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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended June 28, 2003



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission file numbers 333-50305 and 333-50305-01



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Eagle Family Foods Holdings, Inc.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 13-3983598                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



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Eagle Family Foods, Inc.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 13-3982757                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|735 Taylor Road, Suite 200 Gahanna, OH                         |  | 43230                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code: (614) 501-4200



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Securities registered pursuant to Section 12(b) of the Act:



|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|N/A                 |  | N/A                                      



Securities
registered pursuant to Section 12(g) of the Act: None



|Title of class
|--------------
|N/A           



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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    No ̈



Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.x



Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the
Act).    Yes ̈Nox



State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recent completed
second fiscal year. None.



As of September 22, 2003, there
were 1,002,282 shares of common stock, par value $.01 per share, of Eagle Family Foods Holdings, Inc. (Common Stock) and 10,000 shares of common stock, par value $.01 per share, of Eagle Family Foods, Inc. outstanding, respectively.



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TABLE OF CONTENTS



|         |  |          |  |                                                                                                |  | Page
|-------- |  | -------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I   |  |          |  |                                                                                               
|         |  | Item 1.  |  | Business                                                                                       |  | 2   
|         |  | Item 2.  |  | Properties                                                                                     |  | 9   
|         |  | Item 3.  |  | Legal Proceedings                                                                              |  | 9   
|         |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  | 9   
|         |  |         
|PART II  |  |          |  |                                                                                               
|         |  | Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 10  
|         |  | Item 6.  |  | Selected Financial Data                                                                        |  | 11  
|         |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 12  
|         |  | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 21  
|         |  | Item 8.  |  | Financial Statements and Supplementary Data                                                    |  | 22  
|         |  | Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 22  
|         |  | Item 9A. |  | Controls and Procedures                                                                        |  | 22  
|         |  |         
|PART III |  |          |  |                                                                                               
|         |  | Item 10. |  | Directors and Executive Officers of the Registrants                                            |  | 24  
|         |  | Item 11. |  | Executive Compensation                                                                         |  | 26  
|         |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 28  
|         |  | Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 30  
|         |  | Item 14. |  | Principal Accountant Fees and Services                                                         |  | 31  
|         |  |         
|PART IV  |  |          |  |                                                                                               
|         |  | Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  | 32  



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PART I



Item 1:Business



Eagle Family Foods Holdings, Inc. (Holdings) and its wholly-owned subsidiary, Eagle Family Foods, Inc. (Eagle) is a manufacturer and marketer of a portfolio of leading dry-grocery food products with widely recognized
and established brands, including Eagle Brandsweetened condensed milk and Cremorapowdered non-dairy creamer. Eagle and Holdings are collectively referred to as the Company, unless the context indicates otherwise. Eagle
and Holdings were incorporated in Delaware in 1997.



Cautionary Statement
Regarding Forward-Looking Statements



This Annual Report
on Form 10-K may contain forward-looking statements which include assumptions about future market conditions, operations and financial results. These statements are based on current expectations and are subject to risks and uncertainties. They are
made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Companys actual results, performance or achievements in the future could differ significantly from the results, performance or achievements
discussed or implied in such forward-looking statements herein and in prior Securities and Exchange Commission filings by the Company. The Company assumes no obligation to update these forward-looking statements or to advise of changes in the
assumption on which they were based.



Factors that could cause
or contribute to such differences include, but are not limited to, the success of new product introductions and promotions, changes in the competitive environment of the Companys products, general economic and business conditions, industry
trends, raw material costs, dependence on the Companys labor force, and changes in, or the failure or inability to comply with, government rules and regulations, including, without limitation, Food and Drug Administration and environmental
rules and regulations. Statements concerning interest rates and other financial instrument fair values and their estimated contribution to the Companys future results of operations are based upon market information as of a specific date. This
market information is often a function of significant judgment and estimation. Further, market interest rates and commodity prices are subject to significant volatility.



Significant Events in Fiscal Year 2003



Effective December 30, 2002, the Company closed its powdered non-dairy creamer manufacturing plant in Chester, South Carolina (Non-Dairy Creamer
Plant Closure). Production is now sourced from a third party manufacturer under a long-term co-pack agreement entered into on October 1, 2002. The third party manufacturer has significantly larger powdered non-dairy creamer plants than the
Company had, and has agreed to produce the Companys powdered non-dairy creamer requirements at a lower cost than the Companys cost of production. During the year ended June 28, 2003 (fiscal year 2003), the Company sold the
Chester, South Carolina property, plant and equipment (the South Carolina Property) for $0.5 million.



In connection with the Non-Dairy Creamer Plant Closure, the Company recorded a charge of $1.2 million in fiscal year 2003, and included the expense within
the classification of Gain (loss) on sale of product lines, net of reorganization charges and other charges on the Consolidated Statements of Operations and Comprehensive Income (Loss). The closure charges included $1.3 million for
termination pay and benefits for the 79 displaced employees, $0.4 million for other plant closure costs and contractual expenditures, offset by the $0.5 million gain on the sale of the South Carolina Property. As of June 28, 2003, the remaining cash
requirements of the Non-Dairy Creamer Plant Closure are expected to total $0.3 million and are expected to be paid by December 2003.



Products and Markets



The Company markets and distributes its products through the retail grocery channel, including mass-merchant retailers and club stores, foodservice, the
U.S. military, and private label businesses. The Companys U.S. food business is complemented by a presence in Canada and other foreign countries that represented 7.5%, 7.8% and 7.8% of the Companys total net sales for fiscal year 2003,
and its fifty-two week periods ended June 29, 2002 (fiscal year 2002) and June 30, 2001 (fiscal year 2001), respectively. The Company utilizes a national retail



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grocery brokerage company with 47 brokerage houses and 13 independent food brokers to sell its products in the U.S. Non-grocery channels and international
markets are serviced through brokers, distributors, or directly, depending on the size and needs of the customers.



The Companys marketing programs consist of various combinations of media advertising, consumer promotions, and trade promotion. Certain products are
also promoted with direct consumer rebate programs. The Companys customers may also be offered pre-season stocking and in-store promotional allowances. Since many of the Companys brands are purchased primarily as ingredients for recipes,
the Company frequently promotes recipes that incorporate its brands. Recipe dissemination is a primary focus during the holiday season for our seasonal brands, None Such mincemeat pie filling, Borden eggnog, and Eagle Brandsweetened condensed milk. The following Company-sponsored Internet sites promote the recipes containing the Companys products:



|       www.eaglebrand.com;       |  |        www.eaglenonesuch.com;
|--------------------------------- |  | ------------------------------
|       www.bordeneggnog.com; and |  |        www.cremora.com.      



The Company
manufactured and marketed ReaLemon lemon juice from concentrate and ReaLime lime juice from concentrate (collectively, the ReaLemon business) until the sale of the ReaLemon business to Motts Inc. in
September 2001. The net sales percentages provided below exclude the results from the ReaLemonbusiness product lines for the periods provided.



Sweetened condensed milk. The Company manufactures and marketsEagle Brand and additional sweetened condensed milk products in the U.S. In
Canada, the Company markets Eagle Brand and additional sweetened condensed milk products. In addition to classic Eagle Brand sweetened condensed milk, the Companys other branded sweetened condensed milk products includeEagle
Brand low fat and fat free products, Meadow Gold, and Starand MagnoliaHispanic brands. The Companys Eagle Brand products carry theBorden andElsie trademarks. The Company also manufactures
sweetened condensed milk under several labels for a customer who distributes and markets these products to certain ethnic markets. In fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively, the Companys sweetened condensed milk
products accounted for 74%, 71% and 69% of the Companys net sales.



Retail channels, including grocery and mass-merchant retailers, are the primary outlet for the Companys sweetened condensed milk products and accounted for approximately 80%, 81% and 80% of the Companys
sweetened condensed milk net sales for fiscal year 2003, fiscal year 2002 and fiscal year 2001, respectively. The balance of the Companys sweetened condensed milk net sales is made through other channels, including foodservice customers,
industrial customers, and international markets.



Powdered
non-dairy creamers. The Company markets powdered non-dairy creamer under the Cremoraand Cremora Royalebrand names. In fiscal year 2003, fiscal year 2002 and fiscal year 2001, the Companys powdered non-dairy creamer
products accounted for 18%, 21% and 22% of the Companys net sales, respectively.



Branded Cremora and Cremora Royale are sold primarily through retail channels and accounted for 67%, 62%, and 73% of the Companys fiscal year 2003, fiscal year 2002, and fiscal year 2001 powdered
non-dairy creamer net sales, respectively. Private label net sales accounted for 13%, 16% and 10% of the Companys powdered non-dairy creamer net sales for fiscal year 2003, fiscal year 2002 and fiscal year 2001, respectively, with the balance
primarily attributable to international and industrial customers (who use non-dairy creamer in producing other food products). As noted previously, the Companys powdered non-dairy creamer products, as of January 1, 2003, are supplied by a
third party manufacturer. Due to this decision to outsource the production of the branded powdered non-dairy creamer products, the Company will no longer focus marketing efforts on the private label and industrial non-dairy creamer channels.



Niche brand products.The Companys niche
brand products include eggnog, mincemeat pie filling and instant coffee.



Borden eggnog is manufactured by a third party through a seasonal purchase order agreement. Bordeneggnog is the only shelf-stable eggnog available in the market and competes with refrigerated eggnog.
Borden eggnog is distributed through the retail grocery channel. Eggnog is generally consumed during the November and December holiday season as a beverage or mixed with liquor as a cocktail.



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The Company manufactures and markets two flavors of None Such mincemeat pie filling: Regular and
Brandy & Rum. None Suchmincemeat is used in pies, cookies and pastries, and is consumed primarily during the November and December holiday season.None Such is distributed through the retail grocery channel.



Kavais marketed by the Company and manufactured by a third party
independent manufacturer pursuant to a co-packing agreement. Kavais a unique instant coffee, differentiated as the only coffee that is 90% acid-neutralized. Management believes that Kavas customer loyalty is
significantly higher than that of most other instant coffee brands, and is well positioned to remain high given the brands unique position as an acid-neutralized product.



Competition



The Company operates in highly competitive markets. Competition for retail sales to consumers and sales to the retailer in the retail grocery channel is
based on several factors, including brand name recognition, quality, price and customer service. Many companies with numerous brands and product offerings compete for retailers shelf-space and sales. The Company competes with a significant
number of competitors of varying sizes, including divisions or subsidiaries of larger companies. The most significant branded competition encountered by the Company is Nestlés Coffee-mate, which competes with Cremoraand
Cremora Royale. Furthermore, the Company is facing increased competition from private label brands and store brands. A number of these branded and private label competitors have broader product lines, as well as substantially greater
financial and other resources available to them compared to the Company.



Industry Overview



The U.S. food industry has
historically been relatively stable with growth driven primarily by modest population increases and new products. Over the last ten years, management believes the industry has experienced consolidation as competitors have shed non-core business
lines and made strategic acquisitions to strengthen category positions, generate economies of scale in distribution, production and raw material sourcing and create leverage relative to the retail grocery trade through better service and broader
market presence.



Grocery retailers have also utilized mergers
and acquisitions to consolidate within their industry. Growth in the mass-merchant retailer channel has outpaced growth in the retail grocery channel, and mass- merchant retailers have consequently increased their share of food sales relative to the
retail grocery and drug store channels. Furthermore, the convenience store channel has maintained a constant presence within the total grocery industry. Management believes that food companies have broadened their distribution channels to include
greater focus on mass-merchant retailers and other alternative distribution channels. Management also believes that another growth opportunity in the U.S. for branded food companies is the foodservice channel, which supplies restaurants, hospitals,
schools and other institutions.



Seasonality



The Companys net sales, operating income and cash flows are affected
by a seasonal bias toward the second quarter of the Companys fiscal year due to increased sales during the holiday season. Three of the Companys five major brands (Eagle Brand sweetened condensed milk, Borden eggnog and
None Suchmincemeat pie filling) are consumed primarily during the November and December holiday season. In recent years, approximately 48% of the Companys net sales, excluding the ReaLemonand ReaLimebrands net
sales, have occurred in the second quarter of the Companys fiscal year. Because of this seasonality, the Companys working capital needs have historically increased throughout the year, normally peaking in the August/September period,
which requires the Company to draw additional amounts on its Revolving Credit Facility (as defined below) in that period.



Raw Materials and Suppliers



The primary raw materials used in the Companys operations include milk, sugar, vegetable oil, corn syrup, and packaging materials. The Company
purchases many of its raw materials from numerous independent suppliers. Milk is purchased through one cooperative at each of its manufacturing plants. Cremoraand Cremora Royale



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powdered non-dairy creamer, Kava instant coffee, and Borden eggnog are obtained in final product form from third party manufacturers,
traditionally referred to as co-packers.



Trademarks, Copyrights and Patents



The Company owns a number of trademarks, licenses and
patents. The Companys principal trademarks includeEagle Brand,Cremora, andNone Such which the Company has registered in the United States and various foreign countries. The Company holds a perpetual, exclusive and
royalty-free license to use theBorden andElsie trademarks on certain products and their extensions. TheBorden andElsie trademarks are currently used on (1) the entire line ofEagle Brand products, including
condensed or evaporated milk, (2) shelf-stable eggnog, and (3) Cremora powdered non-dairy creamer. TheBorden trademark is also currently used onMagnolia sweetened condensed milk. The Company also holds a perpetual, exclusive
and royalty-free license to use the Borden trademark onNone Such mincemeat, Magnolia condensed or evaporated milk, and Kavaacid-neutralized coffee. In addition, as assignee from BFC, the Company holds an exclusive and
royalty-free license from Dean Foods Limited (f.k.a. Southern Foods Group, L.P.) to use theMeadow Gold trademark on sweetened condensed milk in the United States for a five year term, which is renewable automatically for subsequent five year
terms and terminable at the option of the Company upon one years notice and, under certain limited circumstances, by the licensor. Such brand names are considered to be of fundamental importance to the business of the Company due to their
brand identification and ability to maintain brand loyalty. A third party owns the Cremora trademark in Africa and the Middle East. The Company also owns various patents and copyrights associated with the business.



Employees



As of June 28, 2003, the Company employed approximately 165 people, including 93 hourly and 72 salaried employees. The
Wellsboro, Pennsylvania and Starkville, Mississippi plants are unionized plants. As of June 28, 2003, union employees represented approximately 56% of the Companys total work force. At Starkville, the Teamsters Local 984 has a contract
expiring on January 31, 2005 and at Wellsboro, the United Food and Commercial Workers Union-Local 174 has a contract expiring on February 5, 2005. Management believes that relations with the Companys employees and unions are generally good.



Business History



On January 23, 1998 (the Acquisition Closing), Eagle acquired
certain assets of Borden Foods Corporation (BFC), BFC Investments, L.P. (BFC Investments) and certain of their affiliates for an aggregate purchase price of $376.8 million (the Acquisition). The assets acquired
included, among other things: (1) four manufacturing facilities located in Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and Chester, South Carolina; (2) all machinery and equipment located at these facilities; (3) the
trademarks Eagle Brand; ReaLemon; ReaLime; Cremora; Kava; None Suchand certain other trademarks in North America and in certain foreign territories; and (4) a non-compete and non-solicitation agreement from BFC and certain of its affiliates.



Financing for the Acquisition and related fees and expenses
consisted of (1) $82.5 million of equity contribution from Holdings (which was financed by Holdings issuance of preferred and common stock in that amount to GE Investment Private Placement Partners II, a Limited Partnership (GEI)
and Warburg, Pincus Ventures, L.P. (Warburg and together with GEI, the Equity Sponsors), and certain members of the Companys management, (the Management Investors), who contributed approximately $1.7 million
of such amount (the Equity Contribution); (2) the issuance of $115.0 million of 8.75% senior subordinated notes due 2008 (the Notes); and (3) senior secured credit facilities (the Senior Credit Facilities) in an
aggregate principal amount of $245.0 million, consisting of a $175.0 million term loan facility (the Term Loan Facility) and a $70.0 million revolving credit facility (the Revolving Credit Facility).



Since the Acquisition Closing, the Company nationally launched Cremora
Royalepowdered non-dairy creamer, the StarandMagnolia Hispanic brands of sweetened condensed milk and ReaLemonade lemonade liquid concentrate.



In September 1999, the Equity Sponsors contributed an aggregate of $10.0 million to Holdings in exchange for shares of a new
series of Holdings preferred stock and Holdings common stock. This contribution was made to



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finance the marketing investment made by the Company in launching CremoraRoyale and ReaLemonade during its fiscal year ended July 3,
1999.



In September 2001, Eagle and Holdings completed the sale
to Motts Inc. and Cadbury Beverages Delaware, Inc. of Eagles business of developing, manufacturing, marketing, distributing and selling shelf-stable juice sold under the ReaLemon and ReaLime brand names (the
ReaLemonproduct lines) and related assets for $128.4 million (the ReaLemon Sale).



In July 2001, the Company began implementing a plan (the Plan) to reorganize the management and operations of the Company as a result of the
then pending ReaLemon Sale, which reduced the sales and operating base of the Company. The Plan included (1) the resignation of John OC. Nugent as Chief Executive Officer and President of the Company; (2) the appointment of Craig A.
Steinke as Chief Executive Officer and President in addition to serving as the Chief Financial Officer of the Company; (3) the resignations of other executive officers of the Company; and (4) the closure of the corporate office in Tarrytown, New
York and the research and development office in Columbus, Ohio.



As part of the Plan, the number of corporate and administrative employees of the Company was reduced by 64% during the two quarters ended December 29, 2001, with the majority of the reductions occurring in the quarter ended September 29,
2001. In addition, the Companys overall administrative cost structure was reduced by renegotiation of annual service contracts with third party vendors, elimination of office leases and related costs and reductions in travel, entertainment and
other administrative expenses.



Certain Legal and Regulatory Matters



Public Health. The Company is subject to the
Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the Food and Drug Administration. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, labeling, packaging
and safety of food. In addition, the Nutrition Labeling and Education Act of 1990, as amended, prescribes the format and content of certain information required to appear on the labels of food products. The operations and the products of the Company
are also subject to state and local regulation through such measures as: licensing of plants, enforcement by state health agencies of various state standards and inspection of facilities. Management believes that the Companys facilities and
practices are in compliance with applicable government regulations in all material respects. The Company is subject to certain health and safety regulations, including regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and safety standards to protect its employees from accidents. See Risk Factors The Companys operations are subject to comprehensive public health
regulations.



Environment.The Company believes
that it is substantially in compliance with all applicable laws and regulations for the protection of the environment. The Companys operations and properties are subject to a wide variety of increasingly complex and stringent federal, state
and local environmental regulations governing the storage, handling, generation, treatment, emission, and disposal of certain substances and wastes, the remediation of contaminated soil and groundwater. As such, the nature of the Companys
operations exposes it to the risk of claims with respect to environmental matters. Based upon its experience to date, the Company believes that the future cost of compliance with existing environmental laws and regulations and liability for known
environmental claims will not have a material adverse effect on the Companys business, financial condition or results of operations. See Risk Factors The Companys operations and properties are subject to a wide variety of
increasingly complex and stringent federal, state and local environmental regulations governing the storage, handling, generation, treatment, emission, and disposal of certain substances and wastes, the remediation of contaminated soil and
groundwater.



Risk Factors



In connection with a review of this Annual Report on Form 10-K, the
following risk factors should be considered carefully.



The
Company has a significant amount of indebtedness. As of June 28, 2003, the outstanding indebtedness was $193.3 million, with maturities of $8.6 million, $51.0 million and $18.7 million in the fiscal years 2004 through



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2006 on the Senior Credit Facilities and $115 million in fiscal year 2008 on the Notes. This substantial indebtedness could have important consequences. For
example, it could:



| |  |  | make it more difficult for the Company to satisfy its obligations to creditors, including holders of its Notes, who could upon default require the Company to accelerate principal
and interest payment;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit the Companys ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, the Companys growth, research
and development costs or other general corporate purposes;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness and corresponding interest, which will reduce the cash flow
available for working capital, capital expenditures, acquisitions and other general corporate purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit the Companys flexibility in planning for, or reacting to, changes in its business and in the industry in which the Company operates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase the vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | place the Company at a disadvantage compared to its competitors that have less debt; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | expose the Company to risks inherent in interest rate fluctuations because some of the indebtedness bears interest at variable rates, which could result in higher interest expense
in the event of increases in interest rates.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Any
of the above listed factors could have a material adverse affect on the Companys business and results of operations and its ability to meet its obligations.



The credit agreement governing the Companys Senior Credit Facilities restricts managements discretion in
operating the Companys business. In addition, the credit agreement requires the Company to maintain specified financial ratios and tests, among other obligations. The credit agreement also restricts the Companys ability to incur
additional indebtedness, make acquisitions and make capital expenditures.



The markets in which the Company competes are highly competitive. The Company competes with large and established national and multinational companies, as well as smaller companies. Some of these competitors
have, and new competitors may have, substantially greater resources than the Company has. Consequently, it cannot be assured that the Company will be able to compete effectively in the future. See Competition.



