<PAGE>

================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-K
(Mark One)

[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended July 3, 1999

                                       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
                       Eagle Family Foods Holdings, Inc.
             (Exact name of registrant as specified in its charter)

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

                            Eagle Family Foods, Inc.
             (Exact name of registrant as specified in its charter)

          Delaware                                             13-3982757
  (State or other jurisdiction                                (IRS Employer
of incorporation or organization)                         Identification Number)

             220 White Plains Road                               10591
                 Tarrytown, NY                                 (Zip Code)
     (Address of principal executive offices)

       Registrants' telephone number, including area code: (914) 631-3100

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

<TABLE>
        <S>                                                 <C>
        Title of each class                                 Name of each exchange on which registered
               N/A                                                            N/A
</TABLE>
        Securities registered pursuant to Section 12(g) of the Act: None
                                 Title of Class
                                      N/A

     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 ((S) 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]

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates. N/A.

     As of September 24, 1999, there were 974,085 shares of Common Stock, par
value $.01 per share, of Eagle Family Foods Holdings, Inc. and 10,000 shares of
Common Stock, par value $.01 per share, of Eagle Family Foods, Inc. outstanding,
respectively.
================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                    Page
                                                                                                                    ----
PART I
<S>                                                                                                                 <C>
  Item 1.     Business  ........................................................................................     2
  Item 2.     Properties  ......................................................................................     7
  Item 3.     Legal Proceedings  ...............................................................................     7
  Item 4.     Submission of Matters to a Vote of the Security Holders  .........................................     7

PART II
  Item 5.     Market for the Registrants' Common Equity and Related Stockholder Matters  .......................     8
  Item 6.     Selected Financial Data  .........................................................................     9
  Item 7.     Management's Discussion and Analysis of Financial Condition and Results of
              Operations  ......................................................................................    10
  Item 7A.    Quantitative and Qualitative Disclosures About Market Risk  ......................................    18
  Item 8.     Financial Statements and Supplementary Data  .....................................................    18
  Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial
              Disclosure  ......................................................................................    18

PART III
  Item 10.    Directors and Executive Officers of the Registrants  .............................................    19
  Item 11.    Executive Compensation  ..........................................................................    22
  Item 12.    Security Ownership of Certain Beneficial Owners and Management  ..................................    24
  Item 13.    Certain Relationships and Related Transactions  ..................................................    26

PART IV
  Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K  ................................    27
</TABLE>
<PAGE>

PART I

Item 1: Business

Business History

     On January 23, 1998 (the "Acquisition Closing"), Eagle Family Foods, Inc.
("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 include, among other things: (i) four manufacturing facilities located
in Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and
Chester, South Carolina; (ii) all machinery and equipment located at these
facilities; (iii) the trademarks Eagle; ReaLemon; ReaLime; Cremora; Kava; None
Such and certain other trademarks in North America and in certain foreign
territories; and (iv) a non-compete and non-solicitation agreement from BFC and
certain of its affiliates. Eagle is a wholly owned subsidiary of Eagle Family
Foods Holdings, Inc. ("Holdings"). Eagle and Holdings are collectively
referred to as the "Company", unless the context indicates otherwise. Eagle
and Holdings were incorporated in Delaware in 1997.

     Financing for the Acquisition and related fees and expenses consisted of
(i) $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, including William A. Lynch and John
O'C. Nugent (the "Management Investors"), who contributed approximately $1.7
million of such amount (the "Equity Contribution"); (ii) the issuance of $115.0
million of 8 3/4% senior subordinated notes due 2008 (the "Senior Subordinated
Notes"); and (iii) 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"). The Senior Credit
Facilities, the Senior Subordinated Notes and the Equity Contribution are
referred to herein as the "Financing Transactions."

     Borden, Inc. was incorporated in 1889 and has engaged in the manufacture
and distribution of a broad range of products, including dairy products,
industrial chemicals, decorative products and a wide variety of food products,
such as the food products currently manufactured by the Company. In December
1994, investors led by affiliates of Kohlberg Kravis Roberts & Co. purchased
Borden, Inc. and the business was operated through BFC and BFC Investments until
the Acquisition.

     Since the Acquisition Closing, the Company established an experienced
management team, researched and installed a complete enterprise
hardware/software system to meet current and future business needs, and
implemented consumer-oriented marketing programs and strategies. Also, the
Company nationally launched Cremora Royale powdered non-dairy creamer, the Star
and Magnolia Hispanic brands of sweetened condensed milk and ReaLemonade
liquid concentrate lemonade.

Products and Markets

     The Company manufactures and markets a portfolio of leading dry-grocery
food products with widely recognized and established brands, including Eagle
brand sweetened condensed milk, ReaLemon lemon juice from concentrate and
Cremora powdered non-dairy creamer. In their defined markets within the United
States, two of these three principal brands maintain the number one position and
the other brand is number two. Of the remaining three brands, two brands are the
only products available in their defined categories and one brand maintains the
number one position. The retail grocery channel is the Company's primary
distribution channel, with additional sales to mass merchandisers, foodservice
customers, the U.S. military, industrial customers and private label businesses.
The Company's U.S. food business is complemented by a strong presence in Canada
and Puerto Rico.

                                       2
<PAGE>

     The following table sets forth net sales data for each of the Company's
product lines for the fifty-three week period ended July 3, 1999:

<TABLE>
<CAPTION>
                                                                                   Net Sales     Percentage
            Product Line                Company's Principal Brands / Categories       1999      of Net Sales
-------------------------------------   ----------------------------------------   ----------   -------------
                                                                                   (Dollars in
                                                                                    Millions)
<S>                                     <C>                                        <C>          <C>
Sweetened condensed milk                Eagle brand                                     $ 79.7         33.2%
                                        Meadow Gold, Magnolia, Star and other             32.8         13.7
Lemon and lime juice, liquid            ReaLemon and ReaLime                              60.7         25.3
   concentrate lemonade                 ReaLemonade                                       11.1          4.6
Non-dairy creamer                       Cremora and Cremora Royale                        29.7         12.4
                                        Private label                                     10.8          4.5
Shelf-stable eggnog                     Borden                                             5.6          2.4
Mincemeat pie filling                   None Such                                          5.3          2.2
Acid neutralized coffee                 Kava                                               4.0          1.7
                                                                                   ------------------------
      Total                                                                             $239.7        100.0%
                                                                                   ========================
</TABLE>

     The Company's three largest brands, Eagle brand, ReaLemon/ReaLime, and
Cremora/Cremora Royale (the "Cremora line"), accounted for approximately 71% of
the Company's 1999 net sales. Eagle brand and the Company's other sweetened
condensed milk products are the market leaders in the U.S. sweetened condensed
milk category. In 1999, the Company's sweetened condensed milk products
accounted for 47% of the Company's net sales. The Company's ReaLemon/ReaLime
brands are the market leaders in the lemon and lime juice category and are the
only nationally distributed branded products in the category. In 1999, the
ReaLemon/ReaLime brands accounted for 25% of the Company's net sales. The
Cremora line is the number two branded powdered non-dairy creamer in the U.S. In
1999, the Company's powdered non-dairy creamer product lines accounted for 17%
of the Company's net sales. The Company's other three brands accounted for 6% of
the Company's 1999 net sales and include None Such, the leading brand of
mincemeat pie filling, Borden, the only shelf-stable eggnog, and Kava, the only
acid-neutralized coffee.

     In fiscal year 1999, the Company introduced the following new brands within
its key product lines:

     Cremora Royale. The Company completed research and product development, and
launched Cremora Royale nationally in August 1998, a premium non-dairy creamer
extension of Cremora.

     ReaLemonade. The Company completed research and product development, and
launched ReaLemonade nationally in April 1999.  ReaLemonade is an extension of
the successful ReaLemon lemon juice from concentrate, and is the first
nationally distributed shelf-stable liquid concentrate lemonade.

     Star and Magnolia Hispanic brands. The Company completed research and
product development, and launched Star and Magnolia sweetened condensed milk in
key markets across the country in November 1998.

     The Company's marketing programs consist of media advertising, consumer
promotions, trade promotion and co-promotion of certain products as ingredients
in recipes. Television, print and/or radio advertising are employed for Eagle
brand, ReaLemon, ReaLime, ReaLemonade, Cremora and Cremora Royale in an effort
to continuously build brand equity and awareness. Since many of the Company's
brands are purchased primarily as ingredients for recipes, the Company
frequently promotes recipes incorporating its brands and has co-promoted these
brands with other food companies, such as Tyson Foods, Inc. and Keebler Foods
Company, whose products are also incorporated into these recipes. The Company
also promotes its seasonal brands, None Such mincemeat pie filling and Borden
eggnog, with recipe promotions during the November and December holiday season.

     The Company sells its products in the U.S. through over 60 independent food
brokers who represent the Company to the retail grocery trade. The Company also
sells its products to foodservice and industrial channels and to international
markets.  These sales are generated through brokers, distributors, or directly,
depending on the size and needs of the customer.

                                       3
<PAGE>

     Sweetened condensed milk. The Company manufactures and 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 include Magnolia, Meadow Gold, Eagle brand low fat and fat free
products and Star and Magnolia Hispanic brands. The Company's Eagle brand
products carry the Borden and Elsie trademarks, which are used under a license
agreement. The Company also manufactures private label sweetened condensed milk
including several labels for a company who distributes and markets these
products to certain ethnic markets.

     Retail channels, including grocery and mass merchandisers, are the primary
outlets for the Company's branded and private label sweetened condensed milk
products and accounted for approximately 83% of the Company's sweetened
condensed milk net sales for the fifty-three week period ended July 3, 1999. The
balance of the Company's sweetened condensed milk net sales are made through
other channels, including foodservice customers, industrial customers, export
markets and Canada. Sweetened condensed milk products sold in Canada are
manufactured by a third party in Canada.

     Lemon and lime juice and liquid concentrate lemonade. The Company
manufactures and markets ReaLemon lemon juice from concentrate and ReaLime lime
juice from concentrate. ReaLemonade liquid concentrate lemonade from
concentrated lemon juice is marketed by the Company and manufactured by a third
party.

     Retail channels, including grocery and mass merchandisers, are the primary
outlet for the Company's ReaLemon, ReaLime and ReaLemonade products and
accounted for approximately 78% of ReaLemon, ReaLime and ReaLemonade net sales
in the fifty-three week period ended July 3, 1999. The Company also markets the
ReaLemon, ReaLime and ReaLemonade products to foodservice customers, industrial
customers and export markets.

     Powdered non-dairy creamers. The Company manufactures and markets powdered
non-dairy creamer under the Cremora and Cremora Royale brand names and also
manufactures powdered non-dairy creamer for private label, industrial customers
and international markets. Branded Cremora and Cremora Royale are sold primarily
through retail channels which accounted for 70% of the Company's 1999 powdered
non-dairy creamer net sales. Retail private label net sales accounted for 14% of
powered non-dairy creamer net sales, with the balance primarily attributable to
export sales and bulk sales to industrial customers (who use non-dairy creamer
in producing other food products).

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

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

     Instant coffee. Kava is marketed by the Company and manufactured for the
Company by a third party manufacturer pursuant to the Kava Co-Pack Agreement.
Kava is 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.

                                       4
<PAGE>

     The following table sets forth net sales data for the Company's products by
sales channels for the fifty-three week period ended July 3, 1999:

                                                 Net Sales       Percentage
                                                    1999        of  Net Sales
                                                 -----------    -------------
                                                 (Dollars in
                                                  Millions)
          U.S. Retail
             Sweetened condensed milk            $      93.2             38.9%
             Lemon and lime juice                       45.0             18.8
             Liquid concentrate lemonade                11.1              4.6
             Branded non-dairy creamer                  28.2             11.8
             Other products                             14.7              6.1
             Private label non-dairy creamer             5.5              2.3
          U.S. Foodservice/Industrial                   25.1             10.5
          International                                 16.9              7.0
                                                 -----------    -------------
                                                 $     239.7            100.0%
                                                 ===========    =============

Industry Overview

     The U.S. food industry is characterized by relatively stable annual growth
based on modest price and population increases. Over the last ten years 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 merchandiser channel has
outpaced growth in the retail grocery channel, and mass merchandisers 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. To expand
their potential markets, management believes that food companies are broadening
their distribution channels to include greater focus on mass merchandisers and
other alternative distribution channels. In the opinion of management, another
growth opportunity in the U.S. for branded food companies is the foodservice
channel, which supplies restaurants, hospitals, schools and other institutions,
as well as the industrial channel. In addition to the U.S. market, management
believes that certain international markets with above average population growth
and expanding economies offer significant growth opportunities for U.S.
companies. These international markets include Latin America and the Pacific
Rim.

Seasonality

     The Company's net sales, operating income and cash flows are affected by a
seasonal bias toward the fourth quarter of the calendar year due to increased
sales during the holiday season. Three of the Company's six product lines (Eagle
brand and the Company's other brands of sweetened condensed milk products,
Borden eggnog and None Such mincemeat pie filling) are consumed primarily during
the November and December holiday season. In recent years, approximately 45% of
the Company's net sales have occurred in the last quarter of the calendar year.
As a result of this seasonality, the Company's working capital needs have
historically increased throughout the year, normally peaking in the
September/October period, which requires the Company to draw additional amounts
on its Revolving Credit Facility in that period.

Raw Materials and Suppliers

     The primary raw materials used in the Company's operations include milk,
sugar, lemon and lime juice concentrate, vegetable oil, corn syrup and packaging
materials. The Company purchases its raw materials, all of which are widely
available, from numerous independent suppliers. Kava instant coffee and Borden
eggnog are obtained in final product form from third party manufacturers,
traditionally referred to as co-packers. ReaLemonade liquid concentrate lemonade
is obtained from a third party manufacturer who produces the finished product
using

                                       5
<PAGE>

lemon juice concentrate and other ingredients and packaging materials provided
by the Company. In addition, the Company markets Eagle brand and additional
sweetened condensed milk products in Canada which are obtained in final product
form from co-packers located in Canada.

Competition

     The food industry is highly competitive. Numerous brands and products
compete for 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 Nestle's Coffee-mate, which competes with Cremora and Cremora Royale.
However, most of the competition encountered by the Company is from private
label 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.

Trademarks, Copyrights and Patents

     The Company owns a number of trademarks, licenses and patents. The
Company's principal trademarks include Eagle brand; ReaLemon; ReaLime;
ReaLemonade; Cremora; and None 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 the Borden and Elsie trademarks on
products on which they were historically used [in the BBNA Business (as defined
below)], together with certain product extensions. The Borden and Elsie
trademarks are currently used on (i) the entire line of Eagle brand products,
(ii) shelf-stable eggnog, and (iii) Cremora Royale. The Borden trademark is also
currently used on Cremora non-dairy creamer and ReaLemon/ReaLime. The Company
also uses the Borden trademark on None Such mincemeat, Magnolia sweetened
condensed or evaporated milk, and Kava acid-neutralized coffee. The license
excludes South and Central America. In addition, as assignee from BFC, the
Company holds an exclusive and royalty-free license from Southern Foods Group,
L.P. to use the Meadow Gold trademark on sweetened condensed and evaporated 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. The Company has granted BFC an exclusive, perpetual, royalty-free
license to use the ReaLemon and ReaLime trademarks in certain foreign markets
including Europe, the Middle East and Hong Kong. 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 July 3, 1999, the Company employed approximately 380 people,
including 178 hourly and 202 salaried employees. The Wellsboro, Pennsylvania and
Starkville, Mississippi plants are the only unionized Company plants. Union
employees represent approximately 28% of the Company's total work force. At
Wellsboro, the United Food and Commercial Workers Union-Local 174 has a contract
expiring in February 2000 and at Starkville, the Teamsters Local 984 has a
contract expiring on January 31, 2001. Management believes that relations with
the Company's employees and unions are generally good.

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 Company is also subject to regulation
by certain other governmental agencies.

     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

                                       6
<PAGE>

condemnation of violative products, cease and desist orders, injunctions and/or
monetary penalties. 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.

     Environmental Matters. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees. The Company's operations
and properties are subject to a wide variety of 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, and the health and safety
of employees. 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 or financial
position. In connection with the Acquisition, the Company assumed all past and
future environmental liabilities related to the acquired business. The Company
will be indemnified, however, by BFC and BFC Investments with respect to certain
environmental liabilities occurring prior to the Acquisition Closing. This
indemnification is limited in time and amount, and there can be no assurance
that material environmental liabilities will not be incurred after the
indemnification period or in excess of the indemnified amount or that the
Company will be able to pursue successfully any indemnification claims against
BFC. 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.

Item 2: Properties

     Except for Kava instant coffee, ReaLemonade liquid concentrate lemonade and
sweetened condensed milk made for sale in Canada, which are produced under co-
pack agreement, and Borden eggnog, which the Company obtains under a seasonal
purchase order agreement, the Company produces all of its products in four
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.

<TABLE>
<CAPTION>
Location             Square Feet                               Products Manufactured
-----------------  ---------------      --------------------------------------------------------------------
<S>                <C>                  <C>
  Wellsboro, PA..          119,000      Sweetened condensed milk, mincemeat pie filling
  Starkville, MS.           49,000      Sweetened condensed milk
  Waterloo, NY...          102,100      Lemon juice, lime juice and ReaLemonade for foodservice
  Chester, SC....           77,300      Powdered non-dairy creamer
</TABLE>

     In addition to the owned manufacturing facilities described above, the
Company leases 13,605 square feet of office space in Tarrytown, New York, 28,589
square feet of office and laboratory space in Columbus, Ohio, 36,400 square feet
of warehouse space in Chester, South Carolina 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, 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 the Security Holders

     Not applicable.

                                       7
<PAGE>

PART II

Item 5: Market for the 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 24, 1999, Holdings was the only holder of
Eagle common stock. As of September 24, 1999, there were approximately 30
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 6 of the Notes to the Financial Statements of Holdings and Eagle included
elsewhere in this Annual Report on Form 10-K.

     On January 23, 1998, the Equity Sponsors and the Management Investors
subscribed to purchase 816,750 shares of Series A Non-Voting Preferred Stock,
par value $.01 per share, of Holdings (the `'Series A Preferred Stock") at $100
per share and 825,000 shares of Common Stock, par value $.01 per share, of
Holdings (the `'Common Stock") at $1.00 per share. The securities were sold
pursuant to Regulation D Section 506 of the Securities Act of 1933. Full payment
for the stock was received from all but two of the officers, who subscribed to
purchase an aggregate of 13,117.5 shares of Series A Preferred Stock and 13,250
shares of Common Stock. Notes aggregating $825,000 were received from the two
officers as a partial consideration for the subscription. During the third
quarter of fiscal year 1999, one officer made a $200,000 principal and interest
payment in partial satisfaction of the aforementioned notes.  See `'Certain
Relationships and Related Transactions."

