##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (Mark One) [ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarter (twelve-weeks) ended March 27, 2004 [  ] 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.  Delaware
(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
(Registrants telephone number, including area code) 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 [ü] No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [  ] Yes [ü] No 2




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TOMS FOODS INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE TWELVE-WEEKS
ENDED MARCH 27, 2004 TABLE OF CONTENTS PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Balance Sheets as of March 27, 2004 (unaudited)
and January 3, 2004
    
    
    4Condensed Statements of Operations for the twelve weeks
ended March 27, 2004 and March 22, 2003 (unaudited)
    
    
    5Condensed Statements of Cash Flows for the twelve weeks ended
March 27, 2004 and March 22, 2003 (unaudited)
    
    
    6Notes to Condensed Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    14PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    14Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    15EX-31.1 SECTION 302 CERTIFICATION OF THE PRES/CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE PRES/CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
 3




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##### Table of Contents



TOMS FOODS INC. 
    March 27, 2004
    
    January 3, 2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,032
    
    
    $
    1,444Accounts and notes receivable, net of allowance for uncollectible of
$1,104 and $1,119 at March 27, 2004 and January 3, 2004, respectively
    
    
    11,626
    
    
    
    10,120Inventories:Raw materials
    
    
    2,739
    
    
    
    2,484Packaging materials
    
    
    2,038
    
    
    
    1,518Finished goods and work in progress
    
    
    4,918
    
    
    
    4,133Other current assets
    
    
    3,651
    
    
    
    3,504Total current assets
    
    
    26,004
    
    
    
    23,203Property, plant, and equipment:Land and land improvements
    
    
    5,702
    
    
    
    5,702Buildings
    
    
    18,536
    
    
    
    18,515Machinery, equipment and vehicles
    
    
    61,759
    
    
    
    61,670Vending and other distribution equipment
    
    
    12,703
    
    
    
    12,888Furniture and fixtures
    
    
    18,149
    
    
    
    17,399Construction in progress
    
    
    8,065
    
    
    
    8,075Total property, plant, and equipment
    
    
    124,914
    
    
    
    124,249Accumulated depreciation
    
    
    (77,616
    )
    
    
    (76,386
    )Net property, plant, and equipment
    
    
    47,298
    
    
    
    47,863Noncurrent accounts and notes receivable, net
    
    
    207
    
    
    
    312Litigation escrow deposit
    
    
    1,563
    
    
    
    1,563Deferred financing costs, net
    
    
    356
    
    
    
    477Intangible assets, net
    
    
    19,150
    
    
    
    19,312Goodwill
    
    
    793
    
    
    
    790Total assets
    
    $
    95,371
    
    
    $
    93,520LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Revolving debt
    
    $
    4,624
    
    
    $
    96Accounts payable
    
    
    8,944
    
    
    
    9,700Accrued liabilities
    
    
    7,950
    
    
    
    8,131Current portion of other debt obligations
    
    
    60,252
    
    
    
    60,268Total current liabilities
    
    
    81,770
    
    
    
    78,195Long term debt obligations
    
    
    197
    
    
    
    271Other long term obligations
    
    
    37
    
    
    
    37Accrued pension cost
    
    
    15,398
    
    
    
    15,242Total liabilities
    
    
    97,402
    
    
    
    93,745Exchangeable portion of Preferred Stock, $.01 par value, Class A,
7,000 shares authorized, 7,000 shares issued and outstanding at
March 27, 2004 and January 3, 2004
    
    
    10,000
    
    
    
    10,000Shareholders Equity:Common stock,
$0.01 par value; 10,000 shares authorized,
5,000 shares issued and outstanding at March 27, 2004 and
January 3, 2004
    
    
    0
    
    
    
    0Nonexchangeable portion of Preferred Stock, $.01 par value, Class A,
7,000 shares authorized, 7,000 shares issued and outstanding at
March 27, 2004 and January 3, 2004
    
    
    3,486
    
    
    
    3,158Preferred Stock, $.01 par value, Class B, 21,737 shares authorized,
21,737 shares issued and outstanding at March 27, 2004
and January 3, 2004
    
    
    39,411
    
    
    
    38,545Additional paid-in capital
    
    
    43,725
    
    
    
    43,725Accumulated other comprehensive loss
    
    
    (7,542
    )
    
    
    (7,542
    )Accumulated deficit
    
    
    (91,111
    )
    
    
    (88,111
    )Total shareholders equity
    
    
    (12,031
    )
    
    
    (10,225
    )Total liabilities and shareholders equity
    
    $
    95,371
    
    
    $
    93,520
 See notes to interim condensed financial statements 4




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TOMS FOODS INC. 
 
