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                                                                    EXHIBIT 13.1











            WHEN WE SAY "CAPITALIZING ON OUR POTENTIAL" WE MEAN...

WE'RE GROWING OUR BRANDS AND BUILDING SHAREHOLDER VALUE

                        INTERNATIONAL HOME FOODS, INC.

                              ANNUAL REPORT 1998

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International Home Foods, Inc. (IHF), headquartered in Parsippany, New Jersey,
manufactures a diversified and well-established portfolio of shelf-stable, high
quality, nutritious food products. Through our divisions and wholly-owned
subsidiaries, we offer the following well-known brands:

[PHOTO]

CHEF BOYARDEE

[PHOTO]

BUMBLE BEE

[PHOTO]

SPECIALTY


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[PHOTO]

SNACKS

[PHOTO]

SOUTHWEST

[PHOTO]

LIBBY'S
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                                                  CAPITALIZING ON OUR POTENTIAL










         Contents

 2       To Our Shareholders, Customers, and Consumers

 4       Leverage Leading Brands

 8       Refocus Marketing Efforts

12       Expand into Foodservice, Private Label, and International

16       Complete Strategic Acquisitions

20       Continue to Achieve Cost Savings

23       Financial Information
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Deciding which way a company will go - developing a growth strategy - is a
vital first step for any business. Making that strategy work is what
distinguishes the best companies from their competitors. At International Home
Foods, we have designed a strategic platform to grow our brands and build
shareholder value. Our five strategies are: Leverage Leading Brands; Refocus
Marketing Efforts; Expand Into Foodservice, Private Label, and International;
Complete Strategic Acquisitions; and Continue to Achieve Cost Savings. In the
pages that follow, we'll demonstrate how our adherence to these strategic
initiatives is having a positive impact on everything we do and every brand we
own.

                           1 International Home Foods

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                 TO OUR SHAREHOLDERS,CUSTOMERS, AND CONSUMERS


On behalf of International Home Foods and its employees, I am very pleased to
report that 1998 was another exciting and strategically important year at our
company. In the two short years since the company's recapitalization in 1996,
we have completed the restructuring and repositioning of our business in
several key ways that will support strong long-term profitable growth, and will
enable us to continue to achieve superior financial performance.


    The following is a brief review of IHF's major accomplishments in 1998 and
    since its recapitalization (excluding the 1998 restructuring charge and the
    1997 non-cash stock compensation and extraordinary charges):

    o   In 1998, earnings per share increased 47 percent to $1.15.

    o   Overall, 1998 sales were $1.7 billion, a 39 percent increase from 1997
        reported sales. Since the 1996 recapitalization, our sales have
        increased in excess of 80 percent. We repositioned the core business
        that existed in 1996 by eliminating certain unprofitable sales in our
        export markets, discontinuing marginal SKUs in the US markets, and
        implementing an important change in our marketing strategy. We feel
        confident that this core business is healthy across all channels of
        distribution and that it will respond well to the numerous new products
        and strong consumer marketing efforts that will be aggressively
        launched in 1999.

    o   In addition to nearly doubling our sales, IHF's EBITDA (earnings before
        interest, taxes, depreciation and amortization) increased 64 percent
        from $172 million in 1996 to $282 million in 1998.

    o   During 1998, we funded $283 million in acquisitions, $31 million in
        capital expenditures and repurchased treasury stock for $57 million.
        These items in aggregate consumed $371 million in cash, yet our total
        debt during the year only increased $207 million-a testament to our
        strong cash flow.

        At the same time that IHF achieved these impressive financial results,
    we have also taken several strategically important steps to prepare the
    company to meet the opportunities of the new century:

    1.  We completed the installation of a management information system that
        will become the platform for our acquisitions. In addition, the system
        has the ability to link up with our customers' replenishment systems,
        thereby generating improvements in service levels and reductions in
        overall inventories.

    2.  We significantly invested in improving our products and contemporizing
        their packaging. Moreover, we will continue to focus our research and
        development efforts on creating new products that respond to consumer
        trends and preferences.

    3.  We addressed several inequities in past marketing programs that created
        conflicts within our different channels of trade and did not
        effectively support the ever-challenging pursuit of proper
        merchandising and display execution at the store level. These
        transitions, while having a short-term negative impact on our 1998
        sales, were critical for maximizing the performance of our future
        marketing investments. 


                           International Home Foods 2

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                          [C. DEAN METROPOULOS PHOTO]

    4.  Our 1998 marketing investment was $338 million, and we feel we are
        taking the appropriate steps to efficiently utilize these funds. We
        expect this effort to continue and expand rapidly in 1999 and beyond as
        we put greater focus on new products and reaching new consumers.

    5.  We have streamlined our operations not only to generate important cost
        and working capital efficiencies, but also to improve the service
        levels to our customers.

    6.  We completed three acquisitions in 1998, making a total of seven since
        the end of 1996. These acquisitions were accretive and expanded our
        strategic presence in each of our basic business categories. Equally
        important for our customers, our management team has demonstrated the
        ability to integrate these acquisitions almost seamlessly. Our
        acquisitions have not only increased our shareholder value, but their
        consolidation into our infrastructure will also lead to increased
        efficiencies and, ultimately, lower supply chain costs for our
        customers.

    The current buzzwords in our industry are "retail consolidation." In our
view, this trend among retailers presents marketers and manufacturers of food
products with significant opportunities. Generally, consolidation leads to
improved efficiencies for everyone involved in the process. The retailer seeks
improved efficiencies in dealing with its customers and suppliers just as we
do. We are confident that our common search for efficiency is not necessarily
an adversarial one. We are absolutely committed to finding improved ways to
generate common savings: through better category management, continuous
replenishment systems, supply chain improvements, and other innovations. These
in turn will lead to closer and more efficient partnerships with our retailers.
Therefore, we strongly believe that our organization is well poised to meet the
challenges and demands that the retail consolidation presents for food
manufacturers and marketers.