The Company relies upon its suppliers and third party manufacturers.
The Company purchases many of its raw materials from numerous independent suppliers. Milk is purchased through one cooperative at each of its manufacturing plants. Cremoraand Cremora Royale powdered non-dairy creamer, Kava
instant coffee, sweetened condensed milk marketed in Canada, and Borden eggnog are obtained in final product form from third party manufacturers. Any adverse change in any of the following could have a material adverse effect on the
Companys business, financial condition and results of operations:



| |  |  | relationships with the Companys suppliers or third party manufacturers;
| | - |  | ------------------------------------------------------------------------



| |  |  | financial condition of the suppliers or third party manufacturers; or
| | - |  | ---------------------------------------------------------------------



| |  |  | the suppliers or third party manufacturers ability to manufacture and deliver outsourced products on a timely basis.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



There is no assurance that the Company could quickly or effectively replace
any of its suppliers or third party manufacturers if the need arose. The Companys dependence on these suppliers and third party manufactures could also adversely affect its ability to react quickly and effectively to changes in the market for
its products.



The Company manufactures all of its U. S.
sweetened condensed milk at two facilities and is dependent on such facilities for production. The Company manufactures sweetened condensed milk for the U.S. markets at the Wellsboro, PA and Starkville, MS facilities. These facilities are
subject to the normal hazards that could result in any material damage to any such facility. Damage to the facilities, or prolonged interruption in the operations of the facilities for repairs or other reasons, would have a material adverse effect
on the Companys business, financial condition and results of operations.



The Company cannot be certain of the results of its product innovations and marketing programs. The Company believes that its future success will depend, in part, upon its ability to develop, manufacture and
market



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new products or line extensions to its existing product lines. The Company cannot predict whether it will be successful in the introduction, marketing and
manufacture of any new products. Furthermore, there can be no assurance that the Company will be able to develop and introduce new products or improvements to its existing product, which satisfy customer needs or achieve market acceptance. The
failure to develop products and introduce them successfully in a timely manner could adversely affect the Companys business, financial condition and results of operations.



The Company is dependent on a concentrated customer base. The Company does not have long-term sales agreements or
other contractual assurances as to future sales with any of its customers. In addition, continued consolidation in the retail industry has resulted in an increasingly concentrated retail base. To the extent such concentration continues to occur, the
Companys net sales and operating income may be increasingly sensitive to deterioration in the financial condition of its customer base, or other adverse developments involving the Companys relationship with its customers.



The Companys operations are subject to comprehensive public health
regulations.The Company is subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the Food and Drug Administration. This comprehensive regulatory program governs, among other things, the manufacturing,
composition and ingredients, labeling, packaging and safety of food. In addition, the Nutrition Labeling and Education Act of 1990, as amended, prescribes the format and content of certain information required to appear on the labels of food
products.



The operations and the products of the Company are
also subject to state and local regulation through such measures as licensing of plants, enforcement by state health agencies of various state standards and inspection of facilities. Enforcement actions for violations of federal, state and local
regulations may include seizure and condemnation of volatile products, cease and desist orders, injunctions and/or monetary penalties.



The Company is subject to certain health and safety regulations, including regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and safety standards to protect its employees from accidents.



Management believes that the Companys facilities and practices comply with applicable government regulations in all material respects, but there can
be no assurance that the Company will not incur liabilities in the future. In addition, future events, such as changes in existing laws and regulations or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give
rise to additional expenditures or liabilities that could be material.



The Companys operations and properties are subject to a wide variety of increasingly complex and stringent federal, state and local environmental regulations governing the storage, handling, generation, treatment, emission, and
disposal of certain substances and wastes, the remediation of contaminated soil and groundwater. As such, the nature of the Companys operations exposes it to the risk of claims with respect to environmental matters. The Company believes
that it is substantially in compliance with all applicable laws and regulations for the protection of the environment. Based upon its experience to date, the Company believes that the future cost of compliance with existing environmental laws and
regulations and liability for known environmental claims will not have a material adverse effect on the Companys business, financial condition or results of operations. In connection with the Acquisition, the Company assumed all past and
future environmental liabilities related to the acquired business. The Company would have been indemnified by BFC and BFC Investments with respect to certain pre-Acquisition Closing environmental liabilities identified by January 2003. No
liabilities were identified. There can be no assurances that past material environmental liabilities will not be identified or that new material environmental liabilities will not be incurred. In addition, future events, such as changes in existing
laws and regulations or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material.



Available Information.



The Companys Internet address is www.eaglefamilyfoods.com. The Company does not make available its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to



8



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##### Table of Contents

those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 on the Internet, but these reports will be
furnished free of charge upon request to the Secretary of the Company at (614) 501-4200.



Item 2:Properties



The Company produces its U.S. sweetened condensed milk and mincemeat pie filling products in two Company-owned manufacturing facilities, as described in the following table. Management believes that the Companys manufacturing plants
have sufficient capacity to accommodate the Companys needs for the foreseeable future.



|Location       |  | Square Feet |  | Products Manufactured                          
|-------------- |  | ----------- |  | -----------------------------------------------
|Wellsboro, PA  |  | 119,000     |  | Sweetened condensed milk, mincemeat pie filling
|Starkville, MS |  | 49,000      |  | Sweetened condensed milk                       



In addition to the
owned manufacturing facilities described above, as of June 28, 2003, the Company leased 20,000 square feet of office space in Columbus, Ohio and uses public warehouse space in numerous locations in variable amounts as needed.



Item 3:Legal Proceedings



The Company is subject to litigation in the ordinary course of its business. The Company is not a party to any lawsuit or proceeding, which is material, or in the opinion of management, is likely to have a material
adverse effect on the Companys financial condition or results of operations.



Item 4:Submission of Matters to a Vote of Security Holders



Not applicable.



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##### Table of Contents

PART II



Item 5:Market for Registrants Common Equity and Related Stockholder Matters



There is no established public trading market for the common stock of Holdings or Eagle. As of September 22, 2003, Holdings was the only holder of Eagle
common stock. As of September 22, 2003, there were approximately 22 holders of Holdings common stock.



No cash dividends on common stock have been declared by either registrant since their respective incorporations. Holdings and Eagle are restricted from
declaring dividends on their common stock by the Senior Credit Facilities. See Note 7 of the Notes to the Financial Statements of Holdings and Eagle included elsewhere in this Annual Report on Form 10-K.



10



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##### Table of Contents

Item 6:Selected Financial Data



The selected financial data set forth below (dollars in thousands) as of June 28, 2003 and June 29, 2002, and for fiscal year 2003, fiscal year 2002, and fiscal year 2001 are derived from audited financial statements
included elsewhere herein. The selected financial data set forth below as of July 3, 1999, July 1, 2000, and June 30, 2001 and the fifty-two week period ended July 1, 2000 (fiscal year 2000), and the fifty-three week period ended July 3,
1999 (fiscal year 1999) are derived from the financial statements not included elsewhere herein. The results of operations were affected by certain reclassifications made to comply with the Emerging Issues Task Force (EITF)
No. 00-14 and No. 00-25, as described in Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations. These reclassifications had no impact on operating income, net loss or cash flows.



|                                                                                      |  | Fifty-Three WeekPeriod EndedJuly 3, 1999(a) |         |   | Fifty-Two WeekPeriod EndedJuly 1, 2000(a) |   |         | Fifty-Two WeekPeriod EndedJune 30, 2001(a) |  |   | Fifty-Two WeekPeriod EndedJune 29, 2002(a) |   |  | Fifty-Two WeekPeriod EndedJune 28, 2003(a) |        
|------------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | ----------------------------------------- | - | ------- | ------------------------------------------ |  | - | ------------------------------------------ | - |  | ------------------------------------------ | -------
|Statement of Operations Data:(b)                                                      |  |                                             |         |   |                                           |   |         |                                            |  |   |                                            |   |  |                                            |        
|Net sales                                                                             |  | $                                           | 205,668 |   |                                           | $ | 186,165 |                                            |  | $ | 185,570                                    |   |  | $                                          | 143,849
|Cost of goods sold                                                                    |  |                                             | 111,026 |   |                                           |   | 111,140 |                                            |  |   | 102,650                                    |   |  |                                            | 101,273
|                                                                                      |  |                                             |         |   |                                           |   |         |                                            |  |   |                                            |   |  |                                            |        
|Gross profit                                                                          |  |                                             | 94,642  |   |                                           |   | 75,025  |                                            |  |   | 82,920                                     |   |  |                                            | 42,576 
|Distribution expenses                                                                 |  |                                             | 12,947  |   |                                           |   | 13,098  |                                            |  |   | 12,851                                     |   |  |                                            | 9,004  
|Marketing expense                                                                     |  |                                             | 42,382  |   |                                           |   | 27,071  |                                            |  |   | 20,284                                     |   |  |                                            | 12,335 
|General & administrative expense                                                      |  |                                             | 12,406  |   |                                           |   | 13,580  |                                            |  |   | 13,363                                     |   |  |                                            | 8,824  
|Amortization of intangible assets                                                     |  |                                             | 21,249  |   |                                           |   | 11,156  |                                            |  |   | 11,157                                     |   |  |                                            | 8,052  
|Gain (loss) on sale of product lines, net of reorganization charges and other charges |  |                                             |        |   |                                           |   |        |                                            |  |   |                                           |   |  |                                            | 18,722 
|Other operating income                                                                |  |                                             |        |   |                                           |   | (1,212  | )                                          |  |   |                                           |   |  |                                            |       
|                                                                                      |  |                                             |         |   |                                           |   |         |                                            |  |   |                                            |   |  |                                            |        
|Operating income                                                                      |  |                                             | 5,658   |   |                                           |   | 11,332  |                                            |  |   | 25,265                                     |   |  |                                            | 23,083 
|Net loss                                                                              |  | $                                           | (14,485 | ) |                                           | $ | (11,610 | )                                          |  | $ | (5,434                                     | ) |  | $                                          | (31,709
|Other Financial Data:                                                                 |  |                                             |         |   |                                           |   |         |                                            |  |   |                                            |   |  |                                            |        
|Depreciation and amortization(f)                                                      |  | $                                           | 26,497  |   |                                           | $ | 20,553  |                                            |  | $ | 19,756                                     |   |  | $                                          | 28,427 
|Capital expenditures                                                                  |  |                                             | 13,744  |   |                                           |   | 7,564   |                                            |  |   | 3,568                                      |   |  |                                            | 414    



|                                         |  | As ofJuly 3, 1999(a) |         | As ofJuly 1, 2000(a) |   | As ofJune 30, 2001(a) |  | As ofJune 29, 2002(a) |         | As ofJune 28, 2003 |  
|---------------------------------------- |  | -------------------- | ------- | -------------------- | - | --------------------- |  | --------------------- | ------- | ------------------ | -
|Balance Sheet Data:                      |  |                      |         |                      |   |                       |  |                       |         |                    |  
|Inventories                              |  | $                    | 41,757  |                      | $ | 33,780                |  | $                     | 36,929  |                    | $
|Net property and equipment               |  |                      | 33,798  |                      |   | 33,775                |  |                       | 31,014  |                    |  
|Total assets                             |  |                      | 417,286 |                      |   | 396,670               |  |                       | 387,546 |                    |  
|Total debt, including current maturities |  |                      | 338,500 |                      |   | 327,500               |  |                       | 333,500 |                    |  
|Stockholders equity                     |  |                      | 41,795  |                      |   | 39,972                |  |                       | 34,563  |                    |  

---

|(a) |  | The statements of operations and the balance sheets set forth above reflect the financial position and results of operations of Eagle. With the exception of stockholders
equity, Series A Non-Voting Preferred Stock (Series A Preferred Stock) and the Series B Non-Voting Preferred Stock (the Series B Preferred Stock, together with Series A Preferred Stock, Redeemable Preferred
Stock), this information is substantially consistent with that of Holdings. The following represents stockholders deficit and Redeemable Preferred Stock of Holdings:
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |  | As ofJuly 3, 1999 |         |   | As ofJuly 1, 2000 |   |         | As ofJune 30, 2001 |  |   | As ofJune 29, 2002 |   |  | As ofJune 28, 2003 |         
|-------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ------------------ |  | - | ------------------ | - |  | ------------------ | --------
|Stockholders deficit      |  | $                 | (52,235 | ) |                   | $ | (74,314 | )                  |  | $ | (91,362            | ) |  | $                  | (135,802
|Redeemable Preferred Stock |  |                   | 93,302  |   |                   |   | 113,555 |                    |  |   | 125,163            |   |  |                    | 137,129 

---

|(b) |  | The adoption of EITF No. 00-14 and No. 00-25, effective first quarter of 2002, resulted in the following reclassifications to fiscal year 1999, fiscal year 2000 and fiscal year
2001: net sales were reduced by $34.1 million, $38.6 million and $35.1 million, respectively; distribution expense was reduced by $0.5 million, $1.0 million and $1.0 million, respectively; and marketing expense was reduced by $33.6 million, $37.6
million and $34.1 million, respectively. These reclassifications had no impact on operating income, net loss and cash flows.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Represents the $18.7 million gain on the ReaLemon Sale, net of reorganization charges of $4.8 million
|--- |  | -----------------------------------------------------------------------------------------------------

|(d) |  | In fiscal year 2002, the Company recorded a valuation allowance for its deferred tax assets and net operating loss carryforwards of $33.2 million.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|(e) |  | In fiscal year 2003, the Company recorded an impairment charge of $56.6 million upon the adoption of SFAS No. 142.
|--- |  | ------------------------------------------------------------------------------------------------------------------

|(f) |  | Includes the amortization of debt issuance cost of $920, $1,823, $2,322, $2,878, and $1,451 for fiscal year 1999, fiscal year 2000, fiscal year 2001, fiscal year 2002 and fiscal
year 2003, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7:Managements Discussion and Analysis of Financial Condition and Results of Operations



General



Set forth below is a discussion of the consolidated financial condition and consolidated results of operations for fiscal year 2003, fiscal year 2002 and fiscal year 2001 of the Company. With the exception of
Stockholders Equity, Redeemable Preferred Stock and an intercompany payable of $1.4 million, the financial condition and results of operations of Eagle are substantially consistent with that of Holdings. The following discussion should be read
in conjunction with the financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K.



The results of operations were affected by certain reclassifications made to comply with the new accounting standards, EITF Issue No. 00-14,
Accounting for Certain Sales Incentives and EITF Issue No. 00-25, Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendors Products. Under these Issues, the
EITF concluded that certain consumer and trade sales promotion expenses, such as coupon redemption costs, cooperative advertising programs, new product introduction fees, feature price discounts and in-store display incentives should be classified
as a reduction of sales rather than as marketing expense. The adoption of these Issues, effective in the first calendar quarter of 2002, resulted in the following reclassifications to fiscal year 2001: net sales were reduced by $35.1 million;
distribution expense was reduced by $1.0 million; and marketing expense was reduced by $34.1 million. These reclassifications had no impact on operating income, net loss and cash flows.



The following table sets forth the results of operations as a percentage of net sales for fiscal year 2003, fiscal year 2002
and fiscal year 2001.



|                                                    |  | Results of Operations                   |  
|--------------------------------------------------- |  | --------------------------------------- | -
|                                                    |  | Fifty-Two WeekPeriod EndedJune 28, 2003 |  
|Net sales                                           |  | 100.0                                   | %
|Cost of goods sold                                  |  | 63.2                                    |  
|Cost of goods sold, accelerated depreciation        |  |                                        |  
|                                                    |  |                                         |  
|Total cost of goods sold                            |  | 63.2                                    |  
|Gross margin                                        |  | 36.8                                    |  
|Distribution expense                                |  | 6.4                                     |  
|Marketing expense                                   |  | 8.7                                     |  
|General & administrative expense                    |  | 5.9                                     |  
|Amortization of intangible assets                   |  | 1.3                                     |  
|Gain (loss) on sale of product lines/reorganization |  | (0.9                                    | )
|                                                    |  |                                         |  
|Operating income                                    |  | 13.6                                    | %
|                                                    |  |                                         |  



In July 2001, the
Company implemented the Plan, which reorganized the management and operations of the Company. This was executed because of the ReaLemonSale that had reduced the sales and operating base of the Company.



On September 19, 2001, the Company sold to Motts Inc. and Cadbury Beverages
Delaware, Inc. the Companys business of developing, manufacturing, marketing, distributing and selling shelf-stable juice sold under the ReaLemon and ReaLimebrand names and related assets including inventory and the
manufacturing facility in Waterloo, New York.



The following
table sets forth the unaudited consolidated results of operations of the Company excluding the results of operations of the ReaLemonproduct lines for fiscal year 2002 and fiscal year 2001. The information is intended to provide comparable
results for the continuing product lines for the periods presented in a manner used by the Company to assist in making internal operating decisions. This data is not intended to represent and should not be considered more meaningful than, or an
alternative to, operating income, cash flows from operating activities or other measures of performance in accordance with generally accepted accounting principles.



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Results of Operations Excluding theReaLemonProduct Lines



|                                             |  | Fifty-Two Week Period Ended June 28, 2003 |   |  | Fifty-Two WeekPeriod EndedJune 29, 2002 |   |  | Fifty-Two WeekPeriod EndedJune 30, 2001 |  
|-------------------------------------------- |  | ----------------------------------------- | - |  | --------------------------------------- | - |  | --------------------------------------- | -
|Net sales                                    |  | 100.0                                     | % |  | 100.0                                   | % |  | 100.0                                   | %
|Cost of goods sold                           |  | 63.2                                      |   |  | 64.2                                    |   |  | 60.2                                    |  
|Cost of goods sold, accelerated depreciation |  |                                          |   |  | 8.4                                     |   |  |                                        |  
|                                             |  |                                           |   |  |                                         |   |  |                                         |  
|Gross profit                                 |  | 36.8                                      |   |  | 27.4                                    |   |  | 39.8                                    |  
|Distribution expense                         |  | 6.4                                       |   |  | 6.0                                     |   |  | 6.3                                     |  
|Marketing expense                            |  | 8.7                                       |   |  | 8.7                                     |   |  | 11.0                                    |  
|General & administrative expense             |  | 5.9                                       |   |  | 6.7                                     |   |  | 10.4                                    |  
|Amortization of intangible assets            |  | 1.3                                       |   |  | 5.4                                     |   |  | 5.6                                     |  
|Other operating loss                         |  | (0.9                                      | ) |  |                                        |   |  |                                        |  
|                                             |  |                                           |   |  |                                         |   |  |                                         |  
|Operating income                             |  | 13.6                                      | % |  | 0.6                                     | % |  | 6.5                                     | %
|                                             |  |                                           |   |  |                                         |   |  |                                         |  



Results of Operations



Fifty-Two Week Periods Ended June 28, 2003 and June
29, 2002.



Net Sales. The Companys net sales
for fiscal year 2003 were $128.7 million as compared to $143.8 million for fiscal year 2002, a decrease of $15.1 million, or 10.5%. The table below sets forth the Companys net sales data for each of the Companys product lines for fiscal
year 2003 and fiscal year 2002 (dollars in millions):



|Product Lines            |  | Companys Principal Brands                        |  | Net SalesFiscal Year2003 |       | Percentageof Net Sales |       |   | Net SalesFiscal Year2002 |   | Percentageof Net Sales | 
|------------------------ |  | ------------------------------------------------- |  | ------------------------ | ----- | ---------------------- | ----- | - | ------------------------ | - | ---------------------- | 
|Sweetened condensed milk |  | Eagle Brand,Meadow Gold, Magnolia, Star and other |  | $                        | 95.0  |                        | 73.8  | % |                          | $ | 93.5                   | 
|Lemon and lime juices    |  | ReaLemon and ReaLime                              |  |                          |      |                        |      |   |                          |   | 11.6                   | 
|Non-dairy creamer        |  | Cremora, Cremora Royale                           |  |                          | 16.6  |                        | 12.9  |   |                          |   | 18.7                   | 
|                         |  | Private label, industrial and other               |  |                          | 6.5   |                        | 5.1   |   |                          |   | 8.8                    | 
|Niche brand products     |  | Borden, None Such, and Kava                       |  |                          | 10.6  |                        | 8.2   |   |                          |   | 11.2                   | 
|                         |  |                                                   |  |                          |       |                        |       |   |                          |   |                        | 
|Total                    |  |                                                   |  | $                        | 128.7 |                        | 100.0 | % |                          | $ | 143.8                  | 
|                         |  |                                                   |  |                          |       |                        |       |   |                          |   |                        | 



Net sales of sweetened
condensed milk increased by $1.5 million for fiscal year 2003 as compared to fiscal year 2002. The Company experienced sales growth with its Hispanic branded products and within the private label sweetened condensed milk business.



The decrease in net sales of $15.1 million from fiscal year 2003 as compared
to fiscal year 2002 was primarily due to $11.6 million of lower net sales from the ReaLemonproduct lines. On September 19, 2001, the Company consummated the ReaLemonSale.



