SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarter (twelve-weeks) ended September 611, ~~2003~~2004

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

Tom’s Foods Inc.

(Exact name of registrant as specified in its charter)

Delaware ~~(State or other jurisdiction of incorporation or organization)~~

(State or other jurisdiction of incorporation or organization)

58-1516963
(I.R.S. Employer Identification No.)

900 8th Street ~~Columbus, GA 31902~~ ~~(Address of principal executive offices, including zip code)~~

~~(706) 323-2721~~Columbus, GA 31902 (~~Registrant’s~~Address ~~telephone~~of ~~number~~principal executive offices, including ~~area~~zip code)

~~Indicate by check mark whether the registrants~~ (1706) ~~have filed all reports~~323-2721 ~~required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of~~ ~~1934 during the preceding 12 months (or for such shorter period that the~~ ~~registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes o No þ~~

~~TABLE~~(Registrant’s OFtelephone ~~CONTENTS~~number, including area code)

		CONDENSED BALANCE SHEETS
		CONDENSED STATEMENTS OF OPERATIONS FOR THE TWELVE AND
		CONDENSED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED FINANCIAL STATEMENTS
	Item 1. FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
Part II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No [ ]

~~Table~~Indicate ofby ~~Contents~~check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). [ ] Yes þ No

TOM’S FOODS INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE TWELVE-WEEKS ENDED SEPTEMBER 611, ~~2003~~2004

TABLE OF CONTENTS

		Page	~~Page~~
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
	Condensed Balance Sheets as of September 6, 2003 (unaudited) and December 28, 2002			3
Condensed Balance Sheets as of September 11, 2004 (unaudited) and January 3, 2004			3
	Condensed Statements of Operations for the twelve and thirty-six weeks ended September 6, 2003 and September 7, 2002 (unaudited)			4
Condensed Statements of Operations for the twelve weeks and thirty-six weeks ended September 11, 2004 and September 6, 2003 (unaudited)			4
	Condensed Statements of Cash Flows for the thirty-six weeks ended September 6, 2003 and September 7, 2002 (unaudited)			5
Condensed Statements of Cash Flows for the thirty-six weeks ended September 11, 2004 and September 6, 2003 (unaudited)			5
Notes to Condensed Financial Statements	~~Notes to Condensed Financial Statements~~		6	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk			16	12
Item 4. Controls and Procedures			16	13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K				13
Item 1. Legal Proceedings			16
Item 6. Exhibits and Reports on Form 8-K			17
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

TOM’S FOODS INC. ~~CONDENSED BALANCE SHEETS~~ ~~SEPTEMBER 6, 2003 AND DECEMBER 28, 2002~~ ~~(in thousands except share data)~~

					September 6, 2003			December 28, 2002
ASSETS					(unaudited)
Current Assets:
	Cash and cash equivalents				$	1,790		$	1,856
	Accounts and notes receivable, net of allowance for uncollectible of					13,675			11,746
		$1,244 and $1,687 at Sept. 6, 2003 and December 28, 2002, respectively
	Inventories:
		Raw materials				3,009			2,489
		Packaging materials				1,877			2,672
		Finished goods and work in progress				5,415			5,910
	Other current assets					3,143			3,032
				Total current assets		28,909			27,705
Property, plant, and equipment:
	Land and land improvements					5,911			5,908
	Buildings					18,363			18,273
	Machinery, equipment and vehicles					60,661			59,042
	Vending and other distribution equipment					12,925			12,953
	Furniture and fixtures					17,310			16,510
	Construction in progress					8,190			8,205
				Total property, plant, and equipment		123,360			120,891
	Accumulated depreciation					(74,547	)		(69,166	)
				Net property, plant, and equipment		48,813			51,725
Noncurrent accounts and notes receivable, net						256			273
Litigation Escrow Deposit						1,563			0
Deferred financing costs, net						554			919
Intangible assets, net						19,587			20,009
Goodwill						760			644
				Total assets	$	100,442		$	101,275
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Revolving debt				$	5,689		$	—
	Accounts payable					8,795			11,751
	Accrued liabilities					9,636			11,166
	Current portion of other debt obligations					318			239
				Total current liabilities		24,438			23,156
Long-term debt:
	Senior secured notes					60,000			60,000
	Other debt obligations					313			431
				Total long-term debt		60,313			60,431
Other long-term obligations						37			37
Accrued pension cost						15,276			14,795
				Total liabilities		100,064			98,419
Exchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at September 6, 2003 and December 28, 2002						10,000			10,000
Shareholders’ Equity:
	Common stock, $0.01 par value; 10,000 shares authorized, 5,000 shares issued and outstanding at September 6, 2003 and December 28, 2002					0			0
	Nonexchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at September 6, 2003 and December 28, 2002					2,731			1,922
	Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares issued and outstanding at September 6, 2003 and December 28, 2002					37,415			35,256
	Additional paid-in capital					43,725			43,725
	Accumulated other comprehensive loss					(7,742	)		(7,742	)
	Accumulated deficit					(85,751	)		(80,305	)
			Total shareholders’ equity			(9,622	)		(7,144	)
				Total liabilities and shareholders’ equity	$	100,442		$	101,275

CONDENSED BALANCE SHEETS

SEPTEMBER 11, 2004 AND JANUARY 3, 2004

(in thousands except share data)


	September 11, 2004			January 3, 2004
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,837		$	1,444
Accounts and notes receivable, net of allowance for uncollectible of $935 and $906 at Sept. 11, 2004 and January 3, 2004, respectively		13,655			10,120
Inventories:
Raw materials		2,533			2,484
Packaging materials		2,379			1,518
Finished goods and work in progress		5,239			4,133
Litigation escrow deposit		1,563			0
Other current assets		3,802			3,504

Total current assets		31,008			23,203

Property, plant, and equipment:
Land and land improvements		5,705			5,702
Buildings		18,536			18,515
Machinery, equipment and vehicles		62,097			61,670
Vending and other distribution equipment		12,667			12,888
Furniture and fixtures		22,031			17,399
Construction in progress		2,972			8,075

Total property, plant, and equipment		124,008			124,249
Accumulated depreciation		(78,499	)		(76,386	)

Net property, plant, and equipment		45,509			47,863

Noncurrent accounts and notes receivable, net of allowance for uncollectible of $195 and $213 at Sept. 11, 2004 and January 3, 2004, respectively		196			312
Litigation escrow deposit		0			1,563
Deferred financing costs, net		118			477
Intangible assets, net		18,827			19,312
Goodwill		801			790

Total assets	$	96,459		$	93,520

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Revolving debt	$	6,093		$	96
Accounts payable		10,857			9,700
Accrued liabilities		6,871			8,131
Current portion of other debt obligations		60,217			60,268

Total current liabilities		84,038			78,195

Long term debt obligations		120			271
Other long term obligations		37			37
Accrued pension cost		15,118			15,242

Total liabilities		99,313			93,745

Exchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at Sept. 11, 2004 and January 3, 2004		10,000			10,000
Shareholders’ Deficit:
Common stock, $0.01 par value; 10,000 shares authorized, 5,000 shares issued and outstanding at Sept. 11, 2004 and January 3, 2004		0			0
Nonexchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at Sept. 11, 2004 and January 3, 2004		4,193			3,158
Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares issued and outstanding at Sept. 11, 2004 and January 3, 2004		41,289			38,545
Additional paid-in capital		43,725			43,725
Accumulated other comprehensive loss		(7,542	)		(7,542	)
Accumulated deficit		(94,519	)		(88,111	)