    As we approach the new millennium, we are confident that our products and
their long tradition with consumers, coupled with higher emphasis on marketing,
research and development and guided by our committed management team, will
allow us to successfully respond to the emerging consumer trends of the coming
century.



/s/ C. DEAN METROPOULOS

C. Dean Metropoulos 
Chairman of the Board, Chief Executive Officer 


                          3 International Home Foods
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                                    [PHOTO]









                          International Home Foods 4

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               WHEN WE SAY "LEVERAGE LEADING BRANDS" WE MEAN...

INTRODUCING NEW PRODUCTS THAT BUILD ON THE STRENGTH OF OUR TRUSTED AND
WELL-KNOWN BRAND NAMES







                          5 International Home Foods


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                            LEVERAGE LEADING BRANDS

OUR PORTFOLIO OF BRANDS FEATURES SUCH WELL-RECOGNIZED NAMES AS CHEF
BOYARDEE(R), BUMBLE BEE(R), PAM(R), CRUNCH 'N MUNCH(R), GULDEN'S(R), AND ONE OF
THE MORE RECENT ADDITIONS TO OUR ROSTER, LIBBY'S(R) CANNED MEATS. WE CONSIDER
OUR BRANDS TO BE OUR MOST PRIZED ASSETS AND OUR SPRINGBOARD FOR GROWTH, BOTH BY
BUILDING THE EXISTING FLAGSHIP BRANDS AND BY USING OUR STRENGTH TO SUPPORT LINE
EXTENSIONS. OUR LINEUP OF ESTABLISHED BRANDS AND THEIR NUMBER ONE MARKET
POSITIONS ALSO GIVES US THE OPPORTUNITY TO SECURE SHELF SPACE FOR NEW PRODUCTS
WHICH ARE CRITICAL TO OUR GROWTH STRATEGY. HERE ARE SOME EXAMPLES OF STRATEGIC
ADDITIONS TO OUR PORTFOLIO IN 1998.


         OVERSTUFFED(TM) 

              Chef Boyardee is the undisputed leader in the $511 million canned
         pasta category. Our core consumer group is kids under 12. Retaining
         them as they get older represents an important growth opportunity.
         Therefore, we began developing value-added, distinctive tasting new
         products that appeal to an older palate. So, in 1998, we introduced
         Chef Boyardee Overstuffed Ravioli. Stuffed with nearly twice as much
         filling as regular raviolis, Overstuffed is made from top-quality
         ingredients, including enriched pasta, sun-ripened tomatoes, special
         herbs and spices, and premium beef. With a heartier flavor profile than
         the original Chef Boyardee Beef Ravioli, Overstuffed appeals to older
         kids, helping us keep them as loyal consumers as they grow up.

              In Canada, where Chef Boyardee had its second straight year of
         double-digit growth, we unveiled two additions to our Special
         Recipe(R) line, Ravioli Primavera and Rotini Calabrese. Like
         Overstuffed, Special Recipe extends our consumer reach, with research
         showing that nearly half of our canned pasta purchasers in Canada live
         in households without children.

                                                                        [PHOTO]

         AMERICA'S FAVORITE

              When it comes to our solid white albacore tuna, we're dealing from
         a position of strength because Bumble Bee is already a category leader.
         Last year, we invested in our albacore product by improving its overall
         quality. Survey results showed consumers significantly preferred the
         improved solid white albacore over its major competitor.

              Combining our category strength with Orleans(R) specialty seafood
         products, we introduced into key markets new products under the Bumble
         Bee name, including Louisiana shrimp, white and lump crab meat, whole
         and smoked oysters, and whole baby clams.

[PHOTO]

                           International Home Foods 6

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                                                                        [PHOTO]

CATEGORY CAPTAINCY

     Ranch Style(R) Brand beans offer another good example of the way that we
can leverage-and strengthen-our leading brands. Canned beans is a billion dollar
category, and Ranch Style, with the introduction of a complete line of baked
beans in 1997 and refried beans in 1998, is the only brand in the southwest
region to compete in every segment-pork and bean, baked, refried, and
ingredient. As a result of our breadth and ability to provide one-stop shopping
for beans, we have "category captaincy" with the trade and we get the
all-important shelf space we need when we move into new markets.


TOFFEE PRETZELS

     Our popular Crunch 'n Munch glazed popcorn gives us a solid platform for
building the Crunch 'n Munch brand by launching new products into the snack
world, and last year we introduced our first non-popcorn extension, Crunch 'n
Munch Toffee Pretzels. Since flavored pretzels are one of the fastest growing
snack segments, we combined Crunch 'n Munch's popular toffee flavor with a
bite-size pretzel that has only 1.5 grams of fat per serving. The new pretzels
are being supported by a powerful marketing initiative, including in-store
sampling, promotional events, and national TV advertising.

[PHOTO]

                          7 International Home Foods


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            "REFOCUS MARKETING EFFORTS" IS ANOTHER WAY OF SAYING...

    CAPTURING THE CONSUMER'S ATTENTION WITH A NEW LOOK AND ATTITUDE

                           International Home Foods 8

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                                    [PHOTO]






                          9 International Home Foods

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                           REFOCUS MARKETING EFFORTS

WITH TODAY'S MEDIA CLUTTER, IT'S HARD TO CAPTURE THE CONSUMER'S ATTENTION. TO
SUCCEED, WE NEED TO BE INNOVATIVE, BUT WE ALSO HAVE TO TARGET EVERY DOLLAR
SPENT WITH PINPOINT ACCURACY. BEFORE WE ACQUIRED THEM, SOME OF OUR BRANDS WERE
UNDERMARKETED. TO REVITALIZE OUR ESTABLISHED BRAND NAMES, AND TO RESPOND TO
CHANGING RETAIL AND CONSUMER DYNAMICS, WE HAVE REFOCUSED OUR MARKETING AND
PACKAGING EFFORTS. NOW, WE'RE "REDIRECTING" OUR MARKETING DOLLARS TO BETTER
TARGET THE CONSUMER AND TO BUILD A HEALTHY LONG-TERM BRAND PROFILE THROUGH AD
CAMPAIGNS, IN-STORE PROMOTIONS AND CO-PROMOTIONS, AND NEW PACKAGING.