Non-dairy creamer net sales decreased by $4.4 million for fiscal year 2003 as compared to fiscal year 2002. Of this
decrease, the retail branded non-dairy creamer net sales decreased by $2.1 million. The private label and industrial non-dairy creamer net sales decreased by $2.3 million. The Company continues to experience increasingly competitive conditions
within the non-dairy creamer category. As a result of the Non-Dairy Creamer Plant Closure and the non-dairy creamer co-pack agreement mentioned above, the Company no longer manufactures or markets products within the private label and industrial
non-dairy creamer category, but will continue to focus on the branded non-dairy creamer product lines.



Cost of Goods Sold. Cost of goods sold was $81.3 million for fiscal year 2003 as compared to $101.3 million for fiscal year 2002, a decrease of
$20.0 million, or 19.7%. The decrease is due to a $11.1 million charge for accelerated depreciation in fiscal year 2002 which related principally to long-lived assets that were taken out of service before the end of their normal service period, $5.2
million for the ReaLemon product lines in fiscal year 2002, the effect of the lower private label non-dairy creamer sales volume in fiscal year 2003 compared to fiscal



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year 2002, and lower raw material costs, primarily milk. Expressed as a percentage of net sales, cost of goods sold for fiscal year 2003 decreased to 63.2%
from 70.4% for fiscal year 2002. This favorable change in percentage is the result of the lower depreciation expense in fiscal year 2003 as compared to fiscal year 2002.



Distribution Expense. Distribution expense was $8.3 million for fiscal year 2003 as compared to $9.0 million for
fiscal year 2002, a decrease of $0.7 million, or 7.8%. The decrease in distribution expense was due to a reduction of $1.1 million for the ReaLemon product lines in fiscal year 2002. This was offset by higher warehousing and freight costs in
fiscal year 2003 associated with moving the non-dairy creamer inventory from the plant to third party warehouses in expectation of the Non-Dairy Creamer Plant Closure. Expressed as a percentage of net sales, distribution expense was 6.4% and 6.3%
for fiscal year 2003 and fiscal year 2002, respectively.



Marketing Expense. Marketing expense was $11.2 million for fiscal year 2003 as compared to $12.3 million for fiscal year 2002, a decrease of $1.1 million, or 8.9%. Expressed as a percentage of net sales, marketing expense was 8.7%
and 8.6% for fiscal year 2003 and fiscal year 2002, respectively. The decrease in marketing expense was primarily due to $0.8 million of marketing expense in fiscal year 2002 related to the ReaLemonproduct lines and a reduction in
administrative expenses pursuant to the Plan.



General &
Administrative (G&A) Expense. G&A expense was $7.6 million for fiscal year 2003 as compared to $8.8 million for fiscal year 2002, a decrease of $1.2 million, or 13.6%. Expressed as a percentage of net sales, G&A expense
was 5.9% and 6.1% for fiscal year 2003 and fiscal year 2002, respectively. The decrease in G&A expense was primarily due to the execution of the Plan as noted above.



Amortization of Intangible Assets. Amortization of intangible assets was $1.7 million for fiscal year 2003 and $8.1
for fiscal year 2002. In accordance with SFAS No. 142 as of June 30, 2002, the Company will no longer amortize indefinite-lived assets, but evaluate the assets for impairment annually. (See additional discussion under Recently Adopted
Accounting Statements as described below.)



Gain
(Loss) on Sales of Product Lines, Net of Reorganization Charges and Other Charges.In fiscal year 2003, the Company recorded a charge of $1.7 million to cover severance and other costs associated with the Non-Dairy Creamer Plant Closure, offset
by a $0.5 gain on the sale of the South Carolina Property. In fiscal year 2002, the Company recognized an $18.7 million gain on the ReaLemonSale, net of reorganization charges of $4.8 million.



Operating Income. Operating income was $17.5 million for fiscal year
2003 as compared to $23.1 million for fiscal year 2002, a decrease of $5.6 million, or 24.2%. The decrease results primarily from the $18.7 million gain on the ReaLemon Sale in fiscal year 2002, the $4.4 million of operating income from the
ReaLemonproduct lines in fiscal year 2002, offset by the $11.1 million charge for accelerated depreciation. Other factors contributing to the decrease were the $1.2 million Non-Dairy Creamer Plant Closure charge in fiscal year 2003, offset
by reductions in administrative costs, marketing expense and amortization expense as discussed above.



Interest Expense. Net interest expense was $15.6 million for fiscal year 2003 as compared to $20.7 million for fiscal year 2002, a decrease of $5.1
million. The decrease was primarily due to lower average interest rates and lower average debt balances for fiscal year 2003 as compared to fiscal year 2002. The average debt balance is lower in fiscal year 2003 compared to fiscal year 2002 as the
Company used $118.0 million of proceeds from the ReaLemon Sale to repay indebtedness in fiscal year 2002.



Income Taxes. Income tax expense was less than $0.1 million for fiscal year 2003 as compared to an income tax benefit of $34.1 million for fiscal
year 2002. In fiscal year 2002, the Company established a tax valuation allowance for $33.2 million for the Companys net deferred tax assets and net operating loss caryforwards. The valuation allowance was calculated in accordance with the
provisions of Statement of Financial Accounting Standard (SFAS) No. 109 Accounting for Income Taxes (SFAS No. 109) which requires the recording of a valuation allowance when it is probable that any or all of the
deferred tax assets will not be realized. In absence of favorable factors, application of SFAS No. 109 requires a 100% valuation allowance for any net deferred tax assets when a company has cumulative financial accounting losses, excluding unusual
items, over several years. The Company has experienced pretax losses over the past several years, excluding the gain in fiscal year 2002 on the ReaLemonSale. Management continues to see lower industry market values in the current economic
environment which could affect the tax planning strategies available to the Company. Therefore, the Company will continue to



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##### Table of Contents

maintain a full valuation allowance for its net deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support
reversal of the reserve. Until such time, except for minor state and local tax provisions, the Company will have no reported tax provision, net of valuation allowance adjustments.



In determining the amount of the deferred tax asset valuation allowance, the Company estimated the current tax deductibility
of certain costs and charges, and evaluated the fair market value of the Company in comparison to the tax value. These estimates are subject to change. Any differences between these current estimates and actual values determined at a future date
will result in a change to the valuation allowance and will be recorded at that date.



Fifty-Two Week Periods Ended June 29, 2002 and June 30, 2001.



Net Sales. The Companys net sales for fiscal year 2002 were $143.8 million as compared to $185.6 million for fiscal year 2001, a decrease of
$41.8 million, or 22.5%. The table below sets forth the Companys net sales data for each of the Companys product lines for fiscal year 2002 and fiscal year 2001 (dollars in millions):



|Product Lines               |  | Companys Principal Brands                         |  | Net SalesFiscal Year2002 |       | Percentageof Net Sales |       |   | Net SalesFiscal Year2001 |   | Percentageof NetSales | 
|--------------------------- |  | -------------------------------------------------- |  | ------------------------ | ----- | ---------------------- | ----- | - | ------------------------ | - | --------------------- | 
|Sweetened condensed milk    |  | Eagle Brand, Meadow Gold, Magnolia, Star and other |  | $                        | 93.5  |                        | 65.0  | % |                          | $ | 89.7                  | 
|Non-dairy creamer           |  | Cremora, Cremora Royale                            |  |                          | 18.7  |                        | 13.0  |   |                          |   | 20.6                  | 
|                            |  | Private label and other                            |  |                          | 8.8   |                        | 6.1   |   |                          |   | 8.3                   | 
|Lemon and lime juices       |  | ReaLemon and ReaLime                               |  |                          | 11.6  |                        | 8.1   |   |                          |   | 55.5                  | 
|Niche brand products        |  | Borden, None Such, Kava                            |  |                          | 11.2  |                        | 7.8   |   |                          |   | 11.3                  | 
|Lemonade liquid concentrate |  | ReaLemonade                                        |  |                          |      |                        |      |   |                          |   | 0.2                   | 
|                            |  |                                                    |  |                          |       |                        |       |   |                          |   |                       | 
|Total                       |  |                                                    |  | $                        | 143.8 |                        | 100.0 | % |                          | $ | 185.6                 | 
|                            |  |                                                    |  |                          |       |                        |       |   |                          |   |                       | 



The decrease in net
sales was primarily attributable to the sale of the ReaLemonproduct lines in September 2001, resulting in a decrease of $43.9 million in lemon and lime juice net sales. The decrease in the net sales of the non-dairy creamer product line was
the result of increased marketing initiatives by the Companys competitors. The increase in sweetened condensed milk product net sales of $3.8 million was primarily due to higher sales volumes for sweetened condensed milk private label and
Hispanic brands.



Cost of Goods Sold. Cost of goods sold
was $101.3 million for fiscal year 2002 as compared to $102.7 million for fiscal year 2001, a decrease of $1.4 million, or 1.4%. In fiscal year 2002, the Company recorded $11.1 million of accelerated depreciation related principally to long-lived
assets that were taken out of service before the end of their normal service period due to the Plan. Expressed as a percentage of net sales, cost of goods sold increased to 70.4% from 55.3% for 2001. The increase in the percentage was due to the
charge for the accelerated depreciation, an increase in the sales of lower priced industrial and private label non-dairy creamer products, and higher raw material costs, principally milk and sugar used in the production of sweetened condensed milk.
In early fiscal year 2002, milk prices rose to levels significantly above historical averages and negatively affected costs of goods sold.



Distribution Expense. Distribution expense was $9.0 million for fiscal year 2002 as compared to $12.9 million for fiscal year 2001, a decrease of
$3.9 million, or 30.2%. The decrease in distribution expense is primarily due to $3.6 million reduction after the sale of the ReaLemonproduct lines. Expressed as a percentage of net sales, distribution expense was 6.3% and 7.0% for fiscal
year 2002 and fiscal year 2001, respectively. The decrease of 0.7% was primarily due to a reduction in administrative support staff in fiscal year 2002 pursuant to the Plan and reduced distribution expense associated with the ReaLemonproduct
lines.



Marketing Expense. Marketing expense was $12.3
million for fiscal year 2002 as compared to $20.3 million for fiscal year 2001, a decrease of $8.0 million, or 39.4%. The decrease was primarily due to the reduction in marketing administrative costs related to the Plan and $5.3 million reduction
after the sale of the ReaLemonproduct lines. Expressed as a percentage of net sales, marketing expense for fiscal year 2002 decreased to 8.6% from 10.9% for fiscal year 2001.



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G&A Expense. G&A expense was $8.8 million for fiscal year 2002 as compared to $13.4
million for fiscal year 2001, a decrease of $4.6 million, or 34.3%. Expressed as a percentage of net sales, G&A expense was 6.1% and 7.2% for fiscal year 2002 and fiscal year 2001, respectively. The decrease in G&A expense was primarily due
to the execution of the Plan as noted above.



Amortization
of Intangible Assets. Amortization of intangible assets was $8.0 million for fiscal year 2002 and $11.2 for fiscal year 2001. The decrease is due to the write-off of the net book value of certain tradenames and other intangible assets sold
pursuant to the ReaLemon Sale.



Gain (Loss) on Sales
of Product Lines, Net of Reorganization Charges and Other Charges.In fiscal year 2002, the Company recognized an $18.7 million gain on the ReaLemon Sale, net of reorganization charges of $4.8 million.



Operating Income. Operating income was $23.1 million for fiscal year
2002 as compared to $25.3 million for fiscal year 2001, a decrease of $2.2 million, or 8.7%. Together with other factors discussed above, the decrease in operating income was primarily due to the charge of accelerated depreciation, lost
ReaLemon operating income opportunity after the ReaLemonSale, offset by the gain on the ReaLemonSale.



Interest Expense. Net interest expense was $20.7 million for fiscal year 2002 as compared to net interest expense of $33.2 million for fiscal year
2001, a decrease of $12.5 million. The decrease was primarily due to lower average interest rates and lower average debt balances during 2002. The average debt balance was lower for fiscal year 2002 compared to fiscal year 2001 as proceeds from the
ReaLemonSale were used to repay indebtedness under the Term Loan Facility.



Income Taxes. The Company recorded an income tax expense of $34.1 million for fiscal year 2002 as compared to a $2.9 million income tax benefit for fiscal year 2001. The Company established a tax valuation
allowance for $33.2 million for the Companys net deferred tax assets and net operating loss caryforwards. The valuation allowance was calculated in accordance with the provisions of SFAS No. 109 which requires the recording of a valuation
allowance when it is probable that any or all of the deferred tax assets will not be realized. In absence of favorable factors, application of SFAS No. 109 requires a 100% valuation allowance for any net deferred tax assets when a company has
cumulative financial accounting losses, excluding unusual items, over several years. The Company experienced pretax losses over the past three years, excluding the gain in fiscal year 2002 on the ReaLemonSale. Management saw lower industry
market values in the economic environment during the reported periods which could affect the tax planning strategies available to the Company. As a result of these factors, the Company recorded a full valuation allowance under the provisions of SFAS
No. 109.



In determining the amount of the deferred tax asset
valuation allowance, the Company estimated the current tax deductibility of certain costs and charges, and evaluated the fair market value of the Company in comparison to the tax value. These estimates are subject to change. Any differences between
these current estimates and actual values determined at a future date will result in a change to the valuation allowance and will be recorded at that date. Excluding the valuation allowance, the increase was primarily due to the gain on the
ReaLemon Sale.



Liquidity and Capital Resources



Borrowings under the Term Loan Facility were $52.3
million and $53.2 million at June 28, 2003 and June 29, 2002, respectively. The Term Loan Facility matures $8.6 million, $25.0 million and $18.7 million in the fiscal years 2004 through 2006, respectively. The Company has a $50.0 million Revolving
Credit Facility, of which $26.0 million and $35.6 million was outstanding at June 28, 2003 and June 29, 2002, respectively. Included in the Revolving Credit Facility is a $10.0 million swingline loan that is utilized for short-term borrowings for
periods less than thirty days. The Revolving Credit Facility matures in fiscal year 2005.



Interest payments on the Notes and interest and principal payments under the Term Loan Facility and the Revolving Credit Facility represent significant cash requirements for the Company. Borrowings under the Term Loan
Facility and the Revolving Credit Facility bear interest at floating rates and require interest payments on varying dates.



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The Company amended its Credit Agreement pursuant to an amendment dated November 21, 2002. Pursuant to
the Amendment, the lenders waived compliance with certain coverage ratio financial covenants for the period commencing on and including December 29, 2002 and ending on and including the Revolving Credit Facility maturity date. The Amendment includes
restrictions on the carrying balance of the Revolving Credit Facility for a period of thirty consecutive days commencing on a date not earlier than December of any year and ending not later than January 31 of the following year. The Amendment also
sets forth minimum requirements for consolidated earnings before interest, income tax, depreciation and amortization, sets forth maximum requirements for capital expenditures, and changed the total allowable commitment and interest rates. The
Company is in compliance with the abovementioned covenants and it believes it can meet existing bank covenants pursuant to the Credit Agreement, as amended, for each of the next four quarters ending July 3, 2004.



The Companys ability to meet the bank covenants will be dependent upon
the Companys future performance, which will be subject to general economic conditions and financial operations. There can be no assurance that the Companys future performance will not be affected negatively by changes in the above
factors to such a degree that it affects the Companys ability to meet bank covenants. There can be no assurance that the Company could renegotiate its covenants, refinance its debt, or obtain terms that are favorable to the financial position
of the Company.



The Companys remaining liquidity needs
are for capital expenditures and increases in working capital. The Company spent $0.6 million on capital projects in fiscal year 2003 to fund expenditures at existing facilities. The Company expects to spend approximately $1.0 million on capital
projects in the Companys fiscal year ending July 3, 2004 to fund expenditures at existing facilities. The Companys primary sources of liquidity are cash flows from operations and available borrowings under the Revolving Credit Facility.



Net cash provided from operating activities was $11.8 million
and $3.0 million for fiscal year 2003 and fiscal year 2002, respectively. The increase in net cash from operating activities is primarily due to effective cost reductions in administrative expenditures and lower interest expense.



Cash used in investing activities in fiscal year 2003 was minimal and cash
from investing activities in fiscal year 2002 was $128.1 million, a decrease of $128.0 million. In fiscal year 2003, the Company received $0.6 million in proceeds from the sale of the South Carolina Property, offset by $0.6 million of capital
expenditures. In fiscal year 2002, the Company received $128.4 million in proceeds from the RealemonSale.



Cash used in financing activities was $11.1 million and $131.3 million in fiscal year 2003 and in fiscal year 2002, respectively, a decrease of $120.2
million. In fiscal year 2002, the Company used $118.0 million of proceeds from the ReaLemon Sale to repay a portion of the indebtedness under the Term Loan Facility. The Company was also able to reduce its Revolving Credit Facility in fiscal
year 2003 due to generating higher operating cash flows.



Management believes that cash generated from operations and borrowings under the Term Loan Facility and the Revolving Credit Facility will be sufficient to satisfy working capital requirements and required capital expenditures. Further
expansion of the business through acquisitions may require the Company to incur additional indebtedness or to sell additional equity securities. There can be no assurance that the Company will be able to secure additional financing on favorable
terms, if at all.



GEI and Warburg, Holdings principal
stockholders, each owned $14.1 million in aggregate principal amount of Notes as of August 18, 2003.



Significant Events in Fiscal Year 2003



Effective December 30, 2002, the Company closed its powdered non-dairy creamer manufacturing plant in Chester, South Carolina. Production is now sourced from a third party manufacturer under a long-term co-pack
agreement entered into on October 1, 2002. The third party manufacturer has significantly larger powdered non-dairy creamer plants than the Company had and has agreed to produce the Companys powdered non-dairy creamer requirements at a lower
cost than the Companys cost of production. During fiscal year 2003, the Company sold the South Carolina Property for $0.5 million.



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In connection with the Non-Dairy Creamer Plant Closure, the Company recorded a charge $1.2 million in
fiscal year 2003, and included the expense within the classification of Gain (loss) on sale of product lines, net of reorganization charges and other charges on the Consolidated Statements of Operations and Comprehensive Income (Loss).
The closure charges included $1.3 million for termination pay and benefits for the 79 displaced employees, $0.4 million for other plant closure costs and contractual expenditures, offset by a $0.5 million gain on the sale of the South Carolina
Property. As of June 28, 2003, the remaining cash requirements of the Non-Dairy Creamer Plant Closure are expected to total $0.3 million and are expected to be paid by December 2003.



Commitments and Contingencies



The Company may enter into long-term contracts for the purchase of certain raw materials. At June 28, 2003, the Company did not have any long-term
purchase commitments. The Company intends to utilize the raw materials under its outstanding purchase commitments in production. The Company leases buildings and equipment under various noncancellable lease agreements for periods of one to five
years. The lease agreements generally require the Company to pay taxes, insurance and maintenance expenses related to the leased assets. The Company has entered into employment agreements with certain key executives. Such agreements provide for
annual salaries, bonuses and severances and include non-compete and non-solicitation provisions. The following table lists the Companys commitments and contingencies at June 28, 2003 (dollars in thousands):



|                            |  | Payments Due by Period
|--------------------------- |  | ----------------------
|Contractural Obligations    |  | Total                 
|Long-term debt obligations  |  | $                     
|Operating lease obligations |  |                       
|Purchase obligations        |  |                       
|                            |  |                       
|Total                       |  | $                     
|                            |  |                       



Redeemable Preferred Stock



Redeemable Preferred Stock is subject to mandatory
redemption at a price per share equal to the Stated Value for each series of Preferred Stock plus all dividends accrued and unpaid there upon (1) the closing of a public offering pursuant to an effective registration statement under the Securities
Act of 1933, (2) the sale of all or substantially all of the assets of Holdings or the merger or consolidation of Holdings with or into any other corporation or other entity in which the holders of Holdings outstanding shares before the merger
or consolidation do not retain a majority of the voting power of the surviving corporation or other entity or (3) the acquisition by any person of shares of Common Stock representing a majority of the issued and outstanding shares of Common Stock
then outstanding.



Seasonality



The Companys net sales, operating income and cash flows are affected
by a seasonal bias toward the second quarter of the Companys fiscal year due to increased sales during the holiday season. Three of the Companys five major brands (Eagle Brand sweetened condensed milk, Bordeneggnog and
None Such mincemeat pie filling) are consumed primarily during the November and December holiday season. In recent years, approximately 48% of the Companys net sales, excluding the ReaLemonand ReaLimebrands net
sales, have occurred in the second quarter of the Companys fiscal year. Because of this seasonality, the Companys working capital needs have historically increased throughout the year, normally peaking in the August/September period,
which requires the Company to draw additional amounts on its Revolving Credit Facility during this period.



Critical Accounting Policies and Estimates



The process of preparing financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of significant judgment and estimates on the part of the Companys management
about the effect of matters that are inherently uncertain. Actual results could differ significantly from the estimates under different assumptions or conditions. The Companys significant accounting policies are described in the Notes to



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the Financial Statements within this Annual Report on Form 10-K. The following discussion addresses the Companys most critical accounting policies.