                                       8
<PAGE>

Item 6:  Selected Financial Data

     The selected financial data set forth below (in thousands) for each of the
two years in the period ended December 31, 1997, and as of July 3, 1999 and June
27, 1998, and the fifty-three week period ended July 3, 1999, the one hundred
fifty-five day period ended June 27, 1998, the twenty-three day period ended
January 23, 1998 and the six months ended December 31, 1997 are derived from
audited and unaudited financial statements included elsewhere herein. The
selected financial data set forth below as of December 31, 1997, 1996, 1995 and
1994 and for each of the two years in the period ended December 31, 1995, and as
of January 23, 1998 are derived from the financial statements not included
elsewhere herein. The predecessor data represents the financial results related
to Eagle and other sweetened condensed milk products, ReaLemon and ReaLime juice
from concentrate, Cremora powdered non-dairy creamer, None Such pie filling,
Borden eggnog and Kava instant coffee brands (the "BBNA Business") acquired by
the Company for periods prior to the Acquisition. For periods prior to January
1, 1995 and the December 1994 acquisition of all the common stock of Borden,
Inc. by Kohlberg Kravis Roberts & Co. (the "KKR Acquisition"), the BBNA Business
was not managed, and its financial results were not reported, as a separate
business. For periods subsequent to December 31, 1994, the financial data
includes purchase accounting adjustments related to the KKR Acquisition. As a
result, the financial data reported for the 1994 period is not comparable in
certain respects with subsequent periods. In addition, the BBNA Business units
were organized in multiple divisions and co-mingled with other businesses which
were sold, closed or reorganized during 1994. Determining the appropriate
allocations of shared costs make the inclusion of 1994 data for other than net
sales, cost of goods sold and gross profit, in management's opinion, not
practicable and, because of the extent of allocations, potentially misleading.
The BBNA Business shared sales force as well as promotional, advertising and
administrative costs with other food businesses that were sold during 1994. This
would require an allocation of charges which may not, in management's opinion,
produce a reliable reflection of financial results.

<TABLE>
<CAPTION>
                                                                      Predecessor
                                        -----------------------------------------------------------------------------------
                                                                                                               Twenty-Three
                                                                                               Six Months       Day Period
                                                                                                  Ended           Ended
                                                      Year Ended December 31,                  December 31,     January 23,
                                          ------------------------------------------------
                                               1994        1995      1996          1997           1997               1998
                                               ----        ----      ----          ----           ----               ----
<S>                                       <C>            <C>        <C>          <C>           <C>              <C>
Statement of Operations Data:.............                                                     (Unaudited)
Net sales.................................   $  231,203  $ 225,263  $ 230,384    $ 229,370       $ 153,869     $   7,693
Cost of goods sold........................      102,148    102,712    110,357      107,674          70,640         5,154
                                             ----------  ---------  ---------    ---------       ---------     ---------
Gross profit..............................      129,055    122,551    120,027      121,696          83,229         2,539
Distribution expense......................           NA     15,691     14,640       13,464           8,185           303
Marketing expense.........................           NA     63,804     62,705       55,074          37,444         2,095
General and administrative expense........           NA     10,364     10,558       10,259           5,271           767
Amortization of intangibles...............           NA      2,925      2,925        2,925           1,465           243
In-process research and development
 write off................................           NA         --         --           --              --            --
                                             ----------  ---------  ---------    ---------       ---------     ---------
Operating income (loss)...................           NA   $ 29,767   $ 29,199     $ 39,974        $ 30,864      $   (869)
Other Financial Data:
Depreciation and amortization.............           NA   $  6,010   $  5,937     $  6,174        $  3,148      $    512
Capital expenditures......................           NA      2,079      3,726        3,154           1,789            87

<CAPTION>
                                                                 Predecessor
                                                              As of December 31,                                As of
                                             ------------------------------------------------                  January 23,
                                                1994       1995      1996         1997                        1998(a)X(d)
                                                -----      ----      ----         ----                         --------
<S>                                          <C>          <C>        <C>          <C>                          <C>
Balance Sheet Data:
Inventories............................        $ 12,053   $ 13,317   $ 13,239     $ 15,820                      $ 20,100
Net property and equipment  ...........          13,613     16,044     16,649       16,070                        23,950
Total assets...........................          55,765    160,586    157,857      153,786                       380,047
Total debt, including current..........
 maturities............................              --         --         --           --                       306,500
Stockholder's equity  .................              --         --         --           --                        67,803(e)

<CAPTION>
                                                             One
                                                            Hundred
                                                          Fifty-Five        Fifty-Three
                                                          Day Period        Week Period
                                                            Ended              Ended
                                                           June 27,           July 3,
                                                           1998(a)            1999(a)
                                                         -----------        -----------
<S>                                                      <C>               <C>
Statement of Operations Data:.............
Net sales.................................               $  68,183          $ 239,730
Cost of goods sold........................                  38,376(b)         111,026
                                                         ---------           ---------
Gross profit..............................                  29,807             128,704
Distribution expense......................                   4,550              13,420
Marketing expense.........................                  15,048              75,971
General and administrative expense........                   3,691              12,406
Amortization of intangibles...............                  11,855              21,249
In-process research and development
 write off................................                  23,900                  --
                                                         ---------           ---------
Operating income (loss)...................               $ (29,237)          $   5,658
Other Financial Data:
Depreciation and amortization.............               $  13,755(c)        $  26,491(c)
Capital expenditures......................                   2,578              13,744

<CAPTION>
                                                            As of               As of
                                                           June 27,            July 3
                                                           1998(a)             1999(a)
                                                          --------           ----------
<S>                                                        <C>               <C>
Balance Sheet Data:
Inventories.....................                           $ 32,001          $   41,757
Net property and equipment......                             24,791              33,798
Total assets....................                            399,240             417,286
Total debt, including current
 maturities.....................                            318,250             338,500
Stockholder's equity............                             55,994              41,795
 </TABLE>

(a)  The statement of operations data set forth above for the one hundred fifty-
     five day period ended June 27, 1998 and the fifty-three week period ended
     July 3, 1999, and the balance sheet data set forth above as of January 23,
     1998, June 27, 1998 and July 3, 1999 reflects the financial position and
     results of operations of Eagle. With the exception of Stockholders' equity
     and Series A Preferred Stock, this information is substantially consistent
     with that of Holdings. The following represents Stockholders' deficit and
     Series A Preferred Stock of Holdings.
<TABLE>
<CAPTION>
                                        As of June 27, 1998  As of July 3, 1999
                                        -------------------- -------------------
<S>                                     <C>                  <C>
          Stockholders' deficit .......      $(29,159)             $(52,235)
          Series A preferred stock.....        84,327                93,302
</TABLE>

(b)  Includes the nonrecurring charge of $5.2 million of additional cost of
     sales related to the expensing of inventories stated at fair market value.
(c)  Includes the amortization of debt issuance cost of $920 and $371 for the
     fifty-three week period ended July 3, 1999 and the one hundred fifty-five
     day period ended June 27, 1998, respectively.
(d)  Reflects the Acquisition and Financing Transactions resulting in a new
     basis of accounting.
(e)  Reflects initial Equity Contribution of $82.5 million less an after tax
     write-off of in-process research and development.


<PAGE>

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

General

     Set forth below is a discussion of the financial condition and results of
operations for the fifty-three week period ended July 3, 1999, the fifty-two
week period ended June 27, 1998, the six months ended June 27, 1998 and six
months ended June 28, 1997 and of the BBNA Business for the fiscal years ended
December 31, 1996 and 1997. The fifty-two week period ended June 27, 1998
includes the two hundred nine day period ended January 23, 1998 managed by the
BBNA Business and the one hundred fifty-five day period ended June 27, 1998
managed by the Company. The six months ended June 27, 1998 consisted of the
twenty-three day period ended January 23, 1998 managed by the BBNA Business and
the one hundred fifty-five day period ended June 27, 1998 managed by the
Company. The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Combined Financial
Statements of BBNA and the notes thereto included elsewhere in this Annual
Report on Form 10-K. References herein to 1996 and 1997 refer to the fiscal
years ended December 31, 1996 and 1997, respectively, unless the context
otherwise requires.

     The following table sets forth the results of operations as a percentage of
net sales for the fifty-three week period ended July 3, 1999 and the fifty-two
week period ended June 27, 1998:

<TABLE>
<CAPTION>
                                            Fifty-Three Week   Fifty-Two Week
                                              Period Ended      Period Ended
                                              July 3, 1999      June 27, 1998
                                            ----------------   ---------------
       <S>                                  <C>                <C>
       Net sales...........................         100.0%          100.0%
       Cost of goods sold..................          46.3            49.7
                                                  -------         -------
       Gross profit........................          53.7            50.3
       Distribution expense................           5.6             5.7
       Marketing expense...................          31.7            23.8
       General & administrative expense....           5.2             4.2
       Amortization of intangibles.........           8.9            16.3
                                                  -------         -------
       Operating income....................           2.3%            0.3%
                                                  =======         =======
</TABLE>

Results of Operations

     Fifty-Three Week Period Ended July 3, 1999 ("fiscal year 1999") and Fifty-
Two Week Period Ended June 27, 1998 ("fiscal year 1998").

     The fifty-two week period ended June 27, 1998 consists of the two hundred
nine day period ended January 23, 1998 managed by the BBNA Business and the one
hundred fifty-five day period ended June 27, 1998 managed by the Company.

     Net Sales. The Company's net sales for fiscal year 1999 were $239.7 million
as compared to $229.7 million for fiscal year 1998, an increase of $10.0
million, or 4.4%.  The increase reflected $11.1 million in net sales resulting
from the launch of ReaLemonade, a $3.6 million increase in net sales of branded
non-dairy creamer resulting from the launch of Cremora Royale, a $1.7 million
net sales increase in ReaLemon lemon juice, a $0.5 million net sales increase in
sweetened condensed milk, primarily Eagle brand, and $6.9 million in lower net
sales of private label non-dairy creamer.

     The decrease in the private label non-dairy creamer net sales is due to the
loss of two private label customers, who selected different suppliers prior to
the Acquisition Closing. In fiscal year 1999, these two customers substantially
reduced their volume of business with the Company.

                                       10
<PAGE>


     The table below sets forth the Company's net sales data for each of the
Company's product lines for fiscal year 1999 and fiscal year 1998:

<TABLE>
<CAPTION>
                                                                     Net Sales                      Net Sales
                                                                    Fiscal Year     Percentage     Fiscal Year    Percentage
      Product Line             Company's Principal Brands              1999        of Net Sales       1998       of Net Sales
----------------------     -----------------------------------      -----------    ------------    ------------- ------------
                                                                    (Dollars in                    (Dollars in
                                                                      Millions)                      Millions)
<S>                        <C>                                      <C>            <C>             <C>           <C>
Sweetened condensed        Eagle brand, Meadow Gold, Magnolia,        $  112.5           46.9%       $  112.0           48.8%
  milk                     Star and other
Lemon and lime juice,      ReaLemon and ReaLime                           60.7           25.3            59.0           25.7
  liquid concentrate       ReaLemonade                                    11.1            4.6              --             --
  lemonade
Non-dairy creamer          Cremora, Cremora Royale and other              40.5           16.9            43.4           18.9
Shelf-stable eggnog        Borden                                          5.6            2.4             5.2            2.2
Mincemeat pie filling      None Such                                       5.3            2.2             6.2            2.7
Acid neutralized coffee    Kava                                            4.0            1.7             3.9            1.7
                                                                      --------         ------        --------        -------
     Total                                                            $  239.7          100.0%       $  229.7          100.0%
                                                                      ========         ======        ========        =======
</TABLE>

     The table below sets forth the Company's net sales data by sales channels
for fiscal year 1999 and fiscal year 1998:

<TABLE>
<CAPTION>
                                                                     Net Sales                      Net Sales
                                                                    Fiscal Year     Percentage     Fiscal Year    Percentage
                                                                       1999        of Net Sales       1998       of Net Sales
                                                                    -----------    ------------    ------------- ------------
                                                                    (Dollars in                      (Dollars in
                                                                      Millions)                      Millions)
<S>                                                                 <C>            <C>             <C>           <C>
U.S. Retail
  Sweetened condensed milk                                            $  93.2            38.9%       $   93.5           40.7%
  Lemon and lime juice                                                   45.0            18.8            42.5           18.5
  Liquid concentrate lemonade                                            11.1             4.6              --             --
  Branded non-dairy creamer                                              28.2            11.8            24.6           10.7
  Other products                                                         14.7             6.1            15.2            6.6
  Private label non-dairy creamer                                         5.5             2.3            12.4            5.4
U.S. Foodservice/Industrial                                              25.1            10.5            21.7            9.4
International                                                            16.9             7.0            19.8            8.7
                                                                      -------          ------        --------        -------
     Total                                                            $ 239.7           100.0%       $  229.7          100.0%
                                                                      =======          ======        ========        =======
</TABLE>

     The Company's net sales in 1998 are not reduced for approximately $3.3
million of seasonal returns of Eagle brand, Borden eggnog and None Such
mincemeat pie filling. As part of the Acquisition Closing, BFC agreed to absorb
these seasonal returns.

     Cost of Goods Sold.  Cost of goods sold was $111.0 million for fiscal year
1999 as compared to $114.2 million for fiscal year 1998, a decrease of $3.2
million, or 2.8%.  Expressed as a percentage of net sales, cost of goods sold
for fiscal year 1999 decreased to 46.3% from 49.7% for fiscal year 1998.  The
decrease in cost of goods sold in fiscal year 1999 is primarily attributable to
recording a non-cash charge in fiscal year 1998 of $5.2 million of additional
cost of sales related to expensing of inventories that were stated at fair
market value.  At the Acquisition Closing, these inventories were valued at fair
market value (representing cost) in accordance with the purchase method of
accounting. In addition, cost of goods sold increased for fiscal year 1999,
primarily, as a result of incurring higher milk prices in manufacturing
sweetened condensed milk.

     Distribution Expense. Distribution expense was $13.4 million for fiscal
year 1999 as compared to $13.0 million for fiscal year 1998, an increase of $0.4
million, or 3.0%. Expressed as a percentage of net sales, distribution expense
for fiscal year 1999 decreased to 5.6% from 5.7% for fiscal year 1998. The
increase of $0.4 million reflects higher warehousing costs which supported
higher inventory levels at public warehouses during the fourth quarter. The
total inventory increased from $32.0 million at June 27, 1998 to $41.8 million
at July 3, 1999, with ReaLemonade representing the majority of the change.

                                       11
<PAGE>

     Marketing Expense. Marketing expense was $76.0 million for fiscal year 1999
as compared to $54.6 million for fiscal year 1998, an increase of $21.4 million,
or 39.2%. Expressed as a percentage of net sales, marketing expense for fiscal
year 1999 increased to 31.7% from 23.8% for fiscal year 1998. The increase is
primarily driven by $12.3 million in advertising, trade and consumer support
related to the launch of ReaLemonade, an increase of $7.9 million in
advertising, trade and consumer support for Cremora Royale and an increase of
$1.0 million in advertising, trade and consumer support to support foodservice
and industrial distribution channels.

     The Company invested in two national launches in fiscal year 1999, Cremora
Royale and ReaLemonade. Advertising, consumer promotion, brokerage, trade
support and marketing research costs were approximately $20.2 million in support
of these two launches. The significant investment in these two launches
increased the Company's expenses and reduced its operating income for fiscal
year 1999. These two products will continue to be supported appropriately with
consumer marketing programs; however, the continuing marketing support for these
products will be at lower levels following the heavy introductory year one
consumer spending designed to create general awareness and trial.

     General and Administrative ("G&A") Expense.  Total G&A expense was $12.4
million for fiscal year 1999, as compared to $9.7 million for fiscal year 1998,
an increase of $2.7 million, or 27.8%.  Expressed as a percentage of net sales,
G&A expense for fiscal year 1999 increased to 5.2% from 4.2% for fiscal year
1998. The Company's G&A expenses for fiscal year 1999 and the one hundred fifty-
five day period ended June 27, 1998 were based on actual costs incurred by the
Company compared to the BBNA Business G&A expenses for the two hundred nine day
period ended January 23, 1998 which were based on an allocation methodology. In
addition, the Company's G&A expenses for fiscal year 1999 included $1.0 million
of depreciation expense associated with the start up of the Company's computer
systems.

     Amortization of Intangibles.  Amortization of intangibles was $21.2 million
for fiscal year 1999, as compared to $13.6 million for fiscal year 1998, an
increase of $7.6 million. As the intangibles were attributed to the Acquisition
on January 23, 1998, the increase reflects a full year of amortization expense
in fiscal year 1999 compared to a partial year of amortization expense in fiscal
year 1998.

     Operating Income. Operating income was $5.7 million for fiscal year 1999 as
compared to $0.8 million for fiscal year 1998, an increase of $4.9 million.
Excluding the impact of (i) $21.2 million and $13.6 million of amortization
expense for intangibles for fiscal year 1999 and fiscal year 1998, respectively;
(ii) $23.9 million for a non-recurring pre-tax charge in fiscal year 1998 for
investments in research and development that were in process at the Acquisition
Closing and deemed by management to have no alternative use; and (iii) the non-
cash charge in fiscal year 1998 of $5.2 million of additional cost of sales
related to expensing of inventories stated at fair market value, operating
income was $26.9 million for fiscal year 1999 as compared to $43.5 million for
fiscal year 1998, a decrease of $16.6 million, or 38.2%. Among other factors
discussed above, the Company's operating income was significantly reduced by the
marketing investment in the national launches of ReaLemonade and Cremora Royale.

     Interest Expense. Interest expense net of interest income was $27.8 million
for fiscal year 1999 as compared to interest expense net of interest income of
$11.5 million for the one hundred fifty-five day period ended June 27, 1998.
The Company's interest expense resulted from the debt structure established in
connection with the Acquisition.  There was no interest expense in the two
hundred nine day period ended January 23, 1998.

     Income Taxes. The Company recorded an income tax benefit of $7.7 million
for fiscal year 1999, as compared to a $14.2 million income tax benefit for the
one hundred fifty-five day period ended June 27, 1998 and an income tax
provision of $12.1 million for the two hundred nine day period ended January 23,
1998.