         IT'S OK TO SPRAY

              PAM is widely known as the all-natural, no-stick cooking spray.
         But we also want the consumer to recognize PAM as an all-natural
         ingredient that can be sprayed directly on food. This new positioning
         has been built around the July 1998 introduction of two new PAM
         flavors, lemon and garlic. A breakthrough ad campaign-"It's OK to
         Spray"-supported the extensions and PAM's base business through TV and
         print promotions, sampling, coupons, and in-store merchandising. The
         flavors were also promoted at a series of public relations events for
         local food and nutrition professionals showcasing fat-free cooking with
         PAM.

         THE LATEST BUZZZ

              Bumble Bee has maintained a category leadership position despite
         the fact that its last national ad campaign was in 1987. That all
         changed last year with "It's Gotta Be Bumble Bee," a comprehensive
         campaign that included TV, radio, and print advertising; new product
         packaging; and promotions. As part of the campaign, recipes on cans and
         in ads encouraged consumers to "Bee Gourmet," "Bee Healthy," and "Bee
         Choosy."

[PHOTO]

                          International Home Foods 10

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We also supported the brand with a contemporary version of the "Yum Yum Bumble
Bee" jingle; a regional campaign with Bill "The Big Tuna" Parcells, coach of
the New York Jets; and The Latest Buzzz, an in-store magazine with recipes,
health news, and games for kids.

                                                                        [PHOTO]

STAND-UP CHILI(TM)

        Dennison's(R) is known as the original "Stand-Up Chili" because it's so
thick you can stand a fork in it. In 1998, we capitalized on that concept in our
California heartland with in-store promotions featuring stand up comedians who
told jokes and gave out samples with coupons. We also sponsored "Dennison's
Comedy Nights" at local comedy clubs where customers got in free with a can of
Dennison's that was then donated to food banks. The reaction from both consumers
and retailers was overwhelmingly positive, leading to double-digit growth for
Dennison's in its core markets.

PROMOTIONS AND PACKAGING

        We are directing our marketing dollar at the consumer with innovative
"retailtainment" tactics. Each year, we only get so many chances to set our
products apart at the store level, so we have equipped our people with a
"toolbox" full of promotional ideas. To help drive store traffic for our retail
customers, we're staging innovative events such as "Cook Up a Little Magic,"
which promoted Chef, PAM, and Crunch 'n Munch with in-store magicians, a
take-home recipe video, and recipe cards.

        Our Campfire(R) marshmallow brand was the growth leader in the
marshmallow category last year thanks to a consumer-oriented approach that
included seasonal displays and co-promotions. Joining with Hershey's(R), for
example, we developed customized displays and signage for S'mores on Memorial
Day, the Fourth of July, and Labor Day.

[PHOTO]

        Across our brands, we also introduced new packaging, using brighter
graphics and more vibrant colors to create a more contemporary look and feel
that heightens the shelf impact of our products.

       (Hershey's is a registered trademark of Hershey Foods Corporation)

                          11 International Home Foods

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            WHEN WE SAY "EXPAND INTO FOODSERVICE, PRIVATE LABEL, AND

    OUR POWERFUL



               [PHOTO]




                          International Home Foods 12

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INTERNATIONAL" WE MEAN...

  BRANDS ARE GAINING GROUND IN SOME OF OUR INDUSTRY'S FASTEST GROWING MARKETS


                          13 International Home Foods

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           EXPAND INTO FOODSERVICE, PRIVATE LABEL, AND INTERNATIONAL


THREE FAST-GROWING SECTORS FOR IHF-FOODSERVICE, PRIVATE LABEL, AND
INTERNATIONAL MARKETS-PRESENT AN IMPORTANT OPPORTUNITY TO GROW OUTSIDE OUR
TRADITIONAL CHANNELS. IN EACH CASE, IHF IS A MORE COMPETITIVE CONTENDER BECAUSE
OF OUR BRAND STRENGTH, MANUFACTURING FLEXIBILITY, DISTRIBUTION NETWORK, AND
FOCUSED LEADERSHIP.

         FOODSERVICE

              The foodservice industry, supplying restaurants, schools,
         hospitals, hotels, and airlines, represents over half of every American
         food dollar now being spent on food prepared away from home. We have
         begun to capitalize on this opportunity with our targeted marketing and
         our brand strength. While sales for the US foodservice market have
         historically grown at about 2 percent a year, IHF's sales were up 18
         percent in 1998. Our objective is to triple our foodservice business
         over the next three years. That growth will be the result of
         overhauling our foodservice business, and in 1998, as part of that
         ongoing plan, we created a dedicated sales and marketing support group.
         And each acquisition IHF makes gives us the opportunity to bundle and
         sell more products to foodservice distributors. We also adopted a
         targeted strategy of identifying our audience by service segment-so we
         take Chef to schools, PAM to restaurants, and Gulden's to the ballpark.
         In fact, Gulden's will be the official mustard of the World Champion
         New York Yankees in 1999.