Total shareholders’ deficit		(12,854	)		(10,225	)

Total liabilities and shareholders’ deficit	$	96,459		$	93,520

See notes to interim condensed financial statements

TOM’S FOODS INC. ~~CONDENSED STATEMENTS OF OPERATIONS FOR THE TWELVE AND~~ ~~THIRTY-SIX WEEKS ENDED~~ ~~SEPTEMBER 6, 2003 AND SEPTEMBER 7, 2002 (in thousands)~~

			Twelve Weeks Ended						Thirty-Six Weeks Ended
			Sept. 6, 2003			Sept. 7, 2002			Sept. 6, 2003			Sept. 7, 2002
			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales			$	44,330		$	47,288		$	137,648		$	148,277
Cost of goods sold				(27,131	)		(30,452	)		(85,619	)		(94,115	)
		Gross profit		17,199			16,836			52,029			54,162
Expenses and other income:
Selling and administrative expenses				(16,024	)		(14,864	)		(49,650	)		(47,259	)
Amortization of intangible assets				(164	)		(159	)		(489	)		(478	)
Other operating income, net				278			69			623			269
		Income from operations		1,289			1,882			2,513			6,694
Interest expense, net				(1,649	)		(1,705	)		(4,897			(4,998	)
		Income (loss) before income taxes		(360	)		177			(2,384	)		1,696
Provision for income taxes				(31	)		(35	)		(93	)		(103	)
		Net income (loss) before cumulative effect of a change in accounting principle	$	(391	)	$	142		$	(2,477	)	$	1,593
Cumulative effect of a change in accounting principle				0			0			0			(22,934	)
	Net income (loss)		$	(391	)	$	142		$	(2,477	)	$	(21,341	)

CONDENSED STATEMENTS OF OPERATIONS

FOR THE TWELVE AND THIRTY-SIX WEEKS ENDED

SEPTEMBER 11, 2004 AND SEPTEMBER 6, 2003

(in thousands)


	Twelve Weeks Ended						Thirty-Six Weeks Ended
	Sept. 11, 2004			Sept. 6, 2003			Sept. 11, 2004			Sept. 6, 2003
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales	$	44,465		$	44,330		$	130,301		$	137,648
Cost of goods sold		(28,077	)		(27,131	)		(81,301	)		(85,619	)

Gross profit		16,388			17,199			49,000			52,029
Expenses and other income:
Selling and administrative expenses		(15,259	)		(16,024	)		(46,553	)		(49,650	)
Amortization of intangible assets		(164	)		(164	)		(491	)		(489	)
Other operating income, net		114			278			414			623

Income from operations		1,079			1,289			2,370			2,513
Interest expense, net		(1,687	)		(1,649	)		(4,922	)		(4,897	)

Income (loss) before income taxes		(608	)		(360	)		(2,552	)		(2,384	)
Provision for income taxes		(25	)		(31	)		(77	)		(93	)

Net Income (loss)	$	(633	)	$	(391	)	$	(2,629	)	$	(2,477	)

See notes to interim condensed financial statements

TOM’S FOODS INC. ~~CONDENSED STATEMENTS OF CASH FLOWS~~ ~~FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 6, 2003 AND SEPTEMBER 7, 2002 (in thousands)~~

			Thirty-Six Weeks Ended
			Sept. 6, 2003			Sept. 7, 2002
			(unaudited)			(unaudited)
Cash flows from operating activities:
	Net loss		$	(2,477	)	$	(21,341	)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation				5,620			6,160
Amortization of intangible assets				489			478
Amortization of deferred debt issuance cost				364			364
Cumulative effect of a change in accounting principle				0			22,934
Provision for income taxes				93			103
Loss on disposal of property, plant, and equipment				(3	)		8
Changes in operating assets and liabilities:
	Accounts and notes receivable, net			(1,917	)		(3,758	)
	Inventories			771			(939	)
	Other assets			(111	)		(677	)
	Accounts payable			(2,955	)		(1,355	)
	Other liabilities			(1,623	)		1,466
	Accrued pension cost			482			(1,611	)
		Total adjustments		1,210			23,173
		Net cash (used in) provided by operating activities		(1,267	)		1,832
Cash flows from investing activities:
	Additions to property, plant, and equipment			(2,915	)		(7,875	)
	Proceeds from disposal of property, plant, and equipment			30			21
		Net cash used in investing activities		(2,885	)		(7,854	)
Cash flows from financing activities:
	Net borrowing from working capital revolving facility			5,689			3,908
	Return of industrial development revenue bond escrow deposit			0			354
	Litigation escrow deposit			(1,563	)		0
	(Payments) borrowings of other long-term debt			(40	)		80
		Net cash provided by financing activities		4,086			4,342
Decrease in cash and short-term investments				(66	)		(1,680	)
Cash and short-term investments, beginning of period				1,856			2,933
Cash and short-term investments, end of period			$	1,790		$	1,253
Interest paid during the period			$	3,829		$	3,920
Income taxes paid during the period			$	88		$	99

CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 11, 2004 AND SEPTEMBER 6, 2003
( in thousands )


	Thirty-Six Weeks Ended
	Sept. 11, 2004			Sept. 6, 2003
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(2,629	)	$	(2,477	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		5,102			5,620
Amortization of intangible assets		491			489
Amortization of deferred debt issuance cost		359			364
Deferred income taxes		78			93
(Gain) loss on disposal of property, plant, and equipment		(15	)		(3	)
Changes in operating assets and liabilities:
Accounts and notes receivable, net		(3,431	)		(1,917	)
Inventories		(2,016	)		771
Other assets		(298	)		(111	)
Accounts payable		1,157			(2,955	)
Other liabilities		(1,339	)		(1,623	)
Accrued pension cost		(124	)		482

Total adjustments		(36	)		1,210

Net cash used in operating activities		(2,665	)		(1,267	)

Cash flows from investing activities:
Additions to property, plant, and equipment		(2,921	)		(2,915	)
Proceeds from disposal of property, plant, and equipment		182			30

Net cash used in investing activities		(2,739	)		(2,885	)

Cash flows from financing activities:
Net borrowing from working capital revolving facility		5,998			5,689
Litigation escrow deposit		0			(1,563	)
Payments of other long-term debt		(201	)		(40	)

Net cash provided by financing activities		5,797			4,086

Increase (decrease) in cash and cash equivalents		393			(66	)
Cash and cash equivalents, beginning of period		1,444			1,856

Cash and cash equivalents, end of period	$	1,837		$	1,790

Interest paid during the period	$	3,813		$	3,829
Income taxes paid during the period	$	63		$	88

TOM’S FOODS INC. ~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

NOTES TO CONDENSED FINANCIAL STATEMENTS

Item 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements of Tom’s Foods Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in ~~accounting~~the ~~principles~~ United States for complete financial statements. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the annual report ~~and~~on Form 10-K for the fiscal year ended ~~December~~ January 283, ~~2002~~2004.

The accompanying unaudited financial statements include, in the opinion of management, all adjustments, which are of a normal recurring nature, necessary for a fair presentation for the periods presented. Results for the interim periods presented are not necessarily indicative of results that may be expected for a full fiscal year.

