SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period (twelve-weeks) ended June 15, 2002
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to

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

For the quarter (twelve weeks) ended September 7, 2002.

[ ] 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)

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 x [ü] No o [ ]

TABLE OF CONTENTS

	BALANCE SHEETS
		CONDENSED BALANCE SHEETS
	STATEMENTS OF OPERATIONS
		CONDENSED STATEMENTS OF OPERATIONS
	STATEMENTS OF CASH FLOWS
		CONDENSED STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
		NOTES TO CONDENSED FINANCIAL STATEMENTS
Item 1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES

TOM’S FOODS INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE TWELVE WEEKS ENDED ~~JUNE~~SEPTEMBER 157, 2002

TABLE OF CONTENTS

			Page
PART I.		FINANCIAL INFORMATION
PART I	FINANCIAL INFORMATION
Item 1.		Financial Statements:
Item 1	Condensed Financial Statements:
		Balance Sheets as of June 15, 2002 (unaudited) and December 29, 2001		3
	Balance Sheets as of September 7, 2002 and December 29, 2001			3
		Statements of Operations (unaudited) for the twelve and twenty-four weeks ended June 15, 2002 and June 16, 2001		4
	Statements of Operations for the twelve and thirty-six weeks ended September 7, 2002 and September 8, 2001			4
		Statements of Cash Flows (unaudited) for the twenty-four weeks ended June 15, 2002 and June 16, 2001		5
	Statements of Cash Flows for the thirty-six weeks ended September 7, 2002 and September 8, 2001			5
	Notes to Financial Statements	~~Notes to Financial Statements~~		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations			10
PART II.		OTHER INFORMATION
Item 3	Quantitative and Qualitative Disclosures About Market Risk			13
Item 6.		Exhibits and Reports on Form 8-K		11
Item 4	Controls and Procedures			14
SIGNATURES				12
PART II	OTHER INFORMATION
Item 5	Other Information			14
Item 6	Exhibits and Reports on Form 8-K			14
Signatures				15

TOM’S FOODS INC. CONDENSED BALANCE SHEETS SEPTEMBER 7, 2002 AND DECEMBER 29, 2001 (in thousands except per share data)

BALANCE SHEETS


					September 7, 2002			December 29, 2001

ASSETS					(unaudited)			(unaudited)
Current Assets:
	Cash and short-term investments				$	1,253		$	2,933
	Accounts and notes receivable, net of allowance for uncollectible accounts of $1,866 and $1,848 at September 7, 2002 and December 29, 2001, respectively					14,752			11,391
		Inventories:
			Raw materials			2,676			2,415
			Packaging materials			2,528			2,099
			Finished goods and work in progress			5,961			5,639

	Other current assets					4,673			4,192

				Total current assets		31,843			28,669
Property, plant, and equipment:
	Land and land improvements					5,886			5,871
	Buildings					18,284			18,056
	Machinery, equipment and vehicles					56,828			52,946
	Vending and other distribution equipment					12,729			12,183
	Furniture and fixtures					16,025			15,585
	Construction in progress					6,940			5,253

				Total property, plant, and equipment		116,692			109,894
	Accumulated depreciation					(66,432	)		(60,745	)

				Net property, plant, and equipment		50,260			49,149

Noncurrent accounts and notes receivable, net						102			216
Other assets						226			225
Deferred debt issue costs, net						1,081			1,445
Intangible assets, net						19,967			20,132
Goodwill, net						532			22,892

				Total assets	$	104,011		$	122,728

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Revolving debt				$	6,972		$	3,065
	Accounts payable					7,713			9,068
	Accrued liabilities					11,483			9,872
	Current portion of other debt obligations					293			251

				Total current liabilities		26,461			22,256

Long-term debt:
	Senior secured notes					60,000			60,000
	Other debt obligations					493			455

				Total long-term debt		60,493			60,455

Other long-term obligations						37			37
Accrued pension cost						6,883			6,827
Accrued postretirement benefits other than pensions						0			1,666
Exchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at September 7, 2002 and December 29, 2001						10,000			10,000
Shareholders’ Equity:
	Common stock, $0.01 par value; 10,000 shares authorized, 5,000 shares issued and outstanding at September 7, 2002 and December 29, 2001					0			0
	Nonexchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at September 7, 2002 and December 29, 2001					1,566			765
	Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares issued and outstanding at September 7, 2002 and December 29, 2001					34,298			32,142
	Additional paid-in capital					43,725			43,725
	Accumulated other comprehensive income					2			11
	Accumulated deficit					(79,454	)		(55,156	)

				Total shareholders’ equity		137			21,487

				Total liabilities and shareholders’ equity	$	104,011		$	122,728

JUNE 15, 2002 AND DECEMBER 29, 2001 (in thousands except per share data)

				June 15, 2002			December 29, 2001
				(unaudited)
ASSETS
Current Assets:
	Cash and short-term investments			$	1,079		$	2,933
	Accounts and notes receivable, net				15,259			11,391
	Inventories:
		Raw materials			4,419			2,415
		Packaging materials			2,505			2,099
		Finished goods and work in progress			6,068			5,639
	Other current assets				3,247			4,192
			Total current assets		32,577			28,669
Property, plant, and equipment:
	Land and land improvements				5,875			5,871
	Buildings				18,148			18,056
	Machinery, equipment and vehicles				54,450			52,946
	Vending and other distribution equipment				12,741			12,183
	Furniture and fixtures				15,951			15,585
	Construction in progress				8,687			5,253
			Total property, plant, and equipment		115,852			109,894
	Accumulated depreciation				(64,685	)		(60,745	)
			Net property, plant, and equipment		51,167			49,149
Noncurrent accounts and notes receivable, net					131			216
Other assets					226			225
Deferred debt issuance costs, net					1,154			1,385
Intangible assets and goodwill, net					20,698			43,084
			Total assets	$	105,953		$	122,728
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Revolving debt			$	8,335		$	3,065
	Accounts payable				9,532			9,068
	Accrued liabilities				10,028			9,872
	Current portion of other debt obligations				278			251
			Total current liabilities		28,173			22,256
Long-term debt:
	Senior secured notes				60,000			60,000
	Other debt obligations				506			455
			Total long-term debt		60,506			60,455
Other long-term obligations					37			37
Accrued pension cost					7,249			6,827
Accrued postretirement benefits other than pensions					0			1,666
Exchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at June 15, 2002 & December 29, 2001					10,000			10,000
Shareholders’ Equity:
	Common stock, $0.01 par value; 10,000 shares authorized, 5,000 shares issued and outstanding at June 15, 2002 and December 29, 2001				0			0
	Nonexchangeable portion of Preferred Stock, $.01 par value, Class A, 7,000 shares authorized, 7,000 shares issued and outstanding at June 15, 2002 and December 29, 2001				1,299			765
	Preferred Stock, $.01 par value, Class B, 21,737 shares authorized, 21,737 shares issued and outstanding at June 15, 2002 and December 29, 2001				33,579			32,142
	Additional paid-in capital				43,725			43,725
	Accumulated other comprehensive income				(16	)		11
	Accumulated deficit				(78,599	)		(55,156	)
			Total shareholders’ equity		(12	)		21,487
			Total liabilities and shareholders’ equity	$	105,953		$	122,728