[PHOTO]

                          International Home Foods 14

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PRIVATE LABEL

     The 1998 acquisition of Grist Mill(R) further expanded our growth platform
in private label, the fastest growing sector in the grocery industry and one
which now accounts for approximately 18 percent of grocery expenditures. Grist
Mill, a leading manufacturer of private label cereal bars and fruit snack
products, extends our presence in these categories. Leveraged along with our
position as the leading supplier of private label canned pasta and cooking
spray, we can now offer retailers a strategic solution to category management
which includes efficient assortment, single-source supply, and consolidated
logistics. With our category management approach to the retail trade, private
label has become a strategic element of our long-term business plan.

                                                                        [PHOTO]

INTERNATIONAL

     We named this company International Home Foods because we felt our brands
had significant opportunities in the global market. In Puerto Rico, Chef
Boyardee is the leading canned pasta. In Mexico, Productos Del Monte(R) , the
leading producer and distributor of branded catsup, canned vegetables, and
bottled salsa, also gives us an excellent platform to expand sales of other IHF
products. Equally important, we are moving into new overseas markets through the
acquisitions of Libby's canned meats in 1998 and the Clover Leaf(R) and
Paramount(R) brands in January 1999. These acquisitions give us a presence in a
number of foreign markets, including South Africa, the United Kingdom, the
Philippines, Japan, and Jamaica, that we can use to launch other IHF products.

     In Canada, we manufacture and market Chef Boyardee canned pasta, Puritan(R)
stews and canned meats, PAM cooking spray, and Crunch 'n Munch glazed popcorn.
In 1998, every major brand had substantial volume and revenue growth. Chef
Boyardee, driven by the introduction of two new additions to our Special Recipe
line, had its second straight year of double-digit growth. Significant increases
were also achieved in both private label and foodservice sales.

[PHOTO]

                          15 International Home Foods

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                  "COMPLETE STRATEGIC ACQUISITIONS" MEANS...

    WE BOOST OUR BOTTOM LINE BY ACQUIRING BUSINESSES THAT ARE A PERFECT FIT


                          International Home Foods 16

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                                   [PHOTO]







                          17 International Home Foods

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                        COMPLETE STRATEGIC ACQUISITIONS


IHF IS AGGRESSIVE IN SEEKING OUT ACQUISITIONS BY TARGETING COMPLEMENTARY
BUSINESSES THAT LET US EXPAND AND PENETRATE NEW MARKETS. MAKING AN ACQUISITION
IS JUST OUR FIRST STEP. BY RAPIDLY INTEGRATING THAT ACQUISITION AND TAKING
ADVANTAGE OF MANUFACTURING, DISTRIBUTION, AND MARKETING SYNERGIES, WE ACHIEVE
SIGNIFICANT COST SAVINGS. IN 1997, WE ACQUIRED BUMBLE BEE, CREATIVE PRODUCTS,
ORLEANS, AND PRODUCTOS DEL MONTE. THIS PAST YEAR, WE ADDED GRIST MILL, LIBBY'S
CANNED MEAT BUSINESS, AND PURITAN TO THE IHF FAMILY. AND, IN JANUARY 1999, WE
PURCHASED THE CLOVER LEAF BRAND FROM BRITISH COLUMBIA PACKERS. ALL OF THESE
BUSINESSES REPRESENTED A NUMBER ONE OR TWO MARKET POSITION IN THEIR CORE
MARKETS, WERE CLOSELY RELATED TO OUR BASE TECHNOLOGY, AND WERE IMMEDIATELY
ACCRETIVE.

                                                                 [PURITAN LOGO]

         PURITAN 

               Early in 1998, we acquired Puritan, the largest processor and
         marketer of canned stews and meatballs in Canada. Puritan had $33
         million in annual sales in 1998, substantially increasing our total
         sales in Canada. We also took advantage of the opportunity to cut
         costs by moving Puritan's sales and distribution into IHF's
         infrastructure and leveraging IHF's purchasing power to buy Puritan's
         raw materials. In addition, we consolidated Puritan's manufacturing
         operation into our Niagara Falls, Ontario, plant, which is closer to
         Puritan's core markets. We then reinvested a portion of our cost
         savings into product enhancements that, according to consumers,
         significantly improved these products.

         LIBBY'S
 
               Libby's canned meat business, which posted $148 million in
         sales in 1998, is a domestic manufacturer, importer, and global
         marketer of canned meat products, including Vienna sausages, corned
         beef, and corned beef hash. Domestically, Libby's is the number one
         corned beef brand and the number two brand for the entire canned meat
         category. Libby's is a great fit for IHF on a number of fronts,
         particularly within our operations. Dennison's canned meat products,
         for example, previously made at our Vacaville, California, plant, are
         now produced in Libby's Trenton, Missouri, manufacturing facility.
         Libby's salmon business is now marketed and distributed by Bumble Bee.

[LIBBY LOGO]

                          International Home Foods 18


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                                                                        [PHOTO]

GRIST MILL

     Grist Mill, based in Lakeville, Minnesota, manufactures and distributes
store brand and value-priced branded food products, including cereal bars, fruit
snacks, and ready-to-eat cereals. With sales of $112 million in 1998, Grist Mill
is the dominant player in the private label wholesome snack bar and fruit snack
businesses. Grist Mill is already benefiting from IHF's broad distribution
network, which includes traditional supermarket chains as well as alternative
channels such as club stores and mass merchants. This acquisition enabled us to
close a plant that was making other snack products and consolidate that
production into the Grist Mill manufacturing facility. Importantly, Grist Mill
becomes an integral part of our platform for the expansion of IHF's private
label business.

CLOVER LEAF AND PARAMOUNT 

     In January 1999, IHF dramatically expanded both its seafood business and
its presence in Canada with the acquisition of the canned seafood business of
British Columbia Packers, representing approximately $130 million in sales in
1998. The newly acquired Clover Leaf brand is Canada's number one brand in the
tuna and salmon segments. Through private label sales, those products also have
a strong presence in the United Kingdom and South Africa and in Australia they
are sold under the Paramount label. The marketing function for these products
will be integrated into our Bumble Bee seafood business, while our Canadian
operations will provide administrative and distribution support.

