**UNITEDSTATES********SECURITIES 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 the  quarterly period ended July 2, 2005**                        |
|                                                                         |
| **or**                                                                       |
|                                                                         |
| **o****TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE** |
| **SECURITIES EXCHANGE ACT OF 1934**                                          |

 

**For the transition period from         to        **

 

**Commission File Number: 333-119336**

 

**TheWornick Company**

(Exact name of registrant as specified 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’stelephone number, including area code)

 

**N/A**

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  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

 

On August 16, 2005, oneshare of Registrant’s common stock was outstanding.

 

 

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**TheWornick Company**

**Table of Contents**

 
| **PART I - FINANCIAL INFORMATION**                                                                                                                | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                   |       |
| Item 1. Financial Statements (unaudited)                                                                                                               |       |
| Unaudited Condensed Consolidated  Balance Sheets at December 31, 2004 and July 2, 2005                                                       |       |
|                                                                                                                                                   |       |
| Unaudited Condensed  Consolidated Statements of Operations for the thirteen weeks and twenty six  weeks Ended June 30, 2004 and July 2, 2005 |       |
|                                                                                                                                                   |       |
| Unaudited Condensed  Consolidated Statements of Cash Flows for the thirteen weeks and twenty six  weeks Ended June 30, 2004 and July 2, 2005 |       |
|                                                                                                                                                   |       |
| Notes to  Unaudited Consolidated 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 1 Financial Information**
| **Item 1.** | ** ** | **Financial Statements** |
|-------------|------------|--------------------------|

 

**The Wornick Company**

**Consolidated Balance Sheets**

**(Unaudited)**

 
| ** **                                                                                  | ** ** | **December 31,** | ** **  | **July 2,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|-------------|------------------|------------|
| ** **                                                                                  | ** ** | **2004**              | ** **  | **2005**         | ** ** |
|                                                                                        |       |                  |        |             |       |
| **Assets**                                                                                  |       |                  |        |             |       |
| Current assets                                                                              |       |                  |        |             |       |
| Cash and cash equivalents                                                                   |       | $                     | 3,289,030   |             | $          | 2,881,271 |   |
| Trade accounts receivable, net                                                              |       | 13,856,294            |        | 11,833,111       |       |
| Inventories                                                                                 |       | 24,132,116            |        | 21,282,382       |       |
| Prepaid expenses and other current assets                                                   |       | 531,106               |        | 920,582          |       |
| Total current assets                                                                        |       | 41,808,546            |        | 36,917,346       |       |
| Property and  equipment, net                                                                |       | 32,794,239            |        | 38,068,631       |       |
| Goodwill                                                                                    |       | 77,573,207            |        | 77,573,207       |       |
| Intangible  assets, net                                                                     |       | 21,822,710            |        | 19,475,418       |       |
| Other  noncurrent assets                                                                    |       | 5,675,939             |        | 5,373,164        |       |
| Total assets                                                                                |       | $                     | 179,674,641 |             | $          | 177,407,766 |   |
| **Liabilities and Stockholder’s Equity**                                               |       |                  |        |             |       |
| Current liabilities                                                                         |       |                  |        |             |       |
| Trade accounts payable                                                                      |       | $                     | 6,167,826   |             | $          | 5,597,576 |   |
| Accrued expenses                                                                            |       | 3,122,446             |        | 4,212,135        |       |
| Accrued interest                                                                            |       | 6,796,875             |        | 6,230,469        |       |
| Taxes payable                                                                               |       | 51,950                |        | —           |       |
| Total current liabilities                                                                   |       | 16,139,097            |        | 16,040,180       |       |
| Deferred income taxes                                                                       |       | 912,067               |        | 1,824,067        |       |
| Long-term debt                                                                              |       | 125,000,000           |        | 125,000,000      |       |
| Total liabilities                                                                           |       | 142,051,164           |        | 142,864,247      |       |
| **Commitments and Contingencies**                                                           |       |                  |        |             |       |
| Stockholder’s equity                                                                   |       |                  |        |             |       |
| Common stock $0.01 par value; 10,000,000  shares authorized, 1 share issued and outstanding |       | —                |        | —           |       |
| Additional paid-in capital                                                                  |       | 37,646,400            |        | 37,656,383       |       |
| Retained earnings                                                                           |       | (22,923               | )           | (3,112,864       | )          |
| Total stockholder’s equity                                                             |       | 37,623,477            |        | 34,543,519       |       |
| Total liabilities and stockholder’s equity                                             |       | $                     | 179,674,641 |             | $          | 177,407,766 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

1

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**TheWornick Company**

**Consolidated Statements of Operations**

**(Unaudited)**

 
| ** **                                    | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|-----------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                    | ** ** | **June 30, 2004**   | ** ** | **July 2, 2005**      | ** ** | **June 30, 2004** | ** ** | **July 2, 2005** | ** ** |
| ** **                                    | ** ** | **(Predecessor)**        | ** ** | **(Successor)**            | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| Net sales                                     |       | $                        | 44,821,208 |                       | $          | 44,392,948 |   | $ | 80,923,839 |   | $ | 103,225,163 |   |
| Cost of sales                                 |       | 37,915,653               |       | 36,418,430                 |       | 67,668,529 |   | 88,801,955 |   |
| Gross profit                                  |       | 6,905,555                |       | 7,974,518                  |       | 13,255,310 |   | 14,423,208 |   |
| Selling, general and administrative  expenses |       | 7,137,472                |       | 4,629,384                  |       | 12,458,600 |   | 9,481,634 |   |
| Operating (loss) profit                       |       | (231,917                 | )          | 3,345,134                  |       | 796,710 |   | 4,941,574 |   |
| Other (expense) income                        |       |                     |       |                       |       |   |   |   |   |
| Interest expense                              |       | (49,931                  | )          | (3,569,137                 | )          | (99,791 | ) | (7,143,054 | ) |
| Interest income                               |       | 301,019                  |       | 65,153                     |       | 506,553 |   | 98,934 |   |
| Other income (expense), net                   |       | 84,809                   |       | (107,664                   | )          | 284,921 |   | (27,225 | ) |
| Total other income (expense)                  |       | 335,897                  |       | (3,611,648                 | )          | 691,683 |   | (7,071,345 | ) |
| Income (loss) before income taxes             |       | 103,980                  |       | (266,514                   | )          | 1,488,393 |   | (2,129,771 | ) |
| Income tax expense                            |       | 13,700                   |       | 404,050                    |       | 41,052 |   | 960,170 |   |
| Net income (loss)                             |       | $                        | 90,280     |                       | $          | (670,564 | ) | $ | 1,447,341 |   | $ | (3,089,941 | ) |
|                                          |       |                     |       |                       |       |   |   |   |   |
| Pro forma income data (unaudited)             |       |                     |       |                       |       |   |   |   |   |
| Income before income taxes                    |       | $                        | 103,980    |                       |       |   | $ | 1,488,393 |   |   |   |
| Pro forma income tax expense                  |       | 249,509                  |       |                       |       | 949,825 |   |   |   |
| Pro forma net (loss) income                   |       | $                        | (145,529   | )                          |       |   | $ | 538,568 |   |   |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

2

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**TheWornick Company**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                   | ** ** | **June 30, 2004**     | ** ** | **July 2, 2005** | ** ** |
| ** **                                                                                   | ** ** | **(Predecessor)**          | ** ** | **(Successor)** | ** ** |
|                                                                                         |       |                       |       |   |   |
| **Cash flows from operating activities**                                                     |       |                       |       |   |   |
| Net income (loss)                                                                            |       | $                          | 1,447,341  |   | $ | (3,089,941 | ) |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |       |                       |       |   |   |
| Depreciation of property and equipment                                                       |       | 1,386,904                  |       | 1,911,292 |   |
| Amortization of intangibles                                                                  |       | —                     |       | 2,347,292 |   |
| Amortization of bond issuance cost                                                           |       | —                     |       | 341,400 |   |
| Deferred income tax expense                                                                  |       | —                     |       | 912,000 |   |
| Compensation expense for Employee Stock                                                      |       |                       |       |   |   |
| Ownership Trust shares released and  committed to be released                                |       | 2,344,292                  |       | — |   |
| Compensation expense for stock options                                                       |       | 713,433                    |       | 9,983 |   |
| Other equity based compensation plans                                                        |       | 3,266,814                  |       | — |   |
| Stock compensation plans                                                                     |       | (4,270,995                 | )          | — |   |
| Changes in assets and liabilities:                                                           |       |                       |       |   |   |
| Trade accounts receivable                                                                    |       | 1,189,462                  |       | 2,023,183 |   |
| Inventories                                                                                  |       | (4,693,075                 | )          | 2,849,734 |   |
| Prepaid expenses and other current assets                                                    |       | 162,149                    |       | (389,476 | ) |
| Other noncurrent asset                                                                       |       | (56,901                    | )          | (38,625 | ) |
| Trade accounts payable and accrued expenses                                                  |       | (1,961,207                 | )          | 519,439 |   |
| Accrued bond interest                                                                        |       | —                     |       | (566,406 | ) |
| Taxes payable                                                                                |       | —                     |       | (51,950 | ) |
| Net cash (used in) provided by operating activities                                          |       | (471,783                   | )          | 6,777,925 |   |
| **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                | )          | — |   |
| Capital expenditures                                                                         |       | (2,382,720                 | )          | (7,185,684 | ) |
| Net cash (used in) investing activities                                                      |       | (11,791,620                | )          | (7,185,684 | ) |
| **Cash flows from financing activities**                                                     |       |                       |       |   |   |
| Change in book overdrafts                                                                    |       | 243,027                    |       | — |   |
| Net increase in the line of credit                                                           |       | 8,700,000                  |       | — |   |
| Principal payments on long-term debt                                                         |       | (629,305                   | )          | — |   |
| Net cash provided by financing activities                                                    |       | 8,313,722                  |       | — |   |
| Net (decrease) in cash and cash equivalents                                                  |       | (3,949,681                 | )          | (407,759 | ) |
| **Cash and cash equivalents**                                                                |       |                       |       |   |   |
| Beginning of period                                                                          |       | 5,290,667                  |       | 3,289,030 |   |
| End of period                                                                                |       | $                          | 1,340,986  |   | $ | 2,881,271 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

3

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**1.****                                     ****Organization and Basis ofPresentation**

 

The Wornick Company, aDelaware corporation (the “Company” or “Successor”), an acquisition vehicleformed by The Veritas Capital Fund II, L.P., and its general partner, VeritasCapital Management II, L.L.C.(collectively “Veritas”), entered into an AssetsPurchase and Sale Contract with The Wornick Company, a Nevada corporation (the “Predecessor”),and its subsidiaries, The Wornick Company Right Away Division, a Nevadacorporation, The Wornick Company Right Away Division, L.P., a Texas limitedpartnership, and Right Away Management Corporation, a Texas corporation, whichwas consummated on June 30, 2004, and resulted in the purchase by theSuccessor and its subsidiaries, and the sale by the Predecessor and itssubsidiaries, of the business of the Predecessor and its subsidiaries as agoing concern, including substantially all of the operating assets of thePredecessor and its subsidiaries.

