontracts by the Predecessor which resulted in approximately $176,000 of otherincome.  Other income (expense) was alsoadversely affected by approximately $150,000 of additional management fees paidto Veritas in 2005 as compared to 2004, approximately $27,000 in loss vs gainon disposal of property and equipment in 2005 as compared to 2004, decreasedV.E. income of approximately $27,000 and other miscellaneous expense itemsincluding approximately $10,000 in bank fees trustee fees.

 

23

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Income Tax Expense.  Expenses related to federal, state and localtaxes for the thirty-nine weeks ended October 1, 2005 was approximately$1.3 million compared to pro forma income tax expense of approximately $63,000for the thirty-nine week period ended October 2, 2004.  As described further in Note 7 to ourfinancial statements, the Predecessor Company was qualified under Subchapter-Sof the Internal Revenue Code, and therefore was not subject to Federal Taxwhereas the Successor Company is taxed as a C-Corporation.  During the thirty-nine weeks ended October 1,2005, we recorded approximately $1.4 million of additional deferred taxliabilities associated with the indefinite reversal period related to Goodwilland offset by reversals during the current year of approximately ofapproximately $95,000 due to state, local and city taxes as described in ourdiscussion related to income tax expense for the thirteen week period ended October 1,2005 above.

 

Net Income.  As a result of the foregoing, we had netincome of approximately $65,000 for the thirty-nine week period ended October 1,2005, representing a decrease of approximately $1.2 million as compared to proforma net income of approximately $1.3 million for the thirty-nine week periodended October 2, 2004.

 

**Operating Segment Results**

 

**Comparison of the thirteen weeks ended October 1, 2005 to thethirteen weeks ended October 2, 2004**

 

Net Sales.  Net sales for our Right Away Division (“RAD”)segment decreased by approximately $867,000 for the thirteen weeks ended October 1,2005, primarily due to a decrease in sales to the DoD (decreased MRE sales $2.4million, increased UGR-A sales $1.8 million, increased Other military sales ofapproximately $466,000) and further offset by other miscellaneous commercialsales and scrap.  Net sales for ourPrepared Foods Division (“PFD”) increased approximately $6.5 million (excludinginter-segment sales of approximately $8.0 million for the thirteen week periodended October 1, 2005 and $13.5 million for the thirteen week period endedOctober 2, 2004).  The increase inPFD sales is attributable to increase sales to Co-Manufacturing customer ofapproximately $6.2 million and increased sales of Specialty and Other productsof approximately $161,000.

 

Operating Profit.  Profit from Operations for our RAD segmentincreased $5.6 million for the thirteen week period ended October 1, 2005.  Increased operating profit for the RADsegment is due to higher pricing on MRE, UGR-A and Other military products forthe thirteen week period ended October 1, 2005.  Also included in the operating profit for ourRAD division is approximately $2.0 million in gross profit that would have beenpreviously recognized by our PFD segment on MRE shippments to the RAD segment(intersegment sales are now recorded at cost). The remaining increase in RAD operating profit is attributable to slightlylower selling, general and administrative cost incurred by the segment as aresult of transferring of personnel to the Corporate headquarters during theconsolidation which took place during the thirteen weeks ended October 1,2005.  Profit from operations for the PFDsegment increased $1.4 million for the thirteen week period ended October 1,2005 and is primarily attributable to $1.2 million in increase gross profit onco-manufacturing contracts, inventory step-up amortization cost ofapproximately $1.3 million in the prior year which did not recur in 2005 andapproximately $1.2 million in selling, general and administrative expensestransferred to our corporate office which were offset by approximately $2.0million in gross profit now included in our RAD segment as discussed above.