Fiscal Year

The Company’s fiscal year is the 52- or 53-week period ending on the Saturday nearest to December 31. The current year, fiscal ~~2003~~2004, ends January 31, ~~2004~~2005 and contains 5352 weeks. The Company’s first three quarters contain twelve-weeks of results while the fourth quarter contains 16 or 17 weeks coinciding with the Company’s fiscal year.

Going Concern

The Company’s credit facility (“Credit Facility”) becomes due on October 29, 2004. The Credit Facility is secured by all of the receivables and inventory of the Company. Outstanding principal of $60 million and accrued interest of $3.15 million under the Company’s 10.5% senior secured notes (the “Notes”) mature on November 1, 2004. The Notes are secured by the Company’s principal manufacturing facilities (including real property and equipment) and its intellectual property. The Company is currently in discussions with its Credit Facility lender for an extension of the term of the Credit Facility and with prospective lenders to refinance the Notes. There can be no assurance that the Company will be able to obtain an extension of the Credit Facility or refinance the Notes prior to their maturity.

In the event the Company fails to extend the maturity of the Credit Facility, (i) the Company will be in default under the Credit Facility and the Notes (pursuant to cross default provisions) and the Credit Facility lender and the holders of the Notes will be entitled to exercise their remedies under the term of the Credit Facility and the Notes and such lenders could attempt to foreclose on their respective collateral securing such indebtedness and (ii) even if such foreclosure does not occur, the Company’s ability to operate and obtain working capital necessary to operate its business would be materially adversely impacted. Under these circumstances, the Company would have difficulty maintaining existing relationships with its suppliers, who might stop

providing supplies or services to the Company or provide or supply such services only on “cash on deliver” or other terms that would have an adverse impact on the Company’s cash flow and the Company may have to consider pursuing appropriate restructuring options.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenues for ~~distributor~~independent reseller sales are recognized when the goods are received by the ~~distributor~~independent reseller. Revenues for product sold through the Company’s internal ~~distributor~~ distribution network are recognized when the goods are received by the retailer. Revenues for contract sales are recognized when the goods are picked up by the customer. The Company accounts for certain sales incentives given to customers as a reduction of net sales.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the average cost for raw materials, packaging materials, and work in process. Finished goods cost is determined using the first-in, first-out method. Cost elements include the cost of raw materials, direct labor, and overhead incurred in the manufacturing process.

Pension Plans

The Company’s pension costs are determined by using various assumptions and methodologies as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers’ Accounting for Pensions, SFAS No. 87”. These assumptions include discount rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates and other factors. The Company believes that the assumptions utilized in recording the obligations under our plans are reasonable based on input from our outside actuary. ~~The~~SFAS No. 87 allows plan sponsors to look to rates of return on high-quality (Aa or higher) fixed income investments of similar duration in selecting a discount rate. Management, after consultation with the plan’s actuaries, determined that 6.25% was a reasonable rate for the evaluation of its obligation at January 3, 2004. Choosing a higher discount rate would decrease those pension obligations, while choosing a lower discount rate would increase those obligations. The Company recorded an additional minimum liability of $7~~.9 million~~,900,000 for the fiscal year ended December 28, 2002. For the year ended January 3, 2004, the Company recorded a reduction to other comprehensive income of $201,000 and a reduction in the intangible asset of $76,000. The Company contributed $293,000 to the pension plan in the third quarter and will contribute a remaining $674,000 in the fourth quarter.

Pension and other benefit costs for the periods ended September 11, 2004 and September 6, 2003 were as follows:


	Tom’s Foods Inc. Pension Plan
	Three Months Ended						Six Months Ended						Nine Months Ended
	June 19, 2004			June 14, 2003			June 19, 2004			June 14, 2003			Sept. 11, 2004			Sept. 6, 2003
Service Cost	$	330,000		$	289,000		$	660,000		$	578,000		$	940,110		$	866,364
Interest Cost		925,000			928,000			1,850,000			1,856,000			2,758,582			2,783,634
Expected Return on Assets		(1,020,000	)		(1,060,000	)		(2,040,000	)		(2,119,000	)		(3,049,219	)		(3,178,518	)
Amortizations
- Unrecognized transition obligation		0			0			0			0			0			0
- Prior service cost		20,000			17,000			40,000			34,000			52,487			52,488
- Actuarial loss		10,000			0			20,000			0			23,961			0

Net Periodic Pension Cost	$	265,000		$	174,000		$	530,000		$	349,000		$	725,921		$	523,968


	Tom’s Foods Inc. SERP
	Three Months Ended				Six Months Ended				Nine Months Ended
	June 19, 2004		June 14, 2003		June 19, 2004		June 14, 2003		Sept. 11, 2004		Sept. 6, 2003
Service Cost	$	350	$	323	$	700	$	646	$	1,050	$	969
Interest Cost		22,700		22,725		45,400		45,450		68,100		68,175
Expected Return on Assets		0		0		0		0		0		0
Amortizations
- Unrecognized transition obligation		0		0		0		0		0		0
- Prior service cost		1,550		1,550		3,100		3,100		4,650		4,650
- Actuarial loss		2,900		2,886		5,800		5,772		8,700		8,658

Net Periodic Pension Cost	$	27,500	$	27,484	$	55,000	$	54,968	$	82,500	$	82,452

Hedging Transactions

The Company has limited involvement with derivative financial instruments and does not use them for speculative purposes. The Company enters into various futures contracts and futures options to reduce the impact of volatility in raw material prices. Effective December 31, 2000, the Company adopted the Financial Accounting Standards Board’s (“FASB”) ~~Statement of Financial Accounting Standard (“~~SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” subsequently amended by SFAS No. 138, “Accounting for Certain Derivative Instruments.” SFAS No. 133 and SFAS No. 138 require the Company to recognize all derivative instruments as assets or liabilities and to measure those instruments at fair value. Changes in the derivative fair values are deferred and recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. Any ineffective portion of a hedging derivative’s change in fair value is immediately recognized in earnings. The Company formally documents all relationships between hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking the hedge transactions. The Company links all hedges to forecast transactions and assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective ~~in offsetting changes in~~ ~~cash flows of hedged items. Adoption of these Statements did not have a~~ ~~significant impact on the Company’s financial position and operating results.~~ ~~At September 6, 2003, the Company had no open futures or options contracts.~~

in offsetting changes in cash flows of hedged items. Adoption of these Statements did not have a significant impact on the Company’s financial position and operating results. At September 11, 2004, the Company had no open futures or options contracts.

Displays

In the first quarter of 2003, the Company procured a large national account that required an investment in wire rack displays that was substantially larger than prior investments in a single retail account. The Company has been and is expected to continue to focus on marketing channels that require an investment in wire rack displays. Additionally, over a period of time, the Company had been refining tracking and reporting procedures to more precisely account for and track wire displays placed in service and to implement a change in management’s intention regarding the control and recovery of wire display racks placed in service. At the beginning of the fourth quarter (September 7, 2003), with the improved tracking and reporting procedures, and the increased attention to recovery and placement, wire display racks placed into service after September 7, 2003, were capitalized on the date of purchase and will be depreciated over a three year period. Prior to the fourth quarter of 2003, wire rack displays were expensed when they were placed into service. All wire rack displays purchased in the future will be capitalized and depreciated over three years. During the first three quarters of 2004, the Company capitalized $292,000 in wire rack displays.