 

The Company produces,packages and distributes extended shelf-life foods, both shelf stable andfrozen, in flexible pouches and semi-rigid containers, primarily for the U.S.Department of Defense (“DoD”) and commercial customers, as well as for its ownconsumer-branded products.

 

**2.****                                     ****Basis of Presentation**

 

The accompanying unauditedinterim condensed consolidated financial statements, also referred to as ourinterim or unaudited “consolidated financial statements,” have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and the instructions to Form 10-Qand Article 10 of Regulation S-X under the Securities Exchange Act of1934, as amended.  Accordingly, they do not include all of the informationand footnotes normally included in financial statements prepared in conformitywith accounting principles generally accepted in the United States of America.In the opinion of management, the interim consolidated financial statementsreflect all adjustments of a normal recurring nature considered necessary for afair presentation of the results for the periods presented.  Operatingresults for interim periods are not necessarily indicative of results that maybe expected 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 in conjunctionwith the audited consolidated financial statements for the year ended December 31,2004 and notes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004 filed with the Securities andExchange Commission.

 

As discussed in Note 1above, the Assets Purchase and Sale Contract was consummated on June 30,2004.  As such, the unaudited financial information presented represents: (i) theCondensed Consolidated Balance Sheet of the Successor at December 31, 2004and July 2, 2005, (ii) the Condensed Consolidated Statements ofOperations of the Predecessor for the thirteen and twenty-six week periodsended June 30, 2004, (iii) the Condensed Consolidated Statement ofOperations of the Successor for the thirteen and twenty-six week periods ended July 2,2005, (iv) the Condensed Consolidated Statement of Cash Flows of the Predecessor for the twenty-six weekperiod ended June 30, 2004 and (v) the Condensed ConsolidatedStatement of Cash Flows of the Successor for the twenty-six week period ended July 2,2005.

 

As the Successor conformedits interim accounting periods to those of the Predecessor, the operatingactivity of the Successor for the period July 1, 2004 through July 3,2004 is included in the results of the period ended October 2, 2004 of theSuccessor.  Its impact was notsignificant as operations were substantially shut down during the period from July 1,2004 through July 3, 2004 to accommodate the closing of the June 30,2004 acquisition.

 

For the purpose of thesefinancial statements, references to the Predecessor thirteen week period ended June 30,2004, reflect the result of operations for the period from April 4, 2004to June 30, 2004 and

 

4

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references to thePredecessor twenty-six week period ended June 30, 2004, reflect the resultof operations for the period from January 1, 2004 through June 30,2004.

 

Certain items in thepredecessor statement of operations have been reclassified to conform tocurrent year presentations.  These reclassifications had no impact onpreviously reported net income or stockholder’s equity.

 

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

 

On June 30, 2004 (the “AcquisitionDate”), pursuant to the Assets Purchase and Sale Contract described above inNote 1, the Company acquired all of the operating assets of thePredecessor.  The acquisition was financed through a combination of debtand equity issuances.  The purchase price of $165.0 million includedapproximately $10.1 million of transaction costs.  Goodwill of $77.6million represents the excess of the acquisition cost over the estimated fairvalue of the identifiable assets acquired.  The identifiable intangibleassets relate to the value of existing long-term customer supply contracts inplace at the Acquisition Date.  The purchase price has been allocated tothe assets acquired in accordance with the purchase method of accounting asfollows:

 
| 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 |   |

 

In financing theacquisition, the Company received $165.5 million in proceeds from debt andequity financing, including a $3.0 million advance on a working capitalfacility.

 

Summary selected pro formainformation of the Predecessor as though the transaction were completed at thebeginning of the respective period presented (and as though the Company weretaxed as a C-Corporation) is as follows:

 
| ** **                    | ** ** | **Thirteen**           | ** ** | **Twenty-Six**         | ** ** |
|-------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                    | ** ** | **Weeks Ended**        | ** ** | **Weeks Ended**        | ** ** |
| **(in thousands of dollars)** | ** ** | **June 30, 2004** | ** ** | **June 30, 2004** | ** ** |
| ** **                    | ** ** | **(Predecessor)**      | ** ** | **(Predecessor)**      | ** ** |
| Net sales                     |       | $                      | 44,821     |                   | $          | 80,924 |   |
| Net income (loss)             |       | (3,370                 | )          | (5,950                 | )          |
|                               |            |                        |            |                        |            |  |  |

 

5

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

 

**Inventories**

A summary of inventories isas follows:

 
| ** **      | ** ** | **December 31,** | ** ** | **July 2,** | ** ** |
|-----------------|------------|-----------------------|------------|------------------|------------|
| ** **      | ** ** | **2004**              | ** ** | **2005**         | ** ** |
|            |       |                  |       |             |       |
| Raw materials   |       | $                     | 15,187,856 |             | $          | 13,937,613 |   |
| Work in process |       | 1,838,828             |       | 1,358,557        |       |
| Finished goods  |       | 7,105,432             |       | 5,986,212        |       |
|            |       | $                     | 24,132,116 |             | $          | 21,282,382 |   |

 

**Property and Equipment, Net**

A summary of property andequipment, net is as follows:

 
| ** **                                       | ** ** | **December 31,** | ** ** | **July 2,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|------------------|------------|
| ** **                                       | ** ** | **2004**              | ** ** | **2005**         | ** ** |
|                                             |       |                  |       |             |       |
| Leasehold improvements                           |       | $                     | 1,771,322  |             | $          | 2,670,772 |   |
| Machinery and equipment                          |       | 26,166,475            |       | 27,743,006       |       |
| Office equipment, fixtures and vehicles          |       | 2,395,476             |       | 1,881,820        |       |
| Construction in progress                         |       | 4,216,827             |       | 9,440,186        |       |
|                                             |       | 34,550,100            |       | 41,735,784       |       |
| Less: Accumulated depreciation and  amortization |       | (1,755,861            | )          | (3,667,153       | )          |
|                                             |       | $                     | 32,794,239 |             | $          | 38,068,631 |   |

 

Depreciation expense for thetwenty-six week periods ended June 30, 2004 and July 2, 2005 wasapproximately $1,387,000 and $1,911,000, respectively.

 

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

 

In connection with theacquisition described in Note 3, a portion of the purchase price wasallocated to identifiable intangible assets related to the value of long-termcustomer supply contracts in place at the Acquisition Date.  The originalvalue of these contracts was $24,170,000 and their useful lives range fromthree to eight years.  Aggregate accumulated amortization of intangiblesat December 31, 2004 and July 2, 2005 amounted to $2,347,290 and$4,694,582, respectively.  Expense related to amortization of intangibleassets for the twenty-six week period ended July 2, 2005, amounted to$2,347,292.

 

Scheduled amortization ofthese assets is as follows:

 
| July 3, 2005 through December 31,  2005 |   | $         | 2,347,288  |   |
|---------------------------------------------------|--------|-----------|------------|--------|
| 2006                                              |   | 4,694,580 |       |
| 2007                                              |   | 4,627,918 |       |
| 2008                                              |   | 4,856,248 |       |
| 2009                                              |   | 2,421,226 |       |
| Thereafter                                        |   | 528,158   |       |
|                                              |   | $         | 19,475,418 |   |

 

6

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

 

A summary of long-term debtat December 31, 2004 and July 2, 2005, is as follows:

 
| ** **                                    | ** ** | **December 31,** | ** **  | **July 2,** | ** ** |
|-----------------------------------------------|------------|-----------------------|-------------|------------------|------------|
| ** **                                    | ** ** | **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 |   |

 

In connection with thefinancing of the acquisition described in Note 3, the Company issued$125.0 million 10-7/8% Senior Secured Notes due 2011 and alsosecured additional financing through a Revolving Loan Agreement which providesthe 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 July 2, 2005)are due June 30, 2009, and amounts outstanding are subject to limitationsas determined by a calculated borrowing base.

 

Interest on amountsoutstanding under the Revolving Loan Agreement will vary at a fluctuating rateper annum that is equal to the prime rate (5.25% at December 31, 2004 and6.25% at July 2, 2005) as published daily by The Wall Street Journal. Amounts outstanding under the Revolving Loan Agreement are collateralized bysubstantially all of the operating assets of the Company and itssubsidiaries.  The lien on such collateral is senior to the lien on the collateralthat secures the senior secured notes.  In connection with completing theacquisition, the Company borrowed $3.0 million against the revolving loanfacility to fund the acquisition and initial working capital of theSuccessor.  This amount was subsequently repaid prior to December 31,2004.  As of July 2, 2005 we are in compliance with all covenantssupporting our revolving loan agreement and our $125 million Senior Securednotes.