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

TOM’S FOODS INC. CONDENSED STATEMENTS OF OPERATIONS FOR THE TWELVE AND THIRTY SIX WEEKS ENDED SEPTEMBER 7, 2002 AND SEPTEMBER 8, 2001 (in thousands)

STATEMENTS OF OPERATIONS


				Twelve Weeks Ended						Thirty-Six Weeks Ended

				Sept. 7, 2002			Sept. 8, 2001			Sept. 7, 2002			Sept. 8, 2001
				(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net sales				$	47,288		$	48,010		$	148,277		$	142,660
Cost of goods sold					(30,452	)		(30,457	)		(94,115	)		(90,104	)

			Gross profit		16,836			17,553			54,162			52,556
Expenses and other income:
		Selling and administrative expenses			(14,864	)		(15,333	)		(47,259	)		(46,535	)
		Amortization of goodwill and intangible assets			(159	)		(399	)		(478	)		(1,194	)
		Other income, net			69			90			269			431
	Restructuring and nonrecurring charges				0			0			0			(579	)

Income from operations					1,882			1,911			6,694			4,679
Interest expense, net					(1,705	)		(2,023	)		(4,998	)		(5,935	)

Income (loss) before income taxes					177			(112	)		1,696			(1,256	)
Provision for income taxes					35			35			103			106

Net income (loss) before cumulative effect of accounting change					142			(147	)		1,593			(1,362	)

Cumulative effect of accounting change					0			0			(22,934	)		0

Net income (loss)				$	142		$	(147	)	$	(21,341	)	$	(1,362	)

FOR THE TWELVE AND TWENTY-FOUR WEEKS ENDED JUNE 15, 2002 AND JUNE 16, 2001 (in thousands)

			Twelve Weeks Ended						Twenty-Four Weeks Ended
			June 15, 2002			June 16, 2001			June 15, 2002			June 16, 2001
			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales			$	52,087		$	49,039		$	100,989		$	94,650
Cost of goods sold				(32,378	)		(30,573	)		(63,663	)		(59,647	)
		Gross profit		19,709			18,466			37,326			35,003
Expenses and other income:
	Selling and administrative expenses			(16,307	)		(15,686	)		(32,395	)		(31,202	)
	Amortization of goodwill and intangible assets			(160	)		(401	)		(319	)		(795	)
	Other income, net			73			196			200			341
	Restructuring and nonrecurring charges			0			0			0			(579	)
Income from operations				3,315			2,575			4,812			2,768
Interest expense, net				(1,672	)		(1,961	)		(3,293	)		(3,912	)
Income (loss) before income taxes				1,643			614			1,519			(1,144	)
Provision for income taxes				34			36			68			71
Net income (loss) before cumulative effect of accounting change				1,609			578			1,451			(1,215	)
Cumulative effect of accounting change				0			0			(22,934	)		0
Net income (loss)			$	1,609		$	578		$	(21,483	)	$	(1,215	)

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

TOM’S FOODS INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE ~~TWENTY~~THIRTY-~~FOUR~~SIX WEEKS ENDED ~~JUNE~~SEPTEMBER 157, 2002 AND ~~JUNE~~SEPTEMBER 168, 2001 (in thousands)

					Twenty-Four Weeks Ended
						Thirty-Six Weeks Ended
					June 15, 2002				June 16, 2001
						September 7, 2002				September 8, 2001
					~~(unaudited)~~	(unaudited)			~~(unaudited)~~	(unaudited)
Cash flows from operating activities:
	Net loss				$	~~(21,483~~$	)(21,341	)	$	~~(1,215~~$	)(1,362	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Adjustments to reconcile net loss to net cash provided by operating activities:
	~~Depreciation~~	Depreciation				~~4,064~~	6,160			~~3,770~~	5,710
	~~Amortization of intangible assets and goodwill~~	Amortization of intangible assets and goodwill				~~319~~	478			~~795~~	1,194
	~~Amortization of deferred debt issuance cost~~	Amortization of deferred debt issuance cost				~~243~~	364			~~243~~	363
	~~Restructuring and nonrecurring charges~~	Restructuring and nonrecurring charges				0	0			~~579~~	579
	~~Cumulative effect of accounting change~~	Cumulative effect of accounting change				~~22,934~~	22,934			0	0
	~~Provision for income taxes~~	Provision for income taxes				68	103			71	106
	~~Preferred A stock noncash interest expense~~	Preferred A stock noncash interest expense				0	0			~~471~~	713
	Loss (gain) on disposal of property, plant, and equipment					7				(6	)
		Loss on disposal of property, plant, and equipment					8				8
	~~Changes in operating assets and liabilities:~~	Changes in operating assets and liabilities:
		~~Accounts and notes receivable, net~~	Accounts and notes receivable, net			~~(4,240~~	)(3,758	)		~~(2,425~~	)(3,209	)
		~~Inventories~~	Inventories			~~(2,760~~	)(939	)		~~(2,519~~	)(1,792	)
		~~Other assets~~	Other assets			~~608~~	(677	)		~~(416~~	)(958	)
		~~Accounts payable~~	Accounts payable			~~464~~	(1,355	)		~~(109~~	)(687	)
		~~Other liabilities~~	Other liabilities			46	1,466			~~(1,419~~	)1,096
		~~Accrued pension cost~~	Accrued pension cost			~~(1,245~~	)(1,611	)		~~(122~~	)(183	)
			~~Total adjustments~~	Total adjustments		~~20,508~~	23,173			~~(1,087~~	)2,940
			Net cash used in operating activities			(975	)			(2,302	)
				Net cash provided by operating activities			1,832				1,578
Cash flows from investing activities:
	~~Additions to property, plant, and equipment~~	Additions to property, plant, and equipment				~~(6,588~~	)(7,875	)		~~(1,866~~	)(3,523	)
	~~Proceeds from disposal of property, plant, and equipment~~	Proceeds from disposal of property, plant, and equipment				8	21			25	68
			~~Net cash used in investing activities~~	Net cash used in investing activities		~~(6,580~~	)(7,854	)		~~(1,841~~	)(3,455	)
Cash flows from financing activities:
	~~Net borrowing from working capital revolving facility~~	Net borrowing from working capital revolving facility				~~5,271~~	3,908			~~201~~	2,982
	Repayment of industrial development revenue bonds, net					354				0
		Repayment of industrial development revenue bonds					0				(4,800	)
	Borrowings (repayments) of long-term debt					76				(107	)
		Return of industrial development revenue bond escrow deposit					354				0
			Net cash provided by financing activities			5,701				94
		Borrowings (repayments) of other long-term debt					80				(172	)
Decrease in cash and short-term investments						(1,854	)			(4,049	)
				Net cash provided by (used in) financing activities			4,342				(1,990	)
Cash and short-term investments, beginning of period						2,933				5,612
Decrease in cash and short-term investments							(1,680	)			(3,867	)
Cash and short-term investments, end of period					$	1,079			$	1,563
Cash and short-term investments, beginning of period							2,933				5,612
Interest paid during the period					$	3,634			$	3,566
Cash and short-term investments, end of period						$	1,253			$	1,745
Income taxes paid during the period					$	93			$	91
Interest paid during the period						$	3,920			$	3,830
Income taxes paid during the period						$	99			$	111