Statement of Financial Accounting Standards No. 150

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity. The statement establishes standards for how an issuer classifies and measures certain financial instruments with both characteristics of liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Adoption of this standard iswas required for existing or new contracts for fiscal years beginning after December 15, 2003. The Company’s Class A preferred stock may be exchanged, at the Company’s option, for an equal amount of senior debt if the Company meets certain financial targets, as defined. As the Class A preferred stock is only redeemable upon the Company meeting certain ~~financials~~financial targets, which have not been met as of September 611, ~~2003~~2004, and is redeemable at the option of the Company, no reclassification of the Class A preferred stock is required under SFAS No. 150.

Revolving Credit Facility

~~Revolver~~Borrowings ~~borrowings~~under the $17 million revolving credit facility due in October 2004 were $6.1 million in the third quarter of 2004 compared to $5.7 million in the ~~first~~same ~~three~~period ~~quarters~~ of 2003. ~~compared~~Under tothe $3loan agreement, the revolving loan is based on 85% of all eligible accounts receivables, plus 65% of the value of eligible inventory, plus 10% of packaging materials, all as defined.9 The interest rate for the new revolving facility is the prime rate of interest or, at the Company’s option, LIBOR plus 2.0%. The average effective interest rate on the Company’s line of credit for the quarters ended September 11, 2004 and September 6, 2003 was 4.8% and 4.0%, respectively. The

~~million~~Company’s inrevolving ~~the~~loan ~~same~~facility ~~period~~is ofsecured ~~2002.~~by ~~In connection with the appeal of~~ a ~~$1.2~~first lien ~~million~~on ~~verdict~~and ~~against~~security ~~the~~interest ~~Company~~ in the ~~Circuit~~inventory ~~Court~~and ofreceivables ~~Alabama, the Company deposited $1.6 million in cash to secure a bond posted in order to stay the execution~~ of the ~~verdict~~Company ~~pending such appeal, which is recorded as the~~and ~~litigation~~certain ~~escrow~~related ~~deposit under financing activities~~collateral.

Goodwill and Intangible Assets

The useful lives of amortizable intangible assets are evaluated periodically, and ~~subsequent~~are subject to impairment reviews, to determine whether revision isin carrying value is warranted. If cash flows related to a nonamortizable intangible are not expected to continue beyond the foreseeable future, a useful life would be assigned.

~~Upon adoption of SFAS No. 141, the Company reclassified certain intangible assets previously allocated to assembled staff into goodwill, and ceased amortization related to these intangibles.~~ A summary of the changes to goodwill for the ~~periods~~period ~~ended~~from ~~December~~January 283, ~~2002 and~~2004 ~~September~~to June 619, ~~2003~~2004 is presented below (in thousands):

			Accumulated		Carrying
			Carrying
	Goodwill		~~Amortization~~Value		~~Value~~
Balance at December 28, 2002	$	644	$	—	$	644
Balance at January 3, 2004	$	790	$	790
Add: Goodwill Acquired		11		~~116~~11		~~116~~
Balance at September 6, 2003	$	760	$	—	$	760
Balance at September 11, 2004	$	801	$	801

Other intangible assets are subject to amortization with useful lives ranging up to 35 years. Intangible assets with indefinite lives are not amortized. The Company has reviewed the carrying value of these assets under the guidance of SFAS No. 144 and determined there was no impairment related to these balances. Intangible assets at ~~December~~January 283, ~~2002~~2004 and September 611, ~~2003~~2004 consist of the following (in thousands):

			Accumulated			Carrying
Balance December 28, 2002	Total		Amortization			Value
	Total		Amortization			Value
Balance January 3, 2004
Trademark	$	4,803	$	(1,121	)	$	3,682
Distribution System		22,432		(67,~~673~~364	)		15,~~759~~068
Distribution System,intangible asset acquired		379		(8	)		371
Distribution System, intangible asset acquired		465		(24	)		441
Unamortized prior service cost		~~197~~121		—			~~197~~121
	$	27,~~811~~821	$	(78,~~802~~509	)	$	2019,~~009~~312

			Accumulated			Carrying
Balance September 6, 2003	Total		Amortization			Value
	Total		Amortization			Value
Balance September 11, 2004
Trademark	$	4,803	$	(1,121	)	$	3,682
Distribution System		22,432		(7,~~151~~843	)		1514,~~281~~589
Distribution System,intangible asset acquired		446		(19	)		427
Distribution System, intangible asset acquired		471		(36	)		435
Unamortized prior service cost		~~197~~121		—			~~197~~121
	$	27,~~878~~827	$	(89,~~291~~000	)	$	1918,~~587~~827

810

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

TWELVE-WEEKS ENDED SEPTEMBER 611, ~~2003~~2004 COMPARED TO TWELVE-WEEKS ENDED SEPTEMBER 76, ~~2002~~2003

Net ~~sales~~Sales for the ~~third~~ quarter ended September 611, ~~2003~~2004 were $44.4 million versus $44.3 million in the same quarter in 2003. Co-pack volume was higher in the quarter ended September 11, 2004 offset by declines in the branded sales compared to ~~sales~~the ofsame ~~$47~~quarter in the prior year.3 Branded National Account volume (primarily convenience stores) was lower in the quarter ended September ~~million~~11, 2004 ~~for~~than the ~~corresponding~~same ~~period~~quarter in ~~2002.~~the ~~The decrease~~prior ~~continues~~year due to: bethe ~~from~~initiation of bankruptcy proceedings by several convenience store chains, lower ~~volume~~in-store take off in ~~third~~convenience ~~party~~stores ~~contract~~due ~~pack~~to decreased disposable consumer income, higher gas prices, reduced travel and diminished convenience store cash flow due to decreased levels of higher margin sales (that are primarily generated from ~~consistent~~snacks, ~~with~~beverages, cigarettes sales, etc.). The impacts of the ~~first~~hurricanes forced store closings and ~~second~~Distributor ~~quarters~~and Company owned distribution route closings for an extended period of ~~2003~~time due to store damage and electricity interruptions.

Gross ~~profit~~Profit for the quarter ended September 11, 2004 was $1716.24 million inor ~~the~~a gross ~~third~~margin ~~quarter~~ of ~~2003~~36.9%, as compared to $1617.82 million inor a gross margin of 38.8% in the ~~third~~same quarter of ~~2002,~~2003. ~~with~~The ~~Tom’s~~gross ~~branded~~profit ~~sales~~decrease ~~margins increasing~~was byalso ~~$805,000~~impacted ~~versus~~by reduced ~~prior~~National ~~year~~Account ~~and~~volume, ~~lower~~which ~~margins~~primarily consists of ~~$463,000,~~higher gross ~~resulting~~profit ~~from~~chip ~~the~~products. ~~decreased~~With ~~contract~~the ~~pack~~continued ~~production,~~increases asin ~~noted~~commodity ~~above~~and ~~versus~~energy our ~~last~~costs ~~year~~increased which also adversely affected gross profit.