 

The senior secured notes arecollateralized by substantially all assets and other property of the Companyand its subsidiaries.  The lien on such collateral, however, issubordinate to the lien on the collateral securing the Revolving LoanAgreement.  Interest on the senior secured notes is payable semi-annually. Interest expense on the senior secured notes and revolving loan facility forthe twenty-six week period ended July 2, 2005 amounted to $6,796,876 and$4,778, respectively.

 

Amounts due under the seniorsecured notes and the revolving loan facility are subject to an intercreditoragreement.  The Company is required to meet certain financial covenantsrelated primarily to minimum working capital amounts and minimum workingcapital ratios as well as minimum profitability and minimum net worthcalculations.  At July 2, 2005 we were in compliance with allfinancial covenants.

 

On February 11, 2005our parent, TWC Holding LLC (the “Parent Company”) , and its wholly-ownedfinance subsidiary, TWC Holding Corp., co-issued their  13.875% Senior PIKNotes due 2011, or the “Senior PIK Notes,” in the approximate aggregateprincipal 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 Companyand because TWC Holding Corp. has no independent operations or assets, futurecash flows of the Company through 2011 may be required to service the $62.3million Senior PIK notes, upon their maturity.

 

7

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The pro forma effect of theadditional interest expense on our net income assuming the Company issued theSenior PIK notes and such issuance took place at the beginning of the yearwould have resulted in additional interest expense (pre-tax) of approximately$415,000.  Actual interest expense wasapproximately $919,000 and $1,413,000 for the thirteen and twenty-six weekperiods ended July 2, 2005.

 

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

 

In connection with thetransactions described in Note 3, the Successor is taxed as a C-Corporationwhereas, the Predecessor was a pass-through entity qualified under Subchapter Sof the Internal Revenue Code.  TheCompany provides for income taxes utilizing the asset liability method, currentincome tax expense or benefit represents income taxes expected to be payable orrefundable for the current period.  Deferred income taxes are recognizedfor the tax consequences in future years as a result of differences between thetax and financial reporting bases of assets and liabilities and for theexpected future tax benefit to be derived from tax credit and loss carry-forwards. Valuation allowances are established when necessary to reduce deferred taxassets to the amounts management believes are more likely than not to berealized in future tax returns.  Tax rate changes are reflected in theperiod such changes are enacted.  The Company has recorded a deferred taxliability of approximately $1,824,000 related to the indefinite reversal periodrelated to goodwill.

 

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

 

Our parent company, TWCHolding LLC has two classes of membership interests, Class A interests andClass B interests. In connection with completing the Acquisition, certainmembers of our management and outside directors received Class Binterests. Pursuant to the terms of the operating agreement governing TWC HoldingLLC, the holders of Class B interests are entitled to receive up to7.875%, 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 unvestedinterest reverting to the holders of Class A interests. Because these Class Binterests were issued to members of management and directors of the Company,these awards are considered to be compensatory to our Company over the vestingperiod. 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. As such, previously recognizedcompensation expense of approximately $78,000 was reversed which resulted incompensation income of approximately $44,000 for the thirteen week period endedApril 2, 2005 related to the vesting provisions of these Class Binterests.

 

On April 11, 2005, theTWC Holding LLC issued additional Class B membership interests to recentlyretained senior management of the Wornick. These Class B membership interests will vest over a five yearperiod.  Approximately $88,000 ofcompensation expense was recognized in the twenty-six week period ended July 2,2005, resulting in net compensation expense for Class B membershipinterests for the twenty-six week period ended July 2, 2005 of $9,983.

 

**9.****                                     ****Operating SegmentInformation**

 

The Company has twooperating segments: the Right Away Division (“RAD”) and the Prepared FoodsDivision (“PFD”).  RAD is located in Texas and primarily sells its productto the U.S. Department of Defense.  PFD is located in Ohio and also sellsdirectly to the U.S. Department of Defense as well as to commercial brandedfood companies and inter-segment sales to RAD.  Management evaluatessegment performance based on several factors, including operating profit.

 

Consistent with thePredecessor’s internal management reporting, corporate operations for thePredecessor include investment and interest income, compensation expense for TheWornick Company (Predecessor)

 

8

----

 

Employee Stock OwnershipTrust (“ESOT”), stock options and other stock-based compensation expense andoverhead costs.  Corporate assets primarily include investments insubsidiary guarantors (which are eliminated in consolidation), otherinvestments and goodwill.  Other significant noncash items includecompensation expense for ESOT shares released and committed to be released aswell as compensation expense related to stock options and other stock-basedcompensation plans.

 

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

 
| ** **                                   | ** ** | ** ** | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-Six Weeks Ended** | ** ** |
|----------------------------------------------|------------|------------|------------|--------------------------|------------|----------------------------|------------|
| **(in thousands of dollars)**                | ** ** | ** ** | ** ** | **June 30, 2004**   | ** ** | **July 2, 2005**      | ** ** | **June 30, 2004** | ** ** | **July 2, 2005** | ** ** |
| ** **                                   | ** ** | ** ** | ** ** | **(Predecessor)**        | ** ** | **(Successor)**            | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| DoD Sales                                    |       |       |       |                     |       |                       |       |   |   |   |   |
| Meals Ready-to-Eat (“MRE”)         |       |       |       | $                        | 18,649     |                       | $          | 25,072 |   | $ | 39,078 |   | $ | 58,765 |   |
| Unitized Group Rations-A (“UGR-A”) |       |       |       | 16,592                   |       | 7,715                      |       | 24,518 |   | 22,300 |   |
| Tray-Pack                                    |       |       |       | 1,348                    |       | 1,511                      |       | 2,410 |   | 2,218 |   |
| Military Other                               |       |       |       | 588                      |       | 775                        |       | 793 |   | 1,316 |   |
| Total DoD sales                              |       |       |       | 37,177                   |       | 35,073                     |       | 66,799 |   | 84,599 |   |
| Co-manufactured                              |       |       |       | 5,299                    |       | 8,570                      |       | 10,329 |   | 16,774 |   |
| Branded                                      |       |       |       | 1,508                    |       | 537                        |       | 2,359 |   | 1,389 |   |
| Other                                        |       |       |       | 837                      |       | 213                        |       | 1,437 |   | 463 |   |
|                                         |       |       |       | $                        | 44,821     |                       | $          | 44,393 |   | $ | 80,924 |   | $ | 103,225 |   |

 

During the twenty-six weekperiods ended June 30, 2004 and July 2, 2005, the Company had onemajor customer, which accounted for approximately $66,799,000 and $84,599,000,or 82.5% and 82.0% of net revenue, respectively.  Approximately$10,528,000, or 78.0% and $7,613,000, or 64.3%, of net receivables wereattributed to this customer at June 30, 2004 and July 2, 2005,respectively.

 

9

----

 

Unaudited reportableoperating segment financial information for the thirteen week periods ended July 2,2005 and June 30, 2004, is a follows (in thousands):

 
| ** **                       | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** |
|----------------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|
| ** **                       | ** ** | **Trade**   | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** |
| **Operating Segments**           | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** |
| ** **                       |       |        |       |              |       |          |       |
| **Right Away Division**          |       |        |       |              |       |          |       |
| June 30, 2004 (Predecessor) |       | 36,259,041  |       | —            |       | 3,134,541     |       |
| July 2, 2005 (Successor)    |       | 33,627,700  |       | —            |       | 7,190,901     |       |
| **Prepared Foods**               |       |        |       |              |       |          |       |
| June 30, 2004 (Predecessor) |       | 8,562,167   |       | 7,882,881         |       | 1,665,239     |       |
| July 2, 2005 (Successor)    |       | 10,765,248  |       | 7,465,984         |       | (2,828,248    | )          |
| **Corporate**                    |       |        |       |              |       |          |       |
| June 30, 2004 (Predecessor) |       | —      |       | —            |       | (5,031,697    | )          |
| July 2, 2005 (Successor)    |       | —      |       | —            |       | (1,017,519    | )          |
| **Eliminations**                 |       |        |       |              |       |          |       |
| June 30, 2004 (Predecessor) |       | —      |       | (7,882,881        | )          | —        |       |
| July 2, 2005 (Successor)    |       | —      |       | (7,465,984        | )          | —        |       |
| **Total Company**                |       |        |       |              |       |          |       |
| June 30, 2004 (Predecessor) |       | 44,821,208  |       | —            |       | (231,917      | )          |
| July 2, 2005 (Successor)    |       | 44,392,948  |       | —            |       | 3,345,134     |       |

 