[CLOVER LEAF LOGO]

                          19 International Home Foods


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           WHEN WE SAY "CONTINUE TO ACHIEVE COST SAVINGS" WE MEAN...

    WE'RE FINDING NEW WAYS TO ADD VALUE ON THE SHELF AND OFF


                          International Home Foods 20

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                                NEW WAYS TO UE




                                                 [PHOTO]




                          21 International Home Foods

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                       CONTINUE TO ACHIEVE COST SAVINGS

TO IMPROVE EFFICIENCY, REDUCE COSTS, AND BUILD SHAREHOLDER VALUE, WE'RE
CONTINUALLY SCRUTINIZING THE WAY WE DO THINGS. WE'RE DOING THAT ON A NUMBER OF
FRONTS AND IN A VARIETY OF WAYS: BY ADOPTING A SINGLE COMPANY- WIDE INFORMATION
MANAGEMENT SYSTEM; BY LEVERAGING OUR BRAND AND PURCHASING POWER; BY
STREAMLINING PRODUCTION, RESEARCH, AND ADMINISTRATIVE FUNCTIONS; BY USING
VENDOR-MANAGED INVENTORY; BY CENTRALIZING DISTRIBUTION; BY REDUCING PACKAGING
EXPENSE; AND BY CONSOLIDATING PLANTS.

         LOGISTICS

              Across IHF, we have a simplified operations strategy that
         encourages employees to partner and plan at every level to improve cash
         flow, cut costs, and enhance customer service. One important component
         of our strategy is consolidating distribution. We have now reduced our
         warehouse network from 42 to 22 locations, representing a more
         efficient use of existing space. Similarly, because every acquisition
         presents a new challenge from a facility standpoint, we're constantly
         reviewing operations to take advantage of space, manufacturing
         capability, and distribution synergies.

              We can also lower costs and improve cash flow with Continuous
         Replenishment Program, or CRP, where we electronically exchange
         information from some of our customers' scanners every day, thereby
         expediting the ordering process, giving us far better control of
         inventory and upgrading customer service.

         PURCHASING

              Taking advantage of our size and purchasing power to get better
         deals with suppliers, we entered into a number of long-term supplier
         agreements that affected a significant percent of our products,
         including metal and aerosol cans and flexible packaging. We also
         adopted a new strategy for buying key commodities, such as meat, flour,
         sugar, and beans, that better links central purchasing and our
         manufacturing locations.

         CUSTOMER SERVICE

              We have linked our customer service and our sales organizations
         around important growth accounts. By connecting with customers and
         learning more about their sales plans and promotions, we have a better
         read on what they'll need and when. That, in turn, allows us to
         integrate our operations with our sales strategies to positively impact
         demand planning and inventory control.

              Our goal is to continue to achieve these cost savings while
         striving for others. This strategy, when combined with our other
         initiatives, should ensure our primary objectives of growing our
         brands and building shareholder value.


                          International Home Foods 22

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                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                   Overview

International Home Foods ("IHF" or "the Company") is a leading manufacturer and
marketer of widely-popular quality food brands. The Company sells its products
primarily to grocery wholesalers and distributors, grocery stores and
supermarkets, convenience stores, drug and mass merchants and warehouse clubs.
Sales are reported net of discounts and returns. In general, raw material costs
constitute a majority of cost of goods sold for each of the Company's products.
The other components of cost of goods sold are labor and overhead costs. As is
customary in the industry, the Company incurs substantial marketing expenses.
Marketing expenses primarily include (i) trade promotions, which are directed
at obtaining retail display support, achieving key price points and securing
retail shelf space, (ii) advertising, which is primarily comprised of
television, radio, newspaper and magazine advertising and (iii) consumer
promotions, which include targeted coupons and on-package offers.

                                1998 Highlights

Net sales for 1998 were $1,699.6 million, an increase of $477.2 million, or
39.0% over 1997. Net income of $16.5 million represents a decrease of $3.1
million from 1997. The year 1998 includes:

      o  The acquisition of certain assets relating to the Puritan stews and
         canned meats business ("Puritan"), Grist Mill Co. and the Libby's(R)
         brand of retail and international canned meat products ("Libby's").

      o  The full year impact of the 1997 acquisitions of Bumble Bee Seafoods,
         Productos Del Monte, Creative Products and Orleans Seafood.

      o  A restructuring charge of $118.1 million ($75.3 million, net of tax,
         or $0.94 per diluted share).

                       Consolidated Statements of Income

The following table sets forth certain items in IHF's consolidated statements
of income as a percentage of net sales for each of 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                 ----------------------------
                                                  1998       1997       1996
                                                 ------     ------     ------
<S>                                              <C>        <C>        <C>   
Net Sales .....................................  100.0%     100.0%     100.0%
                                                 -----      -----      ----- 
Cost of sales .................................   52.6%      50.0%      47.2%
Marketing expenses ............................   19.7%      20.5%      20.3%
Selling, general and administrative expenses...   13.1%      13.9%      15.8%
Restructuring and other charges ...............    6.9%        --        0.5%
Stock option compensation expense .............     --        3.8%        --
                                                 -----      -----      ----- 
    Total operating expenses ..................   92.3%      88.2%      83.8%
                                                 -----      -----      ----- 
Income from operations ........................    7.7%      11.8%      16.2%
Interest and other expense (income), net ......    5.8%       8.5%       1.8%
                                                 -----      -----      ----- 
Income before provision
  for income taxes ............................    1.9%       3.3%      14.4%
Provision for income taxes ....................    0.9%       1.3%       5.6%
                                                 -----      -----      ----- 
Income before extraordinary item ..............    1.0%       2.0%       8.8%
                                                 -----      -----      ----- 
Extraordinary loss ............................     --        0.4%        --
                                                 -----      -----      ----- 
Net income ....................................    1.0%       1.6%       8.8%
                                                 =====      =====      ===== 
</TABLE>