 

24

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**Comparison of the thirty-nine weeks ended October 1, 2005 to the thirty-nineweeks ended October 2, 2004**

 
| ** **              | ** ** | **Unaudited**          | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | ** **             | ** ** | ** ** | ** ** | **Pro Forma Thirty** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Twenty Six Week**    | ** ** | **Thirteen Week** | ** ** | **Nine Week Period** | ** ** | **Thirty Nine Week** | ** ** |
| ** **              | ** ** | **Period Ended**       | ** ** | **Period Ended** | ** ** | **Ended October 2,** | ** ** | **Period Ended** | ** ** |
| **(in thousands)**      | ** ** | **June 30, 2004** | ** ** | **October 2, 2004** | ** ** | **2004** | ** ** | **October 1, 2005** | ** ** |
| ** **              | ** ** | **(Predecessor)**      | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** |
| Net sales               |       |                   |       |   |   |   |   |   |   |
| Right Away Division     |       | 65,267                 |       | 40,886 |   | 106,153 |   | 122,615 |   |
| Prepared Foods Division |       | 35,473                 |       | 23,696 |   | 59,169 |   | 65,447 |   |
| Corporate               |       | —                 |       | — |   | — |   |   |   |
| Eliminations            |       | (19,816                | )          | (13,505 | ) | (33,321 | ) | (28,106 | ) |
| Total Company           |       | 80,924                 |       | 51,077 |   | 132,001 |   | 159,956 |   |
|                    |       |                   |       |   |   |   |   |   |   |
| Operating profit        |       |                   |       |   |   |   |   |   |   |
| Right Away Division     |       | 4,359                  |       | 2,985 |   | 7,344 |   | 20,666 |   |
| Prepared Foods Division |       | 4,413                  |       | 1,646 |   | 6,059 |   | (2,019 | ) |
| Corporate               |       | (7,975                 | )          | (173 | ) | (8,148 | ) | (6,481 | ) |
| Eliminations            |       | —                 |       | (1,041 | ) | (1,041 | ) | — |   |
| Total Company           |       | 797                    |       | 3,417 |   | 4,214 |   | 12,166 |   |

 

NetSales.  Net sales for the RAD segmentincreased for the thirty-nine week period ended October 1, 2005 byapproximately $16.5 million primarily due to increased sales to the DoD ofapproximately $17.9 million (increased MRE sales $17.3 million, increased othermilitary sales $989,000 offset by decreased UGR-A sales of $425,000). Theremaining decrease in net sales for our RAD segment is due to lower commercialsales and miscellaneous sales of scrap of approximately $1.4 million. Net salesfor our PFD segment increased approximately $11.5 million (includinginter-segment sales) for the thirty-nine week period ended October 1, 2005. Theincrease in PFD segment sales was largely attributed to $12.7 million in Co-manufacturing(increases due to new Co-manufacturing contracts; Quaker $3.5 million, Keefe$2.9 million, DelMonte $2.9 million, increases in existing baseCo-manufacturing contracts $2.2 million and Kraft $1.2 million) offset bydecreased sales in our Specialty and other products.

 

OperatingProfit.  Profit from operations for our RADsegment increased by approximately $13.3 million for the thirty-nine weekperiod ended October 1, 2005. Included in the operating profit for the RADsegment is an estimated $7.0 million that would have been previously recognizedby our PFD segment on MRE shipments to the RAD segment (intersegment sales arenow recorded at cost). The remaining increase in operating profit for our RADsegment is related to volume and pricing on sales to the DoD. (gross profitexclusive of the PFD segment includes increases in MRE of approximately $5.7million, UGR-A $568,000 and other military gross profit of $406,000). Theremaining differences are offset by modest increases in selling, general andadministrative expenses for the pro forma thirty-nine week period endingOctober 2, 2004 of approximately $376,000. Profit from operations for our PFDsegement decreased approximately $8.1 million. As discussed above,approximately $7.0 million in gross profit that would have been previouslyrecognized by our PFD segment is now included in our operating profit at RAD.The remaining decrease in operating profit is related to cost associated withour exit from the grocery isles of certain specialty related products whichresulted in decreased gross profit of approximately $1.5 million offset bylower selling, general and administrative cost associated with the transferredto our corporate division.