Unaudited reportableoperating segment financial information for the twenty-six week periods ended July 2,2005 and June 30, 2004, is a follows (in thousands):

 
| ** **                        | ** ** | ** **  | ** ** | ** **        | ** ** | **Operating** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** |
|-----------------------------------|------------|-------------|------------|-------------------|------------|---------------|------------|------------------|------------|------------------|------------|-------------|------------|------------------|------------|
| ** **                        | ** ** | **Trade**   | ** ** | **Inter-segment** | ** ** | **Profit**    | ** ** | ** **       | ** ** | ** **       | ** ** | **Total**   | ** ** | **Capital**      | ** ** |
| **Operating Segments**            | ** ** | **Revenue** | ** ** | **Revenue**       | ** ** | **(Loss)**    | ** ** | **Depreciation** | ** ** | **Amortization** | ** ** | **Assets**  | ** ** | **Expenditures** | ** ** |
|                              |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| **Right  Away Division**          |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| June 30,  2004 (Predecessor) |       | 65,266,652  |       | —            |       | 4,358,847     |       | 486,473          |       | —           |       | —      |       | 773,591          |       |
| July 2, 2005  (Successor)    |       | 82,595,537  |       | —            |       | 12,077,800    |       | 652,612          |       | 411,667          |       | 32,928,896  |       | 175,325          |       |
| **Prepared  Foods**               |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| June 30,  2004 (Predecessor) |       | 15,657,187  |       | 19,815,600        |       | 4,413,202     |       | 891,518          |       | —           |       | —      |       | 1,609,129        |       |
| July 2, 2005  (Successor)    |       | 20,629,626  |       | 20,119,597        |       | (5,064,532    | )          | 1,258,680        |       | 1,935,625        |       | 62,982,950  |       | 7,010,359        |       |
| **Corporate**                     |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| June 30,  2004 (Predecessor) |       | —      |       | —            |       | (7,975,339    | )          | 8,913            |       | —           |       | —      |       | —           |       |
| July 2, 2005  (Successor)    |       | —      |       | —            |       | (2,071,694    | )          | —           |       | 341,400          |       | 112,499,592 |       | —           |       |
| **Eliminations**                  |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| June 30,  2004 (Predecessor) |       | —      |       | (19,815,600       | )          | —        |       | —           |       | —           |       | —      |       | —           |       |
| July 2, 2005  (Successor)    |       | —      |       | (20,119,597       | )          | —        |       | —           |       | —           |       | (31,003,672 | )          | —           |       |
| **Total  Company**                |       |        |       |              |       |          |       |             |       |             |       |        |       |             |       |
| June 30,  2004 (Predecessor) |       | 80,923,839  |       | —            |       | 796,710       |       | 1,386,904        |       | —           |       | —      |       | 2,382,720        |       |
| July 2, 2005  (Successor)    |       | 103,225,163 |       | —            |       | 4,941,574     |       | 1,911,292        |       | 2,688,692        |       | 177,407,766 |       | 7,185,684        |       |

 

10

----

 

**10.****                              ****Condensed ConsolidatingFinancial Information**

 

The following information presentsthe unaudited condensed consolidating balance sheets of the Successor at December 31,2004 and July 2, 2005, the unaudited condensed consolidating statements ofoperations of the Predecessor for the thirteen and twenty-six week periodsended June 30, 2004, the unaudited condensed consolidating statements ofoperations of the Successor for the thirteen and twenty-six week periods ended July 2,2005 and the unaudited statement of cash flows of the Predecessor and Successorfor the twenty-six week periods ended June 30, 2004 and July 2, 2005,respectively.

 

11

----

 

Condensed consolidatedbalance sheet as of 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                       |       | 4,822,266     |        | — |   | (4,822,266 | ) | — |   |
| 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                            |       | 21,059,165    |        | 25,571,647 |   | (4,822,266 | ) | 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                                    |       | $             | 177,023,503 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 179,674,641 |   |
| **Liabilities and Stockholder’s Equity**   |       |          |        |   |   |   |   |   |   |
| Current liabilities                             |       |          |        |   |   |   |   |   |   |
| Trade accounts payable                          |       | $             | 4,556,681   |   | $ | 1,611,145 |   | $ | — |   | $ | 6,167,826 |   |
| Interdivision payables                          |       | 101,605       |        | 4,720,661 |   | (4,822,266 | ) | — |   |
| 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                       |       | 13,487,959    |        | 7,473,404 |   | (4,822,266 | ) | 16,139,097 |   |
|                                            |       |          |        |   |   |   |   |   |   |
| Deferred tax liabilities                        |       | $             | 912,067     |   | — |   | — |   | $ | 912,067 |   |
| Long-term debt, excluding current  maturities   |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total liabilities                               |       | 139,400,026   |        | 7,473,404 |   | (4,822,266 | ) | 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                               |       | (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 |       | $             | 177,023,503 |   | $ | 36,053,360 |   | $ | (33,402,222 | ) | $ | 179,674,641 |   |

 

12

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Condensed consolidated balancesheet as of July 2, 2005 (unaudited):

 
| ** **                                      | ** ** | **Successor** | ** **  |
|-------------------------------------------------|------------|---------------|-------------|
| ** **                                      | ** ** | **Parent**    | ** **  | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                            |       |          |        |   |   |   |   |   |   |
| **Assets**                                      |       |          |        |   |   |   |   |   |   |
| Current assets                                  |       |          |        |   |   |   |   |   |   |
| Cash and cash equivalents                       |       | $             | (2,486,855  | ) | $ | 5,368,126 |   | $ | — |   | $ | 2,881,271 |   |
| Trade accounts receivable                       |       | 4,193,943     |        | 7,639,168 |   | — |   | 11,833,111 |   |
| Interdivision receivables                       |       | —        |        | — |   | — |   | — |   |
| Inventories                                     |       | 11,429,558    |        | 9,852,824 |   | — |   | 21,282,382 |   |
| Prepaid expenses and other current assets       |       | 459,114       |        | 461,468 |   | — |   | 920,582 |   |
| Total current assets                            |       | 13,595,760    |        | 23,321,586 |   | — |   | 36,917,346 |   |
| Investments in subsidiary guarantors            |       | 31,003,672    |        | — |   | (31,003,672 | ) | — |   |
| Property and equipment, net                     |       | 31,597,296    |        | 6,471,335 |   | — |   | 38,068,631 |   |
| Goodwill                                        |       | 77,573,207    |        | — |   | — |   | 77,573,207 |   |
| Intangible assets, net                          |       | 16,498,750    |        | 2,976,668 |   | — |   | 19,475,418 |   |
| Other noncurrent assets                         |       | 5,213,857     |        | 159,307 |   | — |   | 5,373,164 |   |
| Total assets                                    |       | $             | 175,482,542 |   | $ | 32,928,896 |   | $ | (31,003,672 | ) | $ | 177,407,766 |   |
| **Liabilities and Stockholder’s Equity**   |       |          |        |   |   |   |   |   |   |
| Current liabilities                             |       |          |        |   |   |   |   |   |   |
| Trade accounts payable                          |       | $             | 4,729,615   |   | $ | 867,961 |   | $ | — |   | $ | 5,597,576 |   |
| Interdivision payables                          |       | —        |        | — |   | — |   | — |   |
| Accrued expenses                                |       | 3,154,872     |        | 1,057,263 |   | — |   | 4,212,135 |   |
| Accrued interest                                |       | 6,230,469     |        | — |   | — |   | 6,230,469 |   |
| Total current liabilities                       |       | 14,114,956    |        | 1,925,224 |   | — |   | 16,040,180 |   |
|                                            |       |          |        |   |   |   |   |   |   |
| Deferred tax liabilities                        |       | 1,824,067     |        | — |   | — |   | 1,824,067 |   |
| Long-term debt, excluding current  maturities   |       | 125,000,000   |        | — |   | — |   | 125,000,000 |   |
| Total liabilities                               |       | 140,939,023   |        | 1,925,224 |   | — |   | 142,864,247 |   |
| Stockholder’s equity                       |       |          |        |   |   |   |   |   |   |
| Common stock                                    |       |          |        |   |   |   |   | — |   |
| Additional paid-in capital                      |       | 37,656,383    |        | 26,624,729 |   | (26,624,729 | ) | 37,656,383 |   |
| Retained earnings                               |       | (3,112,864    | )           | 4,378,943 |   | (4,378,943 | ) | (3,112,864 | ) |
| Total stockholder’s equity (deficit)       |       | 34,543,519    |        | 31,003,672 |   | (31,003,672 | ) | 34,543,519 |   |
| Total liabilities and stockholder’s equity |       | $             | 175,482,542 |   | $ | 32,928,896 |   | $ | (31,003,672 | ) | $ | 177,407,766 |   |

 

13

----

 

Condensed consolidatedstatement of operations of the Predecessor for the thirteen week period fromApril 4, 2004 through June 30, 2004 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |            |       |   |   |   |   |   |   |
| Net sales                                     |       | $               | 16,445,048 |   | $ | 36,259,041 |   | $ | (7,882,881 | ) | $ | 44,821,208 |   |
| Cost of sales                                 |       | 13,649,243      |       | 32,149,291 |   | (7,882,881 | ) | 37,915,653 |   |
| Gross profit                                  |       | 2,795,805       |       | 4,109,750 |   | — |   | 6,905,555 |   |
| Selling, general and administrative  expenses |       | 6,162,263       |       | 975,209 |   | — |   | 7,137,472 |   |
| Operating (loss) profit                       |       | (3,366,458      | )          | 3,134,541 |   | — |   | (231,917 | ) |
| Other income (expense)                        |       |            |       |   |   |   |   |   |   |
| Interest expense                              |       | (45,543         | )          | (4,388 | ) | — |   | (49,931 | ) |
| Interest income                               |       | 285,614         |       | 15,405 |   | — |   | 301,019 |   |
| Executive/administration income (expense)     |       | 724,500         |       | (724,500 | ) | — |   | — |   |
| Other income, net                             |       | 92,912          |       | (8,103 | ) | — |   | 84,809 |   |
| Equity in earnings of subsidiary guarantors   |       | 2,412,955       |       | — |   | (2,412,955 | ) | — |   |
| Total other income (expense)                  |       | 3,470,438       |       | (721,586 | ) | (2,412,955 | ) | 335,897 |   |
| Income before income taxes                    |       | 103,980         |       | 2,412,955 |   | (2,412,955 | ) | 103,980 |   |
| Income tax expense                            |       | 13,700          |       | — |   | — |   | 13,700 |   |
| Net income                                    |       | $               | 90,280     |   | $ | 2,412,955 |   | $ | (2,412,955 | ) | $ | 90,280 |   |
|                                               |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Condensed consolidatedstatement of operations of the Successor for the Thirteen week period fromApril 3, 2005 through July 2, 2005 (unaudited):