For the ~~third~~ quarter ofended ~~2003~~September 11, 2004, selling and administrative expenses decreased ~~were~~$765,000 to $1615.0 3 million ~~compared~~from to $1416.90 million ~~for~~in the ~~third~~same quarter ~~in 2002 due primarily to an increase in the number~~ of ~~Company owned and operated distribution routes,~~ ~~which is consistent with the Company’s strategic plan~~2003.

~~Interest~~Other ~~expense,~~Income ~~net of interest income~~ was $~~1.6 million~~114,000 infor the ~~third~~ quarter of ~~2003~~ended ~~and~~September 11, 2004 compared to $~~1.7 million~~278,000 for the ~~third~~corresponding ~~quarter~~period ofin ~~2002~~2003, due to reduced vendor commissions.

~~The~~Interest ~~provision~~expense, ~~for~~net ~~income~~of ~~taxes~~interest income was ~~relatively~~$1.7 million ~~flat~~in atthe ~~$31~~quarter ended September 11,~~000~~ in2004 ~~2003~~ compared to $~~35,000 for 2002~~1.6 million ~~The~~in ~~Company estimates that it will have no Federal tax obligation for~~ the ~~fiscal~~same ~~year~~period ~~due~~of ~~to loss carryforwards from prior years~~2003.

~~Net~~The ~~loss~~provision for ~~the~~income ~~twelve-week~~taxes ~~period~~was $25,000 in the quarter ended September 611, 2004 ~~2003~~compared ~~was~~ to $~~391~~31,000 ~~compared~~ tofor asame ~~net~~quarter ~~income~~in of2003. ~~$142,000~~The ~~for~~Company ~~the~~estimates ~~corresponding~~that ~~period~~it inwill ~~2002,~~have ~~due~~no tofederal tax obligation for the ~~factors~~fiscal ~~discussed~~year ~~above~~due to loss carryforwards from prior years.

~~THIRTY-SIX~~The ~~WEEKS~~net ~~ENDED~~loss ~~SEPTEMBER~~for 6the quarter ended September 11, ~~2003 COMPARED~~2004 TOwas ~~THIRTY-SIX~~$633,000 ~~WEEKS~~compared ~~ENDED~~to a ~~SEPTMEBER~~net 7loss of $391,000 ~~2002~~for the same period of 2003.

~~Net~~EBITDA ~~sales~~ for the ~~three~~third ~~quarters~~quarter ~~ended~~was ~~September 6, 2003 were~~ $~~137~~3.60 million, compared to ~~sales of~~ $~~148.~~3.1 million ~~for the corresponding period~~ in ~~2002. The sales decrease is totally attributable to a decrease in third party contract sales volume. During~~ the ~~second quarter the Company received notification, from~~ a contract customer, of the discontinuation of one of its product lines, the volume of which had been declining through the first quarter and was the primary reason for the first and second quarter sales shortfall compared to prior year. ~~In addition, another contract customer revised/rescheduled the~~ ~~sales projection for its products for the remainder of the year. While the~~ ~~revised sales projection will be lower than the budgeted sales, the volume is~~ ~~expected to be greater than 2002, on these same products.~~

~~Gross profit was $52.0 million, or 37.8%, in the first thirty-six weeks of 2003~~11 as compared to $54.2 million, or 36.5%, in the corresponding period of 2002, due to lower margin/fixed cost coverage from the decreased contract pack production, as noted above, which is partially offset by an increase in Tom’s branded volume/margins, as well as continued increased energy and

~~commodity~~THIRTY-SIX ~~costs,~~WEEKS asENDED ~~noted~~SEPTEMBER in11, ~~the~~2004 COMPARED ~~first~~TO ~~and~~THIRTY-SIX ~~second~~WEEKS ~~quarter~~ENDED ~~filings.~~SEPTEMBER 6, 2003

~~For~~Net ~~the~~Sales ~~first~~for the thirty-six weeks ofended ~~2003~~September 11, ~~selling~~2004 ~~and~~were ~~administrative expenses increased to~~ $49130.73 million a ~~from~~decrease of $477.3 million inversus the same period ofin ~~2002,~~2003. ~~due primarily~~Co-pack tovolume anwas substantially ~~increase~~lower in the ~~number~~thirty-six ofweeks ~~Company~~ended ~~owned~~September 11, ~~and~~2004 ~~operated~~than the ~~distribution~~same ~~routes~~period ~~and~~in ~~one~~the ~~time~~prior ~~costs~~year ~~associated~~due ~~with~~to ~~the~~lost ~~increased distribution~~run rate volume from ~~new~~2003 ~~National~~discussed in ~~Account~~earlier ~~customers~~filings. ~~During~~Branded ~~2002,~~National ~~the~~Account ~~Company~~volume (primarily convenience ~~discontinued~~stores) ~~its~~was ~~postretirement~~lower ~~medical~~in ~~benefit~~the ~~plan~~thirty-six ~~designed~~weeks toended ~~bridge~~September 11, ~~certain~~2004 than the ~~employees~~same ~~whom~~period ~~had~~in ~~taken~~the anprior ~~early~~year ~~retirement~~due to: ~~Medicare~~the ~~eligibility.~~initiation ~~The~~of bankruptcy proceedings ~~non-cash~~by ~~accrued~~several ~~postretirement~~convenience ~~long-term~~store ~~liability~~chains, ~~which~~lower ~~had~~in-store ~~been~~take ~~previously expensed~~off ~~against~~in ~~operating~~convenience stores ~~income~~due ~~and~~to ~~had~~decreased adisposable ~~balance~~consumer ofincome, ~~$1.7 million~~higher atgas ~~December 29~~prices, ~~2001,~~reduced travel ~~was~~and ~~reversed~~diminished ~~with~~convenience astore ~~corresponding non-~~cash ~~credit~~flow due to ~~selling~~decreased ~~and~~levels of ~~administrative~~higher ~~expense~~margin ~~which~~sales ~~was~~(that ~~partially~~are ~~offset~~primarily bygenerated from snacks, beverages, cigarettes sales, etc.). The impacts of the ~~noted~~hurricanes ~~increase~~forced instore closings and Distributor and Company owned distribution route ~~related~~closings ~~costs~~for ~~and~~an ~~higher~~extended period ~~estimated~~of ~~expenses~~time ~~associated~~due ~~with the~~to ~~Company’s~~store ~~insurance~~damage and ~~employee~~electricity ~~welfare programs~~interruptions.

~~Interest~~Gross ~~expense,~~Profit ~~net~~for ofthe ~~interest~~thirty-six ~~income~~week period of 2004 was $449.90 million inor ~~the~~a gross ~~three~~margin ~~quarters~~ of ~~2003~~37.6%, compared to $552.0 million or a gross margin of 37.8% in the thirty-six weeks of 2003. With the ~~corresponding~~continued ~~period~~increases in ~~2002~~commodity and energy prices, our costs increased which also adversely affected gross profit.

~~The~~For ~~provision~~the ~~for~~thirty-six ~~income~~weeks ~~taxes~~in ~~was $93~~2004,~~000~~ inselling ~~2003~~and ~~compared~~administrative expenses decreased to $~~103,000~~46.6 million ~~for 2002~~from $49.7 million ~~The~~in ~~Company~~the ~~estimates~~2003 ~~that~~period ita ~~will~~decrease ~~have~~of no$2.3 million ~~Federal~~due ~~tax~~in ~~obligation~~large ~~for the~~part ~~fiscal~~to ~~year~~continued ~~due~~cost controls, some of which are directly related to ~~loss~~the ~~carryforwards~~reduced ~~from~~National ~~prior~~Account ~~years~~volume.