Marketing Costs. The Company offers market development
funds, slotting, and other trade spending programs to its customers to support the customers promotional activities related to the Companys product lines. The Company regularly reviews and revises estimates of costs to the Company, when
deemed necessary, for the marketing programs based on actual costs incurred or revised spending level by the customers. Actual costs may differ significantly, as the performance from the marketing program may differ from previous expectations.



Inventories. Inventories are stated at the lower of
cost or market, with cost of goods sold principally determined using the first-in, first-out method. The Company reviews the value of the inventory, and based on the physical condition (e.g., age and quality) of the inventories and forecasted sales
plans, may require adjustments, either favorable or unfavorable. These inventory adjustments are estimates and may differ if future economic conditions, customer inventory levels or competitive conditions differ from the Companys expectations.



Property, Plant and Equipment. Property, plant and
equipment are stated at cost and are depreciated on a straight-line method over the estimated useful lives of the assets. Changes in circumstances, such as technological advances or changes to the Companys capital strategy, can result in the
actual lives differing from the Companys estimates. The Company periodically reviews the useful lives of its property, plant and equipment, and where warranted, changes are made that may result in acceleration of depreciation.



Intangible Assets and Goodwill. Intangible assets are stated at fair
value as recorded at acquisition and adjusted for impairment as deemed appropriately. In accordance with SFAS 142, the Company reviews goodwill and indefinite-lived assets for impairment, at a minimum, annually or whenever events or changes in
circumstances indicate that the carrying value of any such asset may not be recoverable. The fair value of the indefinite-lived tradenames are determined using a royalty savings methodology and discounted cash flows and the fair value of goodwill is
determined using estimated future discounted cash flow earnings and market valuations based on these cash flow earnings.



Income taxes. Income taxes are recognized using the liability method. Under this method, deferred tax assets and liabilities are recognized based
on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those
temporary differences are expected to reverse. The Company assesses the recoverability of the deferred tax assets in accordance with the provisions of SFAS No. 109. In accordance with SFAS No. 109, the Company initially recorded a valuation
allowance in fiscal year ended June 29, 2002 for the net deferred tax assets and net operating loss carryforwards. As of June 28, 2003, the valuation allowance was $53.3 million. The Company intends to maintain a full valuation allowance for the net
deferred tax assets and net operating loss carryforwards until sufficient positive evidence exists to support reversal of the remaining reserve. Until such time, except for state and local tax expenses, the Company will have no reported tax
provision, net of valuation allowance adjustments. In the event the Company were to determine, based on the existence of sufficient positive evidence, that it would be able to realize deferred tax assets in the future in excess of the net recorded
amount, an adjustment to the valuation allowance would increase income in the period such determination was made.



Recently Adopted Accounting Statements



In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142. SFAS No. 142 addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets at acquisition and for periods subsequent to acquisition. Effective June 30, 2002, the Company adopted SFAS No. 142. In accordance with this standard, goodwill and certain
other intangible assets have been classified as indefinite-lived assets no longer subject to amortization. Indefinite-lived intangible assets are subject to an impairment test upon adoption and at least annually thereafter. As of June 30, 2002, the
value of the indefinite-lived tradenames was determined using a royalty savings methodology and discounted cash flows. As a result, the Company recorded an impairment charge of $43.7 million against tradenames. After completing the valuation and
impairment of the tradenames, a market valuation of goodwill was assessed based on estimated cash flow earnings. As a result, the Company recorded an impairment charge of $12.9 million against goodwill. The transitional



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impairment charge was recorded as a cumulative effect of an accounting change. The Companys annual amortization charge will be reduced by an estimated
$4.5 million in fiscal year 2003. The useful lives of intangible assets still subject to amortization were not revised because of the adoption of SFAS No. 142.



In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
SFAS No. 144, which supersedes SFAS No. 121, applies to all long-lived assets (including discontinued operations) and consequently amends APB No. 30. SFAS No. 144 develops an accounting model (based on the model in SFAS No. 121) for disposal of
long-lived assets. This model requires that long-lived assets that are to be disposed of be measured at the lower of book value or fair value, less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 was effective for the Companys first
quarter of fiscal year 2003. The adoption of this pronouncement did not have a material impact on the Companys results of operations or financial condition.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, amendment of FASB
Statement No. 13 (SFAS No. 13) and Technical Corrections (SFAS No. 145) with an adoption date of fiscal years beginning after May 15, 2002. This pronouncement rescinds certain Statements and amends SFAS No. 13 and other
various authoritative pronouncements to clarify, correct technically or describe applicability under changed conditions. The adoption of this pronouncement did not have a material impact on the Companys results of operations or financial
condition.



In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146). SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of
a commitment to an exit or disposal plan. Costs covered by SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal
activity that is initiated after December 31, 2002. The Company has adopted this pronouncement for activities after December 31, 2002. The adoption of this pronouncement did not have a material impact on the Companys results of operations or
financial condition.



In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34 (FIN No. 45). FIN No. 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. This interpretation also clarifies the
requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. FIN No. 45 is effective for all guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial statements for interim and annual periods ending after December 15, 2002. The Company adopted the disclosure requirements and the recognition provisions of FIN 45 in third
quarter 2003. The adoption of this interpretation did not have a material impact on the Companys results of operations or financial condition.



Recently Issued Accounting Statements



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51
(FIN No. 46). FIN No. 46 expands existing accounting guidance regarding when a variable interest entity is consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the variable interest entitys residual returns or both. This pronouncement applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in
which a company obtains an interest after that date. For variable interest entities created prior to February 1, 2003, the provisions of this pronouncement are effective June 29, 2003. The adoption of FIN No. 46 is not expected to have any effect on
the Companys results of operations or financial condition.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies the accounting guidance on derivative
instruments (including certain derivative instruments embedded in other contracts) and hedging activities that fall



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within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 also amends certain other existing
pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, with certain exceptions, and for hedging relationships initiated after June 30, 2003. The guidance outlined in this pronouncement is to be applied prospectively, and is effective in the first quarter of the
Companys fiscal year 2004. The adoption of this pronouncement is not expected to have any effect on the Companys results of operations or financial condition.



Cautionary Statement Regarding Forward-Looking Statements



This section may contain forward-looking statements which include assumptions about future market conditions, operations and
financial results. These statements are based on current expectations and are subject to risks and uncertainties. They are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Companys actual
results, performance or achievements in the future could differ significantly from the results, performance or achievements discussed or implied in such forward-looking statements herein and in prior Securities and Exchange Commission filings by the
Company. The Company assumes no obligation to update these forward-looking statements or advise of changes in the assumption on which they were based.



Factors that could cause or contribute to such differences include, but are not limited to, the success of new product introductions and promotions, changes in the
competitive environment of the Companys products, general economic and business conditions, industry trends, raw material costs, dependence on the Companys labor force, and changes in, or the failure or inability to comply with,
government rules and regulations, including, without limitation, Food and Drug Administration and environmental rules and regulations. Statements concerning interest rates and other financial instrument fair values and their estimated contribution
to the Companys future results of operations are based upon market information as of a specific date. This market information is often a function of significant judgment and estimation. Further, market interest rates and commodity prices are
subject to significant volatility.



Item 7A:Quantitative and Qualitative Disclosures About Market Risk



Interest Rates



The following table presents a description of the financial instruments that were held by the Company at June 28, 2003 and that were sensitive to changes
in interest rates. In the ordinary course of business, the Company enters into derivative financial instrument transactions in order to manage or reduce market risk. The Company does not enter into derivative financial instrument transactions for
speculative purposes. For the liabilities, the table represents principal fiscal year cash flows that exist by maturity date and the related average interest rate. The variable rates are estimated based upon the six-month forward LIBOR rate.



All amounts are reflected in U.S. dollars (in thousands).



|                      |  | 2004 |       |   | 2005 |   |        | 2006 |  |   | 2007   |   | Thereafter |   |   | Total |   |         | Fair Value
|--------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | - | ---------- | - | - | ----- | - | ------- | ----------
|Liabilities           |  |      |       |   |      |   |        |      |  |   |        |   |            |   |   |       |   |         |           
|Fixed Rate            |  |      |       |   |      |   |        |      |  |   |        |   |            |   |   |       | $ | 115,000 |           
|Average Interest Rate |  |      |       |   |      |   |        |      |  |   |        |   |            |   |   |       |   | 8.750   | %         
|Variable Rate         |  | $    | 8,578 |   |      | $ | 50,956 |      |  | $ | 18,718 |   |            | $ |  |       | $ |        |           
|Average Interest Rate |  |      | 5.350 | % |      |   | 5.314  | %    |  |   | 5.350  | % |            |   |  |       |   |        |           



As the table
incorporates only those exposures that existed as of June 28, 2003, it does not consider exposure to changes in the LIBOR rate that arise after that date. As a result, our ultimate interest expense with respect to interest rate fluctuations will
depend on the interest rates that are applicable during the period. A 1% change in interest rate will cause a variance of approximately $0.8 million in forecasted interest expense.



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Milk Hedging



The Company uses milk as a major ingredient in its sweetened condensed milk product line and is subject to the risk of rising milk prices that increase
manufacturing costs and erode profit margins. By purchasing futures contracts, however, the Company establishes a known price for future milk purchases in order to protect against fluctuating milk prices. As of June 28, 2003, the Company had
purchased 490 milk futures contracts, which will settle during various months through June 2004, at a cost of $11.5 million and a current market value of $11.3 million, or an aggregate market loss of $0.2 million. The aggregate market value will
increase or decrease based on the future milk prices.



Cautionary Statement
Regarding Forward-Looking Statements



This section may
contain forward-looking statements which include assumptions about future market conditions, operations and financial results. These statements are based on current expectations and are subject to risks and uncertainties. They are made pursuant to
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Companys actual results, performance or achievements in the future could differ significantly from the results, performance or achievements discussed or
implied in such forward-looking statements herein and in prior Securities and Exchange Commission filings by the Company. The Company assumes no obligation to update these forward-looking statements or advise of changes in the assumption on which
they were based.



Factors that could cause or contribute to
such differences include, but are not limited to, the success of new product introductions and promotions, changes in the competitive environment of the Companys products, general economic and business conditions, industry trends, raw material
costs, dependence on the Companys labor force, and changes in, or the failure or inability to comply with, government rules and regulations, including, without limitation, Food and Drug Administration and environmental rules and regulations.
Statements concerning interest rates and other financial instrument fair values and their estimated contribution to the Companys future results of operations are based upon market information as of a specific date. This market information is
often a function of significant judgment and estimation. Further, market interest rates and commodity prices are subject to significant volatility.



Item 8:Financial Statements and Supplementary Data



See Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K.



Item 9:Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



Not applicable.



Item 9A:Controls and Procedures



(a) Evaluation of disclosure controls and procedures.



| |  |  | The Companys management reviewed the Companys internal controls and procedures and the effectiveness of these controls. As of June 28, 2003, the registrants carried out
an evaluation, under the supervision and with the participation of the registrants management, including the registrants Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
registrants disclosure controls and procedures pursuant to Rule 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
registrants disclosure controls and procedures are effective in timely alerting them to material information relating to the registrants required to be included in the registrants periodic SEC filings.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(b) Change in internal controls.



| |  |  | There was no change in the registrants internal controls over financial reporting or in other factors during the Companys last fiscal quarter that materially affected,
or are reasonably likely to materially affect, the Companys internal controls over financial reporting. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART III



Item 10:Directors and Executive Officers of the Registrants



The directors of the Company and executive officers of Holdings and Eagle are as follows:



|Name                  |  | Age |  | Position                                                                            
|--------------------- |  | --- |  | ------------------------------------------------------------------------------------
|Craig A. Steinke      |  | 46  |  | Chief Executive Officer, President, Chief
Financial Officer, Treasurer and Director*
|Michael P. Conti      |  | 34  |  | Vice President, Finance*                                                            
|Kelly J. Crouse       |  | 40  |  | Vice President, Marketing                                                           
|Ronald E. Hord, Jr.   |  | 41  |  | Vice President, Supply Chain                                                        
|Lori S. Snowden       |  | 43  |  | Secretary* and Financial Controller                                                 
|Harold G. M. Strunk   |  | 46  |  | Vice President, Sales                                                               
|David A. Barr         |  | 40  |  | Director                                                                            
|Andreas T. Hildebrand |  | 35  |  | Director                                                                            
|Kewsong Lee           |  | 38  |  | Director                                                                            
|Mark J. Strelecki     |  | 36  |  | Director                                                                            
|Donald W. Torey       |  | 46  |  | Director                                                                            

---

*Messrs. Steinke and Conti and Ms.
Snowden hold these same positions at Holdings and are the executive officers of Holdings.



Craig A. Steinke has served as a Director, Chief Executive Officer and President of Holdings and Eagle since July 2001. Since January 1998, Mr. Steinke has held the positions of Chief Financial Officer, and
Treasurer of Holdings and Eagle. From March 1999 until July 2001, Mr. Steinke also served as Senior Vice President of Operations of Holdings and Eagle. Prior to joining Eagle, Mr. Steinke was President of Magma Metals, a billion dollar subsidiary of
Magma Copper. He was responsible for operations, marketing and sales. Magma Metals was acquired by Broken Hill Proprietary Co. Ltd., and Mr. Steinke was promoted to Senior Vice President and Group General Manager of BHP Copper, a $3.0 billion
subsidiary of Broken Hill Proprietary Co., Ltd. His responsibilities included worldwide sales, international and national marketing teams and a complex U.S. based manufacturing operation with over 1,000 employees.



Michael P. Contihas served as Vice President, Finance of Holdings and
Eagle since August 2001. Mr. Conti joined Eagle in August 1998 and has held Director of Financial Planning and Analysis and Financial Manager positions. From April 1996 through August 1998, Mr. Conti served as Controller of Hamilton Watch, a
division of The Swatch Watch Group.



Kelly J. Crouse has
served as Vice President, Marketing of Eagle since August 2001. From 1998 through August 2001, Mr. Crouse served as Director of Customer Marketing and as Area Vice President of Sales at Eagle. Between 1994 and 1998, Mr. Crouse served as a National
Trade Marketing Manager and Midwest Regional Sales Manager with BFCs, Pasta/Sauce Division.



Ronald E. Hord, Jr.has served as Vice President, Supply Chain of Eagle since August 2001 as an executive officer. From March 2000 to August 2001,
Mr. Hord served in that position in a non-executive officer capacity. Mr. Hord joined Eagle as the Director of Logistics in January 1998. From March 1994 through January 1998, Mr. Hord held a position in logistics with BFC and Borden, Inc., working
on numerous food brands including the six brands that Eagle acquired.



Lori S. Snowdenhas served as Secretary of Holdings and Eagle since August 2001. Since April 1999, Ms. Snowden has served as Financial Controller for Eagle. Ms. Snowden joined Eagle as Assistant Controller in January 1998. From 1990
to the time she joined Eagle, Ms. Snowden held various managerial accounting positions with BFC and Borden, Inc.



Harold G. M. Strunk has served as Vice President, Sales of Eagle since August 2001. From 1998 through August 2001 Mr. Strunk held positions of
Director of Sales Support and Vice President of International Sales of



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Eagle. Between 1996 and 1998, Mr. Strunk held various managerial positions in sales and marketing with BFC and Borden, Inc.



David A. Barrhas served as a Director of Holdings and Eagle since
August 2001. Mr. Barr has served as a Member and Managing Director of E.M. Warburg, Pincus & Co., LLC (EMW LLC) and General Partner of Warburg, Pincus & Co. (WP) since January 1, 2001. Prior to joining EMW LLC, Mr.
Barr was a Managing Director at Butler Capital Corp., a private investment firm focused on middle market management buyouts. His present service as a director includes membership on the boards of TransDigm Holding Company and Wellman, Inc.



Andreas T. Hildebrandhas served as a Director of
Holdings and Eagle since their respective dates of formation. Mr. Hildebrand has served as Managing Director of the Private Equity Group of General Electric Asset Management (GEAM) since July 2000 and Vice President of GEAM since May
1997. Mr. Hildebrand presently serves as a director of several privately held companies.



Kewsong Leehas served as a Director of Holdings and Eagle since their respective dates of formation. Mr. Lee has served as a Member and Managing Director of EMW LLC and General Partner of WP since January 1,
1997. His present service as a director includes membership on the boards of Knoll, Inc., Arch Capital Group Ltd., TransDigm Holding Company and several privately held companies.



Mark J. Streleckihas served as a Director of Holdings and Eagle since September 2002. Mr. Strelecki has served as an
Associate in the Private Equity Group of GEAM since July 2000. From July 1997 through July 2000, Mr. Strelecki served in various Financial Planning and Analysis positions at GEAM.



Donald W. Torey has served as a Director of Holdings and Eagle since their respective dates of formation. Mr. Torey
has served as Executive Vice President of GEAM and GE Investment Management Incorporated (GEIM and, together with GEAM, GE Investments) with responsibility for GE Investments Private Equity and Real Estate groups since
January 1997. Mr. Torey currently serves as a Trustee for the General Electric Pension Trust (GEPT).



25



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##### Table of Contents

Item 11:Executive Compensation



Summary Compensation Table



The following
summary compensation table provides information concerning compensation for the Companys chief executive officers, the four other most highly compensated executive officers of Eagle and other executive officers who are named executive officers
within the meaning of Item 402(a)(3) of Regulation S-K under the Securities Act of 1933 (collectively, the Named Executive Officers) for fiscal year 2003, fiscal year 2002, and fiscal year 2001.



|                                                                                |  | Annual Compensation | 
|------------------------------------------------------------------------------- |  | ------------------- | 
|Name and Principal Position                                                     |  | Fiscal Year         | 
|Craig A. Steinke Chief Executive Officer, President and Chief Financial Officer |  | 2003 2002 2001      | 
|Harold G.M. Strunk(4) Senior Vice President,
Marketing and Sales                |  | 2003 2002           | 
|Ronald E. Hord, Jr.(4) Vice President, Supply
Chain                             |  | 2003 2002           | 
|Kelly J. Crouse(4) Vice President,
Marketing                                    |  | 2003 2002           | 
|Michael P. Conti(4) Vice President,
Finance                                     |  | 2003 2002           | 

---

|(1) |  | The bonus represents the amount earned and paid to the Named Executive Officer for the Companys fiscal year for which each executive could earn up to 100% of his base salary
if certain performance targets were met.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes for fiscal year 2003 for Messrs. Steinke, Strunk, Hord, Crouse and Conti, respectively, the following: (i) matching and profit sharing contributions (company 401k
match) made by the Company on behalf of each Named Executive Officer pursuant to the Eagle 401k Savings and Retirement Plan of $6,000, $5,156, $3,997, $5,496, and $5,433; (ii) car allowance of $7,200, $7,200, $7,200, $7,200, and $0; and (iii)
moving expense of $10,816 for Mr. Conti.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes $370,800 special bonus for consummating the ReaLemonSale, $6,000 for out-of-town car allowance and $5,500 for company 401k match.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Prior to fiscal year 2002, these Named Executive Officers were employees of Eagle, but did not hold executive officer positions. Therefore, their compensation is not provided for
fiscal year 2001.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes car allowance of $7,200, $6,000 and $7,200 for Messrs. Strunk, Hord, and Crouse, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------

|(6) |  | Includes $25,420 and $31,778 related to moving expense for Messrs. Crouse and Conti, respectively.
|--- |  | --------------------------------------------------------------------------------------------------

|(7) |  | Includes $20,000 special bonus for consummating the ReaLemonSale.
|--- |  | -----------------------------------------------------------------



Compensation Committee Interlocks and Insider Participation



Matters of compensation are reviewed and acted upon by the full Board of Directors, consisting of David A. Barr, Andreas T. Hildebrand, Kewsong Lee, Craig
A. Steinke, Mark J. Strelecki, and Donald W. Torey. Mr. Steinke is an executive officer and employee of Holdings and Eagle. See Item 13. Certain Relationships and Related Transactions.



Director Compensation



The Directors of Holdings and Eagle have not received, and are not expected in the future to receive, compensation for their
service as directors. Directors are entitled to reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Boards of Directors or committees thereof, except



26



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##### Table of Contents

that directors who are employees of Holdings, Eagle, or a stockholder of Holdings shall not be entitled to such reimbursement.



Employment Agreements



On January 23, 1998, the Company entered into an employment agreement with Craig A. Steinke, pursuant to which Mr. Steinke
served as Vice President, Chief Financial Officer and Treasurer of the Company. In July 2001, Mr. Steinke was appointed Chief Executive Officer and President of the Company. The Company has not entered into a new agreement with Mr. Steinke since his
promotion. Pursuant to his employment agreement, his annual base salary was $300,000 as of July 1, 2001 and is subject to increases as determined by the Board of Directors. In addition, pursuant to the agreement, Mr. Steinke is entitled to receive a
bonus of up to 100% of his base salary if certain performance targets are met. Bonuses for future periods are to be based on targets to be established by the Board of Directors. The agreement has a term of one year, with automatic annual renewals.
In the event the employment agreement is terminated by the Company without cause (as defined in such employment agreement), Mr. Steinke is entitled to receive severance payments equal to the base salary then in effect for 12 months. The
agreement provides for customary non-competition and non-solicitation provisions.