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

TOM’S FOODS INC. NOTES TO CONDENSED FINANCIAL STATEMENTS

~~NOTES~~Basis TOof ~~FINANCIAL~~Financial ~~STATEMENTS~~Statements and Formation and Organization

Item 1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION

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 and Form 10-K for the fiscal year ended December 29, 2001.

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.

The accompanying unaudited financial statements ~~have~~were ~~not been~~ reviewed by anDeloitte & Touche LLP, the Company’s independent audit firm, selected to replace Arthur Andersen LLP by the Board of Directors at its meeting on August 7, 2002. Deloitte ~~The~~& Touche LLP has also reviewed the Company’s ~~will~~amended ~~submit~~First ~~these~~Quarter 2002 ~~financial~~Form 10-Q ~~statements~~and toits Second Quarter 2002 Form 10-Q. These reports were apreviously ~~review~~filed ~~once~~without anreview ~~audit~~as ~~firm~~the ~~has~~Company ~~been~~had ~~selected~~not toreplaced ~~replace~~its ~~Arthur~~previous auditor ~~Andersen,~~at the time those filings were done. There were no noted adjustments ~~Company’s~~to the previous ~~auditor~~filings.

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 2002, ends December 28, 2002 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.

Revenue Recognition

Revenues for distributor sales are recognized when the goods are received by the distributor. Revenues for product sold through the Company’s internal distributor 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.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and short-term investments, trade receivables, notes receivable, accounts payable, purchase commitments, senior secured notes, and other long-term obligations. In management’s opinion, the carrying amounts of these financial instruments approximate their fair values at September 7, 2002 and December 29, 2001.

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.

Postretirement Benefits

During 2002, the Company discontinued its postretirement medical benefit plan designed to bridge certain employees, whom had taken early retirement, to Medicare eligibility. As a result of the plan's termination, there were no continuing benefit obligations under the plan, and the Company recorded the entire settlement gain in the second quarter of 2002. Accordingly, the associated accrued long-term liability, which had been previously expensed against operating income and had a balance of $1.7 million at December 29, 2001, was reversed with a corresponding credit to selling and administrative expense.

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~~ Derivative Instruments.” SFAS No. 133 and SFAS No. 138 require the Company to ~~recognize~~ recognize all derivative instruments as assets or liabilities and to measure ~~those~~ those instruments at fair value. Changes in the derivative fair values are ~~deferred~~ deferred and recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. Any ~~ineffective~~ ineffective portion of a hedging derivative’s change in fair value is ~~immediately~~ immediately recognized in earnings. The Company formally documents all ~~relationships~~ relationships between hedging instruments and hedged items as well as its risk ~~management~~ management objectives and strategies for undertaking the hedge transactions. The Company links all hedges to forecast transactions and assesses, both at the ~~inception~~ 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 7, 2002, the Company had no open futures or options contracts.

6New Accounting Pronouncements

~~Table~~In June 2001, the FASB issued SFAS No. 141, “Business Combinations”, which addresses the financial accounting and reporting for business combinations and supersedes Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations”, and SFAS No. 38, “Accounting for Preacquisition Contingencies of Purchased ~~Contents~~Enterprises". SFAS No. 141 requires that all business combinations be accounted for by the purchase method, modifies the criteria for recognizing intangible assets, and expands disclosure requirements. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001.

~~Item~~In June 2001, the FASB issued SFAS No. 2142, “Goodwill and Other Intangible Assets", which addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. ~~MANAGEMENT’S~~ 17, “Intangible ~~DISCUSSION~~Assets”. ~~AND~~SFAS ~~ANALYSIS~~No. 142 OFaddresses ~~FINANCIAL~~how ~~CONDITION~~intangible ~~AND~~assets ~~RESULTS~~that OFare acquired ~~OPERATIONS~~individually or with a group of other assets should be accounted for in financial statements upon acquisition and after they have been initially recognized in the financial statements. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather tested at least annually for impairment, and intangible assets that

Results of Operations

TWELVE WEEKS ENDED JUNE 15, 2002 COMPARED TO TWELVE WEEKS ENDED JUNE 16, 2001

Net sales for the second quarter ended June 15, 2002 were $52.1 million, an increase of 6.2%, or $3.1 million compared to the corresponding period in 2001. The sales figures for each quarter have been reduced as the result of a reclassification of certain promotional expenses from selling and administrative expenses in accordance with the Financial Accounting Standard Board’s (“FASB”) Emerging Issues Task Force (“EITF”) consensus Issue 00-14 which the Company adopted during the first quarter of 2002. The reclassified amounts for the second quarter of 2002 and 2001 were $2.1 million and $2.0 million, respectively.

Gross profit increased to $19.7 million in the second quarter of 2002 from $18.5 million in the second quarter of 2001, an increase of $1.2 million or 6.7%.

For the second quarter 2002, selling and administrative expenses increased to $16.3 million from $15.7 million in the 2001 period, an increase of 4.0% or $600,000. As a percent of net sales, selling and administrative expenses decreased to 31.3% in the second quarter of 2002 from to 32.0% in 2001.

Amortization expense decreased by $241,000 to $160,000 for the second quarter of 2002 compared to 2001 due to the cessation of amortization of goodwill. This is discussed more fully below under new Accounting Pronouncements. Other Income was $73,000 for the second quarter of 2002 compared to $196,000 for the corresponding period in 2001.