 
| ** **                                    | ** ** | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------|------------|
| ** **                                    | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |          |       |   |   |   |   |   |   |
| Net sales                                     |       | $             | 18,231,232 |   | $ | 33,627,700 |   | $ | (7,465,984 | ) | $ | 44,392,948 |   |
| Cost of sales                                 |       | 18,807,855    |       | 25,076,559 |   | (7,465,984 | ) | 36,418,430 |   |
| Gross profit                                  |       | (576,623      | )          | 8,551,141 |   | — |   | 7,974,518 |   |
| Selling, general and administrative  expenses |       | 3,269,144     |       | 1,360,240 |   | — |   | 4,629,384 |   |
| Operating profit                              |       | (3,845,767    | )          | 7,190,901 |   | — |   | 3,345,134 |   |
| Other income (expense)                        |       |          |       |   |   |   |   |   |   |
| Interest expense                              |       | (3,569,137    | )          | — |   | — |   | (3,569,137 | ) |
| Interest income                               |       | 4,163         |       | 60,990 |   | — |   | 65,153 |   |
| Executive/administration income (expense)     |       | 5,786,998     |       | (5,786,998 | ) | — |   | — |   |
| Other (expense) income, net                   |       | (95,337       | )          | (12,327 | ) | — |   | (107,664 | ) |
| Equity in earnings of subsidiary guarantors   |       | 1,452,566     |       | — |   | (1,452,566 | ) | — |   |
| Total other income (expense)                  |       | 3,579,253     |       | (5,738,335 | ) | (1,452,566 | ) | (3,611,648 | ) |
| Income before income taxes                    |       | (266,514      | )          | 1,452,566 |   | (1,452,566 | ) | (266,514 | ) |
| Income tax expense                            |       | 404,050       |       | — |   | — |   | 404,050 |   |
| Net income                                    |       | $             | (670,564   | ) | $ | 1,452,566 |   | $ | (1,452,566 | ) | $ | (670,564 | ) |

 

14

----

 

Condensed consolidatedstatement of operations of the Predecessor for the twenty-six week period fromJanuary 1, 2004 through June 30, 2004 (unaudited):

 
| ** **                                    | ** ** | **Predecessor** | ** ** |
|-----------------------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |            |       |   |   |   |   |   |   |
| Net sales                                     |       | $               | 35,472,787 |   | $ | 65,266,652 |   | $ | (19,815,600 | ) | $ | 80,923,839 |   |
| Cost of sales                                 |       | 28,838,375      |       | 58,645,754 |   | (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 expense                              |       | (95,403         | )          | (4,388 | ) | — |   | (99,791 | ) |
| Interest income                               |       | 483,029         |       | 23,524 |   | — |   | 506,553 |   |
| Executive/administration income (expense)     |       | 483,000         |       | (483,000 | ) | — |   | — |   |
| Other income, net                             |       | 92,912          |       | 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 consolidatedstatement of operations of the Successor for the twenty-six week period fromJanuary 1, 2005 through July 2, 2005 (unaudited):

 
| ** **                                    | ** ** | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------|------------|
| ** **                                    | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|                                          |       |          |       |   |   |   |   |   |   |
| Net sales                                     |       | $             | 40,749,223 |   | $ | 82,595,537 |   | $ | (20,119,597 | ) | $ | 103,225,163 |   |
| Cost of sales                                 |       | 41,238,078    |       | 67,683,474 |   | (20,119,597 | ) | 88,801,955 |   |
| Gross (loss) profit                           |       | (488,855      | )          | 14,912,063 |   | — |   | 14,423,208 |   |
| Selling, general and administrative  expenses |       | 6,647,371     |       | 2,834,263 |   | — |   | 9,481,634 |   |
| Operating (loss) profit                       |       | (7,136,226    | )          | 12,077,800 |   | — |   | 4,941,574 |   |
| Other income (expense)                        |       |          |       |   |   |   |   |   |   |
| Interest expense                              |       | (7,142,960    | )          | (94 | ) | — |   | (7,143,054 | ) |
| Interest income                               |       | 10,578        |       | 88,356 |   | — |   | 98,934 |   |
| Executive/administration income (expense)     |       | 9,881,150     |       | (9,881,150 | ) | — |   | — |   |
| Other (expense) income, net                   |       | (166,029      | )          | 138,804 |   | — |   | (27,225 | ) |
| Equity in earnings of subsidiary guarantors   |       | 2,423,716     |       | — |   | (2,423,716 | ) | — |   |
| Total other income (expense)                  |       | 5,006,455     |       | (9,654,084 | ) | (2,423,716 | ) | (7,071,345 | ) |
| Income (loss) before income taxes             |       | (2,129,771    | )          | 2,423,716 |   | (2,423,716 | ) | (2,129,771 | ) |
| Income tax expense                            |       | 960,170       |       | — |   | — |   | 960,170 |   |
| Net(loss) income                              |       | $             | (3,089,941 | ) | $ | 2,423,716 |   | $ | (2,423,716 | ) | $ | (3,089,941 | ) |

 

15

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Condensed consolidatedstatement of cash flows for the twenty-six week period from January 1,2004 through June 30, 2004 (unaudited):

 
| ** **                                                                                            | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                            | ** ** | **Parent**      | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash flows from operating activities**                                                              |       |            |       |   |   |   |   |   |   |
| Net income                                                                                            |       | $               | 1,447,341  |   | $ | 4,086,992 |   | $ | (4,086,992 | ) | $ | 1,447,341 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities:          |       |            |       |   |   |   |   |   |   |
| Depreciation of property and equipment                                                                |       | 900,431         |       | 486,473 |   | — |   | 1,386,904 |   |
| Equity in earnings of subsidiary guarantors                                                           |       | (4,086,992      | )          | — |   | 4,086,992 |   | — |   |
| Compensation expense for Employee Stock  Ownership Trust shares released and committed to be released |       | 2,344,292       |       | — |   | — |   | 2,344,292 |   |
| Compensation expense for stock options                                                                |       | 713,433         |       | — |   | — |   | 713,433 |   |
| Other stock-based compensation expense                                                                |       | 3,266,814       |       | — |   | — |   | 3,266,814 |   |
| Stock compensation plans                                                                              |       | (4,270,995      | )          | — |   | — |   | (4,270,995 | ) |
| Changes in assets and liabilities:                                                                    |       |            |       |   |   |   |   |   |   |
| Trade accounts receivable                                                                             |       | (1,294,593      | )          | 2,484,055 |   | — |   | 1,189,462 |   |
| Interdivisional receivables/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 |   |
| Purchases of investments                                                                              |       | (30,007,514     | )          | — |   | — |   | (30,007,514 | ) |
| Capital expenditures                                                                                  |       | (1,609,129      | )          | (773,591 | ) | — |   | (2,382,720 | ) |
| Net cash (used in) investing activities                                                               |       | (11,018,029     | )          | (773,591 | ) | — |   | (11,791,620 | ) |
| **Cash flows from financing activities**                                                              |       |            |       |   |   |   |   |   |   |
| Change in book overdraft                                                                              |       | 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 (used in) provided by 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

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Condensed consolidatedstatement of cash flows for the twenty-six week period from January 1,2005 through July 2, 2005 (unaudited):

 
| ** **                                                                       | ** ** | **Successor** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                                       | ** ** | **Parent**    | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Cash flows from operating activities**                                         |       |          |       |   |   |   |   |   |   |
| Net income                                                                       |       | $             | (3,089,941 | ) | $ | 2,423,716 |   | $ | (2,423,716 | ) | $ | (3,089,941 | ) |
| Adjustments to reconcile net income to net cash  (used-in) operating activities: |       |          |       |   |   |   |   |   |   |
| Depreciation of property and equipment                                           |       | 1,258,680     |       | 652,612 |   | — |   | 1,911,292 |   |
| Amortization of intangibles                                                      |       | 1,935,625     |       | 411,667 |   | — |   | 2,347,292 |   |
| Amortization of bond issuance cost                                               |       | 341,400       |       | — |   | — |   | 341,400 |   |
| Equity in earnings of subsidiary guarantors                                      |       | (2,423,716    | )          | — |   | 2,423,716 |   | — |   |
| Deferred income tax expense                                                      |       | 912,000       |       | — |   | — |   | 912,000 |   |
| Compensation for stock options                                                   |       | 9,983         |       | — |   | — |   | 9,983 |   |
| Changes in assets and liabilities:                                               |       |          |       |   |   |   |   |   |   |
| Trade accounts receivable                                                        |       | 219,486       |       | 1,803,697 |   | — |   | 2,023,183 |   |
| Interdivisional receivables/payables, net                                        |       | 4,720,661     |       | (4,720,661 | ) | — |   | — |   |
| Inventories                                                                      |       | (937,878      | )          | 3,787,612 |   | — |   | 2,849,734 |   |
| Prepaid expenses and other current assets                                        |       | (212,798      | )          | (176,678 | ) | — |   | (389,476 | ) |
| Other noncurrent asset                                                           |       | (24,074       | )          | (14,551 | ) | — |   | (38,625 | ) |
| Trade accounts payable and accrued                                               |       |          |       |   |   |   |   | — |   |
| expenses                                                                         |       | 1,346,958     |       | (827,519 | ) | — |   | 519,439 |   |
| Accrued interest                                                                 |       | (566,406      | )          | — |   | — |   | (566,406 | ) |
| Taxes payable                                                                    |       | (51,950       | )          | — |   | — |   | (51,950 | ) |
| Net cash (used in) operating activities                                          |       | 3,438,030     |       | 3,339,895 |   | — |   | 6,777,925 |   |
| **Cash flows from investing activities**                                         |       |          |       |   |   |   |   |   |   |
| Capital expenditures                                                             |       | (7,010,359    | )          | (175,325 | ) | — |   | (7,185,684 | ) |
| Net cash (used in) investing activities                                          |       | (7,010,359    | )          | (175,325 | ) | — |   | (7,185,684 | ) |
| **Cash flows from financing activities**                                         |       |          |       |   |   |   |   |   |   |
| Change in book overdraft                                                         |       | —        |       | — |   | — |   | — |   |
| Net cash provided by (used in) financing  activities                             |       | —        |       | — |   | — |   | — |   |
| Net (decrease) in cash and cash equivalents                                      |       | (3,572,329    | )          | 3,164,570 |   | — |   | (407,759 | ) |
| **Cash and cash equivalents**                                                    |       |          |       |   |   |   |   |   |   |
| Beginning of period                                                              |       | 1,085,474     |       | 2,203,556 |   | — |   | 3,289,030 |   |
| End of period                                                                    |       | $             | (2,486,855 | ) | $ | 5,368,126 |   | $ | — |   | $ | 2,881,271 |   |