The Company entered into employment arrangements with Messrs. Conti, Crouse, Hord and Strunk relative to base pay and bonuses. In the event the employment arrangement is terminated by the Company without cause, these
executive officers are entitled to receive severance payments equal to the base salary then in effect for 12 months.



27



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##### Table of Contents

Item 12:Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



All of the issued and outstanding shares of common stock of Eagle as of September 22, 2003 are beneficially owned by Holdings. There are three classes of
capital stock of Holdings authorized and outstanding: the Common Stock, which has full voting rights, the Series A Preferred Stock and the Series B Preferred Stock, each of which has limited voting rights. The following table sets forth, as of
September 22, 2003, certain information regarding the beneficial ownership of Common Stock, Series A Preferred Stock and Series B Preferred Stock, as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
Exchange Act), with respect to (i) each person known by the Company to be the beneficial owner of more than five percent of any class of Holdings voting securities, (ii) each of the directors and named executive officers of
Holdings and Eagle and (iii) all directors and executive officers of Holdings and Eagle, as a group:



|                                                                                                            |  | Common Stock    |  | Series APreferred Stock |  | Series BPreferred Stock
|----------------------------------------------------------------------------------------------------------- |  | --------------- |  | ----------------------- |  | -----------------------
|Name and Address of Beneficial Owner (1)                                                                    |  | Number ofShares |  | Percentage              |  | Number ofShares        
|GE Investment Private Placement Partners II, a Limited Partnership 3003 Summer Street Stamford, CT 06905(2) |  | 458,200         |  | 45.7                    |  | 402,399                
|Warburg, Pincus Ventures, L.P. 466 Lexington Avenue New York, NY 10017(3)                                   |  | 458,200         |  | 45.7                    |  | 402,399                
|Craig A. Steinke(4)                                                                                         |  | 40,835          |  | 4.1                     |  | 990                    
|Harold G.M. Strunk(5)                                                                                       |  | 2,000           |  | *                       |  |                       
|Ronald E. Hord, Jr.(5).                                                                                     |  | 600             |  | *                       |  |                       
|Kelly J. Crouse(5)                                                                                          |  | 750             |  | *                       |  |                       
|Michael P. Conti(5)                                                                                         |  | 1,000           |  | *                       |  |                       
|David A. Barr(3)                                                                                            |  | 458,200         |  | 45.7                    |  | 402,399                
|Andreas T. Hildebrand(2)(6)                                                                                 |  |                |  |                        |  |                       
|Kewsong Lee(3)                                                                                              |  | 458,200         |  | 45.7                    |  | 402,399                
|Mark J. Strelecki(2)(6)                                                                                     |  |                |  |                        |  |                       
|Donald W. Torey(2)(6)                                                                                       |  |                |  |                        |  |                       
|All directors and executive officers as a Group (8 persons)(7)                                              |  | 503,685         |  | 50.3                    |  | 403,389                

---

* Less than 1%



|(1) |  | Pursuant to the rules of the Securities and Exchange Commission, shares are deemed to be beneficially owned by a person if such person directly or indirectly has or
shares (i) the power to vote or dispose of such shares, whether or not such person has any pecuniary interest in such shares, or (ii) the right to acquire the power to vote or dispose of such shares within 60 days, including any right to acquire
through the exercise of any option, warrant or right. Unless otherwise indicated, each persons address is c/o Eagle Family Foods, Inc. 735 Taylor Road, Gahanna, Ohio 43230. Messrs. Barr and Lee have the same address as Warburg. Messrs.
Hildebrand, Strelecki, and Torey have the same address as GEI.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Does not include any shares indirectly held by Trustees of GEPT by virtue of GEPTs limited partnership interest in Warburg. GEPT is also a limited partner in GEI. GEIM is the
general partner of GEI and a wholly owned subsidiary of GE. As a result, each of GEIM and GE may be deemed to be the beneficial owner of the shares owned by GEI.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The sole general partner of Warburg is WP, a New York general partnership. EMW LLC, a New York limited liability company, manages Warburg. The members of EMW LLC are substantially
the same as the partners of WP. Lionel I. Pincus is the managing partner of WP and the managing member of EMW LLC. WP, as the sole general partner of Warburg, has a 15% interest in the profits of Warburg. Messrs. Barr and Lee, directors of Holdings,
are Managing Directors and members of EMW LLC and general partners of WP. As such, Messrs. Barr and Lee may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 under the Exchange Act) in an indeterminate portion of the
shares beneficially owned by Warburg and WP.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 39,835 Restricted Shares, subject to certain vesting and forfeiture requirements, issued to Mr. Steinke.
|--- |  | -----------------------------------------------------------------------------------------------------------------

|(5) |  | Represents Restricted Shares, subject to certain vesting and forfeiture requirements, issued to named executive officers.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

|(6) |  | Excludes 458,200 shares of Common Stock, 402,399 shares of Series A Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially owned by GEI and GEIM. As an executive
officer and director of GEIM, Mr. Torey has shared voting and investment power with respect to the shares held by GEI, and therefore, may be deemed to be the beneficial owner of such shares. Messrs. Hildebrand, Strelecki, and Torey disclaim
beneficial ownership of all such shares owned by GEI and GEIM.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 458,200 shares of Common Stock, 402,399 shares of Series A Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially owned by Warburg. Excludes 458,200
shares of Common Stock, 402,399 shares of Series A Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially owned by GEI. Includes 300 shares of restricted stock, subject to certain vesting and forfeiture requirements, issued to
executive officer not identified in the table.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Equity Compensation Plan Information



The following table sets forth information about the Common Stock issuable under the 1998 Stock Incentive Plan (the
Incentive Plan) as of June 28, 2003. Only Restricted Shares had been issued under the Incentive Plan as of June 28, 2003.



|Plan category                                                 |  | Number of securities to beissued upon exercise ofoutstanding options,warrants and rights(a) |  | Weighted averageexercise price ofoutstanding options,warrants and rights(b) |  | Number of securitiesremaining available forfurther issuance underequity compensation plans(excluding securitiesreflected in
column (a)).(c) |    
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- | ---
|Equity compensation plans approved by security holders        |  |                                                                                            |  |                                                                            |  |                                                                                                                                            |    
|Equity compensation plans not approved by security holders(1) |  |                                                                                            |  |                                                                            |  | 121,268                                                                                                                                     | (2)
|                                                              |  |                                                                                             |  |                                                                             |  |                                                                                                                                             |    
|Total                                                         |  |                                                                                            |  |                                                                            |  | 121,268                                                                                                                                     |    
|                                                              |  |                                                                                             |  |                                                                             |  |                                                                                                                                             |    

---

|(1) |  | On January 14, 1998, Holdings Board of Directors adopted the Incentive Plan. The Incentive Plan provides for the granting of incentive stock options, non-qualified stock
options and restricted stock to officers, key employees, directors and consultants of the Company at the discretion of a committee of the Holdings Board of Directors. Originally, there were 153,650 shares of Common Stock reserved for issuance
under the Incentive Plan. As amended on January 5, 2000 by the Holdings Board of Directors, 206,150 shares of Common Stock may be awarded under the Incentive Plan, subject to certain adjustments reflecting changes in Holdings
capitalization.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | All 121,268 shares of Common Stock remain available for issuance pursuant to the Incentive Plan. No options have been issued under the Incentive Plan.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



The Holdings Stockholders Agreement



The relations among the Equity Sponsors and the Management Investors
(collectively, the Investors), and Holdings are governed by a Stockholders Agreement, dated as of the Acquisition Closing and as amended (the Holdings Stockholders Agreement). The following summary of certain provisions of
the Holdings Stockholders Agreement does not purport to be complete and is qualified in its entirety by reference to all the provisions of the Holdings Stockholders Agreement.



Board of Directors.Holdings is managed by a Board of Directors not to exceed nine members, three members of which
may be designated by GEI and three members of which may be designated by Warburg. For so long as GEI beneficially owns at least 20% of the Common Stock outstanding on a fully diluted basis, GEI has the right to designate three directors to the Board
of Directors. For so long as GEI beneficially owns at least 15% of the Common Stock outstanding on a fully diluted basis, GEI has the right to designate two directors to the Board of Directors. For so long as GEI beneficially owns at least 10% of
the Common Stock outstanding on a fully diluted basis, GEI has the right to designate one director to the Board of Directors. For so long as Warburg beneficially owns at least 20% of the Common Stock outstanding on a fully diluted basis, Warburg has
the right to designate three directors to the Board of Directors. For so long as Warburg beneficially owns at least 15% of the Common Stock outstanding on a fully diluted basis, Warburg has the right to designate two directors to the Board of
Directors. For so long as Warburg beneficially owns at least 10% of the Common Stock outstanding on a fully diluted basis, Warburg has the right to designate one director to the Board of Directors. In addition, as long as the Equity Sponsors in the
aggregate beneficially own more than 50% of the Common Stock outstanding on a fully diluted basis, the Equity Sponsors have the right to designate a majority of the directors to the Board of Directors. The Board of Directors will have at least one
director who is not an officer or employee of Holdings, the Company, or the Equity Sponsors, appointed by unanimous approval of the Board of Directors. The Holdings Stockholders Agreement provides that the Board of Directors of the Company is
identical to that of Holdings.



The consent of a majority of
the Board of Directors which includes at least one of the directors designated by GEI and one of the directors designated by Warburg is required for the approval of (i) the Companys or Holdings annual operating budget; (ii) capital
expenditures or investments not approved in the annual budget in amounts greater than $500,000; (iii) any merger or consolidation involving the Company or Holdings; (iv) any acquisition by the Company or Holdings of any assets or stock, other than
acquisitions of assets in the ordinary course of business; (v) any divestiture of assets in excess of $500,000 by the Company or Holdings, other than sales of inventory in the



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ordinary course of business; (vi) any liquidation, dissolution or winding up, or any consent to a bankruptcy or insolvency or related proceeding involving,
the Company or Holdings; (vii) the issuance or sale of any debt or equity securities for cash; (viii) any expansion into new lines of business; (ix) any joint venture or strategic alliance; (x) the repurchase or redemption of any outstanding shares
of capital stock or the declaration or payment of any dividends on any shares of capital stock of the Company or Holdings; (xi) the amendment or modification of the certificate of incorporation or bylaws of the Company or Holdings; (xii) the
amendment, modification or termination of any employment agreement with any executive officer of the Company or Holdings; (xiii) the grant of any stock options or other equity-based compensation; (xiv) the hiring or firing of any executive officer;
(xv) any related party transactions; (xvi) any loans or guarantees by the Company or Holdings outside of the ordinary course of business; (xvii) any agreement having a duration in excess of one year or cumulative obligations in excess of $1 million;
(xviii) the amendment, modification or termination of any agreement with any union; (xix) the approval or adoption, amendment, modification or termination of certain employee benefit plans; and (xx) any agreement to do any of the foregoing.



Restrictions on Transfer of Stock.Securities held by
the Management Investors, including any shares of Common Stock or Redeemable Preferred Stock and any options to acquire shares of Common Stock, may only be sold or otherwise transferred with the consent of the Board of Directors of Holdings.



Tag-Along Rights.The Holdings Stockholders Agreement
provides that in the event any Investor chooses to sell or otherwise transfer more than 20% of its shares of Common Stock or Redeemable Preferred Stock to a proposed transferee, the selling Investor must offer to each of the other Investors the
right to participate in such sale on a pro rata basis based on ownership of the shares being sold.



Subscription Rights.With certain exceptions, the Holdings Stockholders Agreement provides each Investor with subscription rights in connection
with any issuance of equity securities by Holdings for cash whereby each Investor shall have the right to purchase a pro rata portion of such equity securities.



Certain Covenants.The Holdings Stockholders Agreement requires Holdings to (i) provide certain financial and other information to the Investors
concerning Holdings and its subsidiaries (ii) comply with applicable law and (iii) maintain insurance.



Termination.The tag-along rights and subscription rights described above will terminate upon the completion of an initial public offering of
Common Stock.



The Registration Rights Agreement



Holdings and the Investors entered into a Registration Rights Agreement,
dated as of the Acquisition Closing and as amended (the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, each of the Equity Sponsors has two demand registration rights for each of its Redeemable Preferred
Stock and Common Stock. In addition, the Equity Sponsors have unlimited Form S-3 registration rights and unlimited piggyback rights. The Management Investors also have piggyback registration rights. All expenses related to these registrations (other
than underwriting discounts and commissions) will be borne by Holdings. Holdings is required to use its best efforts to affect such registrations, subject to certain conditions and limitations. Holdings has agreed to indemnify the Investors for
certain liabilities arising out of such registrations, including liabilities under the Securities Act.



Item 13:Certain Relationships and Related Transactions



In connection with the portion of the Equity Contribution to Holdings made by Mr. Nugent, the Company lent an aggregate of $250,000 to Mr. Nugent in
exchange for full recourse note bearing interest at a floating rate, set semi-annually, at The Chase Manhattan Banks then applicable prime rate, in effect for six-month periods, plus 0.5%. The note would have matured on the fifth anniversary
of the Acquisition Closing and was secured by a pledge in favor of the Company of all of the shares of Common Stock and Series A Preferred Stock owned by such Management Investor. Pursuant to the Separation Agreement, Mr. Nugent agreed to transfer
2,475 shares of Series A Preferred Stock to the Company and to waive his right to payment therefore in accordance with the terms of his employment agreement, as payment in full and complete satisfaction of principal and interest accrued on this note
and 2,475 shares of Series A Preferred Stock for a cash purchase price of $250,000.



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On September 27, 1999, pursuant to a subscription agreement, each of Warburg and GEI purchased (i) 50,000
shares of Common Stock and Warrants to purchase 11,006.5 shares of Common Stock for a cash purchase price of $50,000 and (ii) 49.5 shares of Series B Preferred Stock for a cash purchase price of $4,950,000. The Warrants may be exercised (a) for a
purchase price of $1 per share of Common Stock (subject to certain adjustments) and (b) only upon the failure of the Company to achieve certain financial targets for fiscal year 2000. The financial targets for fiscal year 2000 were not met.
Therefore, the Warrants are exercisable. The Warrants expire on September 27, 2004.



Matters of compensation are reviewed and acted upon by the full Board of Directors, consisting of David A. Barr, Andreas T. Hildebrand, Kewsong Lee, Craig A. Steinke, Mark J. Strelecki and Donald W. Torey. Mr. Steinke
is an executive officer and employee of Holdings and Eagle.



All future transactions between the Company and its officers, directors, principal stockholders or their respective affiliates, will be on terms no less favorable to the Company than can be obtained from unaffiliated third parties.



Item 14:Principal Accountant Fees and Services



The following table sets forth the fees billed to Eagle by PricewaterhouseCoopers LLP during fiscal year 2003 and 2002 (in thousands):



|                        |  | Fiscal Year2003 |       | Fiscal Year2002
|----------------------- |  | --------------- | ----- | ---------------
|Audit Fees              |  | $               | 158.4 |                
|Audit-Related Fees      |  |                 | 18.8  |                
|Tax Fees and Other Fees |  |                 | 40.5  |                
|                        |  |                 |       |                
|Total                   |  | $               | 217.7 |                
|                        |  |                 |       |                



Audit Fees for fiscal
year 2003 and fiscal year 2002 were for professional services rendered for the audits of the consolidated financial statements of the Company, the issuance of debt compliance letters and assistance with the review of documents filed with the
Securities and Exchange Commission.



Audited Related Fees for
fiscal year 2003 and fiscal year 2002 were for audit or compilation work pertaining to the Companys employee benefit plans.



Tax Fees and Other Fees for fiscal year 2003 and fiscal year 2002 were for services related to tax compliance and preparation of federal, state and local
corporate tax returns and personal property returns and tax planning and tax advice. Tax fees for fiscal year 2002 included fees for services relative to tax consultation on the ReaLemonSale.



The officers of the Company consult with the entire board before engaging
accountants for any services.



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##### Table of Contents

PART IV



Item 15:Exhibits, Financial Statement Schedules, and Reports on Form 8-K



(a)(1) Financial Statements of the Company



|                                                                                                                                                                                            |  | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Eagle Family Foods, Inc. and Eagle Family Foods Holdings, Inc.                                                                                                                              |  |     
|                                                                                                                                                                                            | 
|Report of Independent Accountants                                                                                                                                                           |  | 36  
|                                                                                                                                                                                            | 
|Eagle Family Foods, Inc. Statements of Operations and Comprehensive Loss for the Fifty-Two Week Periods ended June 28, 2003, June 29, 2002, and June 30, 2001                               |  | 37  
|                                                                                                                                                                                            | 
|Eagle Family Foods, Inc. Balance Sheets as of June 28, 2009 and June 29, 2002                                                                                                               |  | 38  
|                                                                                                                                                                                            | 
|Eagle Family Foods, Inc. Statements of Cash Flows for the Fifty-Two Week Periods ended June 28, 2003, June 29, 2002, and June 30, 2001                                                      |  | 39  
|                                                                                                                                                                                            | 
|Eagle Family Foods, Inc. Statements of Changes in Stockholders Equity for the Fifty-Two Week Periods ended June 28, 2003, June 29, 2002, and June 30, 2001                                 |  | 40  
|                                                                                                                                                                                            | 
|Eagle Family Foods Holdings, Inc. Consolidated Statements of Operations and Comprehensive Loss for the Fifty-Two Week Periods ended June 28, 2003, June 29,
2002, and June 30, 2001         |  | 41  
|                                                                                                                                                                                            | 
|Eagle Family Foods Holdings, Inc. Consolidated Balance Sheets as of June 28, 2003 and June 29, 2002                                                                                         |  | 42  
|                                                                                                                                                                                            | 
|Eagle Family Foods Holdings, Inc. Consolidated Statements of Cash Flows for the Fifty-Two Week Periods ended June 28, 2003, June 29, 2002, and June 30, 2001                                |  | 43  
|                                                                                                                                                                                            | 
|Eagle Family Foods Holdings, Inc. Consolidated Statements of Changes in Stockholders Equity (Deficit) for the Fifty-Two Week Periods ended June 28, 2003, June 29, 2002, and June 30, 2001 |  | 44  
|                                                                                                                                                                                            | 
|Notes to the Financial Statements                                                                                                                                                           |  | 45  



(a)(2) Financial
Statement Schedules



All schedules are omitted because the
required information is either presented in the financial statements or notes thereto, or is not applicable, required or material.



(a)(3) Exhibits



|    | 
|--- | 
|2.1 | 
|    | 
|2.2 | 
|    | 
|3.1 | 
|    | 
|3.2 | 



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|     | 
|---- | 
|3.3  | 
|     | 
|3.4  | 
|     | 
|3.5  | 
|     | 
|4.1  | 
|     | 
|4.2  | 
|     | 
|4.3  | 
|     | 
|4.4  | 
|     | 
|4.5  | 
|     | 
|4.6  | 
|     | 
|4.7  | 
|     | 
|4.8  | 
|     | 
|4.9  | 
|     | 
|4.10 | 
|     | 
|10.1 | 
|     | 
|10.2 | 



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|     | 
|---- | 
|10.3 | 
|     | 
|10.4 | 
|     | 
|10.5 | 
|     | 
|10.6 | 
|     | 
|12.1 | 
|     | 
|12.2 | 
|     | 
|31.1 | 
|     | 
|31.2 | 



(b) Reports on Form 8-K



None.



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized.



EAGLE FAMILY FOODS HOLDINGS,
INC.By:

/S/ CRAIG A. STEINKECraig A. SteinkePresident, Chief Executive Officer and Chief FinancialOfficer




EAGLE FAMILY FOODS, INC.By:

/s/ CRAIG A. STEINKECraig A. SteinkePresident, Chief Executive Officer and ChiefFinancial Officer




September 22, 2003



Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in their capacities indicated.



|Name                                           |  | Title                                                                                                                                                                   |  | Date              
|---------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|                                               |  |                                                                                                                                                                        
|/S/ CRAIG A. STEINKECraig A. Steinke           |  | Director, President, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial officer and principal accounting officer) |  | September 22, 2003
|                                               |  |                                                                                                                                                                        
|/S/ ANDREAS T. HILDEBRANDAndreas T. Hildebrand |  | Director                                                                                                                                                                |  | September 22, 2003
|                                               |  |                                                                                                                                                                        
|/S/ KEWSONG LEEKewsong Lee                     |  | Director                                                                                                                                                                |  | September 22, 2003
|                                               |  |                                                                                                                                                                        
|/S/ DAVID A. BARRDavid A. Barr                 |  | Director                                                                                                                                                                |  | September 22, 2003
|                                               |  |                                                                                                                                                                        
|/S/ DONALD W. TOREYDonald W. Torey             |  | Director                                                                                                                                                                |  | September 22, 2003
|                                               |  |                                                                                                                                                                        
|/S/ MARK J. STRELECKIMark J. Strelecki         |  | Director                                                                                                                                                                |  | September 22, 2003



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Report of Independent Auditors



To the Board of Directors and Shareholders

of Eagle Family Foods, Inc.

and Eagle Family Foods Holdings, Inc.:



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position
of Eagle Family Foods, Inc. and Eagle Family Foods Holdings, Inc. at June 28, 2003 and June 29, 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 2003 in conformity with
accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management; our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



As discussed in Note 6 to the financial statements, effective June 30, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.