 

**Liquidity and Capital Resources**

 

The following table summarizesour net cash provided by or (used in) our operating activities, investingactivities and financing activities and our capital expenditures for thePredecessor twenty-six weeks ended June 30, 2004 and Successor net cashprovided by or (used in) our operating activities, investing activities andfinancing activities and our capital expenditures for the thirteen week periodended October 2, 2004 and thirty-nine week period ended October 1,2005:

 

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| ** **                       | ** ** | **Unaudited**         | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **Twenty Six Week**   | ** ** | **Thirteen Week** | ** ** | **Thirty Nine Week** | ** ** |
| ** **                       | ** ** | **Period Ended June** | ** ** | **Period Ended** | ** ** | **Period Ended** | ** ** |
| ** **                       | ** ** | **30, 2004**          | ** ** | **October 2, 2004** | ** ** | **October 1, 2005** | ** ** |
| ** **                       | ** ** | **(Predecessor)**     | ** ** | **(Successor)** | ** ** | **(Successor)** | ** ** |
| Net cash  provided by (used-in): |       |                  |       |   |   |   |   |   |
| Operating activities             |       | (471,783              | )          |   | 3,398,847 |   | 6,410,783 |   |
| Investing  activities            |       | (11,791,620           | )          |   | (165,720,204 | ) | (11,024,135 | ) |
| Financing  activities            |       | 8,313,722             |       |   | 162,706,475 |   | 1,718,496 |   |
| Capital  expenditures            |       | (2,382,720            | )          |   | (659,952 | ) | (11,024,135 | ) |

 

OperatingActivities. Net cashprovided by (used in) operating activities was approximately $6.4 million, $3.4million and $(0.5) million for the Successor thirty-nine week period ended October 1,2005, the Successor thirteen week period ended October 2, 2004 and the Predecessorperiod from January 1, 2004 to June 30, 2004, respectively.  Cashgenerated from operations increased during the first thirty-nine weeks offiscal year 2005 due mostly to higher sales volume and pricing on DoD salesassociated with the surge production in the first quarter of 2005 and thestart-up of the MRE 25 base contact which began in the second quarter of 2005.In addition, for the Predecessor six-month period ended June 30, 2004, thePredecessor used additional cash to make payments relating to settlement ofcertain stock options and stock-based compensation plans and to buildinventories as required to meet military contract commitments, which weresubsequently recognized by the Successor in the thirteen week period ended October 2,2004.

 

InvestingActivities.**Net cash (used in) investing activities was$(11.0) million, $(165.7) million and $(11.8) million for the Successor thirty-nineweek period ended October 1, 2005, the Successor thirteen week periodended October 2, 2004 and the Predecessor twenty six week period ended June 30,2004, respectively. The decrease in investing activity for the thirty-nine weekperiod ended October 1, 2005 was largely related to the acquisition, whichaccounts for approximately $165.5 million, whereas spending for the thirty-nineweek period ended October 1, 2005 was primarily related to the addition ofproduction capacity and line improvements as well as the build out of a newconsolidated corporate headquarters in Cincinnati.  Significant investment activity for thePredecessor twenty six week period ended June 30, 2004 was largely due toincreased investments during the first and second quarters of 2004 inshort-term investments which were not purchased in the acquisition transactionon July 1, 2004.

 

FinancingActivities. Net cashprovided by financing activities was $1.7 million, $162.7 million and $8.3million for the Successor thirty-nine week period ended October 1, 2005,the Successor thirteen week period ended October 2, 2004 and the Predecessorsix months ended June 30, 2004, respectively.  For the thirty-nine week period ended October 1,2005, cash provided by financing activities is wholly attributable to bookoverdrafts, whereas the Successor thirteen week period ended October 2,2004 was largely related to funding of the acquisition with issuance of the$125.0 million Senior Secured 10 7/8 % Notes and capital contributions ofapproximately $37.5 million.  Theremaining change for the thirteen week period ended October 2, 2004 isattributable to bank overdrafts. Financing activities related to the Predecessor twenty six week periodended June 30, 2004, related to borrowings against its credit facility ofapproximately $8.7 million offset by principal payments on its long-term debtarrangement of approximately ($629,000). The remaining difference relates to book overdrafts of approximately$243,000.