---------------------------------------------------
     YEAR ENDED DECEMBER 31, 1998 COMPARED TO 
     YEAR ENDED DECEMBER 31, 1997 
---------------------------------------------------

NET SALES-The Company's net sales were $1,699.6 million in 1998 as compared to
$1,222.4 million in 1997, an increase of $477.2 million or 39.0%. Approximately
$274.8 million of the increase related to sales of companies acquired
subsequent to September 30, 1997 (Productos Del Monte, Creative Products,
Orleans Seafood, Puritan, Grist Mill and Libby's) and therefore a full year's
results were not reflected in the 1997 amounts. Bumble Bee Seafoods 1998 sales
increased $223.8 million over 1997 and reflects sales for calendar year 1998 as
compared to sales for the six months ended December 31, 1997 (Bumble Bee
Seafoods was acquired on July 1, 1997). Sales of the Company's other brands
decreased $21.4 million, primarily as a result of lower volume in the Company's
snack food category due to (i) competitive pressures in the crisp rice snack
bars category, (ii) a reduction in sales of Crunch 'n Munch products to certain
mass merchant customers due to reduced promotional activity, and (iii)
continuing lower sales in Polaner All-Fruit. (See Results by Segment on pages
26 and 27.)

COST OF GOODS SOLD-Cost of goods sold was $893.4 million in 1998 as compared to
$611.2 million in 1997. Expressed as a percentage of net sales, cost of goods
sold increased to 52.6% from 50.0% in 1997. This was primarily attributable to
the inclusion

                          23 International Home Foods

<PAGE>   28

                    MANAGEMENT'S DESCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

of the operations of businesses that were acquired during 1998 and 1997, which
have lower gross margins than the Company's existing products. Excluding
results of these acquired businesses, cost of goods sold expressed as a
percentage of net sales for the Company's existing business decreased to 42.8%
in 1998 from 45.6% in 1997. This improvement primarily reflects management's
continuing cost reduction initiatives. Since the Company's recapitalization in
November 1996, a number of programs have been implemented that have improved
efficiency in the Company's manufacturing processes and its purchasing
activities. The improved gross margin of the Company's existing business (pre
1997 and 1998 acquisitions) in 1998 also reflects the effect of decreases in
some of the Company's commodity prices and price increases in Chef Boyardee
canned pasta implemented in July 1997.

TOTAL MARKETING EXPENSES-Total marketing expenses increased to $335.1 million
in 1998 as compared to $250.7 million in 1997. The increase of $84.4 million
was attributable to the inclusion of the marketing activities of the businesses
acquired in 1998 and 1997, which aggregated $86.5 million, offset by $2.1
million of lower expenditures on existing brands, primarily resulting from a
reduction in coupon promotions and improved management of trade promotion
spending, offset by increased media spending. In late 1998, the Company shifted
the focus of its marketing dollars toward trade promotion funds more directly
behind product performance support at the store level versus automatic
"off-invoice" programs, whereby our products are discounted at the retailer
level without any specific performance requirements. It also began focusing on
consumer marketing and new product development. Expressed as a percentage of
net sales, total marketing expenses decreased to 19.7% in 1998 from 20.5% in
1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES-Selling, General and
Administrative (SG&A) expenses increased to $223.5 million in 1998 as compared
to $170.6 million in 1997. Approximately $47.5 million of the $52.9 million
increase was attributable to the businesses acquired in 1998 and 1997. The
balance of the increase, or $5.4 million, was attributable to existing brands.
Total SG&A expenses as a percentage of net sales declined to 13.1% for 1998 as
compared to 13.9% for 1997. This decrease reflects the more efficient
utilization of the Company's administrative resources as the Company's sales
have grown.

RESTRUCTURING AND OTHER CHARGES-In September 1998, the Company recorded a
pre-tax restructuring charge of $118.1 million relating to the closure of its
Vacaville, California and Clearfield, Utah production facilities and the
related impact of the transfer of production to other facilities, mainly
Milton, Pennsylvania, and to the write-down of goodwill associated with the
Campfire crisp rice snack bar brand and the Polaner fruit spreads brand. These
charges impact the Company's Branded Products segment.

    The Vacaville, California production facility was closed in December 1998,
while the adjacent distribution center and the Clearfield, Utah facility are
expected to close in the second quarter of 1999. The total closure costs of
approximately $40.6 million represent $29.5 million of non-cash charges,
primarily for the write-down of property, plant and equipment to net realizable
value, cash charges of $9.0 million for severance and related benefit costs for
affected employees and $2.1 million in facility closure costs. The severance
and related costs relate to the termination of approximately 600 employees,
which includes seasonal employees not eligible for severance, of which 553 had
been terminated as of December 31, 1998.

    With the exception of outsourced products, the Company has moved all of the
products that were manufactured at the Vacaville facility to other facilities,
mainly Milton, Pennsylvania. Production of tomato paste used in Chef Boyardee
canned pasta products and of Ro*Tel diced tomatoes, both of which were
manufactured at the Vacaville facility prior to its closure, have been
outsourced. The manufacturing of the Campfire products is being transferred
from Clearfield, Utah to the Company's Lakeville, Minnesota facility. The
Company anticipates that approximately $2.4 million of additional
non-capitalizable expenses will be incurred as the transfer and installation of
the relocated equipment from these facilities occurs. The Company incurred
approximately $0.6 million of such costs in 1998. It is expected that the
entire process will be completed by the end of 1999.