PricewaterhouseCoopers LLP



Columbus,
Ohio



August 28, 2003



36



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EAGLE FAMILY FOODS, INC.

Statements of Operations and Comprehensive Loss

(Dollars in Thousands)



|                                                                                      |  | Fifty-Two Week Period Ended |        
|------------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                      |  | June 28, 2003               |        
|Net sales, before marketing allowance                                                 |  | $                           | 157,647
|Marketing allowance                                                                   |  |                             | 28,925 
|                                                                                      |  |                             |        
|Net sales                                                                             |  |                             | 128,722
|Cost of goods sold                                                                    |  |                             | 81,313 
|Cost of goods sold, accelerated depreciation                                          |  |                             |       
|                                                                                      |  |                             |        
|Cost of goods sold                                                                    |  |                             | 81,313 
|Gross margin                                                                          |  |                             | 47,409 
|Distribution expense                                                                  |  |                             | 8,292  
|Marketing expense                                                                     |  |                             | 11,158 
|General and administrative expense                                                    |  |                             | 7,619  
|Amortization of intangible assets                                                     |  |                             | 1,660  
|Gain (loss) on sale of product lines, net of reorganization charges and other charges |  |                             | (1,190 
|                                                                                      |  |                             |        
|Operating income                                                                      |  |                             | 17,490 
|Interest expense, net                                                                 |  |                             | 15,558 
|                                                                                      |  |                             |        
|Income (loss) before income taxes and cumulative effect of accounting change          |  |                             | 1,932  
|Income tax benefit (expense)                                                          |  |                             | 76     
|                                                                                      |  |                             |        
|Net income (loss) before cumulative effect of accounting change                       |  |                             | 2,008  
|Cumulative effect of accounting change (net of tax $0 and $212)                       |  |                             | 56,614 
|                                                                                      |  |                             |        
|Net loss                                                                              |  | $                           | (54,606
|                                                                                      |  |                             |        
|Other comprehensive income (loss):                                                    |  |                             |        
|Cash flow hedges -                                                                    |  |                             |        
|Cumulative effect of accounting change (net of tax of $741)                           |  |                             |       
|Change in fair value of financial derivatives (net of tax benefit of $568)            |  |                             |       
|Change in fair value of commodity contracts (net of tax benefit of $0 and $24)        |  |                             | 37     
|Reclassification to interest expense (net of tax benefit of $71, $124, and $127)      |  |                             | (121   
|Foreign currency translation adjustment                                               |  |                             | 206    
|                                                                                      |  |                             |        
|Comprehensive loss                                                                    |  | $                           | (54,484
|                                                                                      |  |                             |        



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



37



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##### Table of Contents

EAGLE FAMILY FOODS, INC.

Balance Sheets

(Dollars in Thousands Except Share Data)



|                                                                                              |  | June 28, 2003 |          |   | June 29, 2002 |  
|--------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------- | -
|Assets                                                                                        |  |               |          |   |               |  
|Current assets                                                                                |  |               |          |   |               |  
|Cash and cash equivalents                                                                     |  | $             | 1,616    |   |               | $
|Accounts receivable, net                                                                      |  |               | 7,261    |   |               |  
|Inventories                                                                                   |  |               | 32,594   |   |               |  
|Other current assets                                                                          |  |               | 1,222    |   |               |  
|                                                                                              |  |               |          |   |               |  
|Total current assets                                                                          |  |               | 42,693   |   |               |  
|                                                                                              |  |              
|Property and equipment, net                                                                   |  |               | 5,574    |   |               |  
|Intangible assets, net                                                                        |  |               | 104,571  |   |               |  
|Other non-current assets                                                                      |  |               | 4,274    |   |               |  
|Intercompany receivable                                                                       |  |               | 1,382    |   |               |  
|                                                                                              |  |               |          |   |               |  
|Total assets                                                                                  |  | $             | 158,494  |   |               | $
|                                                                                              |  |               |          |   |               |  
|Liabilities and Stockholders Equity                                                          |  |               |          |   |               |  
|Current liabilities                                                                           |  |               |          |   |               |  
|Current portion of long-term debt                                                             |  | $             | 8,578    |   |               | $
|Accounts payable                                                                              |  |               | 5,504    |   |               |  
|Other accrued liabilities                                                                     |  |               | 6,111    |   |               |  
|Accrued interest                                                                              |  |               | 5,402    |   |               |  
|                                                                                              |  |               |          |   |               |  
|Total current liabilities                                                                     |  |               | 25,595   |   |               |  
|                                                                                              |  |              
|Long-term debt                                                                                |  |               | 184,674  |   |               |  
|                                                                                              |  |              
|Commitments and contingencies (Note 13)                                                       |  |               |          |   |               |  
|                                                                                              |  |              
|Stockholders equity                                                                          |  |               |          |   |               |  
|Common stock, $.01 par value, 250,000 shares authorized, 10,000 shares issued and outstanding |  |               | 1        |   |               |  
|Additional paid-in capital                                                                    |  |               | 92,500   |   |               |  
|Accumulated deficit                                                                           |  |               | (144,288 | ) |               |  
|Accumulated other comprehensive income (loss)                                                 |  |               | 12       |   |               |  
|                                                                                              |  |               |          |   |               |  
|Total stockholders equity                                                                    |  |               | (51,775  | ) |               |  
|                                                                                              |  |               |          |   |               |  
|Total liabilities and stockholders equity                                                    |  | $             | 158,494  |   |               | $
|                                                                                              |  |               |          |   |               |  



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



38



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EAGLE FAMILY FOODS, INC.

Statements of Cash Flows

(Dollars in Thousands)



|                                                                                   |  | Fifty-Two Week Period Ended |        
|---------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                   |  | June 28, 2003               |        
|Cash flows from (used in) operating activities:                                    |  |                             |        
|Net loss                                                                           |  | $                           | (54,606
|Adjustments to reconcile net loss to net cash from (used in) operating activities: |  |                             |        
|Depreciation and amortization                                                      |  |                             | 5,322  
|Amortization of deferred financing costs                                           |  |                             | 1,450  
|Cumulative effect of accounting change                                             |  |                             | 56,614 
|Loss (gain) on retirement/sale of fixed assets                                     |  |                             | (549   
|Deferred taxes                                                                     |  |                             |       
|Gain on sale of product lines, net of reorganization charges                       |  |                             |       
|Net change in assets and liabilities:                                              |  |                             |        
|Accounts receivable, net                                                           |  |                             | 2,118  
|Inventories                                                                        |  |                             | 2,897  
|Accounts payable                                                                   |  |                             | (321   
|Other assets                                                                       |  |                             | (617   
|Other liabilities                                                                  |  |                             | (468   
|                                                                                   |  |                             |        
|Cash from (used in) operating activities                                           |  |                             | 11,840 
|                                                                                   |  |                             |        
|Cash (used in) from investing activities:                                          |  |                             |        
|Capital expenditures                                                               |  |                             | (610   
|Proceeds from the sale of assets                                                   |  |                             | 593    
|Proceeds from sale of product lines                                                |  |                             |       
|                                                                                   |  |                             |        
|Cash (used in) from investing activities                                           |  |                             | (17    
|                                                                                   |  |                             |        
|Cash (used in) from financing activities:                                          |  |                             |        
|Borrowings under revolving credit facility                                         |  |                             | 55,000 
|Payments under revolving credit facility                                           |  |                             | (64,600
|Payments under term loan facility                                                  |  |                             | (936   
|Other financing costs                                                              |  |                             | (563   
|Proceeds from sale of interest rate swap agreements                                |  |                             |       
|                                                                                   |  |                             |        
|Cash (used in) from financing activities                                           |  |                             | (11,099
|                                                                                   |  |                             |        
|Increase (decrease) in cash and cash equivalents                                   |  |                             | 724    
|Cash and cash equivalents at beginning of period                                   |  |                             | 892    
|                                                                                   |  |                             |        
|Cash and cash equivalents at end of period                                         |  | $                           | 1,616  
|                                                                                   |  |                             |        
|Supplemental disclosure:                                                           |  |                             |        
|Interest paid                                                                      |  | $                           | 14,074 
|                                                                                   |  |                             |        



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



39



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EAGLE FAMILY FOODS, INC.

Statements of Changes in Stockholders Equity

For the Fifty-Two Week Periods Ended

June 28, 2003, June 29, 2002, and June 30, 2001

(Dollars in Thousands)



|                                              |  | CommonStock |   | AdditionalPaid inCapital |   | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |      
|--------------------------------------------- |  | ----------- | - | ------------------------ | - | ------------------ |  | - | ------------------------------------------ | - |  | ----- | -----
|Balance, July 1, 2000                         |  | $           | 1 |                          | $ | 92,500             |  | $ | (52,539                                    | ) |  | $     | 10   
|Net loss                                      |  |             |  |                          |   |                   |  |   | (5,434                                     | ) |  |       |     
|Other comprehensive income:                   |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Cumulative effect of accounting change        |  |             |  |                          |   |                   |  |   |                                           |   |  |       | 1,262
|Change in fair value of financial derivatives |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (967 
|Reclassification to interest expense          |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (215 
|Foreign currency translation adjustment       |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (55  
|                                              |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Balance, June 30, 2001                        |  |             | 1 |                          |   | 92,500             |  |   | (57,973                                    | ) |  |       | 35   
|Net loss                                      |  |             |  |                          |   |                   |  |   | (31,709                                    | ) |  |       |     
|Other comprehensive loss:                     |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Change in fair value of commodities           |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (41  
|Recognition of interest income                |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (211 
|Foreign currency translation adjustment       |  |             |  |                          |   |                   |  |   |                                           |   |  |       | 107  
|                                              |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Balance, June 29, 2002                        |  |             | 1 |                          |   | 92,500             |  |   | (89,682                                    | ) |  |       | (110 
|Net loss                                      |  |             |  |                          |   |                   |  |   | (54,606                                    | ) |  |       |     
|Other comprehensive income:                   |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Change in fair value of commodities           |  |             |  |                          |   |                   |  |   |                                           |   |  |       | 37   
|Reclassification to interest expense          |  |             |  |                          |   |                   |  |   |                                           |   |  |       | (121 
|Foreign currency translation adjustment       |  |             |  |                          |   |                   |  |   |                                           |   |  |       | 206  
|                                              |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      
|Balance, June 28, 2003                        |  | $           | 1 |                          | $ | 92,500             |  | $ | (144,288                                   | ) |  | $     | 12   
|                                              |  |             |   |                          |   |                    |  |   |                                            |   |  |       |      



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



40



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##### Table of Contents

EAGLE FAMILY FOODS HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Dollars in Thousands)



|                                                                                      |  | Fifty-Two Week Period Ended |        
|------------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                      |  | June 28, 2003               |        
|Net sales, before marketing allowance                                                 |  | $                           | 157,647
|Marketing allowance                                                                   |  |                             | 28,925 
|                                                                                      |  |                             |        
|Net sales                                                                             |  |                             | 128,722
|Cost of goods sold                                                                    |  |                             | 81,313 
|Cost of goods sold, accelerated depreciation                                          |  |                             |       
|                                                                                      |  |                             |        
|Cost of goods sold                                                                    |  |                             | 81,313 
|Gross margin                                                                          |  |                             | 47,409 
|Distribution expense                                                                  |  |                             | 8,292  
|Marketing expense                                                                     |  |                             | 11,158 
|General and administrative expense                                                    |  |                             | 7,619  
|Amortization of intangible assets                                                     |  |                             | 1,660  
|Gain (loss) on sale of product lines, net of reorganization charges and other charges |  |                             | (1,190 
|                                                                                      |  |                             |        
|Operating income                                                                      |  |                             | 17,490 
|Interest expense, net                                                                 |  |                             | 15,558 
|                                                                                      |  |                             |        
|Income (loss) before income taxes and cumulative effect of accounting change          |  |                             | 1,932  
|Income tax benefit (expense)                                                          |  |                             | 76     
|                                                                                      |  |                             |        
|Net income (loss) before cumulative effect of accounting change                       |  |                             | 2,008  
|Cumulative effect of accounting change (net of tax of $0 and $212 )                   |  |                             | 56,614 
|                                                                                      |  |                             |        
|Net loss                                                                              |  | $                           | (54,606
|                                                                                      |  |                             |        
|Other comprehensive income (loss):                                                    |  |                             |        
|Cash flow hedges -                                                                    |  |                             |        
|Cumulative effect of accounting change (net of tax of $741)                           |  |                             |       
|Change in fair value of financial derivatives (net of tax benefit of $568)            |  |                             |       
|Change in fair value of commodity contracts (net of tax benefit of $0 and $24)        |  |                             | 37     
|Reclassification to interest expense (net of tax benefit of $71, $124, and $127)      |  |                             | (121   
|Foreign currency translation adjustment                                               |  |                             | 206    
|                                                                                      |  |                             |        
|Comprehensive loss                                                                    |  | $                           | (54,484
|                                                                                      |  |                             |        



The accompanying notes
are an integral part of the consolidated financial statements.



41



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##### Table of Contents

EAGLE FAMILY FOODS HOLDINGS, INC.

Consolidated Balance Sheets

(Dollars in Thousands Except Share Data)



|                                                                                                                        |  | June 28, 2003 |          |   | June 29, 2002 |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------- | -
|Assets                                                                                                                  |  |               |          |   |               |  
|Current assets                                                                                                          |  |               |          |   |               |  
|Cash and cash equivalents                                                                                               |  | $             | 1,616    |   |               | $
|Accounts receivable, net                                                                                                |  |               | 7,261    |   |               |  
|Inventories                                                                                                             |  |               | 32,594   |   |               |  
|Other current assets                                                                                                    |  |               | 1,222    |   |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total current assets                                                                                                    |  |               | 42,693   |   |               |  
|                                                                                                                        |  |              
|Property and equipment, net                                                                                             |  |               | 5,574    |   |               |  
|Intangible assets, net                                                                                                  |  |               | 104,571  |   |               |  
|Other non-current assets                                                                                                |  |               | 4,274    |   |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total assets                                                                                                            |  | $             | 157,112  |   |               | $
|                                                                                                                        |  |               |          |   |               |  
|Liabilities and Stockholders Deficit                                                                                   |  |               |          |   |               |  
|Current liabilities                                                                                                     |  |               |          |   |               |  
|Current portion of long-term debt                                                                                       |  | $             | 8,578    |   |               | $
|Accounts payable                                                                                                        |  |               | 5,504    |   |               |  
|Other accrued liabilities                                                                                               |  |               | 6,111    |   |               |  
|Accrued interest                                                                                                        |  |               | 5,402    |   |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total current liabilities                                                                                               |  |               | 25,595   |   |               |  
|                                                                                                                        |  |              
|Long-term debt                                                                                                          |  |               | 184,674  |   |               |  
|                                                                                                                        |  |              
|Commitments and contingencies (Note 13)                                                                                 |  |               |          |   |               |  
|                                                                                                                        |  |              
|Redeemable preferred stock, 1,000,000 shares authorized:                                                                |  |               |          |   |               |  
|Series A preferred stock, $100 stated value, 816,750 shares issued and outstanding at redemption value                  |  |               | 138,247  |   |               |  
|Treasury stock, 10,962 shares at cost                                                                                   |  |               | (1,382   | ) |               |  
|                                                                                                                        |  |               |          |   |               |  
|                                                                                                                        |  |               | 136,865  |   |               |  
|Series B preferred stock, $100,000 stated value, 99 shares issued and outstanding at redemption value                   |  |               | 14,280   |   |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total redeemable preferred stock                                                                                        |  |               | 151,145  |   |               |  
|                                                                                                                        |  |              
|Stockholders deficit                                                                                                   |  |               |          |   |               |  
|Common stock $0.01 par value, 1,200,000 shares authorized, 1,002,582 and 1,116,704 issued and outstanding,
respectively |  |               | 10       |   |               |  
|Additional paid-in capital                                                                                              |  |               | 958      |   |               |  
|Accumulated deficit                                                                                                     |  |               | (205,282 | ) |               |  
|Accumulated other comprehensive income (loss)                                                                           |  |               | 12       |   |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total stockholders deficit                                                                                             |  |               | (204,302 | ) |               |  
|                                                                                                                        |  |               |          |   |               |  
|Total liabilities and stockholders deficit                                                                             |  | $             | 157,112  |   |               | $
|                                                                                                                        |  |               |          |   |               |  



The accompanying notes
are an integral part of the consolidated financial statements.



42



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##### Table of Contents

EAGLE FAMILY FOODS HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Dollars in Thousands)



|                                                                                  |  | Fifty-Two Week Period Ended |        
|--------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                  |  | June 28, 2003               |        
|Cash flows from (used in) operating activities:                                   |  |                             |        
|Net loss                                                                          |  | $                           | (54,606
|Adjustments to reconcile net loss to net cash from (used in) operating activities |  |                             |        
|Depreciation and amortization                                                     |  |                             | 5,322  
|Amortization of deferred financing costs                                          |  |                             | 1,450  
|Cumulative effect of accounting change                                            |  |                             | 56,614 
|Loss (gain) on retirement/sale of fixed assets                                    |  |                             | (549   
|Deferred taxes                                                                    |  |                             |       
|Gain on sale of product lines, net of reorganization charges                      |  |                             |       
|Net change in assets and liabilities:                                             |  |                             |        
|Accounts receivable, net                                                          |  |                             | 2,118  
|Inventories                                                                       |  |                             | 2,897  
|Accounts payable                                                                  |  |                             | (321   
|Other assets                                                                      |  |                             | (617   
|Other liabilities                                                                 |  |                             | (468   
|                                                                                  |  |                             |        
|Cash from (used in) operating activities                                          |  |                             | 11,840 
|                                                                                  |  |                             |        
|Cash (used in) from investing activities:                                         |  |                             |        
|Capital expenditures                                                              |  |                             | (610   
|Proceeds from the sale of assets                                                  |  |                             | 593    
|Proceeds from sale of product lines                                               |  |                             |       
|                                                                                  |  |                             |        
|Cash (used in) from investing activities                                          |  |                             | (17    
|                                                                                  |  |                             |        
|Cash (used in) from financing activities:                                         |  |                             |        
|Borrowings under revolving credit facility                                        |  |                             | 55,000 
|Payments under revolving credit facility                                          |  |                             | (64,600
|Payments under term loan facility                                                 |  |                             | (936   
|Other financing costs                                                             |  |                             | (563   
|Purchase of Series A Preferred Stock                                              |  |                             |       
|Proceeds from sale of interest rate swap agreements                               |  |                             |       
|                                                                                  |  |                             |        
|Cash (used in) from financing activities                                          |  |                             | (11,099
|                                                                                  |  |                             |        
|Increase (decrease) in cash and cash equivalents                                  |  |                             | 724    
|Cash and cash equivalents at beginning of period                                  |  |                             | 892    
|                                                                                  |  |                             |        
|Cash and cash equivalents at end of period                                        |  | $                           | 1,616  
|                                                                                  |  |                             |        
|Supplemental disclosure:                                                          |  |                             |        
|Interest paid                                                                     |  | $                           | 14,074 
|                                                                                  |  |                             |        
|Non-cash activities, including dividends accrued on redeemable preferred stock    |  | $                           | 14,016 
|                                                                                  |  |                             |        



The accompanying notes
are an integral part of the consolidated financial statements.