 
 Twelve Weeks EndedMarch 27, 2004
    
    March 22, 2003(unaudited)
    
    (unaudited)Net sales
    
    $
    41,623
    
    
    $
    46,739Cost of goods sold
    
    
    (25,946
    )
    
    
    (30,176
    )Gross profit
    
    
    15,677
    
    
    
    16,563Expenses and other income:Selling and administrative expenses
    
    
    (15,901
    )
    
    
    (17,293
    )Amortization of intangible assets
    
    
    (164
    )
    
    
    (162
    )Other operating income, net
    
    
    179
    
    
    
    182Loss from operations
    
    
    (209
    )
    
    
    (710
    )Interest expense, net
    
    
    (1,571
    )
    
    
    (1,614
    )Loss before income taxes
    
    
    (1,780
    )
    
    
    (2,324
    )Provision for income taxes
    
    
    (26
    )
    
    
    (31
    )Net loss
    
    $
    (1,806
    )
    
    $
    (2,355
    )
 See notes to interim condensed financial statements 5




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TOMS FOODS INC. 
     Twelve Weeks EndedMarch 27, 2004
    
    March 22, 2003(unaudited)
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (1,806
    )
    
    $
    (2,355
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation
    
    
    1,621
    
    
    
    2,107Amortization of intangible assets
    
    
    164
    
    
    
    162Amortization of deferred debt issuance cost
    
    
    121
    
    
    
    121Provision for income taxes
    
    
    26
    
    
    
    31Loss on disposal of property, plant, and equipment
    
    
    13
    
    
    
    4Changes in operating assets and liabilities:Accounts and notes receivable, net
    
    
    (1,635
    )
    
    
    (1,670
    )Inventories
    
    
    (1,660
    )
    
    
    (1,384
    )Other assets
    
    
    (47
    )
    
    
    (337
    )Accounts payable
    
    
    (520
    )
    
    
    (2,753
    )Other liabilities
    
    
    (52
    )
    
    
    (1,344
    )Accrued pension cost
    
    
    0
    
    
    
    164Total adjustments
    
    
    (1,969
    )
    
    
    (4,899
    )Net cash used in operating activities
    
    
    (3,775
    )
    
    
    (7,254
    )Cash flows from investing activities:Additions to property, plant, and equipment
    
    
    (1,149
    )
    
    
    (791
    )Proceeds from disposal of property, plant, and equipment
    
    
    73
    
    
    
    5Net cash used in investing activities
    
    
    (1,076
    )
    
    
    (786
    )Cash flows from financing activities:Net borrowing from working capital revolving facility
    
    
    4,528
    
    
    
    7,619(Payments) borrowings of other long-term debt
    
    
    (89
    )
    
    
    (58
    )Net cash provided by financing activities
    
    
    4,439
    
    
    
    7,561Decrease in cash and cash equivalents
    
    
    (412
    )
    
    
    (479
    )Cash and cash equivalents, beginning of period
    
    
    1,444
    
    
    
    1,856Cash and cash equivalents, end of period
    
    $
    1,032
    
    
    $
    1,377Interest paid during the period
    
    $
    183
    
    
    $
    209Income taxes paid during the period
    
    $
    26
    
    
    $
    22
 6




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TOMS FOODS INC. 
  
 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 generally accepted accounting principles
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 on Form 10-K for the fiscal year ended
January 3, 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 2004, ends January 1, 2005
and contains 52 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 currently has a $17 million revolving credit facility due in August
of 2004. As of January 3, 2004, there is $96,000 borrowed and $2,839,000
letters of credit issued under this facility. The Company also has $60,000,000
of 10.5% Senior Secured Notes (the Notes). These Notes are due in November
of 2004 and therefore, are classified as current liabilities on the January 3,
2004 balance sheet. The Notes became callable on November 1, 2003 and the
Company is currently in the process of refinancing the Notes. Although there
can be no assurance this debt will be refinanced, management believes that the
Company will be able to obtain refinancing, in a timely manner. If the
refinancing is not completed, it may indicate that the Company will be unable
to continue as a going concern and therefore may not be able to realize its
assets and settle its liabilities in the normal course of business. 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 7