    The write-down of goodwill associated with the Campfire and Polaner brands
was $47.7 million and $29.7 million, respectively. These brands have been
impacted by their significant respective retail category sales declines, which
have continued to deteriorate in recent months. The current and projected sales
trends and their resulting impact on these brands' profitability have impaired
their valuation. Goodwill was written down to reflect each brand's fair value.
The Polaner business was subsequently sold in February 1999.

STOCK OPTION COMPENSATION (INCOME) EXPENSE-In 1998, the Company recorded a
benefit of $0.6 million primarily for lapsed stock options that were initially
charged to compensation expense in 1997, offset by the amortization of the
unearned stock compensation charge. In 1997, the Company recorded a $46.4
million non-cash stock option compensation charge relating to the indexed stock
options granted to senior management and other employees, and stock options
granted having exercise prices below the estimated fair market value of the
common stock.


                          International Home Foods 24

<PAGE>   29

INTEREST EXPENSE-Interest expense for 1998 decreased to $96.0 million as
compared to $104.9 million in 1997, primarily due to lower interest rates,
offset slightly by an increase in overall debt. This amount represents (i)
$41.5 million of interest and commitment fees on the Company's $400.0 million
of Senior Subordinated Notes at an annual interest rate of 10.375%, (ii)
interest and commitment fees of $46.2 million on term loans included in the
Company's Senior Bank Facilities, (iii) $4.9 million of interest expense on the
borrowings under the revolving credit facility included in the Company's Senior
Bank Facilities, (iv) $3.1 million of amortization of deferred financing costs
and (v) $0.3 million of interest on the Grist Mill term loan. The Company
amended its Senior Bank Facilities as of September 16, 1998. The weighted
average interest rate for the Senior Bank Facilities for 1998 was 7.18%.

PROVISION FOR INCOME TAXES-Income taxes increased to $15.9 million in 1998 from
$15.8 million in 1997. The effective tax rate increased to 49.1% in 1998 from
39.7% in 1997 due to the 1998 write-off of non-deductible goodwill, for which
tax benefits were not available. Excluding the restructuring charge, the
effective tax rate was 39.0%. The Company anticipates sufficient future taxable
income to realize deferred tax assets recorded at December 31, 1998. In the
event management determines that sufficient future taxable income may not be
generated to fully realize the deferred tax assets, the Company will provide a
valuation allowance by a charge to income tax expense in the period of such
determination.

NET INCOME-For the year ended December 31, 1998, net income of $16.5 million
decreased by $3.1 million versus 1997, primarily reflecting the factors
discussed above. Excluding the restructuring charge and the non-cash stock
option compensation benefit in 1998 and the non-cash stock option compensation
charge and extraordinary charge in 1997, net income increased to $91.8 million
from $51.9 million, or 76.9%.

    Basic earnings per share were $0.22 and $0.31 for 1998 and 1997,
respectively, and diluted earnings per share were $0.21 and $0.30 for 1998 and
1997, respectively.

---------------------------------------------------
     YEAR ENDED DECEMBER 31, 1997
     COMPARED TO YEAR ENDED DECEMBER 31, 1996 
---------------------------------------------------

NET SALES-The Company's net sales were $1,222.4 million in 1997 as compared to
$942.8 million in 1996, an increase of $279.6 million or 29.7%. Approximately
$228.3 million of the increase related to sales of companies acquired in 1997
(Bumble Bee Seafoods, Productos Del Monte, Creative Products and Orleans
Seafood), which were not reflected in the 1996 amounts and $40.4 million
relating to a full year of Heritage sales as compared to only two months in
1996. The balance of the increase, or $10.9 million, was primarily due to net
increases in sales of the Company's existing brands.

COST OF GOODS SOLD-Cost of goods sold was $611.2 million in 1997 as compared to
$444.9 million in 1996. Expressed as a percentage of net sales, cost of goods
sold increased to 50.0% from 47.2% in 1996. This was primarily attributable to
the inclusion of the results of the Bumble Bee Seafoods and Orleans Seafood
businesses, which generally have lower gross margins than the Company's other
product lines. The cost of goods sold as a percentage of net sales was 69.8%
for the six month period ended December 31, 1997 in the case of Bumble Bee
Seafoods and 69.6% for the one month period of December 1997 in the case of
Orleans Seafood.

    Excluding these seafood businesses, cost of goods sold declined to 46.3% of
net sales from 47.2% of net sales in 1996. This decline in cost of goods sold
as a percentage of net sales primarily resulted from a more favorable sales
volume mix and continuing overall reductions in the Company's manufacturing
costs which reflect management's cost reduction initiatives.

TOTAL MARKETING EXPENSE-Total marketing expenses increased to $250.7 million in
1997 as compared to $191.5 million in 1996. Expressed as a percentage of net
sales, total marketing expenses increased to 20.5% in 1997 from 20.3% in 1996.
The increase was primarily attributable to trade promotion expenses associated
with securing retail shelf space for line extensions of existing products
($14.2 million), as well as the inclusion of the newly acquired Companies in
1997, primarily Bumble Bee Seafoods ($36.3 million), which has higher trade
promotion expenses as a percentage of net sales than the Company's other
products, and Productos Del Monte ($3.0 million).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES-Selling, General and
Administrative (SG&A) expenses were $170.6 million in 1997 as compared to
$153.2 million (including a $4.3 million restructuring charge) in 1996. Total
SG&A expenses as a percentage of net sales declined to 13.9% in 1997 from 16.3%
(including the restructuring charge) in 1996, primarily reflecting management's
cost reduction initiatives.

STOCK OPTION COMPENSATION EXPENSE-The non-cash stock option compensation charge
aggregating $46.4 million or $0.42 per share on a diluted basis (net of $18.4
million of related tax benefit) included $44.8 million relating to indexed
stock options granted to senior management and other employees. In addition,
the Company has recorded $4.3 million related to unearned stock option
compensation which will be amortized as the related options vest. The Company
expects to record additional non-cash stock option compensation charges
relating to these options in the years ending December 31, 1998, 1999 and 2000
estimated to be approximately $1.6 million, $1.6 million and $1.1 million,
respectively.