                                       12
<PAGE>

     Six Months Ended June 27, 1998 and Six Months Ended June 28, 1997

     The six months ended June 27, 1998 consisted of the twenty-three day period
ended January 23, 1998 managed by the BBNA Business and the one hundred fifty-
five day period ended June 27, 1998 managed by the Company.

     Net Sales. Sales increased 0.5% to $75.9 million for the six months ended
June 27, 1998 as compared to $75.5 million for the six months ended June 28,
1997. Net sales in part were over prior year due to increases in sales to
foodservice customers partially offset by the loss of two private label non-
dairy creamer customers representing $2.6 million of sales when compared against
the six months ended June 28, 1997.

     Cost of goods sold. Cost of goods sold, expressed as a percentage of sales,
increased to 57.4% in the six months ended June 27, 1998 as compared to 49.1% in
the six months ended June 28, 1997. The increase was primarily attributable to
recording a non-cash charge of $5.2 million of additional cost of sales related
to the expensing of inventories stated at fair market value. On January 23,
1998, inventories were valued at fair market value (representing cost) using the
purchase method of accounting, and the valuation exceeded the predecessor's
manufacturing cost by approximately $5.2 million. This inventory was sold in the
six months ended June 27, 1998 increasing cost of sales. Inventories were stated
at the lower of cost or market at June 27, 1998.

     Marketing Expense. Marketing expense was $2.1 million, or 27.2%, when
expressed as a percentage of sales, for the twenty-three day period ended
January 23, 1998. Marketing expense was $15.0 million, or 22.1%, when expressed
as a percentage of sales, for the one hundred fifty-five day period ended June
27, 1998. Advertising and promotional programs were redesigned and refocused
with spending budgets allocated to subsequent periods in 1998. Marketing expense
was $17.6 million, or 23.3%, when expressed a percentage of sales, for the six
months ended June 28, 1997.

     General and Administrative Expense. Total G&A expense was $1.0 million in
the twenty-three day period ended January 23, 1998 and $39.4 million in the one
hundred fifty-five day period ended June 27, 1998. The significant amount
reflected in the one hundred fifty-five day period ended June 27, 1998 is
attributable to the Company taking a non-recurring pre-tax charge of $23.9
million for investments in research and development that was in-process and
deemed by management to have no alternative use and amortization of intangibles
of $11.9 million. Total G&A expense was $6.4 million in the six months ended
June 28, 1997. BBNA Business G&A expenses were based on an allocation
methodology, as previously discussed.

     Interest Expense. There was no interest expense in the twenty-three day
period ended January 23, 1998 and interest expense was $11.5 million in the one
hundred fifty-five day period ended June 27, 1998. The Company's interest
expense in the one hundred fifty-five day period ended June 27, 1998 resulted
from the new debt structure established in connection with the Acquisition.
There was no interest expense in the six months ended June 28, 1997.

     Income Taxes. The Company recorded an income tax benefit of $0.3 million
for the twenty-three day period ended January 23, 1998 and an income tax benefit
of $14.2 million for the one hundred fifty-five day period ended June 27, 1998.
The Company anticipates sufficient future taxable income to realize deferred tax
assets recorded at June 27, 1998. The Company recorded a tax provision of $3.9
million for the six months ended June 28, 1997.

                                       13
<PAGE>

     Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

     The following table sets forth the results of operations as a percentage of
net sales for the years ended 1996 and 1997:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                        1996           1997
                                                      --------       --------
        <S>                                           <C>            <C>
        Net sales..................................     100.0%         100.0%
        Cost of goods sold.........................      47.9           46.9
                                                       ------         ------
        Gross profit...............................      52.1           53.1
        Distribution expense.......................       6.4            5.9
        Marketing expense..........................      27.2           24.0
        General & administrative expense...........       5.9            5.7
                                                       ------         ------
        Operating income...........................      12.6%          17.5%
                                                       ======         ======
</TABLE>

     Net Sales.  The Company's net sales were $229.3 million for the year ended
December 31, 1997, as compared to $230.4 million in 1996, a decrease of $1.1
million, or 0.5%. The decrease reflected an increase of $4.1 million in net
sales of sweetened condensed milk, offset by decreases of $0.4 million in
ReaLemon product line net sales, $3.9 million in non-dairy creamer net sales and
$1.0 million in eggnog net sales.

     Cost of Goods Sold.  Cost of goods sold was $107.7 million for the year
ended December 31, 1997, as compared to $110.4 million in 1996, a decrease of
$2.7 million, or 2.4%. Expressed as a percentage of net sales, cost of goods
sold in 1997 decreased 1% from the prior year, to 46.9%, primarily as a result
of milk prices returning to normal levels.

     Distribution Expense.  Distribution expense was $13.5 million for the year
ended December 31, 1997, as compared to $14.6 million in 1996, a decrease of
$1.1 million, or 7.5%. Expressed as a percentage of net sales, distribution
expense decreased to 5.9% in 1997 from 6.4% in the prior year. The decrease in
distribution expense was primarily the result of the realization of efficiencies
within the distribution system, thereby lowering overall distribution expense.

     Marketing Expense.  Marketing expense was $55.1 million for the year ended
December 31, 1997, as compared to $62.7 million in 1996, a decrease of $7.6
million, or 12.1%. Expressed as a percentage of net sales, marketing expense
decreased to 24.0% in 1997 from 27.2% in 1996. Trade promotion expenses in the
1997 period decreased 9.6%, or $2.1 million, primarily as the result of the
elimination of off-season trade promotions and a lower level of new product
introduction activity. Advertising and consumer promotion expenses in the 1997
period decreased 12.3%, or $2.5 million, primarily as the result of a reduction
in higher advertising and consumer promotion expenses incurred in 1996 to
support line extensions introduced in that year. Other marketing expenses
(advertising and promotion management, variable sales, field sales/sales support
and market research) declined $3.0 million primarily as the result of sales
force reductions and a decrease in market research expense.

     General and Administrative Expense.  Total allocated G&A expense was $13.2
million for the year ended December 31, 1997, as compared to $13.5 million for
the prior year, a decrease of $0.3 million, or 2.2%. Expressed as a percentage
of net sales, G&A expense decreased to 5.7% in 1997 from 5.9% in the prior year.

     Operating Income. As a result of the factors discussed above, the Company's
operating income was $40.0 million for the year ended December 31, 1997, as
compared to $29.2 million in the prior period, an increase of $10.8 million, or
37.0%.

  Liquidity and Capital Resources

     Borrowings under the Senior Credit Facilities at July 3, 1999 and June 27,
1998 consisted of $173.5 million and $174.8 million, respectively, for the Term
Loan Facility maturing in 2006. The Term Loan Facility matures $1.0 million in
each of the years 2000 through 2001, and $0.8 million, $3.2 million, $27.5
million, $80.0 million and

                                       14
<PAGE>

$60.0 million in the years 2002, 2003, 2004, 2005 and 2006, respectively. In
addition, the Senior Credit Facilities include the $70.0 million Revolving
Credit Facility maturing in 2005, of which $50.0 million and $28.5 million were
outstanding at July 3, 1999 and June 27, 1998, respectively. The increase in the
amount outstanding under the Revolving Credit Facility was principally due to
the significant marketing investment made in launching Cremora Royale and
ReaLemonade, as well as carrying the higher level of inventory necessary to
support ReaLemonade.

     On September 24, 1999, the Equity Sponsors confirmed their intention to
contribute $10.0 million to the equity of Holdings, and the Board of Directors
authorized the issuance of such additional equity and the subsequent
contribution of the proceeds to Eagle.  The capital contribution is being made
by the Equity Sponsors in connection with the significant investment made by the
Company in launching Cremora Royale and ReaLemonade, as previously discussed.

     Interest payments on the Senior Subordinated Notes and interest and
principal payments under the Senior Credit Facilities represent significant cash
requirements for the Company. Borrowings under the Senior Credit Facilities bear
interest at floating rates and require interest payments on varying dates.
However, on April 22, 1998, the Company entered into interest rate swap
agreements in order to fix the interest rate on $100 million of the Term Loan
Facility. These swap agreements commenced on July 23, 1998.

     The Company's remaining liquidity needs are for capital expenditures and
increases in working capital. The Company spent $13.7 million on capital
projects in fiscal year 1999 to fund management information systems initiatives,
expenditures in existing facilities and discretionary capital projects
associated with new products. The Company expects to spend approximately $5.0 to
$7.0 million on capital projects in fiscal year 2000 to fund expenditures in
existing facilities, information system initiatives and discretionary capital
projects associated with new products. The Company's primary sources of
liquidity are cash flows from operations and available borrowings under the
Revolving Credit Facility.

     Net cash used in operating activities for fiscal year 1999 was $8.0 million
and for the one hundred fifty-five day period ended June 27, 1998 was $8.3
million.

     Cash provided by financing activities in fiscal year 1999 and the one
hundred fifty-five day period ended June 27, 1998 was $20.3 million and $11.8
million, respectively. Proceeds of $21.5 million and $12.0 million represented
borrowings under the Revolving Credit Facility for fiscal year 1999 and fiscal
year 1998, respectively.

     Management believes that cash generated from operations, borrowings under
the Senior Credit Facilities and the additional capital contribution by the
Equity Sponsors 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
issue equity securities.

Other Information

     Plant Fire.  On June 2, 1999, a fire destroyed several critical pieces of
equipment at the Chester, South Carolina manufacturing plant. The plant is
operating at modified levels and is scheduled to be in full production in
October 1999. The Company has temporarily engaged another manufacturer to
produce powdered non-dairy creamer in bulk. The Chester, South Carolina plant
then packages and ships the finished product to its customers. The Company
estimates that any lost sales associated with the fire will be less than $1.0
million.

     The Company is in the process of completing its insurance claim for
property damage and other expenses related to the fire and business
interruption. The claim is expected to be approximately $3.5 to $4.0 million.
The Company does not believe that this event will have a material impact on its
results of operations or financial position.

     Senior Credit Facilities Amendment. On July 13, 1999, the Company amended
its Senior Credit Facilities effective as of June 30, 1999.

     The Senior Credit Facilities contain certain financial covenants which
require the Company to meet certain financial tests. The debt coverage and
interest expense coverage requirements were amended for the four quarters

                                       15
<PAGE>

ending prior to and including April 1, 2000, and have taken into consideration
the Company's operating performance for fiscal year 1999.

     The interest pricing table that is used to determine the Company's interest
rate was changed to include additional categories at varying leverage ratios.
The Company had been paying interest at LIBOR plus 2.25% on the Term Loan
Facility and LIBOR plus 2.00% on the Revolving Credit Facility. Based on the
Company's current leverage ratio and the newly amended agreement, the interest
rate will now be at LIBOR plus 3.50% on the Term Loan Facility and LIBOR plus
3.25% on the Revolving Credit Facility. These rates are subject to performance
step-downs based on the Company's leverage ratio, with the lowest leverage ratio
category set at LIBOR plus 2.25% for the Term Loan Facility and LIBOR plus 1.5%
for the Revolving Credit Facility.

     The Company paid an amendment fee of one quarter of one percent on the
total amount outstanding on the Term Loan Facility and the $70 million Revolving
Credit Facility.

Seasonality

     The Company's net sales, operating income and cash flows are affected by a
seasonal bias toward the fourth quarter of the calendar year due to increased
sales during the holiday season. Three of the Company's six major product lines
(Eagle brand and the Company's other sweetened condensed milk products, Borden
eggnog and None Such mincemeat pie filling) are consumed primarily during the
November and December holiday season. In recent years, approximately 45% of the
Company's net sales have occurred in the last quarter of the calendar year. As a
result of this seasonality, the Company's working capital needs have
historically increased throughout the year, normally peaking in the
September/October period, which requires the Company to draw additional amounts
on its Revolving Credit Facility in that period.

Recently Issued Accounting Statements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company expects to adopt this standard in the
first quarter of 2001. The Company is evaluating this pronouncement and has not
yet determined the ultimate impact of this pronouncement on future financial
statements.

                                       16
<PAGE>

Impact of The Year 2000 Issue

     The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the particular year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

     The Company's efforts to address the 2000 issues are divided into three
areas that include: (1) installing the PeopleSoft enterprise-wide system for
business and accounting systems; (2) assessing and renovating, if required,
systems that will not be replaced by the enterprise-wide system, including non-
information technology systems such as plant process controls; and (3) assessing
the Year 2000 readiness of external suppliers and customers. A discussion of
each area of activity follows.

     Enterprise-wide system.  On January 25, 1999, the Company, in conjunction
with outside consultants, implemented a comprehensive new PeopleSoft enterprise-
wide system. The Company's version of the PeopleSoft enterprise-wide system
software release was developed and warranted by the vendor to be Year 2000
ready. All other applications installed are new and also warranted by the vendor
to be Year 2000 ready.

     Systems not replaced by the enterprise-wide system.  For the systems not
replaced by the PeopleSoft enterprise-wide system, including plant process
controls, other non-information technology systems, brokerage reporting systems
and telephone and communications systems, the Company is in the final stages of
preparing an assessment of vulnerability to the Year 2000 issue. Implementation
of any recommendations and contingency plan(s) and final system testing are
planned to be complete by October 31, 1999. The Company's preliminary review did
not identify any serious Year 2000 issues. A budget of $150,000 has been
established for remediation costs in this area.

     Suppliers and Customers.  The Company is in the process of assessing and
addressing the risks related to third party suppliers and customers.  The
Company has surveyed its customers and suppliers regarding their own assessment
of Year 2000 vulnerability.  The Company is in the process of developing
contingency plans, such as reverting to a paper based order and invoice system,
with its customers and suppliers where appropriate, and these plans are targeted
for completion by October 31, 1999. However, the Company can give no assurances
that failure of third parties to address the Year 2000 system issues will not
have an adverse impact on the Company's business operations and results.  The
current estimate for this assessment and the development of contingency plans is
less than $30,000.

     Risk.  Due to the general uncertainty inherent in the Year 2000 problem,
including the uncertainty associated with suppliers and customers Year 2000
readiness, which is beyond the Company's control, the potential effect on the
financial results and the condition of the Company can not be measured.  The
Company intends to complete its Year 2000 program on a timely basis so as to
significantly minimize the level of uncertainty that Year 2000 will have on the
Company's business operations and financial results.

                                       17
<PAGE>

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

     Interest Rates

     The following table presents descriptions of the financial instruments and
derivative instruments that are held by the Company at July 3, 1999 and which
are 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. Under interest-rate swaps, the Company agrees with
other parties to exchange, at specified intervals, the difference between fixed-
rate and floating-rate interest amounts calculated by reference to an agreed
notional principal amount. The Company does not enter into derivative financial
instrument transactions for speculative purposes.

     For the liabilities, the table represents principal calendar year cash
flows that exist by maturity date and the related average interest rate. For the
interest rate derivatives, the table presents the notional amounts and expected
interest rates that exist by contractual dates; the notional amount is used to
calculate the contractual payments to be exchanged under the contract. The
variable rates are estimated based upon the six month forward LIBOR rate.

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

<TABLE>
<CAPTION>
                                                                                                                            Fair
                                    2000         2001         2002         2003         2004      Thereafter     Total       Value
                                ------------ ------------ ------------ ------------ ------------ ------------  ---------   ---------
<S>                             <C>          <C>          <C>          <C>          <C>          <C>           <C>         <C>
Liabilities
 Fixed rate....................                                                                    $115,000    $115,000    $100,041
 Average interest rate.........                                                                       8.750%      8.750%
 Variable rate................. $  1,000      $ 1,000      $ 1,000      $10,000      $40,000       $170,500    $223,500    $223,500
 Average interest rate.........    9.087%       9.087%       9.087%       9.087%       9.087%         8.505%      8.643%
Interest-Rate Derivatives
Variable to fixed:
 Notional amount............... $100,000      $75,000      $75,000                                             $100,000    $    299
 Average pay rate..............    5.943%       5.955%       5.955%                                               5.948%
 Average receive rate..........    5.328%       5.328%       5.328%                                               5.328%
</TABLE>

     On April 22, 1998, the Company entered into interest rate swap agreements
in order to fix the interest rate on a portion of the Term Loan Facility. The
Term Loan Facility bears interest at LIBOR plus 3.50%. These swap agreements
commenced on July 23, 1998 and fix the LIBOR rate at 5.955% on $75 million and
5.905% on $25 million of the $175 million Term Loan Facility. These swap
agreements expire on December 29, 2000 and December 31, 2002, respectively, and
have been reflected in the table above.

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. By purchasing futures contracts, however, the Company
establishes a known price for future milk purchases in order to protect against
dramatic milk price increases. As of the end of fiscal year 1999, the Company
had purchased 177 milk futures contracts for various months through January 2000
at an aggregate value of $3.7 million. The aggregate market value of these
contracts at August 9, 1999 was $4.7 million.

Item 8: Financial Statements and Supplementary Data

     See Item 14 "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.

                                       18
<PAGE>

PART III

Item 10: Directors and Executive Officers of the Registrants

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

           Name              Age    Position
           ----              ---    --------
William A. Lynch..........    51    Chairman of the Board of Directors and Chief
                                    Operating Officer*
John O'C. Nugent..........    57    Chief Executive Officer, President and
                                    Director*
Craig A. Steinke..........    42    Chief Financial Officer, Vice President and
                                    Treasurer*
Jonathan F. Rich..........    52    Vice President, General Counsel and
                                    Secretary*
Tamar K. Bernbaum.........    48    Vice President, Marketing
James A. Byrne............    54    Vice President, Human Resources
Virginia Cappello.........    47    Vice President, Market Research
Paul F. Keida.............    49    Vice President, Technology
Richard A. Lumpp..........    52    Vice President, Sales
A.L. Stanley..............    55    Vice President, Foodservice & Industrial
Andreas T. Hildebrand.....    31    Director
Kewsong Lee...............    34    Director
Howard H. Newman..........    52    Director
Donald W. Torey...........    42    Director
Paul W. Van Orden.........    72    Director

______________
*    Messrs. Lynch, Nugent, Steinke and Rich hold these same positions at
Holdings and are the executive officers of Holdings.