~~Loss~~Other ~~before~~Income ~~cumulative effect of a change in accounting principle~~ was $~~2.5 million~~414,000 for the ~~three~~thirty-six ~~quarters~~weeks of ~~2003~~2004 compared to ~~a net income of~~ $~~1.6 million~~623,000 for the corresponding period in ~~2002,~~2003 due ~~entirely~~ to ~~the~~reduced ~~lost~~vendor ~~volume from the third party contract sales customers~~commissions.

InInterest ~~the~~expense, ~~first~~net ~~quarter~~ of ~~2002,~~interest ~~the~~income ~~Company~~was ~~completed its goodwill impairment testing indicating a non-cash goodwill impairment loss of~~ $224.9 million ~~recorded~~ ~~as a cumulative effect of accounting change and a reduction~~ in ~~goodwill.~~ ~~During 2003,~~ the ~~Company~~thirty-six week ~~conducted~~period ~~its~~of ~~goodwill~~both ~~impairment~~2004 ~~testing~~ and ~~determined no impairment was necessary~~2003.

The ~~net~~provision ~~loss~~for income taxes was $77,000 for the thirty-six ~~week~~weeks ~~period~~of ~~ended~~2004 compared ~~September 6~~to $93,000 ~~2003~~for ~~was~~same $2period of 2003.~~5 million~~ ~~compared~~The toCompany aestimates ~~net~~that ~~loss~~it will ofhave ~~$21.3 million~~no federal tax obligation for the ~~same~~fiscal ~~period~~year ofdue ~~2002~~to loss carryforwards from prior years.

The net loss for the thirty-six week period ended September 11, 2004 was $2.6 million, compared to a net loss of $2.5 million for the same period of 2003.

EBITDA for the thirty-six weeks was $8.0 million versus $8.6 million in the prior year due to the factors discussed above.

Revised Fiscal 2004 Forecast

Company is revising its previously reported estimates for fiscal 2004 EBITDA. Fiscal 2004 EBITDA is expected to be in a range of approximately $10 million to $10.5 million. In addition, fiscal 2004 operating cash flow after interest expense is estimated to be approximately $500,000. The Company had previously predicted that fiscal 2004 EBITDA would be in a range of approximately $14 million and $15 million and that operating cash flow after interest expense

would be approximately $4 million. The Company’s operations for the full fiscal 2004 year will be adversely affected by a number of factors, including: (i) lower than expected sales volume resulting from the initiation of bankruptcy proceedings by certain convenience store chains and reduced convenience store sales due to higher gas prices and reduced travel, (ii) unexpected reduced volume under a co-packing agreement and (iii) the impact of hurricane forced store temporary closings and distributor and company-owned distribution route temporary closings. The Company is examining whether any of the losses resulting from the hurricanes are recoverable under insurance policies.

Continuation of Efforts to Refinance Indebtedness

Cautionary Statement Related to Forward-Looking Statements

The statements contained in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere which are not historical facts are forward-looking statements. These forward-looking statements include the estimated fiscal 2004 results described above and statements containing the words “believe”, “anticipate”, “expect”, and similar expressions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. These risks include the Company’s ability to refinance its Credit facility and Notes as anticipated and the risk factors identified in the Company’s Annual Report on Form 10-K for fiscal 2003. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly higher or lower than set forth in such forward-looking statement.

FINANCIAL CONDITION

Liquidity and Capital Resources

On October 14, 1997, the Company issued (the “Offering”) $60 million of its 10.5% Senior Secured Notes (the “Notes”) due November 1, 2004. The Notes are secured by a first lien on and security interest in all of the Company’s real properties, other than the Perry, FL and Knoxville, TN facilities and the Company’s equipment and intellectual property. The indenture governing the Notes has certain covenants including, without limitation, covenants limiting the incurrence of additional indebtedness, assets sales, investments, restricted payments and liens. ~~The Company may redeem the Notes in whole or in part at a redemption price of 102.625% until October 31, 2003, and 100% thereafter, plus accrued interest through the date of redemption.~~ In connection with the Offering, the Company incurred $3.5 million in fees and expenses, which were capitalized and are being amortized over the seven -year term of the Notes. As of September 611, 2004 ~~2003,~~ the accumulated amortization of these costs equaled approximately $3.0 5 million. The ~~Company~~Notes isare indue ~~the~~on ~~process of~~November 1, ~~evaluating~~2004 ~~various~~and ~~alternatives~~therefore, toare ~~refinance~~classified as current liabilities on the ~~Notes~~June 19, ~~prior~~2004 tobalance ~~their~~sheets. The Notes became ~~maturity~~callable on November 1, ~~2004.~~2003 ~~Failure~~and the Company is currently in discussions with lenders to refinance the Notes. onIf ~~similar~~the ~~terms would~~refinancing ~~have~~is anot ~~material~~completed, ~~adverse~~it ~~affect~~may indicate onthat the Company’s ~~future~~will ~~cash~~be ~~flows~~unable to continue as a going concern and therefore may not be able to realize its assets and settles its liabilities in the normal course of business. Our auditors have included in their report for fiscal 2003 an explanatory paragraph expressing concern about our ability to continue ~~reinvest~~as a going concern, if refinancing is not obtained. The Company is subject to various risks in connection with the ~~business~~operation atof ~~current~~its ~~levels~~businesses including oramong ~~fund~~other ~~its~~things ~~working~~(i) changes in market and (ii) various competitive ~~capital~~factors. ~~requirements~~The accompanying financial statements have been prepared assuming the Company will be able to continue as a going concern.

The Company currently has a $17 million credit facility due in October 29, 2004. The Company is in discussions with its credit facility lender to extend the credit facility. Additionally, the Company is in discussions with its owners to bridge the revolving credit facility in the event that the extension is not implemented. Under the credit facility, the revolving loan is based on 85% of all eligible accounts receivables, plus 65% of the value of eligible inventory, plus 10% of packaging materials, all as defined. The interest rate for the credit facility is the prime rate of interest or, at the Company’s option, LIBOR plus 2.0%. The average effective interest rate on the Company’s line of credit for the quarters ended September 11, 2004 and September 6, 2003 was 4.8% and 4.0% for each year, respectively. The credit facility requires the Company to maintain certain financial ratios relating to fixed charge coverage, working capital, and minimum borrowing availability, as defined. The Company’s credit facility is secured by a first lien on and security interest in the inventory and receivables of the Company and certain related collateral. The Company’s $17 million credit facility also includes letter-of-credit accommodations. As of September 11, 2004, the Company had an outstanding revolving loan balance of $6.1 million, letters of credit outstanding of $2.9 million and $4.2 million of borrowing availability.