Interest expense, net of interest income, decreased to $1.7 million in the second quarter of 2002 from $2.0 million in the second quarter of 2001, a decrease of $300,000 due primarily to the early retirement of the Company’s outstanding industrial development revenue bonds in the second half of 2001 and the fact that there is no longer interest expense recorded on the exchangeable portion of the Company’s Preferred A stock. All increases in the liquidation preference on the Company’s Preferred A stock are now recorded as dividends and are reflected solely within the equity section of the balance sheet.

~~The~~have ~~provision~~finite ~~for~~useful ~~income~~lives ~~taxes~~be ~~was~~amortized ~~$34,000~~over intheir ~~2002~~useful ~~compared~~lives. toIn ~~$36~~addition,~~000 for~~ ~~2001~~SFAS No. 142 ~~The~~expands ~~Company~~the ~~estimates~~disclosure ~~that~~requirements itabout ~~will~~goodwill ~~have~~and noother intangible ~~material~~assets ~~Federal~~in ~~tax~~the years subsequent to their acquisition. Impairment ~~obligations~~losses for ~~the~~goodwill ~~fiscal~~and ~~year~~indefinite-life intangible assets that arise due to ~~loss~~the initial ~~carryforwards~~application ~~from~~of ~~prior~~SFAS ~~years~~No. 142 are to be reported as a change in accounting principle. The Company adopted SFAS No. 141 and SFAS No. 142 effective December 30, 2001.

AsUpon aadoption ~~result~~ of ~~the~~SFAS ~~favorable~~No. 141 ~~variances~~as ~~discussed~~of ~~above~~December 30, 2001, the ~~net~~Company ~~income for the~~reclassified ~~twelve~~certain ~~week~~intangible ~~period~~assets ~~ended~~previously ~~June 15,~~allocated ~~2002~~to ~~increased~~assembled bystaff ~~$1.0 million to $1.6~~into ~~million~~goodwill, ~~compared~~and toceased the ~~net~~amortization ~~income~~related ofto ~~$578,000~~these ~~for the same period in 2001~~intangibles.

~~Earnings~~During ~~before~~the ~~interest,~~second ~~taxes~~quarter, ~~depreciation~~the ~~and~~Company ~~amortization~~completed ~~(“EBITDA”) represents~~ the ~~sum~~impairment oftest ~~income~~required by ~~(loss)~~SFAS No. ~~before~~142. ~~income~~As ~~taxes~~a ~~plus~~result ~~interest~~of ~~expense~~this impairment test, the Company determined ~~depreciation~~that ~~and~~the ~~amortization.~~carrying ~~EBITDA~~amount isof agoodwill ~~widely~~was ~~accepted~~in ~~measure~~excess of ~~a Company’s~~its ~~ability~~fair tovalue ~~incur~~as determined ~~and~~by ~~service~~a ~~debt,~~discounted tocash ~~undertake~~flow ~~capital~~approach. ~~expenditures~~As a result, the Company ~~and~~recorded toan ~~meet~~impairment ~~working~~charge ~~capital~~of ~~requirements~~$22.9 million ~~EBITDA~~relating to goodwill which is presented ~~not~~as a ~~measure~~cumulative effect of ~~financial~~change in accounting principle. The ~~performance~~Company ~~under~~amended ~~generally~~its ~~accepted~~first ~~accounting~~quarter ~~principles~~2002 ~~and~~filing ~~should~~on ~~not~~Form 10-Q beto reflect the ~~considered~~impairment ancharge ~~alternative~~which ~~either~~had tono ~~net~~effect ~~income~~on ascash anflow. ~~indicator~~The ofappraisal conducted for the ~~Company’s operating~~impairment ~~performance~~test oralso asindicated anmarket ~~indicator~~values offor the Company’s ~~liquidity. EBITDA~~ ~~for~~tradename ~~the~~at ~~second~~levels ~~quarter~~significantly ofhigher ~~2002~~than ~~increased~~historical bybook ~~12.2% to $5.5 million~~value, orbut ~~10.6% of~~the ~~net~~relevant ~~sales,~~accounting ~~compared~~standards todo ~~$4.9 million,~~not orallow ~~10.0%~~the value of ~~net~~this ~~sales,~~intangible ~~for~~asset to ~~the~~be ~~same~~written ~~period of 2001~~up.

~~TWENTY-FOUR~~The ~~WEEKS~~trademark ~~ENDED~~intangible ~~JUNE~~asset 15was purchased on May 13, ~~2002~~1993 and was being ~~COMPARED~~amortized TOon ~~THE~~a ~~TWENTY~~straight-~~FOUR~~line ~~WEEKS~~basis ~~ENDED~~over ~~JUNE~~40 years 16(the maximum permitted by APB Opinion No. 17, Intangible Assets). Upon initial application of SFAS No. 142, the Company reassessed the useful lives of its intangible assets and determined that the trademark has an indefinite useful life because it is expected to generate cash flow over an indefinite period into the future. Thus, the Company ceased amortizing the trademark on December 30, 2001.

~~Net~~The ~~sales~~Company ~~for~~assesses ~~the~~goodwill ~~twenty~~and indefinite-~~four~~lived ~~weeks~~intangibles ~~ended~~for ~~June 15,~~impairment annually ~~2002~~unless ~~were~~events ~~$101.0 million,~~occur ~~an increase~~that ofrequire ~~6.7%,~~more orfrequent $6reviews.~~3 million~~ ~~compared~~Long-lived assets, toincluding ~~the~~amortizable ~~corresponding~~intangibles, ~~period~~are intested ~~2001. The~~for ~~sales~~impairment ~~figures~~if impairment ~~for~~triggers ~~the~~occur. ~~twenty-four~~Discounted ~~week~~cash ~~periods~~flow ~~have~~analyses ~~been~~are ~~reduced~~used asto aassess ~~result~~nonamortizable ofintangible aimpairment ~~reclassification~~while ofundiscounted ~~certain~~cash ~~promotional~~flow ~~expenses~~analyses ~~from selling and~~are ~~administrative~~used ~~expenses~~to inassess ~~accordance~~long-lived ~~with~~asset ~~the~~impairment. ~~FASB~~If ~~EITF~~an ~~consensus~~assessment ~~Issue 00-14~~indicates ~~which~~impairment, the ~~Company~~impaired ~~adopted~~asset ~~during~~is ~~the~~written ~~first~~down ~~quarter~~to ofits ~~2002.~~fair ~~The~~market ~~reclassified~~value based ~~amounts~~on ~~for~~ the ~~first~~best ~~twenty-four~~information ~~weeks~~available. ofEstimated ~~2002~~fair ~~and~~market ~~2001~~value ~~were~~is ~~$4.2 million~~generally measured ~~and~~with ~~$4.1 million,~~discounted ~~respectively~~estimated future cash flows.