     William A. Lynch has served as Chairman of the Board of Directors of
Holdings and Eagle and Chief Operating Officer of Holdings and Eagle since their
respective dates of formation. In the past eleven years, Mr. Lynch founded,
owned, and acted as Chief Executive Officer of a number of entrepreneurial
ventures including Group 1 Capital, Ltd. (founded in 1990), Audio One, Inc.
(founded in 1989), and Consumer Products, Inc. (founded in 1986). Mr. Lynch
possesses extensive experience in the consumer products industry, having served,
prior to 1985, in a variety of management positions for Bristol-Myers Squibb
Co., Borden, Inc., Calgon Consumer Products Company and The Procter & Gamble
Company.

     John O'C. Nugent has served as a Director of Holdings and Eagle and Chief
Executive Officer and President of Holdings and Eagle since their respective
dates of formation. From 1993 into 1996, he served as the President of Johnson &
Johnson Consumer Products, Inc., where he was responsible for the consumer
business and pharmaceutical products division. Prior to that, Mr. Nugent spent
eight years with Unilever occupying a series of marketing and general management
positions. Most recently, he served as Senior Vice President (General Manager)
of the Van den Bergh Consumer Products Division in the U.S. prior to an
assignment in the United Kingdom where he was Director (COO position) of Van den
Bergh, Ltd. Mr. Nugent's background in consumer products extends over thirty
years, with experience at Borden, Inc., Calgon Consumer Products Company and The
Procter & Gamble Company, where he held a variety of marketing and management
positions. His past service as a director includes membership on the boards of
the Association of National Advertisers, Cosmetics Toiletries and Fragrance
Association and the National Association of Margarine Manufacturers.

     Craig A. Steinke has served as Chief Financial Officer, Vice President and
Treasurer of Holdings and Eagle since January 1998. From 1996 into 1998, Mr.
Steinke served as Senior Vice President and Group General Manager of BHP Copper,
a business group of Broken Hill Proprietary Co., Ltd ("BHP"). From 1992
through 1996, Mr. Steinke held President, Vice President and Controller
positions at the Metals Division of Magma Copper Co. Prior to 1992, Mr. Steinke
held a variety of positions at Arthur Andersen LLP.

     Jonathan F. Rich has served as Vice President, General Counsel and
Secretary of Holdings and Eagle since their respective dates of formation. From
1990 through 1996, Mr. Rich served as Vice President and General

                                       19
<PAGE>

Counsel of Nabisco International. Prior to that, he served two years as the
Associate General Counsel for Del Monte Foods Company. Mr. Rich is a member of
the New York Bar.

     Tamar K. Bernbaum has served as Vice President, Marketing of Eagle since
January 1998. From 1991 through 1997, Ms. Bernbaum held Director of Trade
Marketing and Category Manager for Trade Marketing positions at Unilever's Van
den Bergh Foods division. From 1983 through 1991, Ms. Bernbaum served as Senior
Product Manager and Product Manager at Unilever's Ragu Foods Company division.
Prior to 1983, Ms. Bernbaum held a variety of management positions at Colgate-
Palmolive Company and Nestle Inc.

     James A. Byrne has served as Vice President, Human Resources of Eagle since
its formation in November 1997. From 1990 through 1995, Mr. Byrne served as the
Director of Human Resources for Wyeth-Lederle Vaccines and Pediatrics & Lederle
Consumer Health Products. Prior to that, Mr. Byrne spent 22 years at American
Cyanamid Co. in a variety of human resources management positions.

     Virginia Cappello has served as Vice President, Market Research of Eagle
since January 1998. From 1997 through January 1998, Ms. Cappello served as
Director of International Research for MasterCard International Inc. From 1987
through 1997, she served as Group Market Research Manager of Unilever's Van den
Bergh Foods division. From 1980 through 1987, Ms. Cappello held Group Market
Research Manager and Senior Market Research Manager positions serving both the
domestic and international operations of International Playtex, Inc. Prior to
1980, Ms. Cappello held management positions at Evaluative Criteria, Inc.,
Lebhar Friedman Research, Erdos & Morgan, Inc. and O'Brian Sherwood Associated,
Inc.

     Paul F. Keida has served as Vice President, Technology of Eagle since
December 1997. From 1995 through 1997, Mr. Keida served as Vice President of
Research and Development of Borden Foods Corporation. For 19 years prior to
1995, Mr. Keida held a variety of management positions at Borden, Inc. in the
technology research and development areas.

     Richard A. Lumpp has served as Vice President, Sales of Eagle since
December 1997. From 1996 through 1997, Mr. Lumpp served as Senior Vice President
of Neo, Inc., an Information Resources, Inc. affiliate. Between 1995 and 1996,
Mr. Lumpp served as a Principal at CSC Weston Group. Between 1993 and 1995, Mr.
Lumpp held Senior Vice President of Client Service and Vice President of Sales
positions with Information Resources, Inc. Prior to 1993, Mr. Lumpp held a
variety of management positions at Unilever's Van den Bergh Foods and Ragu Foods
Company divisions, The Gillette Company and Johnson & Johnson.

     A.L. Stanley has served as Vice President, Foodservice & International of
Eagle since December 1997. From 1994 through 1997, Mr. Stanley served as Vice
President, Sales of Borden Foods Corporation where he was responsible for the
marketing of BBNA Business products as well as several other products. From 1981
through 1994, Mr. Stanley held several Vice President and management positions
at James River Corporation. Prior to 1981, Mr. Stanley held a variety of
management positions at American Can Company.

     Andreas T. Hildebrand has served as a Director of Holdings and Eagle since
their respective dates of formation. Mr. Hildebrand has served as a Vice
President in the Private Equity Group of General Electric Investment Corporation
("GEIC") since May 1997, and as an Investment Manager and Senior Financial
Analyst since 1993. Prior to joining GEIC, Mr. Hildebrand was an Economic
Analyst in the office of Massachusetts Governor William Weld. Mr. Hildebrand
presently serves as a director of several privately held companies.

     Kewsong Lee has 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 a general partner of Warburg, Pincus & Co. ("WP")
since January 1, 1997. Mr. Lee served as a Vice President of WP from January
1995 to December 1996, and as an associate at E.M. Warburg, Pincus & Co., Inc.
("EMW") from 1992 until December 1994. Prior to joining EMW, Mr. Lee was a
consultant at McKinsey & Company, Inc., a management consulting company from
1990 to 1992. His present service as a director includes membership on the
boards of Knoll, Inc., RenaissanceRe Holdings Ltd. and several privately held
companies.

     Howard H. Newman has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Newman has served as a Member and Managing
Director of EMW LLC (and its predecessor) and a general

                                       20
<PAGE>

partner of WP since 1987. Prior to joining EMW LLC's predecessor in 1984 he was
a Principal with Morgan Stanley & Co., Incorporated. His present service as a
director includes membership on the boards of ADVO, Inc., Newfield Exploration
Company, Cox Insurance Holdings Plc, Comcast UK Cable Partners Limited,
RenaissanceRe Holdings Ltd. and several privately held companies.

     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 GEIC and GE Investment Management Incorporated ("GEIM" and, together with
GEIC, "GE Investments") with responsibility for GE Investments' Private Equity
and Real Estate groups since January 1997. From 1993 through 1996, Mr. Torey
served as Chief Financial Officer of GE Investments. Prior to that, Mr. Torey
served as Manager of Mergers and Acquisition Finance for General Electric
Company ("GE"). Mr. Torey currently serves as a Trustee for the General
Electric Pension Trust ("GEPT") and as a director of a privately held company.

     Paul W. Van Orden has served as a Director of Holdings and Eagle since
April 1998. Mr. Van Orden has been a Special Student at the Yale Divinity School
since 1997. From 1991 through 1996, he was the Executive-In-Residence, the
Executive Director of the Chazen Institute for International Business and a
Visiting Professor at the Columbia University Graduate School of Business. Prior
to that, Mr. Van Orden was an Executive Vice President at GE. He currently
serves as a director of a privately held company.

                                       21
<PAGE>

Item 11:  Executive Compensation

Summary Compensation Table

     The following summary compensation table provides information concerning
compensation for the Company's chief executive officer and the four other most
highly compensated executive officers of Eagle (collectively, the "Named
Executive Officers") for the fiscal years ended June 27, 1998 and July 3, 1999.

<TABLE>
<CAPTION>
                                                                                                                   Long Term
                                                                       Annual Compensation                      Compensation(3)
                                             --------------------------------------------------------------   ------------------
                                                                                                  Other           Restricted
                                               Fiscal                                          Compensation          Stock
Name and Principal Position                     Year        Salary          Bonus(1)               (2)             Awards(4)
------------------------------------------   --------   ------------   -----------------     --------------   ------------------
<S>                                          <C>        <C>            <C>                   <C>              <C>
William A. Lynch..........................       1998       $130,682     $           --             $ 2,500              $58,230
 Chairman of the Board and                       1999        316,250             150,000              6,542                   --
 Chief Operating Officer

John O'C. Nugent..........................       1998        130,682                  --              2,000               58,230
 Chief Executive Officer and President           1999        316,250             150,000              7,480                   --

Craig A. Steinke..........................       1998         78,750                  --              2,363                4,835
 Vice President and Treasurer                    1999        221,375             105,000              6,113                   --

Richard A. Lumpp..........................       1998         80,492                  --             39,655(5)             4,835
 Vice President, Sales                           1999        179,208              85,000              3,167                   --

Tamar K. Bernbaum.........................       1998         70,455                  --              1,938                4,835
 Vice President, Marketing                       1999        165,625              77,500              6,485                   --
</TABLE>

-------------------
(1)  The bonus represents the amount earned and paid to the Named Executive
     Officer for Eagle's first full calendar year for which each executive could
     earn up to 100% of his or her base salary if certain performance targets
     were met.
(2)  Other compensation includes matching and profit sharing contributions made
     by the Company on behalf of each Named Executive Officer pursuant to the
     Eagle Family Foods, Inc. 401k Savings and Retirement Plan.
(3)  The Company has not awarded any stock options or stock appreciation rights
     to the Named Executive Officers.
(4)  Represents the approximate value of awards of restricted Common Stock (the
     "Restricted Shares") issued to the Named Executive Officers on January 16,
     1998. The Restricted Shares will vest in equal installments over five years
     (the "Vesting Period"), beginning on the first anniversary of the date of
     issuance provided that such grantee is employed by the Company on such
     date. Upon the consummation of an initial public offering of Common Stock
     of Holdings registered under the Securities Act of 1933 meeting certain
     thresholds prior to the end of the Vesting Periods, 20% of the Restricted
     Shares will vest. Any remaining unvested Restricted Shares would then vest
     in equal installments over the time remaining in the Vesting Period. The
     Board of Directors of Holdings may also establish certain performance
     criteria that could result in accelerated vesting of the Restricted Shares.
     As of June 27, 1998, the approximate value of each such award was $58,230,
     $58,230, $4,835, $4,835, and $4,835 for Messrs. Lynch, Nugent, Steinke,
     Lumpp and Ms. Bernbaum, respectively.
(5)  Includes $34,020 related to a signing bonus

Compensation Committee Interlocks and Insider Participation

     Matters of compensation are reviewed and acted upon by the full Board of
Directors, consisting of William A. Lynch, John O'C. Nugent, Andreas T.
Hildebrand, Kewsong Lee, Howard H. Newman, Donald W. Torey and Paul W. Van Orden
at July 3, 1999.  Messrs. Lynch and Nugent are both executive officers of
Holdings and Eagle. See "Certain Relationships and Related Transactions."

                                       22
<PAGE>

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

Employment Agreements

     The Company has entered into employment agreements with each of Mr. William
A. Lynch and Mr. John O'C. Nugent, pursuant to which Mr. Lynch serves as
Chairman of the Company and Chief Operating Officer and Mr. Nugent serves as
Chief Executive Officer and President of the Company. The initial annual base
salaries under such agreements for each of Mr. Lynch and Mr. Nugent are
$300,000. Increases in the base salary are determined by the Board of Directors.
In addition, Mr. Lynch and Mr. Nugent are each entitled to receive a bonus of up
to 100% of their base salaries if certain performance targets are met. Bonuses
for future periods are to be based on targets to be established by the Board of
Directors. Each agreement has a term of two years, with automatic annual
renewals. In the event either employment agreement is terminated by the Company
without "cause" (as defined in such employment agreement), Mr. Lynch or Mr.
Nugent, as the case may be, are entitled to receive severance payments equal to
the base salary then in effect for the greater of the next 12 months or the
remainder of the employment term. The agreements provide for customary non-
competition and non-solicitation provisions. The Company entered into similar
arrangements with its other executive officers.

                                       23
<PAGE>

Item 12:  Security Ownership of Certain Beneficial Owners and Management

     All of the issued and outstanding shares of common stock of Eagle as of
September 24, 1999 are beneficially owned by Holdings. There are two classes of
capital stock of Holdings authorized and outstanding: the Common Stock, which
has full voting rights, and Series A Preferred Stock, which has limited voting
rights. The following table sets forth, as of September 24, 1999, certain
information regarding the beneficial ownership of Common Stock and the Series A
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 certain executive officers of Holdings and Eagle and (iii) all
directors and executive officers of Holdings and Eagle, as a group:

<TABLE>
<CAPTION>
                                                                       Common Stock       Series A Preferred Stock
                                                                   ---------------------  ------------------------
                      Name and Address of                          Number of               Number of
                      Beneficial Owner (1)                          Shares    Percentage    Shares     Percentage
                      --------------------                          ------    ----------    ------     ----------
<S>                                                                <C>        <C>         <C>          <C>
GE Investment Private Placement Partners II,
 a Limited Partnership
 3003 Summer Street
 Stamford, CT 06905(2)...........................................    404,075        41.3      400,034        49.0

Warburg, Pincus Ventures, L.P.
 466 Lexington Avenue
 New York, NY 10017(3)...........................................    404,075        41.3      400,034        49.0

William A. Lynch(4)..............................................     66,480         6.8        8,168         1.0
John O'C. Nugent(4)..............................................     63,230         6.5        4,950           *
Craig A. Steinke(5)..............................................      5,835           *          990           *
Tamar K. Bernbaum(5).............................................      4,835           *           --          --
Richard A. Lumpp(5)..............................................      5,835           *          990           *
Andreas T. Hildebrand(2)(6)......................................         --          --           --          --
Kewsong Lee(3)...................................................    404,075        41.3      400,034        49.0
Howard H. Newman(3)..............................................    404,075        41.3      400,034        49.0
Donald W. Torey(2)(6)............................................         --          --           --          --
Paul W. Van Orden(6).............................................         --          --           --          --
All directors and executive officers as a
 group (15 persons)(7)...........................................    563,135        57.5      416,716        51.0
</TABLE>

_______________
* 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, 220 White Plains Road, Tarrytown, NY 10591.
     Messrs. Lee and Newman have the same address as Warburg. Messrs. Torey,
     Hildebrand and Van Orden 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. Lee and Newman, directors of Holdings, are
     Managing Directors and members of EMW LLC and general partners of WP. As
     such, Messrs. Lee and Newman 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 58,230 shares of restricted stock, subject to certain vesting and
     forfeiture requirements, issued to each of Messrs. Lynch and Nugent upon
     consummation of the Acquisition.
(5)  Includes 4,835 shares of restricted stock, subject to certain vesting and
     for future requirements, issued to each of Messrs. Steinke and Lumpp and
     Ms. Bernbaum.
(6)  Excludes 404,075 shares of Common Stock and 400,034 shares of Series A
     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. Torey, Hildebrand and Van Orden
     disclaim beneficial ownership of all such shares owned by GEI and GEIM.
(7)  Includes 404,075 shares of Common Stock and 400,034 shares of Series A
     Preferred Stock beneficially owned by Warburg. Excludes 404,075 shares of
     Common Stock and 400,034 shares of Series A Preferred Stock beneficially
     owned by GEI. Includes 1,600 shares of Common Stock and 1,584 shares of
     Series A Preferred Stock held by executive officers not identified in the
     table and 149,085 shares of restricted stock, subject to certain vesting
     and forfeiture requirements, issued to executive officers and key
     employees.

                                       24
<PAGE>

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 (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. Mr. Lynch and Mr. Nugent will
be entitled to serve as directors for so long as they remain executive officers
of the Company. 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) Holdings' or Eagle's 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 Holdings or Eagle; (iv) any acquisition by Holdings or
Eagle 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
Holdings or Eagle, other than sales of inventory in the ordinary course of
business; (vi) any liquidation, dissolution or winding up, or any consent to a
bankruptcy or insolvency or related proceeding involving, Holdings or Eagle;
(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 Holdings or Eagle; (xi) the amendment or modification of the
certificate of incorporation or bylaws of Holdings or Eagle; (xii) the
amendment, modification or termination of any employment agreement with any
executive officer of Holdings or Eagle; (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
Holdings or Eagle 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 Series A 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 Series A 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.

                                       25
<PAGE>

     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 (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, each of the Equity Sponsors has
two demand registration rights for each of its 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 effect 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

     Holdings and the Investors entered into Subscription Agreements, dated as
of the Acquisition Closing (collectively, the "Subscription Agreements"),
pursuant to which, among other things, Holdings agreed to issue shares of Common
Stock and Series A Preferred Stock. See "Security Ownership and Beneficial
Owners."

     In connection with the portion of the Equity Contribution to Holdings made
by Mr. Lynch and Mr. Nugent, the Company lent an aggregate of $575,000 to Mr.
Lynch and $250,000 to Mr. Nugent in exchange for full recourse notes 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%. Each
note matures on the fifth anniversary of the Acquisition Closing and is 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. Mr. Lynch, in
partial satisfaction of the aforementioned note, made a $200,000 principal and
interest payment.

     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.

                                       26
<PAGE>

PART IV

Item 14:   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Financial Statements of the Company

<TABLE>
<CAPTION>
                                                                                                                Page
     <S>                                                                                                        <C>
     Eagle Family Foods, Inc. and Eagle Family Foods Holdings, Inc.