Onunder ~~January 31, 2000,~~ the ~~Company entered into a revolving credit facility which~~term ~~terminates~~of onthe ~~August 30,~~Credit ~~2004~~Facility ~~providing~~and ~~for~~the aNotes ~~$17,000,000 revolving loan facility~~ and ~~letter-of-credit~~such ~~accommodations.~~lenders ~~Under~~could ~~the~~attempt ~~loan agreement, the~~to ~~revolving~~foreclose ~~loan is based~~ on ~~85%~~their ofrespective ~~all~~collateral ~~eligible~~securing ~~accounts~~such ~~receivables,~~indebtedness ~~plus~~and ~~55%~~(ii) ofeven ~~the~~if ~~value~~such offoreclosure ~~eligible~~does ~~inventory~~not occur, ~~plus~~the ~~10%~~Company’s ofability ~~packaging~~to ~~materials,~~operate ~~all as~~and ~~defined.~~obtain ~~The~~working ~~interest~~capital ~~rate~~necessary ~~for~~to ~~the~~operate ~~new~~its ~~revolving~~business ~~facility~~would isbe ~~the~~materially adversely ~~prime~~impacted. ~~rate~~Under ~~of interest~~these orcircumstances, at the Company~~’s option, LIBOR plus 2.0%. The average effective~~ ~~interest~~would ~~rate~~have ondifficulty ~~the~~maintaining ~~Company’s~~existing ~~line~~relationships ofwith ~~credit~~its ~~for the three quarters ended September 6~~suppliers, who ~~2003~~might ~~and~~stop ~~September 7,~~providing ~~2002~~supplies ~~was~~or ~~4.2%~~services ~~and~~to ~~4.8%~~the ~~for~~Company ~~each~~or ~~year,~~provide or ~~respectively.~~supply ~~The~~such ~~revolving~~services ~~credit~~only ~~agreement~~on ~~requires~~“cash ~~the~~on ~~Company~~deliver” toor ~~maintain certain~~other ~~financial~~terms ~~ratios~~that ~~relating~~would ~~to fixed charge coverage, working capital,~~have ~~and~~an ~~minimum~~adverse ~~borrowing~~impact ~~availability,~~on asthe ~~defined. The~~ Company’s ~~revolving~~cash ~~loan facility~~flow ~~is secured by a first lien on~~ and ~~security~~the ~~interest~~Company inmay ~~the~~have ~~inventory~~to ~~and~~consider ~~receivables~~pursuing ofappropriate ~~the~~restructuring ~~Company and certain related Collateral~~options.

The Company’s cash flow requirements are for working capital, capital expenditures and debt service. The Company ~~has~~ met its liquidity needs through the ~~internally~~third ~~generated~~quarter ~~funds and a revolving line~~ of ~~credit~~2004 ~~established~~through ~~in January~~internally ~~2000,~~generated ~~which~~funds ~~matures~~and inthe ~~August 2004~~credit facility.

AsNet ofcash ~~September 6,~~used ~~2003,~~in ~~the~~operating ~~Company~~activities ~~had~~was ~~an outstanding revolving loan balance of~~ $52.7 million, ~~letters~~for ofthe ~~credit~~thirty-six ~~outstanding~~week period ofended ~~$2.8~~September ~~million~~11, 2004 versus $41.23 million ~~of borrowing~~during ~~availability~~the ~~and~~same aperiod ~~working~~in 2003. ~~capital~~The ~~position~~Company ofcontributed $4586,000 to its pension plans during the thirty-six week period in 2004.~~5 million.~~

Net cash used in ~~operating~~investing activities was $12.38 million ~~for~~in the thirty-six week period ~~ended~~of ~~September 6,~~2004 ~~2003,~~compared ato ~~variance of~~ $32.09 million, ~~versus $1.8 million provided by operations during the same period~~ in ~~2002, mainly attributable to the reduction in revenue associated with the contract sales volume~~2003.

Net cash ~~used~~provided inby ~~investing~~financing activities was $25.98 million the thirty-six week period of 2004 versus $4.1 million in the ~~first~~same ~~three quarters~~period of 2003. Credit facility borrowings were $6.1 million in the thirty-six week period of 2004 compared to $75.97 million in ~~2002~~the same period of 2003.

~~Net~~Critical ~~cash provided by financing activities was $4.1 million the first three~~Accounting ~~quarters of 2003 versus $4.3 million in the same period of 2002. Revolver~~Policies ~~borrowings were $5.7 million in the first three quarters of 2003 compared to~~ $3.9 million in the same period of 2002. In connection with the appeal of a $1.2 million verdict against the Company in the Circuit Court of Alabama, the Company deposited $1.6 million in cash to secure a bond posted in order to stay the execution of the verdict pending such appeal, which is recorded as the litigation escrow deposit under financing activities.

The Company has identified critical accounting policies utilized by management in the preparation of the Company's financial statements. A description of these critical accounting policies is included in the annual report on Form 10-K for the fiscal year ended January 3, 2004.

New Accounting Pronouncements

In ~~April 2002~~December 2003, the FASB issued SFAS No. ~~145~~132 ~~Rescission~~(revised of2003) ~~FASB~~Employers’ Disclosures ~~Statements~~about NoPensions and Other Postretirement Benefits. This statement 4,revises ~~44,~~employers’ disclosures about pension plans and ~~64,~~other ~~Amendment~~postretirement benefit plans; however it does not change the measurement or recognition of those ~~FASB~~plans ~~Statement~~required by SFAS No. 1387, ~~and~~Employers’ ~~Technical~~Accounting ~~Corrections. SFAS~~for Pensions, SFAS No. 88, ~~145~~Employers’ ~~addresses~~Accounting ~~the~~for ~~treatment~~Settlements and Curtailments of ~~debt~~Defined Benefit ~~extinguishment~~Pension asPlans anand ~~extraordinary item~~for inTermination ~~the~~Benefits, ~~statement~~and ofSFAS ~~operations~~No. 106, Employers’ ~~Adoption~~Accounting offor ~~this~~Postretirement ~~standard~~Benefits isOther ~~required~~Than ~~for~~Pensions. The ~~fiscal~~revised ~~years~~statement ~~beginning~~retains ~~after~~the ~~May 15,~~disclosure ~~2002.~~requirements ~~The~~contained ~~adoption~~in ofthe original SFAS No. ~~145 required~~132 aand ~~reclassification~~requires ofadditional ~~the~~disclosures ~~extraordinary~~to ~~item~~those ~~for~~in ~~debt~~the ~~extinguishment~~original ~~included~~statement inabout the ~~company’s~~assets, ~~December 29~~obligations, ~~2001~~cash ~~financial~~flows, ~~statements~~and tonet beperiodic benefit ~~reclassified~~cost toof ~~operating~~defined ~~income~~benefit ~~(loss)~~pension plans and other defined benefit postretirement plans. The Company adopted the provision of SFAS No. 132 in its fiscal 2003 financial statements.