 

17

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** **

**Item2.       ********Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

Asa result of the acquisition transaction discussed below and in Note 3 to ourunaudited Consolidated Financial Statements, the following discussion relatesto the financial condition and results of operations of our Company, or the “Successor”as of and for the periods ended July 2, 2005.  Included in ourdiscussions are the results of operations of our predecessor company, or the “Predecessor”for the periods ended June 30, 2004.  This section should be read inconjunction with our unaudited Consolidated Financial Statements and consideredwith “—Quantitative and Qualitative Disclosures About Market Risk” and “CautionaryStatements Regarding Forward Looking Statement,” included elsewhere in our filing.

 

Asa result of the acquisition transaction in which we acquired our business andrelated financings, the historical consolidated financial data of thePredecessor may not be comparable to the Successor’s consolidated financialdata.  Most notably, the liquidity position of the Successor issubstantially different than that of the Predecessor, including the overalllevel of debt and resulting amount of interest expense in fiscal periodssubsequent to June 30, 2004, as well as the revaluation of the assets andliabilities as a result of applying purchase accounting.

 

**Our Company**

 

Weare the leading supplier of individual and group military field rations to theDepartment of Defense (the “DoD”). We specialize in the production, packagingand distribution of extended shelf-life, shelf stable and frozen foods inflexible pouches and semi-rigid containers. With over 30 years of experience inthe food manufacturing and food processing businesses, we believe we have areputation for superior quality and service in developing and producing uniquemeal solutions for the military and for the consumer and foodservice markets.We are a primary supplier to the DoD of Meals Ready-to-Eat, Unitized GroupRations-A and the polymeric trays used in the Unitized Group Rations-Heat &Serve program. Our customers also include Kraft Foods, Inc., GerberProducts Company, Quaker Oats Company, the Canadian Ministry of Defense, retailand grocery stores including Walgreen Company, 7-Eleven, Inc., The KrogerCompany, Publix Super Markets and Meijer.

 

**The Transaction**

 

OnDecember 3, 2003, the Successor and Veritas Capital Management II, L.L.C.entered into an Assets Purchase and Sale Contract with the Predecessor and itssubsidiaries, The Wornick Company Right Away Division, a Nevada corporation,The Wornick Company Right Away Division, L.P., a Texas limited partnership, andRight Away Management Corporation, a Texas corporation.  The 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.

 

TheSuccessor funded the purchase price and the related fees and expenses with theproceeds of its offering of the original notes and the equity investments inTWC Holding LLC, the parent of the Successor, as follows:

 

•                  the purchase by the equity investors ofClass A interests 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 ofapproximately $121.0 million from the issuance and sale of the original$125.0 million of senior notes; and

 

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

 

18

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Theclosing of the offering of the original notes occurred simultaneously with the closingof the Acquisition, our new working capital facility (described below) and theother financing transactions described above.

 

Weentered into a new senior secured revolving working capital credit facility ofup to $25 million concurrently with the closing of the Acquisition and theoffering. We make monthly interest payments on amounts borrowed under thefacility at an annual adjustable interest rate calculated in accordance withthe terms of the applicable promissory note.

 

**Results of Operations**

 

**Comparison of the thirteen weeks ended July 2, 2005 to thethirteen weeks ended June 30, 2004**

 

*Net Sales*.  Our net sales for the thirteen weeksended July 2, 2005 were $44.4 million, representing a decrease ofapproximately $428,000, or 1%, compared to net sales of $44.8 million forthe thirteen week period ended June 30, 2004. The decrease in net salesresulted primarily from lower military sales to the DoD of $2.1 million(increased MRE sales of approximately $6.4 million, decreased Unitized Group Rations-A(UGR-A’s) of approximately $8.9 million, increased Tray-Pack and other militarysales of approximately $350,000) and increased Co-manufacturing sales ofapproximately $3.3 million ($2.1 million new business initiatives in fiscalyear 2005, increased sales to Gerber and Kraft $1.1 million) offset by lowersales of our Branded and other  productlines of approximately $1.6 million.

 

*GrossProfit.*  Ourgross profit for the thirteen weeks ended July 2, 2005 was $8.0 million,representing an increase of approximately $1.1 million, or 15.5%, comparedto gross profit of $6.9 million for the thirteen weeks ended June 30, 2004. Asa percentage of net sales, our gross profit was 18.0% and 15.4% for thethirteen weeks ended July 2, 2005 and June 30, 2004, respectively.  Grossprofit on sales to the DoD increased by $2.2 million or 37.6% (approximately$8.0 million and $5.8 million, for the thirteen week periods ended July 2, 2005and June 30, 2004, respectively) due to higher prices and volumes on thecurrent MRE-25 base contract which began in the current quarter as compared toadd-on and surge volumes and  pricingunder the MRE-24 contract for the thirteen week period ended June 30, 2004..  Gross profit on Co-manufacturing saleswas 7.3% versus 13.2% for the thirteen weeks ended July 2, 2005 and June 30,2004 respectively.  This represents adecrease of approximately $71,000 largely attributable to Co-manufacturingstart-up inefficiencies of new contracts.   Branded gross profit decreased by approximately $1.0 million, primarilydue to lower than expected sales volumes and current period charges againstinventory for excess and obsolete of approximately $336,000.

 

*Selling,General and Administrative Expenses.*  Our selling, general and administrative expenses for the thirteenweeks ended July 2, 2005 were $4.6 million, representing a decrease ofapproximately $2.5 million, or 35.1%, compared to selling, general andadministrative expenses of $7.1 million for the thirteen weeks ended June 30,2004.  Selling, general and administrative expenses were 10.4% of netsales for the thirteen weeks ended July 2, 2005 as compared to 15.9% for thethirteen weeks ended June 30, 2004.  The decrease was largely due toequity based compensation charges recorded by the Predecessor relating to thevalue of shares committed to be released to the ESOT and other compensatorystock plans maintained by the Predecessor, which did not recur in 2005 andwhich were partially offset by charges related to increased depreciation andamortization related to the acquisition that was completed on June 30,2004 and resulted in a charge to income from operations of approximately $1.2million for amortization of intangible assets.

 

*OperatingProfit.*  Ourprofit from operations was approximately $3.3 million for the thirteen weeksended July 2, 2005, representing an increase of approximately $3.6 million,compared to an operating loss of approximately $232,000 for the thirteen weeksended June 30, 2004. This increase in profit from operations resulted from decreasedcost associated with the various Predecessor stock compensation plans describedabove and increased MRE volume and pricing for the thirteen weeks ended July 2,2005 as compared to thirteen weeks ended June 30, 2004.

 

19

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*InterestExpense.*  Ourinterest expense for the thirteen weeks ended July 2, 2005 was approximately$3.6 million, representing an increase of approximately $3.5 million comparedto interest expense of approximately $50,000 for the thirteen weeks ended June30, 2004. The increase in interest expense resulted from the issuance of the$125 million principal amount of our long-term debt, which accounts forapproximately $3.4 million of interest expense, approximately $171,000 in bondissue cost amortization.

 

*InterestIncome.*  Ourinterest income for the thirteen weeks ended July 2, 2005 was approximately$65,000, representing an decrease of approximately $236,000 compared tointerest income of approximately $301,000 for the thirteen weeks ended June 30,2004. The decrease in interest income resulted from interest earned oninvestments held by the Predecessor which were not purchased in the acquisitiontransaction.

 

*OtherIncome (Expense), Net.* Our other income (expense), net for the thirteen weeks ended July 2, 2005 wasapproximately ($108,000), representing a decrease of approximately $192,000compared to other income (expense), net of approximately $85,000 for thethirteen weeks ended June 30, 2004. The decrease in other income was partiallythe result of the reductions of approximately $91,000 of U.S. governmentpayments from the Value Engineering Change program (the “VE program”). The VE program provides incentives for U.S. Government contractors to make costsavings proposals to the Defense Supply Center Philadelphia (“DSCP”). Once theDSCP accepts a contractor’s VE proposal, the contractor is awarded 50% of theresulting industry-wide savings for a period of three years following theissuance by the DSCP, which is responsible for the procurement of militaryfield rations for the DoD, of a contract modification requiring implementationof the proposed change as outlined in the accepted VE proposal.  Other expense was also increased as theresult of $75,000 in management fees to Veritas.  The remaining decreases are attributable toapproximately $20,000 in other minor expenses and approximately $5,000 in gainson sale of fixed assets by the Predecessor Company.

 

*Income TaxExpense.* Expenses related to federal, state and local taxes for the thirteen weeks endedJuly 2, 2005was approximately $404,000 compared to approximately $14,000 forthe thirteen weeks ended June 30, 2004.  As described further in note 7 toour financial statements, the Predecessor Company was qualified under Subchapter-Sof the Internal Revenue Code, and therefore not subject to Federal Tax whereasthe Successor Company is taxed as a C-Corporation.  During the thirteenweeks ended July 2, 2005, we recorded approximately $456,000 of deferred taxliabilities associated with the indefinite reversal period related to Goodwilland approximately $52,000 of income related to reversals of local and citytaxes at our Prepared Foods Division.