     Report of Independent Accountants.........................................................................   32

     Eagle Family Foods, Inc. Statements of Operations and Comprehensive Loss for the Fifty-Three
      Week Period ended July 3, 1999 and the One Hundred Fifty-Five Day Period ended June 27, 1998.............   33

     Eagle Family Foods, Inc. Balance Sheets as of July 3, 1999 and June 27, 1998..............................   34

     Eagle Family Foods, Inc. Statements of Cash Flows for the Fifty-Three Week Period ended July 3, 1999
      and the One Hundred Fifty-Five Day Period ended June 27, 1998 ...........................................   35

     Eagle Family Foods, Inc. Statements of Changes in Stockholder's Equity for the Fifty-Three Week
      Period ended July 3, 1999 and the One Hundred Fifty-Five Day Period ended June 27, 1998..................   36

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Operations and Comprehensive Loss
      for the Fifty-Three Week Period ended July 3, 1999 and the One Hundred Fifty-Five Day Period
      ended June 27, 1998......................................................................................   37

     Eagle Family Foods Holdings, Inc. Consolidated Balance Sheets as of July 3, 1999 and June 27, 1998........   38

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Cash Flows for the Fifty-Three Week
      Period ended July 3, 1999 and the One Hundred Fifty-Five Day Period ended June 27, 1998..................   39

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Changes in Stockholders' Equity
      (Deficit) for the Fifty-Three Week Period ended July 3, 1999 and the One Hundred Fifty-Five
      Day Period ended June 27, 1998...........................................................................   40

     Notes to the Financial Statements.........................................................................   41

(b)(1) Financial Statements of the Predecessor

     Borden Brands North America

     Independent Auditors' Report..............................................................................   53

     Combined Statements of Operations of the Predecessor Company for the six months ended December
      31, 1997 (unaudited), the twenty-three day period ended January 23, 1998 and for the years ended
      December 31, 1997 and 1996...............................................................................   54

     Combined Statements of Cash Flows of the Predecessor Company, for the six months ended December
      31, 1997 (unaudited), the twenty-three day period ended January 23, 1998 and for the years
      ended December 31, 1997 and 1996.........................................................................   55

     Combined Statements of Owner's Investment of the Predecessor Company, for the twenty-three day
      period ended January 23, 1998 and for the years ended December 31, 1997 and 1996  .......................   56

     Notes to Combined Financial Statements of the Predecessor Company.........................................   57
</TABLE>

                                       27
<PAGE>

(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     Asset Purchase Agreement, dated as of November 24, 1997, as amended as
        of December 9, 1997 and January 15, 1998, by and among Borden Foods
        Corporation, BFC Investments, L.P., and the Company (Incorporated by
        reference to Exhibit 2.1 to the Registration Statement on Form S-4 of
        Eagle and Holdings filed on June 17, 1998 (the "S-4"))

3.1     Restated Certificate of Incorporation of Holdings (Incorporated by
        reference to Exhibit 3.1 of the S-4)

3.2     Bylaws of Holdings (Incorporated by reference to Exhibit 3.2 of the S-4)

3.3     Restated Certificate of Incorporation, dated November 19, 1997
        (Incorporated by reference to Exhibit 3.3 of the S-4)

3.4     Bylaws of the Company (Incorporated by reference to Exhibit 3.4 of the
        S-4)

3.5     Amended Bylaws of Holdings (Incorporated by reference to Exhibit 3.1 of
        the 10-Q, filed on May 14, 1999)

3.6     Amended Bylaws of Eagle (Incorporated by reference to Exhibit 3.2 of the
        10-Q, filed on May 14, 1999)

4.1     Purchase Agreement, dated January 16, 1998, by and among Holdings,
        Eagle, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
        Incorporated (Incorporated by reference to Exhibit 4.1 of the S-4)

4.2     Indenture, dated January 23, 1998, among Holdings, Eagle and IBJ
        Schroder Bank & Trust Company (including Specimen Certificates of 8 3/4%
        Series Senior Subordinated Notes due 2008 and 8 3/4% Series B Senior
        Subordinated Notes due 2008) (Incorporated by reference to Exhibit 4.2
        of the S-4)

4.3     Registration Rights Agreement, dated January 23, 1998, by and among
        Holdings, Eagle, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner
        & Smith Incorporated (Incorporated by reference to Exhibit 4.3 of the S-
        4)

4.4     Credit Agreement, dated January 23, 1998, by and among Holdings, Eagle,
        The Chase Manhattan Bank, Merrill Lynch Capital Corporation, Chase
        Securities, Inc., and Merrill Lynch, Pierce, Fenner & Smith
        Incorporated, as amended by Amendment No. 1, dated August 12, 1998, as
        amended by Amendment No. 2, dated November 30, 1998 and as amended by
        Amendment No. 3, dated June 30, 1999.

4.5     Stockholders Agreement, dated as of January 23, 1998, by and among
        Holdings and certain stockholders of Holdings named therein
        (Incorporated by reference to Exhibit 4.5 of the S-4)

4.6     Exchange and Registration Rights Agreement, dated as of January 23,
        1998, by and among Holdings and certain stockholders of Holdings named
        therein (Incorporated by reference to Exhibit 4.6 of the S-4)

4.7     Subscription Rights Agreement, dated as of January 23, 1998, by and
        among Holdings, GEI and Warburg (Incorporated by reference to Exhibit
        4.7 of the S-4)

10.1    Master Customer Services Agreement, dated as of January 23, 1998, by and
        between the Company and Borden Foods Corporation (Incorporated by
        reference to Exhibit 10.1 of the S-4)

                                       28
<PAGE>

10.2    License Agreement dated January 23, 1998 by and among BDH Two, Inc.,
        Borden, Inc. and the Company (Incorporated by reference to Exhibit 10.2
        of the S-4)

10.3    Assignment of Trademark License Agreement dated January 23, 1998, by and
        between BFC and the Company of BFC's License Agreement, dated as of
        September 4, 1997, by and between BFC and Southern Foods Group, L.P.
        (Incorporated by reference to Exhibit 10.3 of the S-4)

10.4    License Agreement, dated January 23, 1998, by and between BFC and the
        Company (Incorporated by reference to Exhibit 10.4 of the S-4)

10.5    The 1998 Stock Incentive Plan of Holdings (Incorporated by reference to
        Exhibit 10.5 of the S-4)

10.6    Employment Agreement, dated January 23 1998, by and between John O'C.
        Nugent and the Company (Incorporated by reference to Exhibit 10.6 of the
        S-4)

10.7    Employment Agreement, dated January 23, 1998, by and between William A.
        Lynch and the Company (Incorporated by reference to Exhibit 10.7 of the
        S-4)

10.8    Employment Agreement, dated January 23, 1998, by and between Craig A.
        Steinke and the Company (Incorporated by reference to Exhibit 10.8 of
        the S-4)

10.9    Employment Agreement, dated January 23, 1998, by and between Tamar K.
        Bernbaum and the Company (Incorporated by reference to Exhibit 10.9 of
        the S-4)

10.10   Employment Agreement, dated January 23, 1998, by and between Richard A.
        Lumpp and the Company (Incorporated by reference to Exhibit 10.10 of the
        S-4)

10.11   Pledge Agreement, dated January 23, 1998, by and between William A.
        Lynch and the Company (Incorporated by reference to Exhibit 10.11 of the
        S-4)

10.12   Pledge Agreement, dated January 23, 1998, by and between John O'C.
        Nugent and the Company (Incorporated by reference to Exhibit 10.12 of
        the S-4)

10.13   Secured Recourse Promissory Note, dated January 23, 1998, from William
        A. Lynch to the Company (Incorporated by reference to Exhibit 10.13 of
        the S-4)

10.14   Secured Recourse Promissory Note, dated January 23, 1998, from John O'C.
        Nugent to the Company (Incorporated by reference to Exhibit 10.14 of the
        S-4)

12.1    Eagle Family Foods Holdings, Inc. Ratio of Earnings to Fixed Charges
        (Incorporated by reference to Exhibit 12.1 of the S-4)

12.2    Eagle Family Foods, Inc. Ratio of Earnings to Fixed Charges
        (Incorporated by reference to Exhibit 12.2 of the S-4)

12.3    Eagle Family Foods Holdings, Inc. Ratio of Earnings to Fixed Charges

12.4    Eagle Family Foods, Inc. Ratio of Earnings to Fixed Charges

27.1    Financial Data Schedule of Eagle Family Foods Holdings, Inc.

27.2    Financial Data Schedule of Eagle Family Foods, Inc.

(b) Reports on Form 8-K

     None.

                                       29
<PAGE>

                                  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/ John O'C. Nugent
                                        -------------------------------------
                                                   John O'C. Nugent
                                        President and Chief Executive Officer



                                   Eagle Family Foods, Inc.


                                   By:          /s/ John O'C. Nugent
                                        -------------------------------------
                                                   John O'C. Nugent
                                        President and Chief Executive Officer


     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.

<TABLE>
<CAPTION>
                  Name                             Title                          Date
                  ----                             -----                          ----
       <S>                              <C>                                <C>
       /s/ John O.'C. Nugent            President, Chief Executive         September 24, 1999
       -------------------------        Officer and Director
            John O'C. Nugent            (principal executive officer)

       /s/ William A. Lynch             Chairman of the Board,             September 24, 1999
       -------------------------        Chief Operating Officer
            William A. Lynch            and Director

       /s/ Craig A. Steinke             Chief Financial Officer            September 24, 1999
       -------------------------        (principal financial and
            Craig A. Steinke            accounting officer)

       /s/ Andreas T. Hildebrand        Director                           September 24, 1999
       -------------------------
         Andreas T. Hildebrand
</TABLE>

                                       30
<PAGE>

<TABLE>
       <S>                              <C>                                <C>
             /s/ Kewsong Lee            Director                           September 24, 1999
       ----------------------
               Kewsong Lee

         /s/ Howard H. Newman           Director                           September 24, 1999
       ----------------------
           Howard H. Newman

         /s/ Donald W. Torey            Director                           September 24, 1999
       ----------------------
           Donald W. Torey

       /s/ Paul W. Van Orden            Director                           September 24, 1999
       ----------------------
         Paul W. Van Orden
</TABLE>

                                       31
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Eagle Family Foods Holdings, Inc. and
Eagle Family Foods, Inc.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive loss, of
stockholders' deficit and of cash flows of Eagle Family Foods Holdings, Inc. and
the accompanying balance sheets and the related statements of operations and
comprehensive loss, of stockholder's equity and of cash flows of Eagle Family
Foods, Inc. present fairly, in all material respects, the financial position of
Eagle Family Foods Holdings, Inc. and Eagle Family Foods, Inc. at July 3, 1999
and June 27, 1998, and the results of their operations and their cash flows for
the fifty-three week period ended July 3, 1999 and the one hundred fifty-five
day period ended June 27, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the companies'
managements; 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 generally accepted auditing standards, which require that we
plan and perform the audits 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 the opinion expressed above.


PricewaterhouseCoopers LLP


Columbus, Ohio
August 13, 1999

                                       32
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                Statements of Operations and Comprehensive Loss
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                   One Hundred
                                                                               Fifty-Three          Fifty-Five
                                                                               Week Period          Day Period
                                                                                  Ended               Ended
                                                                              July 3, 1999        June 27, 1998
                                                                           ----------------    -----------------
<S>                                                                        <C>                 <C>
Net sales...............................................................   $        239,730    $          68,183
Cost of goods sold......................................................            111,026               38,376
                                                                           ----------------    -----------------
    Gross margin........................................................            128,704               29,807
Distribution expense....................................................             13,420                4,550
Marketing expense.......................................................             75,971               15,048
General and administrative expense......................................             12,406                3,691
Amortization of intangibles.............................................             21,249               11,855
In-process research and development write-off...........................                 --               23,900
                                                                           ----------------    -----------------
    Operating income (loss).............................................              5,658              (29,237)
Interest expense, net...................................................             27,798               11,453
                                                                           ----------------    -----------------
    Loss before income taxes............................................            (22,140)             (40,690)
Income tax benefit......................................................              7,655               14,246
                                                                           ----------------    -----------------
    Net loss............................................................   $        (14,485)   $         (26,444)
                                                                           ================    =================
Other comprehensive income (loss):
    Foreign translation adjustment......................................                286                  (63)
                                                                           ----------------    -----------------
    Comprehensive loss..................................................   $        (14,199)   $         (26,507)
                                                                           ================    =================
</TABLE>

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

                                       33
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                                 Balance Sheets
                    (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                     July 3, 1999        June 27, 1998
                                                                                    -------------       --------------
<S>                                                                                 <C>                 <C>
                                     Assets
Current Assets
 Cash and cash equivalents......................................................    $         972       $        1,812
 Account receivable, net........................................................           21,825               12,368
 Inventories....................................................................           41,757               32,001
 Other current assets...........................................................            5,269                  261
                                                                                    -------------       --------------
  Total Current Assets..........................................................           69,823               46,442

Property and Equipment, Net.....................................................           33,798               24,791
Notes Receivable from Related Parties...........................................              728                  825
Intangibles, Net................................................................          282,880              303,950
Deferred Income Taxes...........................................................           22,006               14,246
Other Non-Current Assets........................................................            8,051                8,986
                                                                                    -------------       --------------
Total Assets....................................................................    $     417,286       $      399,240
                                                                                    =============       ==============

                      Liabilities and Stockholder's Equity
Current Liabilities
 Current portion of long-term debt..............................................    $       1,000       $        1,250
 Accounts payable...............................................................           16,070                9,665
 Other accrued liabilities......................................................           12,793                8,122
 Accrued interest...............................................................            8,128                7,209
                                                                                    -------------       --------------
  Total Current Liabilities.....................................................           37,991               26,246

Long-Term Debt..................................................................          337,500              317,000

Commitments and Contingencies (Note 12)

Stockholder's Equity
 Common stock, $.01 par value, 250,000 shares authorized, 10,000 shares
  issued and outstanding........................................................                1                    1
 Additional paid-in capital.....................................................           82,500               82,500
 Accumulated deficit............................................................          (40,929)             (26,444)
 Accumulated other comprehensive income (loss)  ................................              223                  (63)
                                                                                    -------------       --------------
  Total Stockholder's Equity....................................................           41,795               55,994
                                                                                    -------------       --------------
Total Liabilities and Stockholder's Equity......................................    $     417,286       $      399,240
                                                                                    =============       ==============
</TABLE>

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

                                       34
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                            Statements of Cash Flows
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                                  One Hundred
                                                                                            Fifty-Three            Fifty-Five
                                                                                            Week Period            Day Period
                                                                                               Ended                 Ended
                                                                                           July 3, 1999         June 27, 1998
                                                                                          -------------        ---------------
<S>                                                                                       <C>                  <C>
Cash Flows From (Used In) Operating Activities
 Net loss...........................................................................      $     (14,485)       $       (26,444)
 Adjustments to reconcile net loss to net cash from (used in) operating activities
  Depreciation and amortization.....................................................             25,571                 13,384
  Amortization of deferred financing costs..........................................                920                    371
  In-process research and development write-off.....................................                 --                 23,900
  Deferred taxes....................................................................             (7,760)               (14,246)
  Gain on retirement/sale of fixed assets...........................................               (239)                    --
 Net change in current assets and liabilities
  Accounts receivable...............................................................             (9,457)               (12,368)
  Inventories.......................................................................             (9,756)               (11,901)
  Accounts payable..................................................................              6,405                  9,665
  Other assets......................................................................             (5,008)                  (210)
  Other liabilities.................................................................              5,787                  9,552
                                                                                          -------------        ---------------
 Cash used in operating activities..................................................             (8,022)                (8,297)

Cash From (Used In) Investing Activities
 Capital expenditures...............................................................            (13,744)                (2,578)
 Proceeds from the sale of assets...................................................                641                    180
 Acquisition costs..................................................................               (165)                (3,041)
 Repayment of notes and interest receivable.........................................                200                     --
                                                                                          -------------        ---------------
 Cash used in investing activities..................................................            (13,068)                (5,439)

Cash From (Used In) Financing Activities
 Proceeds from long-term debt.......................................................             21,500                 12,000
 Payment of long-term debt..........................................................             (1,250)                  (250)
                                                                                          -------------        ---------------
 Cash from financing activities.....................................................             20,250                 11,750

Decrease in cash and cash equivalents...............................................               (840)                (1,986)
Cash and cash equivalents at beginning of period ...................................              1,812                  3,798
                                                                                          -------------        ---------------
Cash and cash equivalents at end of period..........................................      $         972        $         1,812
                                                                                          =============        ===============

Supplemental disclosure:
 Interest paid......................................................................      $      25,955        $         3,991
                                                                                          =============        ===============
</TABLE>

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

                                       35
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                 Statements of Changes in Stockholder's Equity
         For the One Hundred Fifty-Five Day Period Ended June 27, 1998
                and Fifty-Three Week Period Ended July 3, 1999
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                        Accumulated
                                                          Additional                       Other
                                               Common       Paid       Accumulated     Comprehensive
                                               Stock     in Capital      Deficit       Income (Loss)      Total
                                              -------   -----------   ------------    --------------    ---------
<S>                                           <C>       <C>           <C>             <C>               <C>
Balance, January 23, 1998..................   $     1   $    82,500   $         --    $           --    $  82,501
Net loss...................................        --            --        (26,444)               --      (26,444)
Other comprehensive loss:
  Foreign translation adjustment...........        --            --             --               (63)         (63)
                                              -------   -----------   ------------    --------------    ---------
Balance, June 27, 1998.....................         1        82,500        (26,444)              (63)      55,994
Net loss...................................        --            --        (14,485)               --      (14,485)
Other comprehensive income:
  Foreign translation adjustment...........        --            --             --               286          286
                                              -------   -----------   ------------    --------------    ---------
Balance, July 3, 1999......................   $     1   $    82,500   $    (40,929)   $          223    $  41,795
                                              =======   ===========   ============    ==============    =========
</TABLE>


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

                                       36
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
         Consolidated Statements of Operations and Comprehensive Loss
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                  One Hundred
                                                                              Fifty-Three          Fifty-Five
                                                                              Week Period          Day Period
                                                                                 Ended               Ended
                                                                             July 3, 1999        June 27, 1998
                                                                            -------------       --------------
<S>                                                                         <C>                 <C>
Net sales................................................................   $     239,730       $       68,183
Cost of goods sold.......................................................         111,026               38,376
                                                                            -------------       --------------
    Gross margin.........................................................         128,704               29,807
Distribution expense.....................................................          13,420                4,550
Marketing expense........................................................          75,971               15,048
General and administrative expense.......................................          12,436                3,703
Amortization of intangibles..............................................          21,249               11,855
In-process research and development write-off............................              --               23,900
                                                                            -------------       --------------
    Operating income (loss)..............................................           5,628              (29,249)
Interest expense, net....................................................          27,798               11,453
                                                                            -------------       --------------
    Loss before income taxes.............................................         (22,170)             (40,702)
Income tax benefit.......................................................           7,655               14,246
                                                                            -------------       --------------
    Net loss.............................................................   $     (14,515)      $      (26,456)
                                                                            =============       ==============
Other comprehensive income (loss):
    Foreign translation adjustment.......................................             286                  (63)
                                                                           --------------       --------------
    Comprehensive loss...................................................  $      (14,229)      $      (26,519)
                                                                           ==============       ==============
</TABLE>