~~The~~In May 2003, the FASB issued ~~Interpretation~~SFAS No. 45150, ~~“Guarantor’s~~ Accounting ~~and Disclosure Requirements~~ for ~~Guarantees,~~Certain ~~Including~~Financial Instruments ~~Indirect~~With ~~Guarantees~~Characteristics of ~~Indebtedness~~Both ~~of Others”~~Liabilities ~~(FIN~~and ~~45),~~Equity. ~~which~~The ~~addresses~~statement establishes ~~the~~standards ~~disclosures~~for tohow bean ~~made~~issuer byclassifies aand ~~guarantor~~measures incertain ~~its~~financial ~~interim~~instruments ~~and~~with ~~annual~~both ~~financial~~characteristics ~~statements~~of ~~about~~liabilities ~~its~~and ~~obligations~~equity. ~~under~~It ~~guarantees.~~requires ~~FIN~~that 45an ~~also~~issuer ~~clarifies~~classify ~~the requirements related to the recognition of~~ a ~~liability~~financial byinstrument athat ~~guarantor~~is atwithin ~~the~~its scope ~~inception~~as of a ~~guarantee~~liability ~~for~~(or ~~the guarantor’s~~an ~~noncontingent~~asset ~~obligations~~in ~~associated~~some ~~with such guarantee~~circumstances). ~~The disclosure~~Adoption ~~requirements~~ of this standard ~~Interpretation~~was ~~are~~required ~~effective~~ for ~~financial statements~~existing ofor ~~periods~~new ~~ending~~contracts for fiscal years beginning after December 15, ~~2002~~2003. The Company’s

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~~whereas~~Class A preferred stock may be exchanged, at the ~~initial~~Company’s ~~recognition~~option, ~~and~~for ~~measurement~~an ~~provisions~~equal ~~are~~amount ~~applicable~~of onsenior adebt if the ~~prospective~~Company ~~basis~~meets ~~for~~certain ~~guarantees~~financial ~~issued~~targets, oras ~~modified~~defined. ~~after~~As ~~December~~the Class 31A preferred stock is only redeemable upon the Company meeting certain financial targets, which ~~2002~~have not been met as of September 11, 2004, and is redeemable at the option of the Company, no reclassification of the Class A preferred stock is required under SFAS No. 150.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”), an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. The Company does not expect FIN 46 to have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity. The statement establishes standards for how an issuer classifies and measures certain financial instruments with both characteristics of liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Adoption of this standard is required for existing or new contracts for fiscal years beginning after December 15, 2003. The Company’s Class A preferred stock may be exchanged, at the Company’s option, for an equal amount of senior debt if the Company meets certain financial targets, as defined. As the Class A preferred stock is only redeemable upon the Company meeting certain financials targets, which have not been met as of September 6, 2003, and is redeemable at the option of the Company, no reclassification of the Class A preferred stock is required under SFAS No. 150.

Cautionary Statement Related to Forward-Looking Statements

The statements contained in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. There can be no assurance that any forward-looking statement will be realized or that actual results will not be significantly higher or lower than set forth in such forward-looking statement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Raw materials used by the Company are subject to price volatility caused by weather, government farm programs, global supply and demand, and other unpredictable factors. To manage potential volatility in raw material prices, the Company from time to time enters into commodity future and option contracts, which are less than one year in duration. The Company’s Board-approved policy is to use such commodity derivative financial instruments only to the extent necessary to manage these raw material price exposures. The Company does not use these financial instruments for speculative purposes. These commodity instruments are marketable exchange traded contracts designated as hedges, and the changes in the market value of such contracts have a high correlation to the price changes of the hedged commodity. As of September 611, ~~2003~~2004, the Company had no open futures or options contracts ~~in wheat, soybean oil, corn, diesel, or natural gas~~.

The Company has a credit facility that has an interest rate based upon the prime rate or, at the Company’s option, the London InterBank Offered Rate (“LIBOR”) plus 2%. Any increases in such rates may dramatically increase the interest rates under such facility and would make it more costly for the Company to borrow funds thereunder. These increased borrowing costs may impede the Company’s growth and operating strategies if management determines that such costs are too high to implement those strategies. These increased costs may also hinder the Company’s ability to fund its working capital requirements.

The Company’s $60 million senior secured credit facility matures on November 1, 2004. In spite of continued financial improvement since the Company issued its senior notes in October 1997, there can be no assurance given current credit market conditions that the Company will be able to renew its senior credit facility on terms or at rates as favorable as those set to expire in 2004. While the facility expiration is 12 months away, failure to renew on similar terms could hinder the Company’s future cash flows and its ability to reinvest in the business at current levels or fund its working capital requirements.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation, ~~within~~as ~~90 days~~of ~~prior~~the toend of the ~~filing~~period ~~date~~covered ofby this report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. There have been no ~~significant~~ changes in the Company’s internal controls or in other factors during the period covered by this Form 10-Q, that ~~could~~have ~~significantly~~materially ~~affect~~affected ~~these~~or ~~controls~~are reasonably ~~subsequent~~likely to materially affect the ~~date~~Company’s ofinternal ~~the~~control over ~~foregoing~~financial ~~evaluation~~reporting.

Part II. OTHER INFORMATION

~~Item 6~~ITEM 1. ~~Exhibits~~LEGAL ~~and Reports on Form 8-K.~~PROCEEDINGS

(a)		Exhibits.
		Exhibit 31.1 — Section 302 Certification of the CEO
		Exhibit 31.2 — Section 302 Certification of the CFO
		Exhibit 32.1 — Section 906 Certification of the CEO
		Exhibit 32.2 — Section 906 Certification of the CFO
(b)		Reports on Form 8-K.

The Company is subject to litigation from time to time in the ordinary course of business. Although the amount of any liability with respect to any such litigation cannot be determined, in the opinion of management, such liability is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

~~There~~The ~~were~~Company nois ~~reports~~the ondefendant ~~Form 8-K~~in a lawsuit filed byin the ~~Registrant~~Circuit ~~during~~Court in Alabama. The lawsuit alleged that the Company had interfered with the ~~quarter~~plaintiff’s ~~ended~~purchase ~~September~~of vending machines from a former independent reseller of the Company and with plaintiff’s relations with its customers. On October 624, 2002, ~~2003.~~a jury returned a verdict in favor of the plaintiff, which, following post-trial

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motions, was reduced to $1,250,000 in total damages. In connection with the appeal of the $1.2 million verdict against the Company in the Circuit Court of Alabama, the Company deposited $1.6 million in cash to secure a bond posted in order to stay the execution of the verdict pending such appeal, which is recorded as the litigation escrow deposit under financing activities. On August 20, 2004, the Supreme Court of Alabama reversed the judgment and entered a judgment in favor of the Company. On September 14, 2004 the litigation escrow deposit was refunded.

ITEM 6. Exhibits and Reports on Form 8-K.

(a)		Exhibits.

		Exhibit 31.1 — Section 302 Certification of the CEO

		Exhibit 31.2 — Section 302 Certification of the CFO

		Exhibit 32.1 — Section 906 Certification of the CEO

		Exhibit 32.2 — Section 906 Certification of the CFO

(b)		Reports on Form 8-K.

		Current report on Form 8-K was filed on October 19, 2004 regarding an update on Company projected financial results. (Furnished but not filed with the SEC) Current report on Form 8-K was filed on October 22, 2004 regarding an update on the Company’s credit facility. (Furnished but not filed with the SEC)

SIGNATURES

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

TOM’S FOODS INC. By /s/ Rolland G. Divin Rolland G. Divin President, Chief Executive Officer, and Director (Principal Executive Officer) Date: October 21, 2003 By /s/ Sharon M. Sanders Sharon M. Sanders Acting Chief Financial Officer Date: October 21, 2003

14 By /s/ Rolland G. Divin Rolland G. Divin President, Chief Executive Officer, and Director (Principal Executive Officer) Date: October 26, 2004 By /s/ Sharon M. Sanders Sharon M. Sanders Acting Chief Financial Officer Date: October 26, 2004

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Filing Compare · TOMS FOODS INC