43



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EAGLE FAMILY FOODS HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

For the Fifty-Two Week Periods Ended

June 28, 2003, June 29, 2002 and June 30, 2001

(Dollars in Thousands)



|                                              |  | CommonStock |    |   | AdditionalPaid InCapital |   |       | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome |   |  | Other |       |   | Total |  
|--------------------------------------------- |  | ----------- | -- | - | ------------------------ | - | ----- | ------------------ |  | - | ----------------------------------- | - |  | ----- | ----- | - | ----- | -
|Balance, July 1, 2000                         |  | $           | 11 |   |                          | $ | 1,001 |                    |  | $ | (75,309                             | ) |  | $     | 10    |   |       | $
|Net loss                                      |  |             |   |   |                          |   |      |                    |  |   | (5,443                              | ) |  |       |      |   |       |  
|Preferred stock dividend                      |  |             |   |   |                          |   |      |                    |  |   | (11,636                             | ) |  |       |      |   |       |  
|Subscription receivable:                      |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Interest Income                               |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       |      |   |       |  
|Amortization of unearned compensation         |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       |      |   |       |  
|Other comprehensive income:                   |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Cumulative effect of accounting change        |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | 1,262 |   |       |  
|Change in fair value of financial derivatives |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (967  | ) |       |  
|Reclassification to interest expense          |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (215  | ) |       |  
|Foreign currency translation adjustment       |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (55   | ) |       |  
|                                              |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Balance, June 30, 2001                        |  |             | 11 |   |                          |   | 1,001 |                    |  |   | (92,388                             | ) |  |       | 35    |   |       |  
|Net loss                                      |  |             |   |   |                          |   |      |                    |  |   | (31,679                             | ) |  |       |      |   |       |  
|Preferred stock dividend                      |  |             |   |   |                          |   |      |                    |  |   | (12,593                             | ) |  |       |      |   |       |  
|Subscription receivable:                      |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Interest income                               |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       |      |   |       |  
|Repayment of subscription receivable          |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       |      |   |       |  
|Termination of restricted common stock        |  |             | (1 | ) |                          |   | (43   | )                  |  |   |                                    |   |  |       |      |   |       |  
|Amortization of unearned compensation         |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       |      |   |       |  
|Other comprehensive loss:                     |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Change in fair value of commodities           |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (41   | ) |       |  
|Recognition of interest income                |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (211  | ) |       |  
|Foreign currency translation adjustment       |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | 107   |   |       |  
|                                              |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Balance, June 29, 2002                        |  |             | 10 |   |                          |   | 958   |                    |  |   | (136,660                            | ) |  |       | (110  | ) |       |  
|Net loss                                      |  |             |   |   |                          |   |      |                    |  |   | (54,606                             | ) |  |       |      |   |       |  
|Preferred stock dividend                      |  |             |   |   |                          |   |      |                    |  |   | (14,016                             | ) |  |       |      |   |       |  
|Other comprehensive income:                   |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Change in fair value of commodities           |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | 37    |   |       |  
|Reclassification to interest expense          |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | (121  | ) |       |  
|Foreign currency translation adjustment       |  |             |   |   |                          |   |      |                    |  |   |                                    |   |  |       | 206   |   |       |  
|                                              |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  
|Balance, June 28, 2003                        |  | $           | 10 |   |                          | $ | 958   |                    |  | $ | (205,282                            | ) |  | $     | 12    |   |       | $
|                                              |  |             |    |   |                          |   |       |                    |  |   |                                     |   |  |       |       |   |       |  



The accompanying notes
are an integral part of the consolidated financial statements.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements



1. Basis of Presentation:



The accompanying financial statements as of June 28, 2003 and June 29, 2002 and for fiscal year 2003, fiscal year 2002, and fiscal year 2001 present the
financial positions, results of operations and cash flows of Eagle Family Foods, Inc. (Eagle) and the consolidated financial positions, results of operations and cash flows of Eagle Family Foods Holdings, Inc. (Holdings) and
its wholly owned subsidiary, Eagle. Eagle and Holdings are collectively referred to as the Company, unless the context indicates otherwise. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current years presentation. Eagles and Holdings fiscal year end is the Saturday closest to June 30. Fiscal years are designated in the financial statements and
notes by the calendar year in which the fiscal year ends.



Eagle was incorporated on November 14, 1997 and Holdings was incorporated on December 22, 1997. On December 30, 1997, Eagle issued 10,000 shares of common stock, par value $.01 per share, for $1,000 to Holdings. Holdings and Eagle did not
realize any income or incur any expenses until commencement of operations on January 23, 1998. On January 23, 1998, Holdings received $82.5 million from GE Investment Private Placement Partners II, a Limited Partnership (GEI), Warburg,
Pincus Ventures, L.P. (Warburg) and certain members of management in exchange for 825,000 shares of common stock and 816,750 shares of Series A preferred stock. On January 23, 1998, Eagle acquired certain assets of Borden Foods
Corporation and certain of their affiliates for $376.8 million. Financing for the acquisition and related fees consisted of (i) $82.5 million equity contribution from Holdings, (ii) $115.0 million of 8.75% Senior Subordinated Notes (the
Notes) and (iii) Senior Credit Facilities in the aggregate principal amount of $245.0 million, consisting of a $175.0 million Term Loan Facility and a $70.0 million revolving credit facility, under which $16.5 million was drawn at the
time of the Acquisition Closing.



The Acquisition was reflected
in the financial statements using the purchase method of accounting. The purchase price was allocated to the assets of Eagle based on their fair values. The fair values of assets were determined based on independent appraisals and management
estimates.



Eagle operates in a single segment that markets a
portfolio of leading dry-grocery food products with widely recognized and established brands in the United States. The Companys portfolio of products includes Eagle Brand sweetened condensed milk, NoneSuch mincemeat pie
filling, Cremora powdered non-dairy creamer, Kava acid-neutralized coffee and Borden eggnog, and through September 19, 2001 included ReaLemon and ReaLimelemon and lime juice from concentrate. The Company also
markets sweetened condensed milk products in Canada. In the U.S, the Company manufactures sweetened condensed milk and mincemeat pie filling.



2. Summary of Significant Accounting Policies:



Revenue Recognition



Revenues are recognized when title, ownership and risk of loss transfers to the customer. Liabilities are established for estimated returns, allowances,
consumer and certain trade promotions and discounts when revenues are recognized. In the fourth quarter of fiscal year 2001, the Company changed its method of accounting for revenue, as clarified in the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 101. The Company recorded a cumulative effect from this accounting change of $361,000, net of tax of $212,000.



Research and Development



Research and development costs are expensed as incurred. Research and development costs amounted to $285,000, $629,000 and $1,510,000 for fiscal year
2003, fiscal year 2002, and fiscal year 2001, respectively.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



Advertising and Promotion



The Company advertises its products through national and regional media, and through cooperative advertising programs with
retailers. Certain products are also promoted with direct consumer rebate programs. The Companys customers may also be offered pre-season stocking and in-store promotional allowances.



Production costs of media advertising and consumer promotion events are
deferred until the advertising or promotion first occurs. All other advertising and promotion costs are expensed to interim periods in relation to revenues. All amounts paid or payable to customers or consumers in connection with the purchase of the
Companys products are recorded as a reduction of net sales. Advertising and promotional expenses were $31,871,000, $30,830,000 and $39,877,000 for fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively.



Cash and Cash Equivalents



The Company considers liquid investments purchased with an initial term to
maturity of three months or less when purchased to be cash equivalents.



Inventories



Inventories are stated at the
lower of cost or market, with cost of goods sold being determined using the first-in, first-out method.



Slotting Allowance



The costs of obtaining shelf space (slotting) are expensed over a period not to exceed twelve months. Slotting expense was $122,000, $392,000, and
$567,000 for fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively.



Property and Equipment



Property and equipment are stated at cost. Depreciation of property and equipment is calculated for financial reporting purposes on a straight-line method using estimated service lives ranging principally from 8-20 years for buildings and
improvements and 3-10 years for other property and equipment. When assets are sold, retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any related gain or loss is recorded in the
statement of operations. Normal maintenance and repairs are expensed as incurred, while major renewals and betterments that extend service lives are capitalized.



Capitalized Software Development Costs



Certain external costs and internal payroll and payroll related costs incurred during the application development and
implementation stages of a software project are capitalized and amortized on a straight-line basis over the useful life of the software. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred.
Capitalized software costs were $9,063,000 at June 28, 2003 and June 29, 2002, and had a net book value of $1,185,000 and $2,996,000 at June 28, 2003 and June 29, 2002, respectively.



Goodwill and Other Identifiable Intangible Assets



Goodwill and other identifiable intangible assets with indefinite lives, such as trademarks that are not subject to
amortization, are tested annually for impairment of value. Impairment occurs when the fair value of the asset is less than its carrying amount. If impaired, the assets carrying amount is reduced to its fair market value. The Companys
annual impairment testing is performed during the first quarter of the fiscal year.



Identifiable intangible assets with definite lives are amortized over their estimated useful lives and tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be
impaired.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



Impairment occurs when the fair value of the asset is less than its carrying amount. If impaired, the asset is written down to its fair value. (See Note 6 to
the Financial Statements for additional financial disclosure.)



Other Non-current Assets



Other non-current
assets at June 28, 2003 and June 29, 2002 consisted primarily of net deferred financing costs amounting to approximately $4,274,000 and $5,160,000, respectively. Such costs are amortized over the term of the related debt using the interest method.



Income Taxes



The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes, (SFAS No. 109) which requires the use of the liability method. Under this method, deferred tax assets and liabilities are recognized based
on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those
temporary differences are expected to reverse. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company assesses the recoverability of the deferred
tax assets in accordance with the provisions of SFAS No. 109. In accordance with SFAS No. 109, the Company determined that a valuation allowance for the net deferred tax assets and net operating loss carryforwards was required as of June 29, 2002.
The Company continued to record a full valuation allowance. As of June 28, 2003 and June 29, 2003, the amount was $53,291,000 and $33,167,000, respectively.



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosure of contingent assets, liabilities, revenue and expenses as well as assets and liabilities. Actual results may differ from those estimates.



Foreign Currency Translation



All assets and liabilities of Canadian operations are translated into U.S. dollars using the rate at the end of the fiscal
period. Income and expense items are translated at average exchange rates prevailing during the fiscal period. Foreign currency assets, liabilities, income and expenses were not significant to the Companys financial position, results of
operations and cash flows.



Fair Value of Financial
Instruments



The carrying value of cash equivalents,
accounts receivable and accounts payable as stated on the balance sheets approximate their fair market values because of their short maturities. The fair value of the Companys debt is estimated based on the current rates offered to the Company
for debt of the same remaining maturities. The fair value of the Companys derivatives is estimated based on dealer quotes for those instruments.



Derivative Instruments and Hedging



In July 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
requires that all derivative instruments be recognized as assets and liabilities in the financial statements at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge (fair value or cash flow), changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets or liabilities through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The amount of the hedged item is expected to be recorded to earnings within twelve months. The change in a derivatives fair value related to the ineffective portion of a hedge, if any, will be
immediately recognized in earnings. The Companys current financial derivatives are treated as cash flow hedges.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



The adoption of the pronouncement resulted in an adjustment to accumulated other comprehensive income
of $1,262,000, net of tax, for the fair value of the interest rate swap agreement. On November 9, 2000, the Company sold its interest rate swap positions for fair market gains of $873,000. Pursuant to SFAS 133, the gains on the interest rate swap
agreements will remain in other comprehensive income and be reclassified as interest expense over the original terms of the interest rate swap agreements. The interest income in other comprehensive loss as of December 30, 2000 was amortized through
the period ending December 31, 2002.



As of June 28, 2003, the
Company had purchased 490 milk futures contracts, which will settle during various months through June 2004, at a cost of $11,500,000 and a current market value of $11,250,000, or an aggregate market loss of $250,000. The aggregate market value will
increase or decrease based on the future milk prices.



Environmental



The Company, like other
companies in similar businesses, is subject to extensive Federal, state and local environmental laws and regulations. Although the Companys environmental policies and practices are designed to ensure compliance with these laws and regulations,
future developments and increasingly stringent regulations could require the Company to incur additional unforeseen environmental expenditures. Environmental remediation costs are accrued when environmental assessments and/or remedial efforts are
probable and the cost or a reasonable range can be estimated. Environmental expenditures, which improve the condition of the property, are capitalized and amortized over their estimated useful life. The Company has not incurred any significant
environmental liabilities.



Recently Issued Accounting
Statements



In October 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS 144 supersedes SFAS 121 and applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business.. SFAS 144 develops an accounting model (based on the model in
SFAS 121) for disposal of long-lived assets. This model requires that long-lived assets that are to be disposed of be measured at the lower of book value or fair value, less cost to sell. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 was effective for
the Companys first quarter of fiscal year 2003. The adoption of this pronouncement did not have a material impact on the Companys results of operations or financial condition.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, amendment of FASB
Statement No. 13 (SFAS No. 13) and Technical Corrections (SFAS No. 145) with an adoption date of fiscal years beginning after May 15, 2002. This pronouncement rescinds the aforementioned Statements and amends SFAS No.
13 and other various authoritative pronouncements to clarify, correct technically or describe applicability under changed conditions. The adoption of this pronouncement did not have a material impact on the Companys results of operations or
financial condition.



In July 2002, the FASB issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. Costs covered by SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal
activity that is initiated after December 31, 2002. The Company has adopted this pronouncement for activities after December 31, 2002. The adoption of this pronouncement did not have a material impact on the Companys results of operations or
financial condition.



In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34 (FIN No. 45). FIN No. 45 addresses



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. This interpretation also
clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that guarantee. FIN No. 45 is effective for all guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for financial statements for interim and annual periods ending after December 15, 2002. The Company adopted the disclosure requirements and the recognition provisions of FIN
45 in third quarter 2003. The adoption of this interpretation did not have a material impact on the Companys results of operations or financial condition.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51
(FIN No. 46). FIN No. 46 expands existing accounting guidance regarding when a variable interest entity is consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the variable interest entitys residual returns or both. This pronouncement applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in
which a company obtains an interest after that date. For variable interest entities created prior to February 1, 2003, the provisions of this pronouncement are effective June 29, 2003. The adoption of FIN No. 46 is not expected to have any effect on
the Companys results of operations or financial condition.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies the accounting guidance on derivative
instruments (including certain derivative instruments embedded in other contracts) and hedging activities that fall within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 also amends
certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships initiated after June 30, 2003. The guidance outlined in this pronouncement is to be applied prospectively, and is effective in the first quarter of
the Companys fiscal year 2004. The adoption of this pronouncement is not expected to have any effect on the Companys results of operations or financial condition.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires companies to classify a
financial instrument as defined within the scope of the pronouncement as liabilities (or an asset in some circumstances). The pronouncement is effective for the first quarter of the fiscal year ending July 3, 2004. The adoption of this pronouncement
is not expected to have any effect on the Companys results of operations or financial conditions.



3. Divestiture and restructuring activities:



On September 19, 2001, the Company sold to Motts Inc. and Cadbury Beverages Delaware, Inc. the Companys business of developing, manufacturing, marketing, distributing and selling shelf-stable juice sold
under the ReaLemon and ReaLime brand names (the Realemonproduct lines) and related assets, including inventory and the manufacturing facility in Waterloo, New York for $128,425,000 (the ReaLemon
Sale). The Company recognized a gain of $18,722,000 on the ReaLemon Sale, net of reorganization and transition charges of $4,769,000.



In connection with the ReaLemonSale, the Company committed to a plan (the Plan) to reorganize the management and operations of the
Company. The Plan included the reduction of approximately 60 employees, including executives and administrative staff at the offices in Tarrytown, New York; Columbus, Ohio; and Gahanna, Ohio, and the closure of corporate and research and development
offices. The Company completed the tactical actions of the Plan. Costs expensed related to the Plan in fiscal year 2002 and classified as part of the Gain on sale of product lines, net of reorganization charges and other charges on the
Consolidated Statement of Operations and Comprehensive Loss included $3,942,000 severance and related termination costs and $827,000 for contractual lease liabilities and related office closure costs. The remaining cash requirements of the Plan as
of June 28, 2003 are expected to total approximately $130,000 and are expected to be paid by August 2003.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



The selected consolidated results of operations excluding the results of operations for the
ReaLemon and ReaLime product lines on a pro forma basis for fiscal year 2003, fiscal year 2002 and fiscal year 2001 were (in thousands and unaudited):



|                 |  | June 28, 2003 |         | June 29, 2002 |   | June 30, 2001
|---------------- |  | ------------- | ------- | ------------- | - | -------------
|Net sales        |  | $             | 128,722 |               | $ | 132,319      
|Gross margin     |  | $             | 47,409  |               | $ | 36,276       
|Operating income |  | $             | 17,490  |               | $ | 776          



The results of
operations of Eagle are substantially consistent with that of the consolidated results of operations of Holdings.



Effective December 30, 2002, the Company closed its powdered non-dairy creamer manufacturing plant in Chester, South Carolina (Non-Dairy Creamer
Plant Closure). Production is now sourced from a third party manufacturer under a long-term co-pack agreement entered into on October 1, 2002. The third party manufacturer has significantly larger powdered non-dairy creamer plants than the
Company had and has agreed to produce the Companys powdered non-dairy creamer requirements at a lower cost than the Companys cost of production. During the quarter ended March 29, 2003, the Company sold the South Carolina Property for
$592,000.



In connection with the Non-Dairy Creamer Plant
Closure, the Company recorded a charge of $1,190,000 for fiscal year 2003, and included the expense within the classification of Gain (loss) on sale of product lines, net of reorganization charges and other charges on the Consolidated
Statements of Operations and Comprehensive Income (Loss). The closure charges included $1,321,000 for termination pay and benefits for the 79 displaced employees, $411,000 for other plant closure costs and contractual expenditures, offset by a
$542,000 gain on the sale of the South Carolina Property. As of June 28, 2003, the remaining cash requirements of the Non-Dairy Creamer Plant Closure are expected to total $296,000 and are expected to be paid by December 2003.



4. Inventories:



Inventories are stated at lower of cost or market and at June 28, 2003 and June 29, 2002 consisted of the following (in
thousands):



|                  |  | June 28, 2003 |        | June 29, 2002
|----------------- |  | ------------- | ------ | -------------
|Finished goods    |  | $             | 31,384 |              
|Raw material      |  |               | 1,210  |              
|                  |  |               |        |              
|Total inventories |  | $             | 32,594 |              
|                  |  |               |        |              



5. Property and Equipment:



Property and equipment are recorded at cost and consisted
of the following (in thousands):



|                             |  | June 28, 2003 |         |   | June 29, 2002 |  
|---------------------------- |  | ------------- | ------- | - | ------------- | -
|Land                         |  | $             | 355     |   |               | $
|Buildings and improvements   |  |               | 3,694   |   |               |  
|Machinery and equipment      |  |               | 12,732  |   |               |  
|Computers                    |  |               | 10,859  |   |               |  
|Construction in progress     |  |               | 442     |   |               |  
|                             |  |               |         |   |               |  
|Total property and equipment |  |               | 28,082  |   |               |  
|Accumulated depreciation     |  |               | (22,508 | ) |               |  
|                             |  |               |         |   |               |  
|Net property and equipment   |  | $             | 5,574   |   |               | $
|                             |  |               |         |   |               |  



The Company
periodically reviews the useful lives of its assets, and when warranted, changes are made that result in an acceleration of depreciation. The Company recorded a charge for accelerated depreciation related to



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



long-lived assets that will be taken out of service before the end of their normal service period due to the Plan. The useful lives of assets related to the
strategic initiatives were shortened, resulting in incremental depreciation expense totaling $11,126,000 for fiscal year 2002.



6. Intangible Assets:



Effective June 30, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). In accordance with
this standard, goodwill and certain other intangible assets have been classified as indefinite-lived assets that are no longer subject to amortization. Indefinite-lived intangible assets are subject to an impairment test upon adoption and at least
annually thereafter. As of June 30, 2002, the value of the indefinite-lived tradenames was determined using a royalty savings methodology and discounted cash flows. As a result, the Company recorded an impairment charge of $43,736,000 against
tradenames. After completing the valuation and impairment of the tradenames, a market valuation of goodwill was assessed based on estimated future discounted cash flow earnings. As a result, the Company recorded an impairment charge of $12,878,000
against goodwill. The transitional impairment charge was recorded as a cumulative effect of an accounting change. The Companys annual amortization charge will be reduced by an estimated $4,500,000 in fiscal year 2003. The useful lives of
intangible assets still subject to amortization were not revised because of the adoption of SFAS No. 142.



Intangible assets consisted of the following (in thousands):



|                                               |  | June 28, 2003       |        | June 29, 2002          
|---------------------------------------------- |  | ------------------- | ------ | -----------------------
|                                               |  | GrossCarryingAmount |        | AccumulatedAmortization
|Intangible assets subject to amortization:     |  |                     |        |                        
|Covenant not to compete                        |  | $                   | 13,847 |                        
|                                               |  |                     |        |                        
|Intangible assets not subject to amortization: |  |                     |        |                        
|Tradenames                                     |  |                     |        |                        
|Goodwill                                       |  |                     |        |                        
|                                               |  |                     |        |                        
|Total unamortized intangible assets            |  |                     |        |                        
|                                               |  |                     |        |                        
|Total intangible assets                        |  |                     |        |                        
|                                               |  |                     |        |                        



Total amortization of
intangible assets were $1,652,000, $8,040,000 and $11,141,000 for fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively.