~~Gross~~The ~~profit~~useful ~~dollars~~lives ~~for~~of ~~the~~amortizable ~~first~~intangible ~~twenty-four~~assets ~~weeks~~are ofevaluated ~~2002~~periodically, and ~~increased~~subsequent ~~$2.3 million~~to impairment reviews, to ~~$37~~determine whether revision is warranted.~~3 million~~ ~~compared~~If cash flows related to ~~$35.0 million~~a ~~for~~nonamortizable intangible are not expected to continue beyond the ~~same~~foreseeable ~~period~~future, ina ~~2001~~useful life would be assigned.

For the first twenty-four weeks of 2002 selling and administrative expenses were $32.4 million, an increase of $1.2 million or 3.8%, from $31.2 million for the first twenty-four weeks of 2001. As a percent of net sales, selling and administrative expenses decreased to 32.1% for the first half of 2002 from 33.0% for 2001.

Amortization expense decreased by $476,000 to $319,000 for the first half of 2002 compared to 2001 due to the cessation of amortization of goodwill. This is discussed more fully below under new accounting pronouncements. Other income was $200,000 for the first twenty-four weeks of 2002 compared to $341,000 for the corresponding period in 2001.

In the first twenty-four weeks of 2001, the Company incurred a one-time non-recurring charge of $579,000 related to a planned staff reorganization. No such expense was incurred in 2002.

Interest expense, net of interest income, decreased to $3.3 million in the first twenty-four weeks of 2002 from $3.9 million in the same period of 2001, a decrease of $600,000 due primarily to the early retirement of the Company’s outstanding industrial development revenue bonds in the

~~second~~Summary ~~half~~ of ~~2001 and~~ the ~~fact~~changes ~~that~~to ~~interest~~goodwill ~~expense~~for ~~is no longer recorded on~~ the ~~exchangeable portion~~thirty-six ofweeks ~~the~~ended ~~Company’s~~September 7, ~~Preferred~~2002 Ais ~~stock.~~presented ~~All increases in the liquidation~~below: ~~preference on the Company’s Preferred A stock are now recorded as dividends and~~ ~~are reflected solely within the equity section of the balance sheet.~~

The provision for income taxes was $68,000 in 2002 compared to $71,000 for 2001. The Company estimates that it will have no material Federal tax obligations for the fiscal year due to loss carryforwards from the prior years.


				Accumulated			Carrying
	Goodwill			Amortization			Value

Balance at December 29, 2001	$	26,490		$	(5,646	)	$	20,844
ADD: Reclassification of Assembled Staff		3,839			(1,791	)		2,048
ADD: Goodwill acquired		574			—			574
LESS: Goodwill Impairment and related costs		(30,371	)		7,437			(22,934	)

Balance at September 7, 2002	$	532		$	—		$	532

AsOther aintangible ~~result~~assets ofare ~~the~~subject ~~favorable~~to ~~variances~~amortization ~~discussed~~with ~~above,~~useful ~~the~~lives ~~net~~ranging ~~income~~up ~~before~~to 35 years. Intangible ~~cumulative~~assets ~~effect~~with ofindefinite ~~accounting~~lives ~~change~~are ~~for~~not amortized. The Company has reviewed the ~~twenty-four~~carrying ~~weeks~~value ~~ended~~of ~~June 15,~~these ~~2002~~assets ~~increased~~under bythe ~~$2.7 million~~guidance toof $1SFAS No.5 ~~million~~144 ofand ~~net~~determined ~~income~~there ~~compared~~was no impairment related to ~~the~~these balances. ~~net~~The ~~loss~~balances of ~~$1.2 million~~these ~~for~~intangible ~~the~~assets ~~same~~are ~~period~~summarized ~~of 2001.~~below:

The Company adopted FASB Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” during the first quarter of 2002. SFAS No. 142 required the Company to conduct an impairment review of the carrying value of its goodwill. This review was recently completed, obliging the Company to amend its original first quarter 2002 Form 10-Q filing to record an impairment of the carrying value of its goodwill based upon an independent appraisal. The Company has recorded this non-cash goodwill impairment charge of $22.9 million as a cumulative effect of accounting change on its Statements of Operations with a corresponding reduction in goodwill, a long term asset on its Balance Sheet. The accounting change has no effect on cash flow. The appraisal also indicated market values for certain intangibles at levels significantly higher than their book values, but unfortunately, the relevant accounting standards do not allow the value of these intangibles to be written-up.


				Accumulated			Carrying
Balance at December 29, 2001		Total		Amortization			Value

Nonamortizable:
	Trademark	$	4,803	$	(1,121	)	$	3,682
	Assembled Staff		3,839		(1,791	)		2,048
	Goodwill		26,490		(5,646	)		20,844

			35,132		(8,558	)		26,574
Amortizable:
	Distribution System		22,432		(5,982	)		16,450

		$	57,564	$	(14,540	)	$	43,024

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) represents the sum of income (loss) before income taxes plus interest expense, depreciation and amortization. EBITDA is a widely accepted measure of a Company’s ability to incur and service debt, to undertake capital expenditures, and to meet working capital requirements. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative either to net income as an indicator of the Company’s operating performance or as an indicator of the Company’s liquidity. EBITDA year-to-date through the second quarter of 2002 increased by 16.2% to $9.2 million, or 9.1% of net sales, compared to $7.9 million, or 8.4% of net sales, for the same period of 2001.


				Accumulated			Carrying
Balance at September 7, 2002		Total		Amortization			Value

Nonamortizable:
	Trademark	$	4,803	$	(1,121	)	$	3,682
	Goodwill acquired, net of impairment		532		—			532

			5,335		(1,121	)		4,214
Amortizable:
	Distribution System		22,432		(6,460	)		15,972
	Distribution System, intangible asset acquired		313		—			313

			22,745		(6,460	)		16,285

		$	28,080	$	(7,581	)	$	20,499

~~FINANCIAL~~For ~~CONDITION~~the thirty-six weeks ended September 7, 2002, amortization expense related to the amortizable intangible assets was approximately $478,000. Estimated amortization for the remainder of 2002 and the next four fiscal years is as follows:

Liquidity and Capital Resources


2002	$	213,000
2003		691,000
2004		691,000
2005		691,000
2006		691,000

The ~~Company’s~~following ~~cash~~tables ~~flow~~reconcile ~~requirements~~the ~~are~~impact ~~for~~of ~~working~~adopting ~~capital,~~SFAS ~~capital expenditures and debt service~~No. 142 ~~The~~for ~~Company~~the ~~has~~twelve ~~met~~and ~~its~~thirty-six ~~liquidity~~weeks ~~needs through~~ended ~~internally~~September 7, ~~generated~~2002 ~~funds~~ and aSeptember 8, ~~revolving line of credit established in~~2001: ~~January 2000 which matures in January 2004.~~

As of June 15, 2002, the Company had an outstanding revolving loan balance of $8.3 million, had letters of credit outstanding of $2.8 million and $4.4 million of borrowing availability thereunder. The Company’s working capital position of $4.4 million as of June 15, 2002 was a decrease of $9.9 million compared to the working capital position of $14.3 million as of June 16, 2001. The change is due primarily to the outstanding revolving loan balance of $8.3 million in 2002 versus an outstanding balance of $201,000 at the end of the same period in 2001.