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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 independent reseller sales are recognized when the goods are
received by the independent reseller. Revenues for product sold through the
Companys internal 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. In May 2000, the
Emerging Issues Task Force (EITF) reached a consensus on Issue 00-14,
Accounting for Certain Sales Incentives. Issue 00-14 addresses the recognition
and income statement classification of various sales incentives. Among its
requirements, the consensus requires costs related to customer price reductions
at the point of sale and other product promotions currently classified as
marketing costs to be classified as a reduction of revenue. The Company adopted
this standard during 2002. The impact of adopting this consensus for the
quarters ended March 27, 2004 and March 22, 2003 resulted in the reduction of
selling and administrative expenses and net sales by approximately $2,100,000
and $2,338,000, respectively. 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 No.
87, Employers Accounting for Pensions. 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. FAS 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 $7,900,000 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. During the quarters ended March 27, 2004 and March 22, 2003,
the Company recorded no significant changes in periodic cost. The Company
expects to contribute $1,500,000 to the Companys pension plans for the year
ended January 1, 2005. 8




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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 March 27, 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 a larger
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 Companys increased competitive emphasis on market channels
requiring wire racks, 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 quarter of 2004, the Company capitalized
$143,000 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 9




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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 March 27, 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 were $4.5 million in the first quarter of 2004 compared to
$7.6 million in the same period of 2003. Goodwill and Intangible Assets The useful lives of amortizable intangible assets are evaluated periodically,
and subsequent to impairment reviews, to determine whether revision 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 ended January 3, 2004 and
March 27, 2004 is presented below (in thousands): CarryingGoodwill
    
    ValueBalance at January 3, 2004
    
    $
    790
    
    
    $
    790Add: Goodwill Acquired
    
    
    3
    
    
    
    3Balance at March 27, 2004
    
    $
    793
    
    
    $
    793
 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 January 3, 2004 and March 27, 2004 consist of the
following (in thousands): Accumulated
    
    CarryingBalance January 3, 2004
    
    Total
    
    Amortization
    
    ValueTrademark
    
    $
    4,803
    
    
    $
    (1,121
    )
    
    $
    3,682Distribution System
    
    
    22,432
    
    
    
    (7,364
    )
    
    
    15,068Distribution System, intangible asset acquired
    
    
    465
    
    
    
    (24
    )
    
    
    441Unamortized prior service cost
    
    
    121
    
    
    
    
    
    
    
    121$
    27,821
    
    
    $
    (8,509
    )
    
    $
    19,312
 10




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Accumulated
    
    CarryingBalance March 27, 2004
    
    Total
    
    Amortization
    
    ValueTrademark
    
    $
    4,803
    
    
    $
    (1,121
    )
    
    $
    3,682Distribution System
    
    
    22,432
    
    
    
    (7,523
    )
    
    
    14,909Distribution System, intangible asset acquired
    
    
    465
    
    
    
    (27
    )
    
    
    438Unamortized prior service cost
    
    
    121
    
    
    
    
    
    
    
    121$
    27,821
    
    
    $
    (8,671
    )
    
    $
    19,150
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations TWELVE-WEEKS ENDED MARCH 27, 2004
COMPARED TO TWELVE-WEEKS ENDED MARCH 22, 2003 Net Sales for the quarter ended March 27, 2004 were $41.6M a decrease of $5.1M
versus the same quarter in 2003. The shortfall to prior year is a result of
reduced co-pack run rate, as discussed in earlier filings. This factor
moderated on a run rate basis in the quarter and is anticipated to improve
further in the following quarters. Gross Profit for the quarter
was $15.7 million or a gross margin of 37.7%, compared
to $16.6 million or a gross margin of 35.4% in the first quarter of 2003. The gross
profit shortfall is due to the reduction in co-pack volume, which carries a
lower gross margin and is being offset in part by the branded business, which
is favorable to prior year and carries a higher gross margin. For the first quarter 2004, selling and administrative expenses decreased to
$15.9 million from $17.3 million in the 2003 period, a decrease of 8.0% or $1.4
million due to the one time charges that occurred in the first quarter of 2003
and continued cost controls. As the Company continues to invest and grow its
Company owned route program these expenses will increase, offset by margin and
fixed cost coverage. Other Income was $179,000 for the first quarter of 2004 compared to $182,000
for the corresponding period in 2003. Interest expense, net of interest income was $1.6 million in the first quarter
of both 2004 and 2003. The provision for income taxes was relatively flat at $26,000 in 2004 compared
to $31,000 for 2003. The Company estimates that it will have no Federal tax
obligation for the fiscal year due to loss carryforwards from prior years. 11