 

**Long-Term Debt Expenditures**

 

In connection with theclosing of the acquisition transactions on June 30, 2004, the Predecessor’slong-term debt was repaid, and we issued $125 million in Senior Secured Notesand entered into our new working capital facility. As a result, we willcontinue to incur significant debt service payments including interest infuture years. Total cash interest payments related to the Senior Secured Notes willbe approximately $13.6 million on an annual basis.  We incurredapproximately $10.7 million of interest expense (including approximately$512,000 of bond amortization cost) relating to the Senior Secured Notes

 

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and our working capital facilities in the thirty-nineweek period ended October 1, 2005. To the extent we have borrowingsoutstanding under our working capital facility, we will have additional cashinterest payments. Our borrowings against our working capital facility was $0at October 1, 2005.

 

The indenture governing the Senior Secured Notes, and our new workingcapital facility, impose significant operating and financial restrictions onus. These restrictions limit or prohibit, among other things, our ability toincur additional indebtedness, repay indebtedness prior to stated maturities,pay dividends 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.  AtOctober 1, 2005, we were in compliance with all covenants related to our SeniorSecured Notes and working capital facility.

 

On February 11, 2005 our parent, TWC Holding LLC (the “ParentCompany”) , and its wholly-owned finance subsidiary, TWC Holding Corp.,co-issued their 13.875% Senior PIK Notes due 2011, or the “Senior PIK Notes,”in the approximate aggregate principal amount of $62,259,000 net of a discountof approximately $36,259,000.  The Senior PIK Notes earn interest at therate of 13.875% per annum, mature on August 15, 2011 and are unsecuredobligations of TWC Holding LLC and TWC Holding Corp.  Neither the Companynor any of its subsidiaries guaranteed the Senior PIK notes.  The noteslimit the Company’s ability to incur additional indebtedness and pay dividendsor make other distributions as well as to make certain investments and sellcertain assets or merge with or into other companies.  Because our ParentCompany 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.

 

We expect our remaining capital expenditures in 2005 to beapproximately $1.5 million, primarily related to scope changes on theGerber project and to support plant renewal, efficiency improvements andexpansion of our co-manufacturing business.

 

Our principal sources ofliquidity are cash flow generated from operations and borrowings under our newworking capital facility.  As of October 1, 2005, we had noborrowings under the working capital facility.  We have incurredapproximately $75,000 in interest expense on the working capital facility sinceDecember 31, 2004.  In addition to fluctuations in business volume,cash flows from operations are affected by contract terms for billing andcollection. 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 our indebtednesswill be dependent on future economic conditions and financial, business andother factors that are beyond our control.

 

**Item 3.****          ****Quantitative and QualitativeDisclosures about Market Risk**

 

We are exposed to market risk, primarily from the impact of interestrate changes on our use of variable rate debt. Our exposure to market risksfrom foreign currency and commodity price fluctuations is limited since all ofour fiscal year 2005 purchases and sales are denominated in U.S. dollars andraw commodities do not comprise a significant percentage of our costs. Our 2004sales to the Canadian military comprised approximately 1% of our total sales in2004, on a pro forma basis and we believe any future risk related tofluctuations in foreign currency exchange rates for the Canadian dollar to notbe significant.  Other than with respect to our sales to the Canadianmilitary, we generally do not have exposure to foreign 

 

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currency risk.  In addition, because our customarycontract terms pass through increase in cost of commodities underlying ourproducts to our customers, we generally do not have exposure to commodity pricerisk.  Other than with respect to our sales to the Canadian military, wedo not hedge our exposure to foreign currency or commodity price risk.  Wedo not hold any derivatives for trading or speculative purposes. Changes in thefair value of derivatives are recorded in current earnings along with thechange in the fair value of the underlying hedged item.

 

All of our outstanding bank debt bears interest at variable interestrates tied to the prime interest rate. The use of variable rate debt to financeour operations and capital improvements exposes us to variability in interestpayments due to changes in interest rates. We had no exposure to variable rates at October 1, 2005.  Webelieve that a hypothetical 1% increase in interest rates on our variable ratedebt for a one-year period would have had no significant impact on our netincome.