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

                                       37
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
                          Consolidated Balance Sheets
                   (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                    July 3, 1999        June 27, 1998
                                                                                   -------------       --------------
<S>                                                                                <C>                 <C>
                                    Assets
Current Assets
 Cash and cash equivalents......................................................   $         972       $        1,812
 Accounts receivable, net.......................................................          21,825               12,368
 Inventories....................................................................          41,757               32,001
 Other current assets...........................................................           5,269                  261
                                                                                   -------------       --------------
   Total Current Assets.........................................................          69,823               46,442

Property and Equipment, Net.....................................................          33,798               24,791
Intangibles, Net................................................................         282,880              303,950
Deferred Income Taxes...........................................................          22,006               14,246
Other Non-Current Assets........................................................           8,051                8,986
                                                                                   -------------       --------------
Total Assets....................................................................   $     416,558       $      398,415
                                                                                   =============       ==============

                      Liabilities and Stockholders' Deficit
Current Liabilities
 Current portion of long-term debt..............................................   $       1,000       $        1,250
 Accounts payable...............................................................          16,070                9,666
 Other accrued liabilities......................................................          12,793                8,122
 Accrued interest...............................................................           8,128                7,209
                                                                                   -------------       --------------
   Total Current Liabilities....................................................          37,991               26,247

Long-Term Debt..................................................................         337,500              317,000

Commitments and Contingencies (Note 12)

Redeemable Preferred Stock
 Series A preferred stock, $100 stated value, 1,000,000 shares authorized,
   816,750 shares issued and outstanding, at redemption value...................          94,023               85,144
 Subscription receivable........................................................            (721)                (817)
                                                                                   -------------       --------------
                                                                                          93,302               84,327
Stockholders' Deficit
 Common stock $0.01 par value, 1,200,000 shares authorized, 975,980 and
   971,839 shares issued and outstanding........................................              10                   10

 Additional paid-in capital.....................................................             966                  962
 Unearned compensation..........................................................            (109)                (135)
 Accumulated deficit............................................................         (53,318)             (29,925)
 Subscription receivable........................................................              (7)                  (8)
 Accumulated other comprehensive income (loss)..................................             223                  (63)
                                                                                   -------------       --------------

   Total Stockholders' Deficit..................................................         (52,235)             (29,159)
                                                                                   -------------       --------------
Total Liabilities and Stockholders' Deficit.....................................   $     416,558       $      398,415
                                                                                   =============       ==============
</TABLE>

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

                                       38
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
                     Consolidated Statements of Cash Flows
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                               One Hundred
                                                                                         Fifty-Three            Fifty-Five
                                                                                         Week Period            Day Period
                                                                                            Ended                 Ended
                                                                                         July 3, 1999         June 27, 1998
                                                                                         ------------         -------------
<S>                                                                                      <C>                  <C>
Cash Flows From (Used In) Operating Activities
 Net loss.............................................................................   $    (14,515)        $     (26,456)
 Adjustments to reconcile net loss to net cash from (used in) operating activities
  Depreciation and amortization.......................................................         25,601                13,396
  Amortization of deferred financing costs............................................            920                   371
  In-process research and development write-off.......................................             --                23,900
  Deferred taxes......................................................................         (7,760)              (14,246)
  Gain on retirement/sale of fixed assets.............................................           (239)                   --
 Net change in current assets and liabilities
  Accounts receivable.................................................................         (9,457)              (12,368)
  Inventories.........................................................................         (9,756)              (11,901)
  Accounts payable....................................................................          6,404                 9,666
  Other assets........................................................................         (5,008)                 (211)
  Other liabilities...................................................................          5,788                 9,552
                                                                                         ------------         -------------
 Cash used in operating activities....................................................         (8,022)               (8,297)

Cash From (Used In) Investing Activities
 Capital expenditures.................................................................        (13,744)               (2,578)
 Proceeds from sale of assets.........................................................            641                   180
 Acquisition costs....................................................................           (165)               (3,041)
 Repayment of subscription and interest receivable....................................            200                    --
                                                                                         ------------         -------------
 Cash used in investing activities....................................................        (13,068)               (5,439)

Cash From (Used In) Financing Activities
 Proceeds from long-term debt.........................................................         21,500                12,000
 Payment of long-term debt............................................................         (1,250)                 (250)
                                                                                         ------------         -------------
 Cash from financing activities.......................................................         20,250                11,750

Decrease in cash and cash equivalents.................................................           (840)               (1,986)
Cash and cash equivalents at beginning of period......................................          1,812                 3,798
                                                                                         ------------         -------------
Cash and cash equivalents at end of period............................................   $        972         $       1,812
                                                                                         ============         =============

Supplemental disclosure:
 Interest paid........................................................................   $     25,955         $       3,991
                                                                                         ============         =============
 Non-Cash financing activities included dividends accrued on Redeemable
            Preferred Stock...........................................................   $      8,878         $       3,469
                                                                                         ============         =============
</TABLE>

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

                                       39
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
     Consolidated Statements of Changes in Stockholders' Equity (Deficit)
         For the One Hundred Fifty-Five Day Period Ended June 27, 1998
                and Fifty-Three Week Period Ended July 3, 1999
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                            Additional                                                         Other
                                   Common      Paid         Unearned       Accumulated     Subscription    Comprehensive
                                   Stock    In Capital    Compensation       Deficit        Receivable     Income (Loss)   Total
                                 --------  ------------  --------------   -------------   --------------   -------------  --------
<S>                              <C>       <C>           <C>              <C>             <C>              <C>            <C>
Balance, January 23, 1998.....   $     10  $        962  $         (147)  $          --   $           (8)  $          --  $    817
Net loss......................         --            --              --         (26,456)              --              --   (26,456)
Preferred stock dividend......         --            --              --          (3,469)              --              --    (3,469)
Amortization of unearned
   compensation...............         --            --              12              --               --              --        12
Other comprehensive loss:
   Foreign translation
   adjustment.................         --            --              --              --               --             (63)      (63)
                                 --------  ------------  --------------   -------------   --------------   -------------   -------
Balance, June 27, 1998........         10           962            (135)        (29,925)              (8)            (63)  (29,159)
Net loss......................         --            --              --         (14,515)              --              --   (14,515)
Preferred stock dividend......         --            --              --          (8,878)              --              --    (8,878)
Subscription receivable:
    Repayment on subscription
   receivable.................         --            --              --              --                2              --         2
    Interest income...........         --            --              --              --               (1)             --        (1)
Grant and issue of restricted
   common stock, net of
   termination................         --             4              (4)             --               --              --        --
Amortization of unearned
   compensation...............         --            --              30              --               --              --        30
Other comprehensive income:
   Foreign translation                                                                                                         286
   adjustment.................         --            --              --              --               --             286
                                 --------  ------------  --------------   -------------   --------------   -------------  --------
Balance, July 3, 1999.........   $     10  $        966  $         (109)  $     (53,318)  $           (7)  $         223  $(52,235)
                                 ========  ============  ==============   =============   ==============   =============  ========
</TABLE>

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

                                       40
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                       Notes to the Financial Statements


1. Basis of Presentation:

     The accompanying financial statements as of July 3, 1999, June 27, 1998 and
for the fifty-three week period ended July 3, 1999 and the one hundred fifty-
five day period ended June 27, 1998 present the financial position, results of
operations and cash flows of Eagle Family Foods, Inc. ("Eagle") and the
consolidated financial position, 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. The Company's 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 ("GEI"), Warburg, Pincus Ventures,
L.P. ("Warburg", and together with GEI, the "Equity Sponsors") and certain
members of management ("Management Investors") 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 ("BFC") 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 3/4% senior subordinated notes and (iii)
senior secured 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. (See Note 6.)

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

     Eagle operates in a single segment which manufactures and markets a
portfolio of leading dry-grocery food products with widely recognized and
established brands, primarily in the United States with limited sales in Canada.
The Company's portfolio of products includes Eagle brand sweetened condensed
milk, ReaLemon and ReaLime lemon and lime juice from concentrate, ReaLemonade
liquid concentrate lemonade, None Such mincemeat pie filling, Cremora and
Cremora Royale powdered non-dairy creamer, Kava acid-neutralized coffee and
Borden eggnog.

2. Summary of Significant Accounting Policies:

   Revenue Recognition

     Revenues are recognized when products are shipped. Liabilities are
established for estimated returns, allowances, consumer and certain trade
promotions and discounts when revenues are recognized.

   Research and Development

     Research and development costs are charged to general and administrative
expense when incurred. Research and development costs amounted to $2,208,000 and
$845,000 for the periods ended July 3, 1999 and June 27, 1998.

                                       41
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


   Advertising and Promotion

     Production costs of future media advertising and consumer promotion events
are deferred until the advertising or promotion first occurs. All other
advertising and promotion costs are expensed when incurred. Advertising and
promotional expenses were $59,953,000 and $9,679,000 for the periods ended July
3, 1999 and June 27, 1998.

   Cash and Cash Equivalents

     The Company considers all 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 at July 3, 1999 and
June 27, 1998, with cost of goods sold principally 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.

   Property and Equipment

     Property and equipment is stated at cost as of July 3, 1999 and June 27,
1998. Depreciation of property and equipment is calculated for financial
reporting purposes on a straight-line method using estimated service lives
ranging principally from 8 to 20 years for buildings and improvements and 3 to
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 which 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 ranging from 3 to 5 years. Costs incurred during the
preliminary project and post-implementation stages are expensed as incurred. At
July 3, 1999 and June 27, 1998, capitalized software costs, net of accumulated
amortization, amounted to $7,624,000 and $748,000, respectively.

   Intangibles

     Intangibles are stated at cost as of July 3, 1999 and June 27, 1998 and are
being amortized on a straight-line basis over their estimated useful lives.
Goodwill represents the excess of purchase price over fair value of identifiable
assets and liabilities acquired.

   Impairment

     Long-lived assets including goodwill are reviewed for impairment whenever
events or changes indicate that full recoverability is questionable. Factors
used in the valuation include, but are not limited to, management's plans for
future operations, recent operating results and projected undiscounted cash
flows.

                                       42
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

   Other Non-current Assets

     Other non-current assets at July 3, 1999 and June 27, 1998 consisted
primarily of net deferred financing costs amounting to approximately $7,999,000
and $8,920,000, 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 Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
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.

   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 of 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 or results of operations.

   Fair Value of Financial Instruments

     The carrying value of cash equivalents, accounts receivable, accounts
payable and accrued expenses as stated on the balance sheets approximates 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 are estimated based on dealer quotes for those instruments.

   Hedging

     The Company enters into derivative financial instrument transactions in
order to manage or reduce market risk. The Company's current policy is to
recognize differences between the amount of interest to be paid and the amount
of interest to be received under interest rate swap agreements as an adjustment
to interest expense over the life of the swap agreement.

     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 dramatic milk price increases. The value of futures
contracts is recorded to cost of production in the month the futures contract
expires and cash settlement occurs. The Company does not enter into commodity
futures contracts for speculative purposes. As of the end of fiscal year 1999,
the Company had purchased 177 milk futures contracts for various months through
January 2000 at an aggregate value of $3,700,000. The aggregate market value of
these contracts at August 9, 1999 was $4,700,000.

                                       43
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


   Environmental Matters

     The Company, like others 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.

   Recently Issued Accounting Statements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes accounting and reporting standards for derivative instruments
and hedging activities and requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments as fair value. The Company expects to adopt this standard in
the first quarter of 2001.

3. Inventories:

     Inventories are stated at lower of cost or market at July 3, 1999 and June
27, 1998 and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                     July 3,            June 27,
                                                                                      1999                1998
                                                                                  ------------       -------------
            <S>                                                                   <C>                <C>
            Finished goods............................................            $     36,886       $      29,281
            Raw material..............................................                   4,871               2,720
                                                                                  ------------       -------------
                Total inventories.....................................            $     41,757       $      32,001
                                                                                  ============       =============
</TABLE>

4. Property and Equipment:

     Property and equipment is recorded at cost on July 3, 1999 and June 27,
1998 and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                   July 3, 1999         June 27, 1998
                                                                                 ---------------       --------------
               <S>                                                               <C>                   <C>
               Land.....................................................         $           470       $          470
               Buildings and improvements...............................                   5,611                6,185
               Machinery and equipment..................................                  31,480               18,159
               Construction in progress.................................                   1,913                1,505
                                                                                  --------------       --------------
                   Total property and equipment.........................                  39,474               26,319
               Accumulated depreciation.................................                  (5,676)              (1,528)
                                                                                  --------------       --------------
                   Net property and equipment...........................         $        33,798       $       24,791
                                                                                  ==============       ==============
</TABLE>

                                       44
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


5. Intangible Assets:

     Intangible assets are amortized on a straight-line basis over their
estimated useful lives and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                                         Estimated Useful
                                                                  July 3, 1999        June 27, 1998           Lives
                                                                 --------------      --------------      ----------------
           <S>                                                   <C>                 <C>                 <C>
           Tradenames........................................    $      141,000      $      141,000          40 years
           Goodwill..........................................           136,664             136,505          40 years
           Covenant not to compete...........................            21,000              21,000          5 years
           Master customer services agreement................            17,300              17,300           1 year
                                                                 --------------      --------------
               Total intangible assets.......................           315,964             315,805
           Accumulated amortization..........................           (33,084)            (11,855)
                                                                 --------------      --------------
               Net intangible assets.........................    $      282,880      $      303,950
                                                                 ==============      ==============
</TABLE>

     Pursuant to the acquisition, the Company and BFC entered into a master
customer services agreement ("Services Agreement") whereby BFC and its
affiliates provided various trade marketing, distribution, transactions
processing, information systems and accounting services for a period of up to 18
months after the acquisition closing based on predetermined below market rates.
The fair value of the Services Agreement was determined by an independent
appraisal and was based primarily on the value provided through the below market
terms and the value provided because the arrangement allowed the Company to
continue to do business as it built an infrastructure which has allowed it to
operate on a stand alone basis. The Services Agreement was amortized on a
straight-line basis over one year from the acquisition closing based on
management's estimate of the timeframe for establishing its own infrastructure.
In connection with the acquisition, the Company entered into agreements with a
Canadian affiliate of BFC pursuant to which BFC's Canadian affiliate
manufactured and packaged, warehoused, transported and sold the Company's
sweetened condensed milk products in Canada. Compensation to BFC's Canadian
affiliate was based upon actual costs and upon commission rates customary in the
Canadian food industry and the agreements could be terminated upon notice of 90
days or less. Accordingly, no value was assigned to these agreements.

     The Company allocated $23.9 million of purchase price to acquired in-
process research and development reflecting the fair market value of certain
products currently in development. These products have not reached technological
feasibility and have no alternative future use. Concurrent with the acquisition
on January 23, 1998, the Company recorded a non-recurring pre-tax charge of
$23.9 million to write-off the aforementioned acquired in-process research and
development.

6. Debt Obligations:

     Debt obligations consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                   July 3,1999          June 27, 1998
                                                                                 -------------        --------------
          <S>                                                                    <C>                  <C>
          Term loan facility due December 31, 2005..........................     $     173,500        $      174,750
          Senior subordinated notes due January 15, 2008....................           115,000               115,000
          Revolving credit facility due December 31, 2004...................            50,000                28,500
                                                                                 -------------        --------------
              Total debt obligations........................................           338,500               318,250
          Less: Current portion of long-term debt...........................            (1,000)               (1,250)
                                                                                 -------------        --------------
              Long-term debt obligations....................................     $     337,500        $      317,000
                                                                                 =============        ==============
</TABLE>

                                       45
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

   Senior Credit Facilities

     Eagle received senior bank financing from a group of lenders in an
aggregate principal amount of up to $245 million (the "Senior Credit
Facilities"). The Senior Credit Facilities consist of (i) a $70 million seven-
year revolving credit facility (the "Revolving Credit Facility") and (ii) a
$175 million 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 Company amended its Senior Credit Facilities effective as of June 30,
1999. The Senior Credit Facilities contain financial covenants which require the
Company to meet certain financial tests including debt coverage and interest
expense coverage requirements. The debt coverage and interest expense coverage
requirements were amended for the four quarters ending prior to and including
April 1, 2000, and have taken into consideration the Company's reduced operating
performance for fiscal year 1999. 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, transactions 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 Restricted
Payment, as defined, except primarily (i) 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 (ii) subsidiaries of
Eagle may declare and pay dividends ratably 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 interest pricing table that is used to determine the Company's interest
rate was changed to include additional categories at varying leverage ratios.
The Company had been paying interest at LIBOR plus 2.25% on the Term Loan
Facility and LIBOR plus 2.00% on the Revolving Credit Facility. Based on the
Company's current leverage ratio and the newly amended agreement, the interest
rate will now be at LIBOR plus 3.50% on the Term Loan Facility and LIBOR plus
3.25% on the Revolving Credit Facility. These rates are subject to performance
step downs based on the Company's leverage ratio, with the lowest leverage ratio
category set at LIBOR plus 2.25% for the Term Loan Facility and LIBOR plus 1.50%
for the Revolving Credit Facility.

     The Company paid an amendment fee of one quarter of one percent on the
total amount outstanding on the Term Loan Facility and the $70 million Revolving
Credit Facility.

     The obligations of Eagle under the Senior Credit Facilities are
collateralized by (i) 100% of the capital stock of the Company and each of its
subsidiaries and (ii) 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 July 3, 1999 approximates
the carrying value.

     On April 22, 1998, the Company entered into interest rate swap agreements
in order to fix the interest rate on a portion of the Term Loan Facility. These
swap agreements commenced on July 23, 1998 and fix the LIBOR rate at 5.955% on
$75 million and 5.905% on $25 million of the $175 million Term Loan Facility.
These swap agreements expire on December 29, 2000 and December 31, 2002,
respectively. The fair value of the interest rate swaps at July 3, 1999 and June
27, 1998 totaled approximately $299,000 and $(551,000), respectively.

                                       46
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


   Senior Subordinated Notes

     Eagle issued $115 million of senior subordinated notes (the "Notes") and
received cash proceeds of approximately $112 million net of underwriting
discount. The Notes are due January 15, 2008 and bear interest of 8 3/4% per
annum payable on January 15 and July 15.