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The net loss for the twelve-week period ended March 27, 2004 was $1.8 million,
favorable by
$600,000, compared to a net loss of $2.4 million for the same period of 2003. EBITDA for the first twelve weeks was $1.5 million a favorable variance of
$16,000 to prior year due to the factors discussed above. 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. 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 March 27, 2004
the accumulated amortization of these costs equaled approximately $3.3
million. The Notes are due in November of 2004 and therefore, are classified as
current liabilities on the March 27, 2004 balance sheets. The Notes became
callable on November 1, 2003 and the Company is currently in the process of
refinancing the Notes. The Company may redeem the Notes in whole at 100%, plus
accrued interest through the date of redemption. Although there can be no
assurance this debt will be refinanced, management believes that the Company
will be successful in obtaining refinancing. If the refinancing is not
completed, it may indicate that the Company will be 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 as a going concern due to our Notes being classified as
a current liability, if refinancing is not obtained. The Company is subject to
various risks in connection with the operation of their businesses including
among other things (i) changes in market and (ii) various competitive factors.
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 revolving credit facility due in August
2004. Under the loan agreement, the revolving loan is based on 85% of all
eligible accounts receivables, plus 55% of the value of eligible inventory,
plus 10% of packaging materials, all as defined. 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 March 27, 2004 and March 22, 2003 was 4.0% and
4.3% for each year, respectively. The revolving credit agreement requires the
Company to maintain certain financial ratios relating to fixed charge coverage,
working capital, and minimum borrowing availability, as defined. The Companys
revolving loan 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 revolving credit facility also includes
letter-of-credit accommodations. 12




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The Companys cash flow requirements are for working capital, capital
expenditures and debt service. The Company met its liquidity needs through
internally generated funds and a revolving line of credit established in
January 2000, which matures in August 2004. As of March 27, 2004, the Company had an outstanding revolving loan balance of
$4.6 million, letters of credit outstanding of $2.8 million, $3.3 million of
borrowing availability. Net cash used in operating activities was $2.0 million for the twelve week
period ended March 27, 2004, a positive variance of $2.9 million, versus $4.9
million used by operations during the same period in 2003. Net cash used in investing activities was $1.1 million in the first quarter of
2004 compared to $786,000 in 2003. Net cash provided by financing activities was $4.4 million the first quarter of
2004 versus $7.6 million in the same period of 2003. Revolver borrowings were
$4.5 million in the first quarter of 2004 compared to $7.6 million in the same
period of 2003. New Accounting Pronouncements In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This statement
revises employers disclosures about pension plans and other postretirement
benefit plans; however it does not change the measurement or recognition of
those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS
No. 88, Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. The
revised statement retains the disclosure requirements contained in the original
SFAS No. 132 and requires additional disclosures to those in the original
statement about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. The Company adopted the provision of SFAS No. 132 in its fiscal 2003
financial statements. 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 March 27, 2004, 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 13




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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 March 27, 2004,
the Company had no open futures or options contracts in wheat, soybean oil,
corn, diesel, or natural gas. 
 ITEM 4. CONTROLS AND PROCEDURES The Companys Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation, as of the end of the period covered by
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 changes in the Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of the foregoing
evaluation. 
 Part II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS 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. The Company is the defendant in a lawsuit filed in the Circuit Court in
Alabama. The lawsuit alleged that the Company had interfered with the
plaintiffs purchase of vending machines from a 14




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former independent reseller of
the Company and with plaintiffs relations with its customers. On
October 24, 2002, a jury returned a verdict in favor of the plaintiff, which,
following post-trial motions, was reduced to $1,250,000 in total damages. 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 believes the verdict is without factual basis and is
contrary to the applicable law and plans to appeal the verdict to the Alabama
Supreme Court. 
 ITEM 6. Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits.Exhibit 31.1 - Section 302 Certification of the CEOExhibit 31.2 - Section 302 Certification of the CFOExhibit 32.1 - Section 906 Certification of the CEOExhibit 32.2 - Section 906 Certification of the CFO(b)
    
    Reports on Form 8-K.There were no reports on Form 8-K filed by the Registrant during
the quarter ended March 27, 2004. SIGNATURES 15




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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  
 Date: May 11, 2004 By /s/ Sharon M. Sanders  
 Date: May 11, 2004 16