	Twelve Weeks Ended

	Sept. 7, 2002		Sept. 8, 2001

Net (loss) income	$	142	$	(147	)
Add back goodwill amortization		—		208
Add back trademark amortization		—		30

Adjusted net income	$	142	$	61


	Thirty Six Weeks Ended

	Sept. 7, 2002			Sept. 8, 2001

Net loss	$	(21,341	)	$	(1,362	)
Add back cumulative effect of change in accounting principle		(22,934	)		—

		1,593			(1,362	)
Add back goodwill amortization		—			625
Add back trademark amortization		—			90

Adjusted net (loss) income	$	1,593		$	(737	)

~~Net~~In ~~cash~~August ~~used~~2001, inthe ~~operating~~FASB ~~activities~~issued ~~was~~SFAS ~~$975~~No. 144,~~000~~ “Accounting for the ~~twenty~~Impairment or Disposal of Long-~~four~~Lived ~~week~~Assets”. SFAS No. 144 addresses financial accounting ~~period~~and ~~ended~~reporting ~~June~~for the impairment or disposal of long-lived assets. The Company was required to adopt SFAS No. 15144 on December 30, ~~2002~~2001. ~~versus~~The $2adoption of SFAS No.3 ~~million~~144 ~~used~~did ~~during~~not have a material effect on the ~~same~~Company’s ~~period~~results inof operations ~~2001~~or financial position.

~~Net~~In ~~cash~~June ~~used~~2002, inthe ~~investing~~FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities", which addresses financial accounting and reporting for costs associated with exit or disposal activities ~~increased~~and supersedes Emerging Issues Task Force (“EITF”) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to $6Exit an Activity (including Certain Costs Incurred in a Restructuring)”.6 SFAS No. ~~million~~146 inrequires that a liability for a cost associated with an exit or disposal activity be recognized when the ~~first~~liability is incurred. A liability for an exit cost as ~~twenty~~defined in EITF 94-~~four~~3 ~~weeks~~is recognized at the date of ~~2002~~an ~~from~~entity’s $1commitment to an exit plan.~~8 million~~ inSFAS ~~2001~~No. 146 ~~due~~also toestablishes that the ~~early~~liability ~~timing~~should ofinitially ~~certain~~be ~~capital~~measured ~~projects~~and ~~versus~~recorded ~~the~~at ~~prior~~fair ~~year~~value. ~~Capital~~The ~~expenditures~~Company ~~were~~will ~~made~~adopt the provisions ~~primarily~~of SFAS No. 146 for ~~plant~~exit ~~and~~or ~~facility~~disposal ~~improvements,~~activities ~~distributor~~that ~~acquisitions,~~are ~~and~~initiated after ~~information~~December 28, ~~technology investments~~2002.

~~Net~~During ~~cash~~2000, ~~provided~~FASB’s byEITF ~~financing~~added ~~activities~~to ~~was~~its $5agenda various issues that impact the income statement classification of certain sales and marketing promotional payments.~~7 million~~ ~~for~~In May 2000, the ~~first~~EITF reached a consensus on Issue 00-14, “Accounting ~~twenty~~for Certain Sales Incentives.” Issue 00-~~four~~14 ~~weeks~~addresses the recognition and income statement classification of ~~2002~~various ~~compared~~sales toincentives. ~~$94~~Among its requirements,~~000~~ the inconsensus requires costs related to customer price reductions at the ~~same~~point of ~~period~~sale and other product promotions currently classified as marketing costs to be classified as a reduction of revenue. In April 2001, the EITF delayed the effective date for this consensus until 2002. The impact of adopting this ~~Revolver~~consensus ~~borrowings~~for ~~were~~the thirty-six weeks ended September 7, 2002, and September 8, 2001 reduced selling and administrative expenses and net sales by approximately $56.2 million and $6.3 million, inrespectively. ~~2002~~There ~~compared~~was no impact on earnings or cash flow from the adoption of Issue 00-14. In April 2001, the EITF reached a consensus on Issue 00-25, “Vendor Income Statement Characterization of Consideration Paid to ~~$201~~a Reseller of the Vendor’s Products.” Issue 00-25 addresses the income statement classification of consideration,~~000~~ other than that directly addressed in Issue 00-14, from a vendor to a reseller or another party that purchases the ~~same~~vendor’s products. This consensus is effective for 2002 and ~~period~~is ofnot ~~2001~~expected to have a material impact on the Company’s financial statements.

~~New~~ITEM ~~Accounting~~2. ~~Pronouncements~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AsResults discussed earlier, in June 2001, FASB issued SFAS No. 141, “Business Combinations,” effective July 1, 2001 and SFAS No. 142, “Goodwill and Other Intangible Assets,” effective for the Company for its fiscal year beginning on December 30, 2001. SFAS No. 141 prohibits pooling of ~~interests accounting for~~Operations ~~acquisitions initiated after June 30, 2001 and broadens the criteria for~~ recording intangible assets separate from goodwill. SFAS No. 142 requires the Company to cease amortizing goodwill that existed at June 30, 2001 for all periods after December 29, 2001 and any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment. The provisions of SFAS No. 142 were adopted by the Company for its fiscal year beginning on December 30, 2001. Early adoption of SFAS No. 142 was not permitted nor was retroactive application to prior period financial statements. The adoption of these accounting standards resulted in certain of the Company’s intangible assets being subsumed into goodwill. The Company recently completed its goodwill impairment testing, indicating a non-cash goodwill impairment loss of $22.9 million. Accordingly, the Company has now amended its Form 10-Q filing for the first quarter of 2002 to record the goodwill impairment charge. Also, as a result of the adoption of SFAS No. 142 on December 30, 2001, goodwill and certain intangible assets will no longer be amortized and accordingly, the Company’s net income before the cumulative effect of accounting change has increased in fiscal 2002 as a result. The Company recorded $476,000 of amortization expense in the first twenty-four weeks of 2001 that was not recorded in the first twenty-four weeks of 2002 as a result of adopting SFAS No. 142.