 

*Net Income(Loss).*  As aresult of the foregoing, we incurred a net loss of approximately $671,000 forthe thirteen weeks ended July 2, 2005, representing a decrease in net income ofapproximately $761,000 compared to net income of approximately $90,000 in thethirteen weeks ended June 30, 2004.

 

**Comparison of the twenty-six weeks ended July 2, 2005 to the twenty-sixweeks ended June 30, 2004**

 

*Net Sales.*  Our net sales for the twenty-six weeksended July 2, 2005 were $103.2 million, representing an increase ofapproximately $22.3 million, or 27.6%, compared to net sales of $80.9 millionfor the twenty-six weeks ended June 30, 2004. The increase in net salesresulted primarily from increased sales to the DoD of approximately $17.8million (increased net sales of MRE $19.7 million, decreased net sales of URG-A$2.2 million and increased Tray-pack and other military sales of approximately$331,000).  Co-manufacturing net salesincreased approximately $6.4 million due primarily to new Co-manufacturingprojects of approximately $4.2 million (Quaker $2.1 million, Keefe $2.0 millionand DelMonte $78,000) and increased sales volumes on Kraft ($937,000) andGerber ($1.3 million).  Increasedmilitary and Co-manufacturing net sales were partially offset by decreased netsales on Branded and other product sales of approximately $1.9 million.

 

*GrossProfit.*  Ourgross profit for the twenty-six weeks ended July 2, 2005 was $14.4 million,representing an increase of approximately $1.2 million, or 8.8%, compared togross profit of $13.3 million

 

20

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for the twenty-six weeksended June 30, 2004. As a percentage of net sales, our gross profit was 14.0%and 16.4% for the twenty-six weeks ended July 2, 2005 and June 30, 2004,respectively.  Gross profit on sales tothe DoD increased by approximately $2.2 million or 19.5% (approximately $13.7million and $11.5 million, for the twenty-six weeks ended July 2, 2005 and June30, 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. As a percentage of sales, gross profit on DoD sales decreased byapproximately 1% (16.3% as compared to 17.2% for the twenty-six weeks endedJuly 2, 2005 and June 30, 2004, respectively) due to lower surge pricing onsales of MRE’s in the first thirteen weeks of fiscal 2005.  Co-manufacturing gross profit increased$249,000 or 17.3% due to higher than anticipated volumes offset by new start-upcost on new Co-manufacturing contracts. As a percentage of sales, Co-manufacturing gross profit decreased 3.9%(10.1% as compared to 14.0% for the twenty-six weeks ended July 2, 2005 andJune 30, 2005, respectively) due to start-up cost on new contracts.  Gross profit on Branded net sales decreasedby approximately $1.4 million due to decreased sales volumes and chargesrelated to excess and obsolete inventory.

 

*Selling,General and Administrative Expenses.*  Our selling, general and administrative expenses for thetwenty-six weeks ended July 2, 2005 were $9.5 million, representing a decreaseof $3.0 million, or 23.9%, compared to selling, general and administrativeexpenses of approximately $12.5 million for the twenty-six weeks ended June 30,2004.  Selling, general andadministrative expenses were 9.2% of net sales for the twenty-six weeks endedJuly 2, 2005 as compared to 15.4% for the twenty-six weeks ended June 30,2004.  The decrease was largely due toequity based compensation charges recorded by the Predecessor relating to valueof shares committed to be released to the ESOT and other compensatory stockplans maintained by the Predecessor, which did not recur in the firsttwenty-six weeks of 2005 and which were partially offset by charges related toincreased depreciation and amortization related to the acquisition that wascompleted on June 30, 2004 and resulted in a charge to income from operationsof approximately $2.3 million for amortization of intangible assets.

 

  *Operating Profit.*  Our profit fromoperations was approximately $4.9 million for the twenty-six weeks ended July2, 2005, representing an increase of approximately $4.1 million compared tooperating profit of approximately $797,000 for the twenty-six weeks ended June30, 2004. This increase in operating profit primarily resulted from highersales volumes and prices on sales of MRE’s to the DoD which was offset byincreased cost in depreciation and amortization of intangibles associated withthe acquisition.  Acquisition relatedcost were 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.

 

*InterestExpense.*  Ourinterest expense for the twenty-six weeks ended July 2, 2005 was approximately$7.1 million, representing an increase of approximately $7.0 million, comparedto interest expense of approximately $100,000 for the twenty-six weeks endedJune 30, 2004. The increase in interest expense was due to approximately $6.8million in interest expense resulting from the issuance of the $125 million 10 7/8%Senior Secured Notes and $341,00 in amortization of bond issuance cost for thetwenty-six weeks ended July 2, 2005.

 

*InterestIncome.*  Ourinterest income for the twenty-six weeks ended July 2, 2005 was approximately$99,000, representing a decrease of approximately $408,000 compared to interestincome of approximately $507,000 for the twenty-six weeks ended June 30, 2004.The decrease in interest income resulted primarily from short-term investmentsheld by the Predecessor that were not purchased in the acquisition on June 30,2004.

 

*OtherIncome(Expense), Net.* Our other income (expense), net for the twenty-six weeks ended July 2, 2005 wasapproximately ($27,000), representing a decrease of approximately $312,000,compared to other income (expense) of $285,000 for the twenty-six weeks endedJune 30, 2004. This decrease in other income (expense) was the result of finalsettlement on prior period U.S. Government contracts by the Predecessor whichresulted in approximately $176,000 of other income.  Other income (expense) was also increased byapproximately $150,000 relating to management fees paid to Veritas.

 

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*Income TaxExpense.* Expenses related to federal, state and local taxes for the twenty-six weeksended July 2, 2005 was approximately $960,000 compared to approximately $41,052for the twenty-six weeks ended June 30, 2004. As described further in note 7 to our financial statements, thePredecessor Company was qualified under Subchapter-S of the Internal RevenueCode, and therefore not subject to Federal Tax where as the Successor Company is taxed as a C-Corporation.  During the twenty-six weeks ended July 2,2005, we recorded approximately $912,000 of additional deferred tax liabilitiesassociated with the indefinite reversal period related to Goodwill andapproximately $100,000 for Ohio Franchise taxes, which were offset by reversalof approximately $52,000 for local Ohio income taxes recorded in prior periods.

 

*NetIncome. *As aresult of the foregoing, we incurred a net loss of approximately $3.1 millionfor the twenty-six weeks ended July 2, 2005, representing a decrease in netincome of approximately $4.5 million compared to net income of approximately$1.5 million for the twenty-six weeks ended June 30, 2004.

 

**Operating Segment Results**

 

**Comparisonof the thirteen weeks ended July 2, 2005 to the thirteen weeks ended June 30,2004**

 

*Net Sales.*  Net sales for our Right Away Division(“RAD”) segment decreased by approximately $2.6 million primarily due to a decreasein sales to the DoD (increased MRE sales $6.4 million and decreased URG-A sales$8.9 million).   Net sales for our Prepared Foods Division (“PFD”)increased approximately $2.2 million (excluding inter-segment sales ofapproximately $7.5 million for the thirteen weeks ended July 2, 2005 and $7.9million for the thirteen weeks ended June 30, 2004).  The increase in PFDsales is primarily due to increased Co-manufacturing sales of approximately $3.3million offset by lower sales of our Branded products of approximately $1.0million.

 

*OperatingProfit.*  Profitfrom operations increased by approximately $4.1 million for the RAD segment. Included in the operating profit for the RAD segment is an estimated $2.8million in gross profit that would have been previously recognized by our PFDsegment.  Increased volume and pricing onMRE shipments in the thirteen weeks ended July 2, 2005 contributed to theremaining increase in operating profit which were offset by charges foramortization of intangibles acquired in the purchase of approximately $206,000and pricing pressure on UGR-A sales outside the continental United States.  Profit from operations decreased by approximately$4.5 million for the PFD segment.  Thisdecrease is largely attributable to the estimated $2.8 million of gross profitincluded in our RAD segment, offset by approximately $351,000 in tray-pack andCo-manufacturing gross profit and additional charges to selling, general andadministrative expenses for amortization of intangibles of approximately$968,000.  The remaining decrease isprimarily attributable to our Branded products due to lower sales volumes andcharges against inventory of approximately $1.1 million.

 

**Comparison of the twenty-six weekended July 2, 2005 to the twenty-six weeks ended June 30, 2004**

 

*Net Sales.*  Net sales for the RAD segmentincreased by $17.3 million due to increased sales to the DoD.  Net salesfor the PFD segment increased approximately $5.0 million (excludinginter-segment sales of approximately $20.1 million for the twenty-six weeksended July 2, 2005 and $19.8 million for the twenty-six weeks ended June 30,2004).  The increase in PFD sales isattributable to the increase in Co-manufacturing net sale of approximately $6.4which was offset by decreased Branded and tray pack sales of approximately $1.2million.