 

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

 

Based on a recent evaluation, as of the end of the period covered bythe Quarterly Report on Form 10-Q, the Company’s Chief Executive Officerand Chief Financial Officer have concluded that the Company’s disclosurecontrols and procedures as defined in the Exchange Act Rules 13a-15(e) and15d-15(e) are effective in timely alerting them to material informationrelating to the Company required to be included in periodic reports filed orsubmitted under the Securities and Exchange Act of 1934, as amended.

 

There were no changes in the Company’s internal control over financialreporting that occurred during the thirteen week period ended October 1,2005, constituting the Company’s latest fiscal quarter, that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**FORWARD-LOOKING STATEMENTS**

 

This report includes “forward-looking statements” within the meaning ofthe Private Securities Litigation Reform Act of 1995. Forward-lookingstatements are those that do not relate solely to historical fact. Theyinclude, but are not limited to, any statement that may predict, forecast,indicate or imply future results, performance, achievements or events. They maycontain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,”“plan,” “will,” or words or phrases of similar meaning. They may relate to,among other things:

 

•                                      our liquidity and capital resources;

 

•                                      our contracts with the U.S. Government;

 

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

 

•                                      our co-manufacturing plans;

 

•                                      competitive pressures and trends in ourindustry;

 

•                                      prevailing interest rates;

 

•                                      legal proceedings and regulatory matters;

 

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

 

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

 

•                                      general economic conditions; and

 

•                                      our development and expansion plans andexpectations for the future.

 

These forward-looking statements reflect our current views with respectto future events and are based on assumptions and subject to risks anduncertainties, including, but not limited to, economic, competitive andgovernmental factors outside of our control, that may cause actual results todiffer materially from trends, plans or expectations set forth in theforward-looking statements and may adversely affect us. It is not possible forus to predict all of these risks, nor can we assess the extent to which anyfactor, or combination of factors, may cause actual results to differ fromthose contained in forward-looking statements. The foregoing list of important factors and other risk detailed fromtime to time in the Company’s reports filed with the Securities and ExchangeCommission are not exhaustive.

 

**PART II – OTHER INFORMATION**

 

**Item 1.****          ****Legal Proceedings.**

 

We are a defendant in various legal actions arising in the normalcourse of business, the outcomes of which, in the opinion of management,neither individually nor in the aggregate are likely to result in a materialadverse effect on our business, results of operations, financial position orcash flows.

 

**Item 2.****          ****Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

None.

 

**Item 3.****          ****Defaults Upon Senior Notes.**

 

None.

 

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

 

None.

 

**Item 5.****          ****Other Information.**

 

On November 11, 2005, the operating agreementgoverning TWC Holding LLC, the sole stockholder of the Company, was amended toreflect the award of 1.0% and 0.25% Class B membership interests to Brian Lutesand Ted Samotis, respectively, and their admission as newly admitted members ofTWC Holding LLC.  The amendment alsoamended the schedules to the TWC Holding LLC operating agreement to reflect thevoluntary relinquishment by Humberto Cavazos and Lealan Westfield of theirrespective entire Class B membership interests.

 

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

 
| **No.** | ** ** | **Description**                                                                                                                                                            |
|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     |       | Amendment No. 3 to the Limited Liability  Company Operating Agreement of TWC Holding LLC                                                                                   |
|    |       |                                                                                                                                                                       |
| 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)               |

 

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**Signatures**

 

Pursuant to the requirements ofthe Securities and Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                     | THE WORNICK  COMPANY |
|--------------------------|----------------------|
|                     | (Registrant)         |
|                     |                 |
| Date:  November 15, 2005 | By:                  | /s/ MICHAEL  M. THOMPSON |   |
|                     |                 | Michael M.  Thompson |
|                     |                 | President  and Chief Executive Officer |
|                     |                 | (Principal  Executive Officer) |
|                     |                 |   |
|                     |                 |   |
| Date:  November 15, 2005 | By:                  | /s/ Brian A.  Lutes |   |
|                     |                 | Brian A.  Lutes |
|                     |                 | Chief  Financial Officer and Treasurer |
|                     |                 | (Principal  Financial Officer and |
|                     |                 | Principal  Accounting Officer) |

 

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