InTWELVE ~~August~~WEEKS ~~2001,~~ENDED ~~the~~SEPTEMBER ~~FASB issued SFAS No. 144~~7, ~~“Accounting for the Impairment or~~2002 ~~Disposal~~COMPARED ofTO ~~Long-Lived~~TWELVE ~~Assets”.~~WEEKS ~~SFAS~~ENDED ~~No. 144~~SEPTEMBER ~~is effective for fiscal years beginning after December 15~~8, 2001~~, and interim periods within those fiscal~~ ~~years, and should be applied prospectively. SFAS No. 144 addresses financial~~ accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and requires that discontinued operations be measured at the lower of the carrying amount or fair value less cost to sell. The Company has evaluated this statement and does not believe that its adoption has a material impact on the results of its operations or financial position.

AsNet ~~discussed~~sales infor ~~earlier~~the ~~filings,~~third ~~during~~quarter ~~2000~~ended September 7, ~~FASB’s~~2002 ~~EITF~~were ~~added~~$47.3 million, ~~to its~~a ~~agenda~~decrease ~~various~~of ~~issues~~1.5%, ~~that~~or ~~impact~~$722,000 compared to the ~~income~~corresponding ~~statement~~period ~~classification~~in of2001 as a ~~certain~~result ~~sales~~of weakness in general economic conditions and ~~marketing~~aggressive promotional activity ~~payments~~by at least one competitor. InThe ~~May~~sales ~~2000,~~figures ~~the~~for ~~EITF~~each quarter have ~~reached~~been areduced ~~consensus~~as ona ~~Issue~~result ~~00-14,~~of ~~“Accounting~~a ~~for~~reclassification ~~Certain~~of ~~Sales~~certain ~~Incentives.”~~promotional expenses ~~Issue~~from ~~00-14~~selling ~~addresses~~and ~~the~~administrative ~~recognition~~expenses ~~and~~in ~~income~~accordance ~~statement~~with ~~classification~~the ofFASB EITF ~~various~~consensus ~~sales~~Issue ~~incentives.~~00-14 ~~Among~~which ~~its~~the ~~requirements,~~Company adopted during the ~~consensus~~first ~~requires~~quarter ~~costs~~of ~~related~~2002. toThe ~~customer~~reclassified ~~price~~amounts ~~reductions~~for at the ~~point~~third quarter of ~~sale~~2002 and ~~other~~2001 ~~product~~were ~~promotions~~$2.0 million ~~currently~~and ~~classified~~$2.2 million, asrespectively.

~~marketing~~Gross ~~costs~~profit decreased to ~~be classified as a reduction of revenue~~$16.8 million Inin ~~April 2001,~~ the ~~EITF~~third ~~delayed~~quarter ~~the effective date for this consensus until 2002. The impact~~ of ~~adopting this consensus for the quarters ended June 15,~~ 2002, ~~and~~from ~~June 16, 2001 reduced selling and administrative expenses and net sales by approximately~~ $417.~~2 million and $4.1~~5 million, ~~respectively.~~in ~~In April 2001,~~ the ~~EITF reached a consensus on Issue~~third ~~00-25,~~quarter ~~“Vendor Income Statement Characterization~~ of ~~Consideration~~2001, ~~Paid to~~ a ~~Reseller~~ ofdecrease ~~the Vendor’s Products.” Issue 00-25 addresses the income statement classification~~ of ~~consideration~~$700,000 ~~other~~or ~~than~~4.1% ~~that~~due ~~directly addressed in Issue 00-14, from a vendor~~ to ~~a reseller or another party that purchases~~ the ~~vendor’s~~sales decrease ~~products.~~already ~~This~~noted ~~consensus~~above ~~is effective for 2002~~ and ~~is not expected to have~~ a ~~material~~ ~~impact~~shift onin ~~the~~channel ~~Company’s~~sales ~~financial statements~~mix.

For the third quarter 2002, selling and administrative expenses were $14.9 million compared to $15.3 million for 2001. The decrease in selling and administrative expenses was due primarily to a credit adjustment to expense from accrued long-term pension cost as the Company adjusted its long-term pension liability balances to meet actuarial estimates, consistent with past practice.

Amortization expenses decreased by $240,000 to $159,000 for the third quarter of 2002 compared to 2001 due to the cessation of the amortization of goodwill, discussed more fully above under new accounting pronouncements. Other income was $69,000 for the third quarter of 2002 compared to $90,000 for the corresponding period in 2001.

Interest expense, net of interest income, decreased to $1.7 million in the third quarter of 2002 from $2.0 million in the third quarter of 2001, a decrease of $300,000 due primarily to the early retirement of the Company’s outstanding industrial development revenue bonds in the second half of 2001 and the fact that there is no longer interest expense recorded on the exchangeable portion of the Company’s Preferred A stock. All increases in the liquidation preference on the Company’s Preferred A stock are now recorded as dividends and are reflected solely within the equity section of the balance sheet.

The provision for income taxes was $35,000 in both 2002 and 2001. The Company estimates that it will have no Federal tax obligation for the fiscal year due to loss carryforwards from the prior years.

As a result of the factors discussed above, net income for the twelve week period ended September 7, 2002 increased by $289,000 to $142,000 compared to a net loss of $147,000 for the same period in 2001.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) represents the sum of income (loss) before income taxes plus interest expense, depreciation and amortization. EBITDA is a widely accepted measure of a Company’s ability to incur and service debt, to undertake capital expenditures, and to meet working capital requirements. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative either to net income as an indicator of the Company’s operating performance or as an indicator of the Company’s liquidity. Additionally, the Company’s calculation of EBITDA may differ from the calculation of EBITDA used by other companies. Consistent with the preceding discussion, EBITDA for the third quarter of 2002 was $4.1 million, or 8.7% of net sales, compared to $4.2 million, or 8.9% of net sales, for the same period of 2001.

THIRTY-SIX WEEKS ENDED SEPTEMBER 7, 2002
COMPARED TO THE THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 2001

Net sales for the thirty-six weeks ended September 7, 2002 were $148.3 million, an increase of 3.9%, or $5.6 million compared to the corresponding period in 2001 in spite of weakness in general economic condition and aggressive promotional activity by at least one industry competitor, as noted in the quarterly discussion. The sales figures for both thirty-six week periods have been reduced as a result of the reclassification of certain promotional expenses from selling and administrative expenses in accordance with the FASB EITF consensus Issue 00-14 which the Company adopted during the first quarter of 2002. The reclassified amounts for the first thirty-six weeks of 2002 and 2001 were $6.2 million and $6.3 million, respectively.

Gross profit dollars for the first thirty-six weeks of 2002 increased by $1.6 million, or 3.1%, to $54.2 million compared to $52.6 million for the same period in 2001 due primarily to the above noted increases in sales volume.