 

*OperatingProfit.*  Profitfrom operations increased by approximately $7.7 million for the RADsegment.  Included in operating profitfor the RAD segment is an estimated $5.0 million of gross profit that wouldhave been previously recognized by our PFD segment.  Increased volume and pricing on MRE shipmentsto the DoD in the first twenty-six week of 2005 contributed to the remainingincrease offset by charges for amortization of intangibles acquired in thepurchase of approximately $412,000 and continued pricing pressure and salesvolumes on URG-A sales outside of the continental United States.  Profit from operations decreased byapproximately $9.5 million for the PFD segment. This decrease was primarily

 

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attributable to a reductionin operating profits from DoD sales of approximately $5.9 million ($5.0 millionof gross profit included in our RAD segment and approximately $900,000 relatedto the change in mix of surge and add-on MRE case sales in the first thirteenweeks of 2005), decreased gross profits from our Branded products ofapproximately $1.4 million due to decreased sales volumes and charges againstBranded inventory for excess and obsolete. The remaining decrease in operating profit for our PFD segment is due toadditional charges to selling, general and administrative expense forapproximately $1.9 million related to amortization of intangibles andapproximately increased selling, general and administrative departmentalcharges of approximately $300,000 primarily related to IT spending ($95,000),employee recruiting and training and marketing ($245,000), Engineering($88,000) and offset by other decreased departmental savings of approximately($128,000) and offset by savings in other departments

 

**Liquidity and Capital Resources**

 

The following tablesummarizes our net cash provided by or (used in) our operating activities,investing activities and financing activities and our capital expenditures fortwenty-six weeks ended July 2, 2005 and June 30, 2004:

 
| ** **                      | ** ** | **Predecessor**                             | ** ** | **Successor**                              | ** ** |
|---------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **Twenty-Six  Period Ended  June 30, 2004** | ** ** | **Twenty-Six  Period Ended  July 2, 2005** | ** ** |
| Net cash provided by (used-in): |       |                                        |       |                                       |       |
| Operating activities            |       | $                                           | (471,783   | )                                          | $          | 6,777,925 |   |
| Investing activities            |       | (11,791,620                                 | )          | (7,185,684                                 | )          |
| Financing activities            |       | 8,313,722                                   |       | —                                     |       |
| Capital expenditures            |       | (2,382,720                                  | )          | (7,185,684                                 | )          |
|                                 |            |                                             |            |                                            |            |  |  |

 

*OperatingActivities.*Net cashprovided by (used in) operating activities was approximately $6.8 million and($472,000) for the Successor twenty-six week period ended July 2, 2005, and thePredecessor twenty-six week period ended June 30, 2004, respectively. Cash generated from operations increased during the first twenty-six weekperiod ended July 2, 2005 compared to the Predecessor twenty-six week periodended June 30, 2004 due mostly to increased sales to the DoD and ourCo-manufacturing customers, and increased by collections of trade receivablesand reductions in current period inventory levels as compared to the twenty-sixweek period ended June 30, 2004.

 

*InvestingActivities.*Net cash(used in) investing activities was approximately $(7.2) million and $(11.8)million for the Successor twenty-six week period ended July 2, 2005 and thePredecessor twenty-six week period ended June 30, 2004, respectively.  The change in the Successor twenty-six weekperiod ended July 2, 2005 was primarily the result of reduced net investmentactivity of the Predecessor of approximately $(10.0) million and principlepayments received by the Predecessor on notes receivable of approximately$610,000 which were offset by increased capital expenditures of approximately$6.0 million.  Capital expenditures were approximately $7.2 million and$2.4 million for the periods ended July 2, 2005 and June 30, 2004,respectively.

 

*FinancingActivities*. Net cashprovided by (used in) financing activities was approximately $0 and $8.3million for the Successor twenty-six week period ended July 2, 2005 and thePredecessor twenty-six week period ended June 30, 2004, respectively. Activity of the Predecessor for the twenty-six week period ended June 30, 2004was primarily associated with borrowings against it credit facility ofapproximately $8.7 million offset by principle payments on it’s long-term debtarrangement of approximately $(629,000). The remaining difference relates to book overdrafts of approximately$243,000.

 

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*Long-TermDebt 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 will continueto incur significant debt service payments including interest in future years.Total cash interest payments related to the Senior Secured Notes will beapproximately $13.6 million on an annual basis.  We incurredapproximately $7.1 million of interest expense (including approximately$341,000 of bond amortization cost) relating to the Senior Secured Notes andour working capital facilities in the twenty-six week period ended July 2,2005. To the extent we have borrowings outstanding under our working capitalfacility, we will have additional cash interest payments. Our borrowingsagainst our working capital facility was $0 at July 2, 2005.

 

The indenture governing theSenior Secured Notes, and our new working capital facility, impose significantoperating and financial restrictions on us. These restrictions limit orprohibit, among other things, our ability to incur additional indebtedness,repay indebtedness prior to stated maturities, pay dividends on or redeem orrepurchase our stock, issue capital stock, make investments, create liens, sellcertain assets or merge with or into other companies, enter into certaintransactions with stockholders and affiliates, make capital expenditures, sellstock in our subsidiaries and restrict dividends, distributions or otherpayments from our subsidiaries. In addition, our new working capital facilityrequires us to meet certain financial ratios and financial condition tests.

 

On February 11, 2005our parent, TWC Holding LLC (the “Parent Company”) , and its wholly-ownedfinance subsidiary, TWC Holding Corp., co-issued their  13.875% Senior PIKNotes due 2011, or the “Senior PIK Notes,” in the approximate aggregateprincipal amount of $62,259,000 net of 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 Companyand because TWC Holding Corp. has no independent operations or assets, futurecash flows of the Company through 2011 may be required to service the $62.3million  Senior PIK notes, upon theirmaturity.

 

We expect our remainingcapital expenditures in 2005 to be approximately $1.0 million, primarilyto support plant renewal, efficiency improvements and expansion of ourco-manufacturing business.

 

Our principal sources ofliquidity are cash flow generated from operations and borrowings under our newworking capital facility.  As of July 2, 2005, we had no borrowings underthe working capital facility.  We have incurred approximately $5,000 ininterest expense on the working capital facility since December 31,2004.  In addition to fluctuations in business volume, cash flows fromoperations are affected by contract terms for billing and collection. Ourliquidity will also continue to be dependent on a number of other factors,including the timing of collection on our contract receivables, processing ofweekly and bi-weekly payroll and associated taxes and payment to our suppliers.Our principal uses of cash will be utilized to meet debt service requirements,finance our capital expenditures and provide working capital. Based on ourcurrent level of operations, our revolving line of credit facility and ouranticipated growth, we believe that the cash flows generated by operations andour revolving line of credit will be sufficient to fund our operations for thenext 12 months and for our currently anticipated needs beyond that period.Our future operating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions and financial,business and other factors that are beyond our control.

 

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

 

We are exposed to marketrisk, primarily from the impact of interest rate changes on our use of variablerate debt. Our exposure to market risks from foreign currency and commodityprice fluctuations is limited since most of our purchases and sales aredenominated in U.S. dollars and raw commodities do not

 

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comprise a significantpercentage of our costs. Our sales to the Canadian military comprisedapproximately 1% of our sales in 2004, on a pro forma basis, and we anticipateentering into, from time to time, foreign currency forward contracts andother hedges to manage our exposure to fluctuations in foreign currency exchangerates for the Canadian dollar, the impact of which is not significant. Other than with respect to our sales to the Canadian military, we generally donot have exposure to foreign currency risk.  In addition, because ourcustomary contract terms pass through increase in cost of commoditiesunderlying our products to our customers, we generally do not have exposure tocommodity price risk.  Other than with respect to our sales to theCanadian military, we do not hedge our exposure to foreign currency or commodityprice risk.  We do not hold any derivatives for trading or speculativepurposes. Changes in the fair value of derivatives are recorded in currentearnings along with the change in the fair value of the underlying hedged item.

 

All of our outstanding bankdebt bears interest at variable interest rates tied to the prime interest rate.The use of variable rate debt to finance our operations and capitalimprovements exposes us to variability in interest payments due to changes ininterest rates.

 

We had no exposure tovariable rates at July 2, 2005.  We believe that a hypothetical 1%increase in interest rates on our variable rate debt for a one-year periodwould have had no significant impact on our net income.

 

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

 

Based on a recentevaluation, as of the end of the period covered by the Quarterly Report onForm 10-Q, the Company’s Chief Executive Officer and Chief FinancialOfficer have concluded that the Company’s disclosure controls and procedures asdefined in the Exchange Act Rules 13a-15(e) and 15d-15(e) areeffective in timely alerting them to material information relating to theCompany required to be included in periodic reports filed or submitted underthe Securities and Exchange Act of 1934, as amended.

 

There were no changes in theCompany’s internal control over financial reporting that occurred during thethirteen week period ended July 2, 2005, constituting the Company’s latestfiscal quarter, that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

•        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;

 

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•                              legal proceedings and regulatory matters;

 

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

 

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

 

•                              general economic conditions; and

 

•                              our development and expansion plans and expectationsfor the future.

 

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

 

**PART II– OTHER INFORMATION**

 

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

 

Weare a defendant in various legal actions arising in the normal course ofbusiness, the outcomes of which, in the opinion of management, neitherindividually nor in the aggregate are likely to result in a material adverseeffect on our business, results of operations, financial position or cash 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.**

 

None.

 

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

 
| **No.** | ** ** | **Description**                                                                                                                                                             |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1    |       | Certification  pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (President and  Chief Executive Officer)                                                      |
|    |       |                                                                                                                                                                        |
| 31.2    |       | Certification  pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Chief  Financial Officer)                                                                    |
|    |       |                                                                                                                                                                        |
| 32.1    |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes Oxley Act of 2002 (President and Chief  Executive Officer) |
|    |       |                                                                                                                                                                        |
| 32.2    |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes Oxley Act of 2002 (Chief Financial Officer)                |

 

 

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**Signatures**

 

Pursuant to the requirementsof the 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:  August  16, 2005 | By:                  | /s/  MICHAEL M. THOMPSON |   |
|                              |                 | Michael  M. Thompson |
|                              |                 | President  and Chief Executive Officer |
|                              |                 | (Principal  Executive Officer) |
|                              |                 |   |
|                              |                 |   |
| Date:  August  16, 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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