In accordance with SFAS No. 142, fiscal year 2002 and fiscal year 2001 have not been restated to reflect the accounting change. The table below presents a
reconciliation of net income as if SFAS No. 142 had been adopted for fiscal year 2002 and fiscal year 2001 (in thousands).



|                                                                      |  | Fifty-Two Week Period Ended |      
|--------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                      |  | June 28, 2003               |      
|Net income (loss) before cumulative effect of accounting change       |  | $                           | 2,008
|Amortization of intangible assets, net of tax and valuation allowance |  |                             |     
|                                                                      |  |                             |      
|Adjusted net income before cumulative effect of accounting change     |  | $                           | 2,008
|                                                                      |  |                             |      



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



7. Debt:



Debt consisted of the following (in thousands):



|                                                               |  | June 28, 2003 |         |   | June 29, 2002 |  
|-------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | -
|Senior subordinated notes due January 15, 2008                 |  | $             | 115,000 |   |               | $
|Term loan facility due December 31, 2005                       |  |               | 52,252  |   |               |  
|Revolving credit facility due December 3, 2004                 |  |               | 26,000  |   |               |  
|Revolving credit facility swingline loan due December 31, 2003 |  |               |        |   |               |  
|                                                               |  |               |         |   |               |  
|Total debt                                                     |  |               | 193,252 |   |               |  
|Less: current portion of long-term debt                        |  |               | (8,578  | ) |               |  
|                                                               |  |               |         |   |               |  
|Long-term debt                                                 |  | $             | 184,674 |   |               | $
|                                                               |  |               |         |   |               |  



Senior Credit
Facilities



The Company is the borrower under a credit
agreement, dated as of January 23, 1998, as amended (the Senior Credit Facilities), which consists of (1) a $50.0 million seven-year revolving credit facility, including a $10.0 million swingline loan (the Revolving Credit
Facility) and (2) an eight-year term loan (the Term Loan Facility). The Senior Credit Facilities are guaranteed by Holdings and all future domestic subsidiaries of the Company.



The interest rate on the Term Loan Facility is LIBOR plus 4.25%. The interest
rate on the Revolving Credit Facility is LIBOR plus 4.25% with the swingline loan portion bearing interest at Prime plus 3.25%. The fair market value of the Senior Credit Facilities at June 28, 2003 was approximately the carrying value.



The Senior Credit Facilities contain financial covenants, which require
the Company to meet certain financial tests including debt coverage, interest expense coverage and capital expenditure requirements. The Senior Credit Facilities also contain covenants including limitations on additional indebtedness, liens, asset
sales, capital expenditures, sale and leaseback transactions, dividends, loans and investments, modification of material agreements, transaction with affiliates, acquisitions, mergers and consolidations and prepayment of subordinated indebtedness.
The Senior Credit Facilities agreement provides that neither Holdings or Eagle will, nor will they permit any subsidiary of Eagle to, declare or make, or agree to pay or make, directly or indirectly, any dividend and certain other distributions and
payments, except primarily (1) Holdings may declare and pay dividends with respect to its capital stock payable solely in additional shares of its capital stock (other than redeemable preferred stock) and (2) subsidiaries of Eagle may declare and
pay dividends ratable with respect to their capital stock. The Senior Credit Facilities agreement also requires the Company to pledge assets acquired after the Acquisition Closing, including stock of after-acquired or formed subsidiaries, to deliver
guarantees by wholly owned domestic subsidiaries and to maintain insurance. The Senior Credit Facilities contain customary events of default, including certain changes of control of the Company.



The Company amended its Credit Agreement pursuant to an amendment dated
November 21, 2002 (the Amendment). Pursuant to the Amendment, the lenders waived compliance with certain coverage ratio financial covenants for the period commencing on and including December 29, 2002 and ending on and including the
Revolving Credit Facility maturity date. The Amendment includes restrictions on the carrying balance of the Revolving Credit Facility for a period of thirty consecutive days commencing on a date not earlier than December of any year and ending not
later than January 31 of the following year. The Amendment also sets forth minimum requirements for consolidated earnings before interest, income tax, depreciation and amortization, sets forth maximum requirements for capital expenditures, and
changed the total allowable commitment and interest rates. The Company is in compliance with the abovementioned covenants and it believes it can meet existing bank covenants pursuant to the Credit Agreement, as amended, for each of the next four
quarters ending July 3, 2004.



The Companys ability to
meet the bank covenants will be dependent upon the Companys future performance, which will be subject to general economic conditions and financial operations. There can be no assurance that the Companys future performance will not be
affected negatively by changes in the above factors to such a degree that it affects the Companys ability to meet bank covenants. There can be no assurance that the Company could



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



renegotiate its covenants, refinance its debt, or obtain terms that are favorable to the financial position of the Company.



The obligations of Eagle under the Senior Credit Facilities are
collateralized by (1) 100% of the capital stock of the Company and each of its subsidiaries and (2) a first priority collateral interest in substantially all assets and properties of the Company and its future domestic subsidiaries. The fair market
value of the senior credit facilities at June 28, 2003 approximates the carrying value.



As of June 28, 2003, the Company had letters of credit totaling $600,000 under the Revolving Credit Facility as required by certain insurance policies.



Senior Subordinated Notes



The Companys Notes are due January 15, 2008 bearing interest of 8.75% per annum, payable on January 15 and July 15, commencing July 15, 1998. The
fair market value of the Notes was approximately $78,200,000 and $87,400,000 at June 28, 2003 and June 29, 2002, respectively.



The Notes are unconditionally guaranteed by Holdings (the Parent Guarantee) and by each future Domestic Subsidiary of the Company (each, a
Domestic Subsidiary Guarantee and, collectively, the Domestic Subsidiary Guarantees). The Company currently has no domestic subsidiaries and therefore none that guarantee the Notes. The Parent Guarantee and the Domestic
Subsidiary Guarantees are joint and several as well as full and unconditional. The Notes are unsecured and subordinated in right of payment to all existing and future senior indebtedness of the Company. The Notes include certain covenants including
limitations on indebtedness, dividends and other payment restrictions affecting subsidiaries, subordinated liens, sale and leaseback transactions, sale or issuance of capital stock of subsidiaries, merger, consolidation or sale of assets,
transactions with affiliates and layering debt. The indenture provides that the Company will not, and will not permit any of its subsidiaries, directly or indirectly, to declare or pay any dividend or make any distribution on or in respect of its
capital stock except dividends or distributions payable solely in its capital stock (other than redeemable stock) and except dividends or distributions payable solely to the Company or any wholly-owned subsidiary of the Company. Furthermore,
Holdings ability to obtain funds from its subsidiaries is restricted by the Notes because (1) Holdings may not hold assets other than Company capital stock and other minimal assets related to the business of holding such stock and (2) Holdings
may not incur any additional liabilities other than in the ordinary course of business.



On April 16, 1998, Eagle and Holdings filed a Registration Statement on Form S-4 to offer to exchange (the Exchange Offer) up to $115,000,000 of its 8.75% Notes due 2008 (the Exchange Notes)
for up to $115,000,000 of its outstanding Notes.



Upon
consummation of the Exchange Offer, the terms of the Exchange Notes were substantially identical in all respects to the term of the Notes. The Exchange Notes are unconditionally guaranteed on a senior subordinated and unsecured basis by Holdings and
all future Domestic Subsidiaries.



Annual principal payments
for future maturities for the next five fiscal years consist of the following (in thousands):



|2004 |  | $ | 8,578  
|---- |  | - | -------
|2005 |  |   | 50,956 
|2006 |  |   | 18,718 
|2007 |  |   |       
|2008 |  |   | 115,000
|     |  |   |        
|     |  | $ | 193,252
|     |  |   |        



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



8. Income Taxes:



The Company accounts for income taxes in accordance with SFAS No. 109, which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect in the years in which those temporary differences are expected to reverse. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.



The Company assesses the recoverability of the deferred tax assets in
accordance with the provisions of SFAS No. 109, which requires the recording of a valuation allowance when it is probable that any or all of the deferred tax assets will not be realized. In absence of favorable economic factors, application of SFAS
No. 109 requires a 100% valuation allowance for any net deferred tax assets when a company has cumulative financial accounting losses, excluding unusual items, over several years. The Company has experienced pretax losses over the past few years,
excluding the gain in fiscal year 2002 on the ReaLemonSale. Because of these factors, the Company had recorded a $33,167,000 valuation allowance for the net deferred tax assets and net operating loss carryforwards as of June 29, 2002.
Management continues to see lower industry market values in the current economic environment, which could affect the tax planning strategies available to the Company. The Company intends to maintain a full valuation allowance for its net deferred
tax assets and net operating loss carryforwards until sufficient positive evidence exists to support reversal of the reserve. Until such time, except for minor state and local tax provisions, the Company will have no reported tax provision, net of
valuation allowance adjustments.



In determining the amount of
the deferred tax asset valuation allowance, the Company estimated the current tax deductibility of certain costs and charges, and evaluated the fair market value of the Company in comparison to the tax value. These estimates are subject to change.
Any differences between these current estimates and actual values determined at a future date will result in a change to the valuation allowance and will be recorded at that date.



A comparative analysis of the Companys (expense) benefit for income taxes from earnings before income taxes and
cumulative effect of accounting change consisted of the following (in thousands):



|                    |  | June 29, 2003 |     |   | June 29, 2002 |   |         | June 30, 2001
|------------------- |  | ------------- | --- | - | ------------- | - | ------- | -------------
|Federal             |  | $             | 97  |   |               | $ | (824    | )            
|State               |  |               | (21 | ) |               |   | (110    | )            
|Valuation allowance |  |               |    |   |               |   | (33,167 | )            
|                    |  |               |     |   |               |   |         |              
|                    |  | $             | 76  |   |               | $ | (34,101 | )            
|                    |  |               |     |   |               |   |         |              



At June 28, 2003, the
Company had $144,021,000 of accumulated net operating losses for financial statement purposes and $98,428,000 of accumulated net operating loss carryforwards for tax reporting purposes. The tax net operating losses expire, if unused, beginning in
2018. The Companys net operating loss carryforwards for foreign purposes are not material.



Reconciliation of the differences between income taxes computed at Federal statutory rates and the consolidated (expense) benefit for income taxes on
earnings before income taxes and cumulative effect of accounting change are as follows (in thousands):



|                                                                        |  | June 28, 2003 |         |   | June 29, 2002 |   |         | June 30, 2001 | 
|----------------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- | 
|Income tax (expense) benefit computed at the Federal statutory tax rate |  | $             | 19,140  |   |               | $ | (848    | )             | 
|State tax (expense) benefit, net of Federal tax benefits                |  |               | 1,060   |   |               |   | (86     | )             | 
|Valuation allowance                                                     |  |               | (20,124 | ) |               |   | (33,167 | )             | 
|Other                                                                   |  |               |        |   |               |   |        |               | 
|                                                                        |  |               |         |   |               |   |         |               | 
|                                                                        |  | $             | 76      |   |               | $ | (34,101 | )             | 
|                                                                        |  |               |         |   |               |   |         |               | 



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



Deferred tax assets and liabilities consisted of the following (in thousands):



|                                |  | June 28, 2003 |         |   | June 29, 2002 |   |         | June 30, 2001 | 
|------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------- | 
|Net operating loss carryforward |  | $             | 36,418  |   |               | $ | 29,470  |               | 
|Intangible assets               |  |               | 14,890  |   |               |   | (989    | )             | 
|Property, plant and equipment   |  |               | 386     |   |               |   | 2,052   |               | 
|All other assets                |  |               | 1,842   |   |               |   | 2,772   |               | 
|All other liabilities           |  |               | (245    | ) |               |   | (138    | )             | 
|Valuation allowance             |  |               | (53,291 | ) |               |   | (33,167 | )             | 
|                                |  |               |         |   |               |   |         |               | 
|Net deferred tax asset          |  | $             |        |   |               | $ |        |               | 
|                                |  |               |         |   |               |   |         |               | 



9. Supplemental Information:



Other accrued liabilities consisted of the following (in
thousands):



|                                  |  | June 28, 2003 |       | June 29, 2002
|--------------------------------- |  | ------------- | ----- | -------------
|Other accrued liabilities:        |  |               |       |              
|Customer allowances               |  | $             | 2,741 |              
|Divestiture reserve               |  |               | 494   |              
|Coupon accrual                    |  |               | 578   |              
|Broker commissions                |  |               | 390   |              
|Compensation and related accruals |  |               | 956   |              
|Other                             |  |               | 952   |              
|                                  |  |               |       |              
|Total other accrued liabilities   |  | $             | 6,111 |              
|                                  |  |               |       |              



10. Redeemable Preferred Stock:



On September 24, 1999, 99 shares of Series B Non-Voting
Preferred Stock (the Series B Preferred Stock) were issued by Holdings at a stated value of $100,000 per share (the Series B Stated Value), and on January 23, 1998, 816,750 shares of Series A Non-Voting Preferred Stock (the
Series A Preferred Stock and together with the Series B Preferred Stock, the Preferred Stock) were issued by Holdings at a stated value of $100 per share (the Series A Stated Value, and together with the Series B
Stated Value, the Stated Value).



Together, the
Preferred Stock ranks as to dividends and on liquidation on parity. The Preferred Stock provides for preferential cumulative dividends at the rate of 10% per share per annum of the Stated Value for each series of Preferred Stock. Dividends are
payable as declared by the Holdings Board of Directors and shall be paid before any dividends shall be set apart for or paid upon the Common Stock of Holdings, par value $0.01 per share (the Common Stock). In the event of liquidation,
dissolution or winding up, the holders of shares of Preferred Stock are entitled to be paid out of the assets of Holdings available for distribution to its stockholders before any payment is made to the holders of stock junior to the Preferred
Stock. Holders of Preferred Stock are not entitled to vote on any matters presented to the stockholders of Holdings. However, the affirmative vote or written consent of the holders of at least two-thirds of the then outstanding shares of Preferred
Stock is required to amend, alter or repeal the preferences, special rights or other powers of the Preferred Stock. The Preferred Stock is subject to mandatory redemption at a price per share equal to the Stated Value for each series of Preferred
Stock plus all dividends accrued and unpaid there upon (1) the closing of a public offering pursuant to an effective registration statement under the Securities Act of 1933, (2) the sale of all or substantially all of the assets of Holdings or the
merger or consolidation of Holdings with or into any other corporation or other entity in which the holders of Holdings outstanding shares before the merger or consolidation do not retain a majority of the voting power of the surviving
corporation or other entity or (3) the acquisition by any person of shares of Common Stock representing a majority of the issued and outstanding shares of Common Stock then outstanding.



Cumulative accrued dividends totaled $60,952,000 and $46,936,000 at June 28, 2003 and June 29, 2002, respectively. They are
classified with Redeemable Preferred Stock in the consolidated balance sheet of Holdings.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



11. Stockholders and Registration Rights Agreements:



The Stockholders Agreement, dated as of January 23, 1998, by and among
Holdings and the stockholders named therein (the Stockholders Agreement) and the Registration Rights Agreement, dated as of January 23, 1998, by and among Holdings and the investors named therein (the Registration Rights
Agreement) were each amended as of September 27, 1999, to reflect a Subscription Agreement with GEI and Warburg (as described in Note 12) for the offer and sale of a total of 99 shares of Series B Preferred Stock and a total of 100,000 shares
of Common Stock with accompanying warrants to purchase a total of 22,013 shares of Common Stock (the Warrants) . As a result of such amendments, all covenants and agreements set forth in the initial Stockholders Agreement and
Registration Rights Agreement will apply to the newly issued Series B Preferred Stock, Common Stock and Common Stock issuable upon exercise of the Warrants.



12. Stock Subscription Agreement:



On September 27, 1999, GEI and Warburg subscribed to purchase a total of 99 shares of Series B Preferred Stock at $100,000 per share and a total of
100,000 shares of Common Stock at $1 per share with accompanying Warrants to purchase up to 22,013 additional shares of Common Stock. The Warrants may be exercised for a purchase price of $1 per share of Common Stock (subject to certain adjustments)
and only upon failure of the Company to achieve certain financial targets for the fiscal year 2000. The Warrants would have automatically terminated if the Company had achieved certain financial targets for fiscal year 2000. The Company did not meet
the financial targets for fiscal year 2000. Therefore, pursuant to the terms of the Warrants, the Warrants are currently exercisable and expire on September 27, 2004. Holdings received $10,000,000 in exchange for these securities. Upon completion of
the issuance of the Warrants, Holdings made a $10,000,000 capital contribution to Eagle.



Upon the separations of certain executive officers during fiscal year 2002 and pursuant to their employment agreement, the Company purchased into treasury 7,524 shares of Series A Preferred Stock for a value of
$966,000.



Secured recourse promissory note, principal and
interest, between the Company and one executive was satisfied in fiscal year 2002 by transferring the executives 2,475 shares of Series A Preferred Stock (included in the 7,524 treasury shares referenced above) to the Company.



13. Commitments and Contingencies:



Commitments.The Company may enter into long-term contracts for the
purchase of certain raw materials. At June 28, 2003, the Company did not have any long-term purchase commitments.



The Company leases buildings and equipment under various noncancellable operating lease agreements for periods of one to five years. The lease agreements
generally provide that the Company pays taxes, insurance and maintenance expenses related to the leased assets. Rent expense for fiscal year 2003, fiscal year 2002, and fiscal year 2001 totaled $393,000, $1,257,000 and $1,065,000, respectively.



At June 28, 2003, future minimum lease payments were as
follows (in thousands):



|2004                         |  | $ | 411
|---------------------------- |  | - | ---
|2005                         |  |   | 75 
|2006                         |  |   | 11 
|2007 and beyond              |  |   | 11 
|                             |  |   |    
|Total minimum lease payments |  | $ | 508
|                             |  |   |    



Employment
Agreements.The Company has entered into employment agreements with certain key executives. Such agreements provide for annual salaries, bonuses and severances and include non-compete and non-solicitation provisions.



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EAGLE FAMILY FOODS, INC.

EAGLE FAMILY FOODS HOLDINGS, INC.

Notes to the Financial Statements 
continued



14. Stock Options and Restricted Stock:



On January 14, 1998, Holdings Board of Directors adopted the 1998 Stock Incentive Plan (the Incentive
Plan). The Incentive Plan provides for the granting of incentive stock options, non-qualified stock options, and restricted stock to officers, key employees, directors and consultants of the Company at the discretion of a committee of the
Board of Directors. As amended on January 5, 2000, a total of 206,150 shares of common stock may be awarded under the Incentive Plan, subject to certain adjustments reflecting changes in Holdings capitalization.



Grants of options and the periods during which such options can be exercised,
and grants of restricted stock and the periods during which such grants become unrestricted and vest are at the discretion of a committee. As of June 28, 2003, the committee has not granted any stock options.



The committee has granted and issued shares of restricted stock to
Holdings officers and other key employees. Holders of the restricted stock are not entitled to (1) receive dividends until such shares vest or (2) vote their respective shares during the restricted period. The restricted stock vests in
installments of 20% per year on each of the first five anniversaries of the issue date, provided that the recipient is employed by Holdings as of each such date. Additionally, the sale, transfer, pledge, exchange or disposal of restricted shares
during the restricted period is not permitted except as otherwise allowed by the Holdings Stockholders Agreement.



A summary of restricted stock transactions for the fiscal years 2001 and 2002 is as follows:



|                             |  | Shares ofRestrictedStock |   |  | Fair MarketValue atIssuance Date |  
|---------------------------- |  | ------------------------ | - |  | -------------------------------- | -
|Outstanding at July 1, 2000  |  | 138,559                  |   |  | 86,584                           |  
|Granted                      |  | 53,145                   |   |  | 531                              |  
|                             |  |                          |   |  |                                  |  
|Outstanding at June 30, 2001 |  | 191,704                  |   |  | 87,115                           |  
|Cancelled                    |  | (106,522                 | ) |  | (44,156                          | )
|                             |  |                          |   |  |                                  |  
|Outstanding at June 29, 2002 |  | 85,182                   |   |  | 42,959                           |  
|Cancelled                    |  | (300                     | ) |  | (3                               | )
|                             |  |                          |   |  |                                  |  
|Outstanding at June 28, 2003 |  | 84,882                   |   |  | 42,956                           |  
|                             |  |                          |   |  |                                  |  



Unearned compensation
is charged for the fair value of the restricted shares granted and issued in accordance with the Incentive Plan. The unearned compensation is shown as a reduction of stockholders deficit in the accompanying Consolidated Balance Sheets of
Holdings. Unearned compensation is amortized ratably over the restricted period.



15. Retirement Plan:



The Company sponsors a
defined contribution 401(k) retirement plan. Participation in this plan is available to all employees who have completed certain minimum service requirements. Company contributions to this plan are based on a percentage of employees annual
compensation. The costs of this plan were $340,000, $373,000, and $675,000 for fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively.



16. Intercompany Receivable:



Eagle lent Holdings, in the aggregate, $1,382,000 as a non-interest bearing loan to purchase into treasury certain shares of Series A Preferred Stock from
certain former executives pursuant to their employment agreements.



17.
Other Information:



GEI and Warburg, Holdings
principal stockholders, each owned $14,100,000 in aggregate principal amount of Notes as of August 18, 2003.



57