     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") and the Company will cause each such future Domestic Subsidiary of
the Company to enter into a supplemental indenture providing for such Domestic
Subsidiary to guarantee payment of the Notes as required in the indenture. The
Company currently has no domestic subsidiaries and therefore none which
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 (i) Holdings may not hold assets
other than Company capital stock and other minimal assets related to the
business of holding such stock and (ii) Holdings may not incur any additional
liabilities other than in the ordinary course of business. The fair market value
of the senior subordinated notes was approximately $100 million at July 3, 1999
and $116 million at June 27, 1998, respectively.

     On April 16, 1998, the Company filed a Registration Statement on Form S-4
to offer to exchange (the "Exchange Offer") up to $115 million of its 8 3/4%
Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") for up to
$115 million of its outstanding 8 3/4% Senior Subordinated Notes due 2008 (the
"Original Notes").

     Upon consummation of the Exchange Offer, the terms of the Exchange Notes
were substantially identical in all respects to the term of the Original 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 the next five fiscal years and thereafter
consist of the following (in thousands):

          2000.........................................  $    1,000
          2001.........................................       1,000
          2002.........................................         750
          2003.........................................       3,250
          2004.........................................      27,500
          Thereafter...................................     305,000
                                                          ---------
                                                          $ 338,500
                                                          =========

                                       47
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


7. Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
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.

     At July 3, 1999, the Company had $63.0 million of accumulated net operating
losses for financial statement purposes and $44.6 million of accumulated net
operating loss carryforwards for tax reporting purposes. The tax net operating
losses expire, if unused, beginning in 2018. The Company believes that these
carryforwards will be available to reduce future federal income tax liabilities
and has recorded the benefit of these carryforwards as a noncurrent deferred tax
asset. The Company's net operating loss carryforwards for state and foreign
purposes are not material.

     The income tax benefits for the periods ended July 3, 1999 and June 27,
1998 amounted to $7.7 million and $14.2 million, respectively, and approximated
the federal statutory tax rate.

     Deferred tax assets and liabilities at July 3, 1999 and June 27, 1998
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                           July 3, 1999   June 27, 1998
                                                         --------------  --------------
      <S>                                                <C>             <C>
      Net operating loss carryforward..................  $       15,610  $        4,209
      Intangible assets................................           7,002           9,066
      Property, plant and equipment....................          (2,979)            117
      All other assets.................................           3,608           1,259
      All other liabilities............................          (1,235)           (405)
                                                         --------------  --------------
          Net deferred tax asset.......................  $       22,006  $       14,246
                                                         ==============  ==============
</TABLE>

8. Supplemental Information

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

<TABLE>
<CAPTION>
                                                          July 3, 1999          June 27,
                                                                                  1998
                                                        --------------     ---------------
      <S>                                               <C>                <C>
      Other Accrued Liabilities:
        Customer allowances............................ $        5,608     $         2,253
        Coupon accrual.................................          4,281               1,402
        Broker commissions.............................          1,025                 864
        Compensation and related accruals..............            848               1,887
        Other..........................................          1,031               1,716
                                                        --------------      --------------
            Total other accrued liabilities............ $       12,793     $         8,122
                                                        ==============      ==============
</TABLE>

                                       48
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

9. Redeemable Preferred Stock

On January 23, 1998, 816,750 shares of Series A Non-Voting Preferred Stock
("Series A Preferred Stock") were issued by Holdings at a stated value of $100
per share (the "Stated Value"). The Series A Preferred Stock provides for
preferential cumulative dividends at the rate of 10% per share per annum of the
Stated Value. 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. In the event of liquidation, dissolution or winding up,
the holders of shares of Series A 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 Series A Preferred Stock.
Holders of Series A 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 Series A Preferred Stock is required to amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock. The
Series A Preferred Stock is subject to mandatory redemption at a price per share
equal to the Stated Value plus all dividends accrued and unpaid thereon 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 $12,347,000 and $3,469,000 at July 3, 1999 and June
27, 1998, respectively. They are classified with Redeemable Preferred Stock in
the consolidated balance sheet of Holdings.

10. Stockholders and Registration Rights Agreements

   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 January 23, 1998 ("the Acquisition Closing") (the
"Holdings Stockholders Agreement").

     Board of Directors.  Holdings is managed by the Board of Directors not to
exceed nine members, three of whom are designated by GEI and three of whom are
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. Two named members of executive
management will be entitled to serve as directors for so long as they remain
executive officers of the Company. 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 Eagle, Holdings,
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 certain enumerated actions by Eagle and Holdings.

                                       49
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


     Restrictions on Transfer of Stock.  Securities held by the Management
Investors, including any shares of Common Stock or Series A 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 Series A 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.

     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 have entered into a Registration Rights
Agreement, dated as of the Acquisition Closing (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each of the Equity
Sponsors has two demand registration rights for each of its Series A Preferred
Stock and Common Stock and 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.

11. Stock Subscription Agreement

     On January 23, 1998, GEI, Warburg, and several officers of Holdings
subscribed to purchase a combined 816,750 shares of Series A Preferred Stock at
$100 per share and 825,000 shares of Common Stock at $1 per share. Full payment
for the stock was received from all but two of the officers, who subscribed to
purchase an aggregate of 13,117.5 shares of Series A Preferred Stock and 13,250
shares of Common Stock. Notes aggregating $825,000 were received from the two
officers as partial consideration for the subscription. These notes are
collateralized by the shares issued. They have a stated interest rate of prime
(as defined) plus 0.5%, with a maturity date of January 23, 2003. The notes have
been assigned between Common Stock and Series A Preferred Stock in accordance
with the management subscription agreements. Accordingly, notes related to
Common Stock have been presented in the consolidated balance sheet as a
reduction of Stockholders' Equity while notes related to the Series A Preferred
Stock have been presented as a reduction of Redeemable Preferred Stock.

     During the third quarter of fiscal 1999, one officer made a $200,000
principal and interest payment in partial satisfaction of the above mentioned
notes.

                                       50
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


12. Commitments and Contingencies

     Commitments.  The Company has entered into long-term contracts for the
purchase of certain raw materials. Minimum purchase commitments, at current
prices, are approximately $6.9 million and $6.0 million at July 3, 1999 and June
27, 1998, respectively.

     The Company leases buildings and equipment under various noncancellable
lease agreements for periods of one to five years. The lease agreements
generally provide that the Company pay taxes, insurance and maintenance expenses
related to the leased assets.

     At July 3, 1999, future minimum lease payments were as follows (in
thousands):

               2000...........................  $    828
               2001...........................       850
               2002...........................       839
               2003...........................       627
               2004...........................       348
               Thereafter.....................        29
                                                ========
               Total minimum lease payments     $  3,521
                                                ========

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

13. Stock Options and Restricted Stock

     On January 14, 1998, Holdings' Board of Directors adopted the 1998 Stock
Incentive Plan (the "Plan"). The Plan provides for the grant to officers, key
employees, directors and consultants of the Company of incentive stock options,
non-qualified stock options, and restricted stock. A total of 153,650 shares of
common stock may be awarded under the Plan, subject to certain adjustments
reflecting changes in Holdings' capitalization.

     Grants of options and the periods during which such options can be
exercised are at the discretion of a committee of the Board of Directors. As of
July 3, 1999, the committee has not granted any stock options.

     Under the Plan, grants of restricted stock and the periods during which
such grants become unrestricted and vest are at the discretion of the committee.

     On January 16, 1998, the committee granted and issued 146,839 shares of
restricted stock to the Company's officers and other key employees. 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. On March 17, 1999, the committee granted and
issued 5,100 shares of restricted stock to the Company's key employees.  This
grant holds the same restriction on vesting as the grant noted above.  The fair
market value of the shares at the date of the grants totaled $146,839 and
$5,100.  Unearned compensation was charged for the fair value of the restricted
shares granted and issued in accordance with the Plan.  The unearned
compensation is shown as a reduction of stockholders' equity (deficit) in the
accompanying Consolidated Balance Sheets. Unearned compensation will be
amortized ratably over the restricted period.

     During fiscal year 1999, 959 shares, which had been granted, were returned
to the Plan as a result of changes in the employment status affecting a certain
employee.

                                       51
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


     Holders of the restricted stock are not entitled to receive dividends until
such shares vest or to vote their respective shares during the restricted
period. 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.

14. 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 $441,000 and $178,000 for the fifty-three week period ended July 3, 1999
and the one hundred fifty-five day period ended June 27, 1998, respectively.

15. Product Revenues

     The following table sets forth net sales data for each of the Company's
product lines for the fifty-three week period ended July 3, 1999 and the one
hundred fifty-five day period ended June 27, 1998:

<TABLE>
<CAPTION>

                                                                         1999 Net      Percentage        1998 Net      Percentage
Product Line                 Company's Principal Brands/Categories        Sales       of Net Sales        Sales       of Net Sales
------------------------     --------------------------------------   ------------    ------------    ------------    ------------
                                                                        (Dollars in                     (Dollars in
                                                                         Millions)                       Millions)
<S>                          <C>                                      <C>             <C>             <C>             <C>
Sweetened condensed          Eagle brand, Meadow Gold, Magnolia,            $112.5            46.9%          $25.4            37.2%
 milk                        Star and other
Lemon and lime juice,        ReaLemon and ReaLime                             60.7            25.3            23.8            34.9
 liquid concentrate          ReaLemonade                                      11.1             4.6              --              --
  lemonade
Non-dairy creamer            Cremora, Cremora Royale and other                40.5            16.9            17.1            25.1
Shelf-stable eggnog          Borden                                            5.6             2.4             0.2             0.3
Mincemeat pie filling        None Such                                         5.3             2.2             0.1             0.1
Acid neutralized coffee      Kava                                              4.0             1.7             1.6             2.4
                                                                      ------------    ------------    ------------    ------------
  Total                                                                     $239.7           100.0%          $68.2           100.0%
                                                                      ============    ============    ============    ============
</TABLE>

16. Subsequent Event (Unaudited)

     Equity Sponsors Contribution. On September 24, 1999, the Equity Sponsors
confirmed their intention to contribute $10.0 million to the equity of Holdings,
and the Board of Directors authorized the issuance of such additional equity and
the subsequent contribution of the proceeds to Eagle.  The capital contribution
is being made by the Equity Sponsors in connection with the significant
investment made by the Company in launching Cremora Royale and ReaLemonade.

                                       52
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors
and Shareholders of
Borden Foods Corporation

     We have audited the accompanying combined statements of operations, owner's
investment and cash flows, of Borden Brands North America ("BBNA"), which
comprises certain operating businesses of Borden Foods Corporation and
affiliates, for the twenty-three day period ended January 23, 1998 and for each
of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of Borden Food's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such financial statements present fairly, in all material
respects, the combined results of BBNA's operations and their combined cash
flows for the twenty-three day period ended January 23, 1998 and for each of the
two years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.


Deloitte & Touche LLP


May 22, 1998
Columbus, Ohio

                                       53
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)

                       Combined Statements of Operations
                  For the Six Months Ended December 31, 1997,
            For the Twenty-Three Day Period Ended January 23, 1998
              And for the Years Ended December 31, 1997 and 1996


<TABLE>
<CAPTION>
                                            Six Months         Twenty-Three
                                              Ended             Day Period
                                             December              Ended
                                               31,              January 23,                 December 31,
                                                                                  --------------------------------
                                              1997                1998                1997                1996
                                         -------------       --------------       --------------------------------
                                           (Unaudited)
                                                                       (In thousands)
<S>                                      <C>                 <C>                  <C>                <C>
Net sales.............................   $     153,869       $        7,693       $     229,370      $     230,384
Cost of goods sold....................          70,640                5,154             107,674            110,357
                                         -------------       --------------       -------------      -------------
Gross margin..........................          83,229                2,539             121,696            120,027
Distribution expense..................           8,185                  303              13,464             14,640
Marketing expense ....................          37,444                2,095              55,074             62,705
General & administrative expense......           6,736                1,010              13,184             13,483
                                         -------------       --------------       -------------      -------------
Operating income (loss)...............          30,864                 (869)             39,974             29,199
Other income..........................              56                   --                  79                 38
                                         -------------       --------------       -------------      -------------
Income (loss) before income taxes.....          30,920                 (869)             40,053             29,237
Income tax expense (benefit)..........          12,356                 (287)             16,236             12,034
                                         -------------       --------------       -------------      -------------
Net income (loss).....................   $      18,564       $         (582)      $      23,817      $      17,203
                                         =============       ==============       =============      =============
</TABLE>

                  See Notes to Combined Financial Statements

                                       54
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)

                       Combined Statements of Cash Flows
                  For the Six Months Ended December 31, 1997,
            For the Twenty-three Day Period Ended January 23, 1998
              And for the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                       Twenty-
                                                 Six Months           Three Day
                                                    Ended           Period Ended
                                                December 31,         January 23,            Year Ended December 31,
                                                                                      --------------------------------
                                                    1997                1998                1997               1996
                                              --------------      --------------      --------------------------------
                                                (Unaudited)
                                                                            (In thousands)
<S>                                          <C>                  <C>                 <C>                <C>
Cash Flows From (Used In) Operating
 Activities
  Net income (loss)........................   $       18,564      $         (582)     $      23,817      $      17,203
  Adjustments to reconcile net income to
    net cash from operating activities
     Depreciation and amortization.........            3,148                 512              6,174              5,937
     Loss on sale of fixed assets..........              312                  --                312                 --
  Net change in assets and liabilities
     Accounts receivable...................           (2,164)              6,630              3,091               (286)
     Inventories...........................           24,329                 610             (2,581)                78
     Accounts payable......................              680              (3,282)              (456)            (2,231)
     Other assets..........................             (260)                183                 30                755
     Other liabilities.....................            4,697              (2,350)               509              3,022
                                              --------------      --------------      -------------      -------------
  Cash flows (used in) from operating
    activities.............................           49,306               1,721             30,896             24,478
Cash Flows Used In Investing Activities
  Capital expenditures.....................           (1,789)                (87)            (3,154)            (3,726)
Cash Flows Used In Financing Activities
  Net increase (decrease) in intercompany
    investment.............................          (47,515)             (1,616)           (27,769)           (20,723)
                                              --------------      --------------      -------------      -------------
(Decrease) increase in cash................                2                  18                (27)                29
Cash at beginning of period................                4                   6                 33                  4
                                              --------------      --------------      -------------      -------------
Cash at end of period......................   $            6      $           24      $           6      $          33
                                              ==============      ==============      =============      =============
</TABLE>

                   See Notes to Combined Financial Statements

                                       55
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)

                   Combined Statements of Owner's Investment
            For the Twenty-three Day Period Ended January 23, 1998
              And for the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>

                                                          Retained    Intercompany
                                                          Earnings     Investment       Total
                                                         ----------   -------------  -----------
<S>                                                      <C>          <C>            <C>
Balance, January 1, 1996..............................   $  17,532      $  108,078    $  125,610

Net income............................................      17,203                        17,203
Cash collected on behalf of BBNA......................                    (233,610)     (233,610)
Cash disbursed on behalf of BBNA......................                     212,464       212,464
Translation adjustments and other.....................                         423           423
                                                         ---------      ----------    ----------
Balance, December 31, 1996............................      34,735          87,355       122,090

Net income............................................      23,817                        23,817
Cash collected on behalf of BBNA......................                    (232,052)     (232,052)
Cash disbursed on behalf of BBNA......................                     204,585       204,585
Translation adjustments and other.....................                        (302)         (302)
                                                         ---------      ----------    ----------
Balance, December 31, 1997............................      58,552          59,586       118,138


Net loss..............................................        (582)                         (582)
Cash collected on behalf of BBNA......................                     (14,164)      (14,164)
Cash disbursed on behalf of BBNA......................                      12,550        12,550
Translation adjustments and other.....................                          (2)           (2)
                                                         ---------      ----------    ----------
Balance, January 23, 1998.............................   $  57,970      $   57,970    $  115,940
                                                         =========      ==========    ==========
</TABLE>

                  See Notes to Combined Financial Statements

                                       56
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                    Notes to Combined Financial Statements
                            (Dollars in thousands)


1. Nature of Operations, Basis of Presentation and Significant Accounting
Policies

     Nature of Operations and Basis of Presentation.  The accompanying combined
financial statements present results of operations, cash flows and owner's
investment of Borden Brands North America of Borden Foods Corporation ("BBNA"
or the "Company"). These financial statements have been prepared on a purchase
accounting basis which reflects an allocation of a portion of the acquisition
cost relating to the 1994 acquisition by an affiliate of Kohlberg Kravis Roberts
("KKR") of Borden, Inc. ("Borden") to BBNA.

     BBNA is engaged in the business of developing, manufacturing, marketing,
distributing and selling certain food products primarily in the United States
with limited sales and manufacturing activity in Canada. The BBNA products
include "Eagle Brand" sweetened condensed milk, "ReaLemon" reconstituted lemon
and lime juice, "Nonesuch" mincemeat, "Cremora" non-dairy creamer, "Kava" acid-
neutralized coffee and "Borden" egg nog.

     In 1996, an affiliate of KKR, Borden Foods Holdings, LLC ("Foods Holdings")
formed Borden Foods Corporation ("BFC") for the purposes of acquiring and
operating certain of Borden's food businesses, including BBNA. In addition,
Foods Holdings together with BFC, invested in Borden Foods Investment LP for the
purposes of acquiring and holding certain trademarks associated with BBNA and
the other Borden food businesses. The acquisition from Borden was a taxable
transaction effective October 1, 1996.

     In March 1997, BFC announced its intention to sell certain businesses from
its current portfolio which were considered not to be aligned with their ongoing
strategy. Among these businesses were the BBNA business, FunCheese and the
Puerto Rican distribution business. Subsequent to December 31, 1997, BBNA was
purchased by Eagle Family Foods, Inc., a newly formed entity sponsored by GE
Investment Private Placement Partners II, a Limited Partnership, and Warburg,
Pincus Ventures, L.P.

     BBNA operates as a business unit of BFC which is an affiliate of Borden.
Under this structure, BFC incurs various administrative costs in connection with
the operation of the BBNA business, such as accounting, legal, tax, credit and
information services departments and executive management. In addition, BBNA
utilizes shared sales and administrative resources with other BFC business
units. These costs were allocated to BBNA through intercompany expense charges
and the intercompany liability is accumulated in the owner's investment account.