For the first thirty-six weeks of 2002, selling and administrative expenses were $47.3 million, an increase of $724,000 or 1.6%, from the $46.5 million for the first thirty-six weeks of 2001, largely due to the expenses associated with operating an increased number of Company owned routes. As a percentage of net sales, selling and administrative expenses decreased to 31.8% for the first thirty-six weeks of 2002 from 32.6% for 2001. During 2002, the Company discontinued its postretirement medical benefit plan designed to bridge certain employees whom had taken an early retirement to Medicare eligibility. The accrued postretirement long-term liability, which had been previously expensed against operating income and had a balance of $1.7 million at December 29, 2001, was reversed with a corresponding credit to selling and administrative expense which was partially offset by the noted increase in Company owned route related costs and higher estimated expenses associated with the Company’s insurance and employee welfare programs.

Amortization expenses decreased by $716,000 to $478,000 for the first thirty-six weeks of 2002 compared to 2001 due to the cessation of the amortization of goodwill, discussed more fully above under new accounting pronouncements. Other income was $269,000 for the first thirty-six weeks of 2002 compared to $431,000 for the corresponding period in 2001.

In the first thirty-six weeks of 2001, the Company incurred a one-time nonrecurring charge of $579,000 related to a planned staff reorganization. No such expense was incurred in 2002.

Interest expense, net of interest income, decreased to $5.0 million in the first thirty-six weeks of 2002 from $5.9 million in same period of 2001, a decrease of $900,000 due primarily to the early retirement of the Company’s outstanding industrial development revenue bonds in the second half of 2001 and the fact that there is no longer interest expense recorded on the exchangeable portion of the Company’s Preferred A stock. All increases in the liquidation preference on the Company’s Preferred A stock are now recorded as dividends and are reflected solely within the equity section of the balance sheet.

The provision for income taxes was $103,000 in 2002 compared to $106,000 for 2001. The Company estimates that it will have no Federal tax obligation for the fiscal year due to loss carryforwards from the prior years.

As a result of the variances discussed above, net income before cumulative effect of accounting change for the thirty-six weeks ended September 7, 2002 increased by $3.0 million to $1.6 million compared to a net loss of $1.4 million for the same period of 2001.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) represents the sum of income (loss) before income taxes plus interest expense, depreciation and amortization. EBITDA is a widely accepted measure of a Company’s ability to incur and service debt, to undertake capital expenditures, and to meet working capital requirements. EBITDA is not a measure of financial performance under generally accepting accounting principles and should not be considered an alternative either to net income as an indicator of the Company’s operating performance or as an indicator of the Company’s liquidity. Additionally, the Company’s calculation of EBITDA may differ from the calculation of EBITDA used by other companies. Consistent with the preceding discussion, EBITDA year-to-date through the third quarter of 2002 increased by 9.6% to $13.3 million, or 9.0% of net sales, compared to $12.2 million, or 8.5% of net sales, for the same period of 2001.

FINANCIAL CONDITION

Liquidity and Capital Resources

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

As of September 7, 2002, the Company had an outstanding revolving loan balance of $7.0 million, had letters of credit outstanding of $2.8 million and $3.7 million of borrowing availability thereunder. The revolving loan balance has increased $3.9 million since December 29, 2001 in line with the sales increase of $5.6 million year-to-date and the related increases in receivables and inventory of $3.4 million and $1.0 million, respectively. The Company’s working capital position of $5.4 million as of September 7, 2002 decreased by $1.0 million from the working capital position of $6.4 million as of December 29, 2001. The decrease is primarily due to the seasonal increase in revolver borrowing offset slightly by increases in receivables and inventory.

Net cash provided by year-to-date operating activities was $1.8 million for the thirty-six week period ended September 7, 2002 versus $1.6 million provided by operating activities during the same period in 2001.

Net cash used in investing activities increased to $7.9 million for the first thirty-six weeks of 2002 from $3.5 million in 2001 due to the early timing of certain capital projects versus the prior year. Year-to-date capital expenditures have been made primarily for plant and facility improvements, distributor acquisitions, and information technology investments.

Net cash provided by financing activities was $4.3 million for the first thirty-six weeks of 2002 compared to the net cash used in financing activities of $2.0 million in the same period of 2001. Net revolver borrowings were $3.9 million compared to $3.0 million for the same period of 2001.

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 7, 2002 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 still more than two years 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 90 days prior to the filing date of 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 that could significantly affect these controls subsequent to the date of the foregoing evaluation.

Part II. OTHER INFORMATION

~~Item 6~~ITEM 5. ~~Exhibits~~ ~~and~~OTHER ~~Reports on Form 8-K.~~INFORMATION

(On October 18, 2002, the Company announced that S. Albert Gaston, Sr. Vice President and Chief Financial Officer would be leaving the Company effective October 25, 2002 to accept a) ~~Exhibits~~career-enhancing position at another company. Mr. Gaston’s contributions to Tom’s have been substantive and this move in no way reflects anything negative in regard to the Company. The Company wishes Mr. Gaston well and he will be missed. The Company is confident that Mr. Gaston’s departure will not adversely affect the continuity of its financial management and controls. A replacement search has been initiated.

~~None~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(b) Reports on Form 8-K.

	(a)		Exhibits.

			None.

	(b)		Reports on Form 8-K.

~~There were no reports on Form 8-K filed by the Registrant during the quarter ended June 15, 2002.~~14

Form 8-K was filed by the Registrant on August 12, 2002 announcing the Board of Director’s decision to select Deloitte & Touche LLC as the Company’s independent auditor to replace the Company’s previous auditor, Arthur Andersen.

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)

~~Rolland~~Date: ~~G. Divin President~~October 22, ~~Chief Executive Officer,~~2002 ~~and Director (Principal Executive Officer)~~

Date: July 30, 2002

By /s/ S. Albert Gaston

S. Albert Gaston
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

S.Date: October 22, ~~Albert Gaston~~2002 ~~Senior Vice President and Chief Financial Officer~~ ~~(Principal Financial and Accounting Officer)~~

~~Date: July 30, 2002~~15

12 Table of Contents

I, Rolland G. Divin, certify that:

1)		I have reviewed this quarterly report on Form 10-Q of Tom’s Foods Inc.;

2)		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3)		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4)		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: October 22, 2002

/s/ Rolland G. Divin

Rolland G. Divin
President, Chief Executive Officer,
and Director (Principal Executive Officer)

I, S. Albert Gaston, certify that:

1)		I have reviewed this quarterly report on Form 10-K of Tom’s Foods Inc.;

2)		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3)		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4)		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: October 22, 2002

/s/ S. Albert Gaston

S. Albert Gaston
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

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