     Unaudited Interim Results.  The accompanying unaudited financial statements
contain all adjustments, consisting only of normal adjustments, which in the
opinion of management are necessary for the fair presentation of operating
results for the interim period. Results for the interim period are subject to
seasonal variations and are not necessarily indicative of the results for the
full year.

     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 of revenues and
expenses during the reporting period. The most significant estimates in BBNA
financial statements are the provision for doubtful accounts, provision for
inventory obsolescence, provision for trade promotions and deductions, general
and group insurance expense and Borden and BFC corporate allocations. Actual
results could differ from those estimates.

     Summary of Significant Accounting Policies. Significant accounting policies
followed by BBNA, as summarized below, are in conformity with generally accepted
accounting principles.

     Principles of Combination.  The combined financial statements include the
accounts of BBNA after elimination of material inter and intracompany accounts
and transactions.

                                       57
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
              Notes to Combined Financial Statements - continued
                            (Dollars in thousands)

     Revenue Recognition.  Revenues are recognized when products are shipped.
Provisions are recorded for estimated returns, allowances and consumer and
certain trade promotions and discounts when revenues are recognized.

     Research and Development.  Research and development costs are charged to
general and administrative expense when incurred. Research and development costs
amounted to $104, $1,781 and $2,809 for the twenty-three day period ended
January 23, 1998 and the years ended December 31, 1997 and 1996, respectively.

     Advertising and Promotion Expense.  Production costs of future media
advertising are deferred until the advertising first occurs. All other
advertising costs are expensed when incurred. Promotional expenses are generally
expensed ratably over the year in relation to revenues or other performance
measures. Advertising and promotional expenses were $1,389, $28,245 and $37,071
for the twenty-three day period ended January 23, 1998 and the years ended
December 31, 1997 and 1996, respectively.

     Cash.  BBNA considers all highly liquid investments purchased with a term
to maturity of three months or less when purchased to be cash equivalents.

     Property and Equipment. Depreciation is recorded on the straight-line basis
over useful lives of 30 years for buildings and 3 to 10 years for equipment.
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or otherwise
disposed of, related cost and accumulated depreciation are removed from the
accounts and any related gain or loss is recorded in the statement of
operations.

     Intangibles.  Trademarks are amortized on a straight-line basis over the
shorter of forty years or their useful lives; goodwill represents the excess of
purchase price over fair value of identifiable assets of businesses acquired and
is amortized on a straight-line basis over forty years.

     Slotting Allowances.  The costs of obtaining shelf space (slotting) are
accrued when committed and amortized over the period of benefit, which is
generally twelve months.

     Income Taxes.  The results of the domestic and Canadian operations of BBNA
are included in BFC's or Borden Canada Limited's consolidated tax returns. BFC
uses the liability method of accounting for deferred income taxes.

     For purposes of these stand-alone financial statements, income taxes are
determined as though BBNA filed separate U.S. federal, Canadian and state
corporate income tax returns. Because all income tax liabilities (current and
deferred) are paid to BBNA's owner such amounts are included as a component of
owner's investment in the accompanying financial statements.

     Foreign Currency Translation.  Income and expense items are translated at
average exchange rates prevailing during the fiscal period. The resulting
translation adjustments are considered insignificant and are recorded in owner's
investment.

     Concentrations of Credit Risk.  Financial instruments which potentially
subject BBNA to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The majority of BBNA cash activity is
managed by BFC. BFC and BBNA places its temporary cash investments with high
quality institutions and, by policy, limits the amount of credit exposure to any
one institution. Concentrations of credit risk with respect to accounts
receivable are limited, due to the large number of customers comprising BBNA's
customer base and their dispersion across many different geographies primarily
within North America. BBNA generally does not require collateral or other
security to support customer receivables.

                                       58
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
              Notes to Combined Financial Statements - continued
                            (Dollars in thousands)


     Pension and Retirement Savings Plans.  Most of BBNA's employees are covered
under the Borden Employee Retirement Income Plan pension plan. A portion of
BFC's total liability has been allocated to BBNA based on allocations provided
by Borden's actuary, which were based on actual employee census data. BBNA's
share of the allocated cost to fund and administer these plans is recorded in
the statements of operations in the year the cost is incurred.

     Substantially all domestic employees of BBNA participate in Borden's
retirement savings plans. BBNA's cost of providing the retirement savings plan
is the amount by which it matches eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.

     Non-pension Postemployment and Postretirement Benefits.  BFC provides
certain health and life insurance benefits for eligible retirees and their
dependents. The cost of postretirement benefits is accrued during the employees'
working careers. BBNA's share of the allocated cost to fund and administer these
plans, based on allocations provided by Borden's actuary, is recorded in the
statements of operations in the year the cost is incurred.

     Borden provides certain other postemployment benefits to qualified former
or inactive employees. BBNA's share of the cost to fund and administer these
plans, based on allocations provided by Borden's actuary, is recorded in the
statements of operations in the year the cost is incurred.

     Group and General Insurance.  BFC is generally self-insured for losses
relating to workers' compensation, health and welfare claims, physical damage to
property, business interruption and comprehensive general, product and vehicle
liability. BFC or Borden maintains insurance policies for certain items
exceeding deductible limits. Losses are recorded for the estimated aggregate
liability for claims using certain actuarial assumptions followed in the
insurance industry and BFC's experience.

     Stock Options.  The Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, Accounting for Stock-Based Compensation, which was adopted for
disclosure only by BFC, effective January 1, 1996. As permitted by SFAS No. 123,
BFC continues to apply its current accounting policy of the intrinsic value
method under Accounting Principles Board Opinion No. 25.

2.  Related Parties and Intercompany Allocations

     BBNA is engaged in various transactions with BFC, Borden and its affiliates
in the ordinary course of business. Certain general and administrative costs,
such as group and general insurance, retirement benefits, and corporate
administrative departments, were allocated to BBNA. A description of the
allocation methods of these costs follows.

     For all periods, pension and postemployment and postretirement group
insurance benefits were charged to BBNA based on allocations provided by
Borden's actuary, which were based on actual employee census data. General and
group insurance expenses, which include liability and property damage insurance,
were allocated based on actual claims costs and a pro-rata share of Borden's
catastrophic insurance coverage premiums in 1997 and 1998. For 1996, general
insurance was allocated based upon actual claims and percentage of net trade
sales, respectively, and group insurance was allocated based upon a fixed rate
per employee. For all periods, corporate information services and corporate
staff department services were allocated based on usage of resources such as
personnel and data processing equipment. Beginning January 1, 1996, a subsidiary
of Borden provided certain administrative services to BBNA at negotiated fees.
These services include: processing of payroll, active and retiree group
insurance claims administration, administration of workers compensation claims,
and securing insurance coverage for catastrophic claims. BBNA reimburses the
Borden subsidiary for payments made on BBNA's behalf and for services provided.

                                       59
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
              Notes to Combined Financial Statements - continued
                            (Dollars in thousands)


Management believes the allocations of these costs for all periods presented are
reasonable based upon the circumstances, however, the allocated amounts are not
necessarily indicative of costs that would have been incurred if BBNA operated
on a stand alone basis since the BBNA business has historically been operated as
a division of BFC and/or Borden. Amounts due to Borden resulting from these
allocations, as well as sales and purchases of products and materials to or from
other operations, are reflected in owner's investment.

     BBNA is generally self-insured for general insurance claims and
postemployment benefits other than pensions.

     BBNA utilizes the BFC shared sales force for its retail grocery and private
label sales activity. Costs are allocated to BBNA based on the proportion of the
BBNA sales dollars to the total domestic BFC sales.

     The provision for the allowance for doubtful accounts and the provision for
customer allowances and credits are managed by customer in total for BBNA. An
allocation of the provision for the allowance for doubtful accounts has been
made to BBNA based on a proportion of the BBNA sales dollars to the total sales
of the group. An allocation of the provision for customer allowances and credits
has been allocated to BBNA based on a proportion of actual customer deductions
taken by BBNA customers to the total deductions taken by customers of all
businesses in the group.

     Employee pension benefits are provided under the Borden Employee Retirement
Income Plan to which BBNA contributes. The employees may also participate in the
Borden retirement savings plan. Borden also provides certain health and life
insurance benefits for eligible employees. BBNA has recognized expenses
associated with these benefits, certain of which are determined and allocated by
Borden's actuary.

     The following table summarizes the charges for these costs to BBNA in 1996,
1997 and 1998:

<TABLE>
<CAPTION>
                                                            Twenty-Three
                                                             Day Period
                                                               Ended
                                                            January 23,       Year Ended December 31,
                                                                            ---------------------------
                                                                1998            1997             1996
                                                            ------------    ----------         --------
   <S>                                                      <C>             <C>                <C>
   Pension and other employee benefits..................        $  44          $  524           $  368
   Group and general insurance .........................          193           2,314            1,416
   Corporate information services.......................          265           3,201            3,336
   Shared sales force...................................          196           5,011            6,005
   Executive compensation, corporate staff, research
     department services and division overhead..........          619           8,385            9,526
</TABLE>

     Of the total amounts in 1998, 1997 and 1996, $220, $2,761 and $2,948
respectively, was included in cost of goods sold and $412, $7,890 and $8,644
respectively, was included in marketing expense, while the majority of the
remaining amount was included in general and administrative expense.

     BFC manages disbursements and the net cash position. Accordingly, both cash
generated and required by BBNA's operations are recorded in owner's investment
for such periods. An allocation of interest was not practical because Borden and
BFC had not historically identified a capital structure comprised of separate
elements of debt and equity applicable to BBNA as a separate entity.

     BBNA had sales to affiliates of KKR of $204, $6,678 and $7,374 for the
twenty-three day period ended January 23, 1998 and the years ended December 31,
1997 and 1996, respectively.

                                       60
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                    Notes to Combined Financial Statements
                            (Dollars in thousands)

3. Leases

     BBNA currently leases warehouse space, production facilities and vehicles
under long-term or month-to-month arrangements. Rental expense amounted to $10,
$110 and $44 for the twenty-three day period ended January 23, 1998 and the
years ended December 31, 1997 and 1996, respectively.

4. Income Taxes

     Income tax expense for domestic and foreign operations that file a
consolidated tax return with other entities was calculated utilizing statutory
rates multiplied by pretax income as adjusted for known book to tax differences.
As discussed in Note 1, BBNA tax accounts have been prepared as though BBNA
filed separate income tax returns and may not necessarily represent the tax
position as prepared on a consolidated basis with BFC or Borden.

     Income tax expense (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                     Twenty-Three
                                      Day Period
                                        Ended
                                     January 23,      Year Ended December 31,
                                                     -------------------------
                                        1998            1997            1996
                                     ------------    ----------       --------
     <S>                             <C>             <C>              <C>
     Current:
        Federal.....................    $    (79)    $   13,891       $ 11,671
        State and local.............         (28)         2,551          2,068
        Foreign.....................          27            523            416
                                        --------     ----------       --------
                                             (80)        16,965         14,155
     Deferred:
        Federal.....................        (185)          (656)        (1,902)
        State and local.............         (22)           (73)          (219)
                                        --------     ----------       --------
                                            (207)          (729)        (2,121)
                                        --------     ----------       --------
     Total Current and Deferred         $   (287)    $   16,236       $ 12,034
                                        ========     ==========       ========
</TABLE>

The following table reconciles the maximum statutory U.S. Federal income tax
rate multiplied by BBNA's income (loss) before taxes to the recorded income tax
expense (benefit):

<TABLE>
<CAPTION>
                                                          Twenty-Three
                                                           Day Period
                                                             Ended
                                                          January 23,      Year Ended December 31,
                                                                          -------------------------
                                                             1998            1997            1996
                                                          ------------    ----------       --------
   <S>                                                    <C>             <C>              <C>
   U.S. Federal income tax (benefit) at 35%...........      $  (304)       $  14,019       $ 10,233
   State income tax, net of Federal benefit...........          (32)           1,610          1,190
   Foreign rate differentials.........................            2               41             45
   Goodwill amortization and other
     nondeductible expenses...........................           47              566            566
                                                            -------        ---------       --------
   Provision (credit) for income taxes................      $  (287)       $  16,236       $ 12,034
                                                            =======        =========       ========
</TABLE>


                                       61
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                    Notes to Combined Financial Statements
                             (Dollars in thousands)

Domestic and foreign components of income (loss) before taxes are as follows:

<TABLE>
<CAPTION>
                               Twenty-Three
                                Day Period
                                  Ended
                               January 23,      Year Ended December 31,
                                               -------------------------
                                  1998            1997            1996
                               ------------    ----------       --------
     <S>                       <C>             <C>              <C>
     Domestic..............       $  (938)      $ 38,676        $ 28,142
     Foreign...............            69          1,377           1,095
                                  -------       --------        --------
                                  $  (869)      $ 40,053        $ 29,237
                                  =======       ========        ========
</TABLE>

5. Pension and Retirement Savings Plans

     Most employees of BBNA participate in the Borden Employee Retirement Income
Plan. For most salaried employees, benefits under the plan generally are based
on compensation and credited service. For most hourly employees, benefits under
the plan are based on specified amounts per year of credited service. A portion
of Borden's expense for the domestic retirement plan was allocated to BBNA based
on allocations provided by Borden's actuary. (see Note 2).

     The rates used to determine pension expense for the plan shared with other
Borden affiliates were as follows:

<TABLE>
<CAPTION>
                                                                 December 31,   December 31,
                                                                     1997           1996
                                                                 ------------   ------------
   <S>                                                           <C>            <C>
   Discount rate...........................................            7.5%          6.8%
   Rate of increase in future compensation levels..........            4.5%          4.3%
   Expected long-term rate of return on plan assets........            8.5%          7.8%
</TABLE>

     Eligible salaried and hourly non-bargaining employees may contribute up to
5% of their pay to Borden sponsored retirement savings plans (7% for certain
longer service salaried employees), which was matched 50% by Borden in 1998,
1997 and 1996.

6. Non-pension Postemployment and Postretirement Benefits

     BBNA participates in Borden-sponsored non-pension postemployment and
postretirement benefit plans. The postretirement plans provide certain health
and life insurance benefits for eligible domestic retirees and their dependents.

     Participants who are not eligible for Medicare are provided with the same
medical benefits as active employees, while those who are eligible for Medicare
are provided with supplemental benefits. The postretirement medical benefits are
contributory for retirements after 1983; the postretirement life insurance
benefit is noncontributory.

     A portion of Borden's expense for postemployment and postretirement
benefits was allocated annually to BBNA (see Note 2). The discount rate used in
determining the accumulated postretirement benefit obligation at December 31,
1997 and 1996 was 7.3% and 7.5%, respectively.

     The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at December 31, 1997 was 8.8% for 1998,
gradually declining to 5.3% by the year 2004. The comparable assumptions for the
prior year were 9.5% and 5.5%, respectively.

                                      62
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                    Notes to Combined Financial Statements
                            (Dollars in thousands)

     Borden also provides certain postemployment benefits, primarily medical and
life insurance benefits for long-term disabled employees, to qualified former or
inactive employees. The costs of benefits provided to former or inactive
employees after employment, but before retirement, are accrued when it is
probable that a benefit will be provided. The amounts of such charges are not
considered significant.

     Management does not believe that these allocations are materially different
from amounts that would be calculated historically for BBNA on a stand-alone
basis.

7. Units and Unit Appreciation Rights

     During 1996, a Unit Incentive Plan was formed which provides for the
granting of options, unit appreciation rights ("UAR's"), units and other unit-
based equity interests in Foods Holdings to key employees of BFC, which included
certain BBNA employees, and associated persons at the discretion of the Board of
Directors of BFC.

     During 1996, Foods Holdings sold 1,080,000 Class A units to certain
management employees of BFC under this Unit Incentive Plan. The units are
generally restricted as to transfer and allow for Foods Holdings, at its
discretion, to repurchase the units, upon certain conditions including
termination of the unitholders' employment prior to full vesting after five
years. In 1997, Foods Holdings sold an additional 20,000 Class A units to
management, none of which were sold to BBNA employees, and repurchased 81,000
Class A units from management, of which 10,000 units were repurchased from BBNA
employees. There was no compensation expense attributable to the units since the
repurchase price was equal to or less than the sales price to employees. Class A
units outstanding at December 31, 1997 and 1996 were 1,019,000 and 1,080,000,
respectively, of which 65,000 and 75,000 were held by BBNA employees at December
31, 1997 and 1996, respectively.

     Although no options have been issued under the Unit Incentive Plan, BFC has
issued UAR's to unitholders. The UAR entitles the holder to receive an amount in
cash equal to the excess of the market price (as defined in the UAR agreement)
of the Class A unit over the exercise price of the UAR. The UAR's vest ratably
over five years and expire upon certain events, including termination of the
unitholders' employment, but in no case to exceed ten years. Four UAR's were
issued for each unit purchased: one UAR with an exercise price of $10 per unit
and three UAR's with an exercise price of $20 per unit. At December 31, 1997,
there were 1,019,000 UAR's outstanding with an exercise price of $10 and
3,057,000 UAR's outstanding with an exercise price of $20. For 1997 and 1996,
there was no compensation expense attributable to the UAR's since the exercise
price exceeded the underlying value of the UAR's.

     As the UAR's are settled in cash, the change in value of the UAR's is
accounted for under the liability method as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Due
to the cash nature of the award, treatment under SFAS No. 123, Accounting for
Stock-Based Compensation, would be synonymous with APB No. 25 and accordingly,
no fair-market value disclosures are applicable.

8. Unaudited Interim Financial Statements

     For the unaudited six months ended December 31, 1997, related party
transactions and intercompany allocations were consistent with those described
in Note 2.

                                       63
<PAGE>

                          BORDEN BRANDS NORTH AMERICA
                             (Predecessor Company)
                    Notes to Combined Financial Statements
                            (Dollars in thousands)

     The following table summarizes the allocation of costs to BBNA for the
unaudited six months ended December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                 Six Months
                                                                    Ended
                                                              December 31, 1997
                                                              -----------------
     <S>                                                      <C>
     Pension and other employee benefits....................     $      209
     Group and general insurance............................          1,378
     Corporate information services.........................          2,066
     Shared sales force.....................................          2,480
     Executive compensation, corporate staff, research
        department services and division overhead...........          4,872
</TABLE>

     Of the total amount in the six months ended December 31, 1997, $1,784 was
included in costs of goods sold and $4,557 was included in marketing expense,
while the majority of the remaining amount was included in general and
administrative expense.

     BBNA had sales to affiliates of KKR of $5,233 for the six months ended
December 31, 1997.

                                       64