INTEREST EXPENSE-Interest expense for 1997 was $104.9 million. This amount
represents (i) $42.0 million of interest and commitment fees on the Company's
$400.0 million of Senior Subordinated Notes at an annual interest rate of
10.375%, (ii) interest and commitment fees of $56.6 million on term loans
included in the Company's Senior Bank Facilities, (iii) $1.6 million of
interest expense on the borrowings under the revolving credit facilities
included in the Company's Senior Bank Facilities and (iv) $4.7 million of
amortization of deferred financing costs. The weighted average interest rate
for the Senior Bank Facilities for 1997 was 8.16%.


                             25 International Foods

<PAGE>   30

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

    Interest expense for 1996 was $17.1 million, reflecting interest on
indebtedness incurred in connection with the IHF Acquisition completed in
November 1996.


PROVISION FOR INCOME TAXES-Income taxes decreased to $15.8 million in 1997 from
$53.3 million in 1996 due to lower income before taxes. The effective tax rate
increased to 39.7% in 1997 from 39.1% in 1996 due to the impact of state and
local taxes. 

EXTRAORDINARY ITEM-In November 1997, the Company recognized an
extraordinary after-tax charge of $4.3 million, or $0.06 per share on a diluted
basis (net of $2.9 million of related tax benefit) associated with the write-off
of unamortized deferred financing costs in connection with an amendment to the
Senior Bank Facilities. 

NET INCOME-For the year ended December 31, 1997, net
income decreased by $63.3 million versus 1996, primarily reflecting the factors
discussed above. 

    Basic earnings per share were $0.31 and $1.34 for 1997 and 1996,
respectively, and diluted earnings per share were $0.30 and $1.34 for 1997 and
1996, respectively.

                              Results By Segment

THE COMPANY HAS THREE REPORTABLE BUSINESS SEGMENTS-Branded Products, Seafood,
and Private Label and Foodservice. Branded Products is defined as U.S. grocery
sales for the following products: Chef Boyardee, Libby's brand of canned meats,
Southwest brands (Luck's(R), Ro*Tel(R), Dennison's and Ranch Style Brands),
Specialty brands (PAM cooking spray, Polaner(R), Gulden's, Maypo(R),
Wheatena(R), Maltex(R) and G. Washington's(R)) and Snack brands (Crunch 'n
Munch, Jiffy Pop(R) and Campfire). Seafood includes all sales for the Bumble
Bee, Orleans and Libby's brands of canned seafood products and private label
and foodservice seafood sales. The Paramount and Clover Leaf brands acquired in
January 1999 will be reported in the Seafood segment. Private Label and
Foodservice includes all private label canned pasta, cooking spray, fruit
snacks, ready-to-eat cereals, wholesome snack bars, pie crust and personal care
products and the sales to foodservice distributors. The All Other category is
comprised of sales to the military and the International division which
includes branded, private label and foodservice sales in Canada, Mexico, Puerto
Rico and other export sales.

    The Company sells the products in each of its segments primarily to grocery
wholesalers and distributors, grocery stores and supermarkets, convenience
stores, drug and mass merchants and warehouse clubs.

    The following table sets forth certain segment information for the three
year period:

<TABLE>
<CAPTION>
                                    --------------------------------------
(in thousands)                          1998        1997          1996 
                                    ----------   ----------   ------------
<S>                                   <C>          <C>          <C>       
Net Sales:
   Branded Products ...............   $  800,248   $  781,076   $  749,411
   Seafood ........................      443,229      193,291         --
   Private Label and Foodservice...      249,873      116,633       85,112
                                      ----------   ----------   ----------
     Reportable Segments ..........    1,493,350    1,091,000      834,523
   All Other ......................      206,250      131,434      108,269
                                      ----------   ----------   ----------
   Total ..........................   $1,699,600   $1,222,434   $  942,792

Segment Operating Income:(1)
   Branded Products ...............   $  158,939   $  151,213   $  126,306
   Seafood ........................       30,677        9,524         --
   Private Label and Foodservice...       35,634       17,185        8,847
                                      ----------   ----------   ----------
     Reportable Segments ..........      225,250      177,922      135,153
   All Other ......................       31,431       23,449       22,330
                                      ----------   ----------   ----------
   Total ..........................   $  256,681   $  201,371   $  157,483
                                      ==========   ==========   ==========
</TABLE>

(1) Excludes restructuring charge of $118,087 and $4,308 in 1998 and 1996,
    respectively, and stock compensation (income) expense of ($594) and $46,366
    in 1998 and 1997, respectively.

---------------------------------------------------
     YEAR ENDED DECEMBER 31, 1998
     COMPARED TO YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------

BRANDED PRODUCTS-The Branded Products segment net sales increased $19.2 million
in 1998 compared to 1997. This increase is primarily the net result of the
Libby's acquisition, which added $53.2 million in 1998 sales, and increased
sales of Chef Boyardee ($1.6 million) and PAM ($4.5 million) products, offset
by lower sales of Campfire ($16.1 million), Polaner ($8.5 million), Crunch 'n
Munch ($9.1 million), Ranch Style ($4.0 million) and Dennison's ($3.0 million)
products. All other Branded Products sales increased $0.6 million.

    Sales of the Company's Chef Boyardee brand were relatively flat in 1998
versus 1997 levels. In terms of the brand's various product lines, canned pasta
sales increased 1% and Microwave sales were up 3%, partially offset by declines
in Pizza Kits and Dinners.

    PAM sales increased due to higher category consumption and the introduction
of two new items, PAM Lemon Flavor Seasoning Spray and PAM Garlic Flavor
Seasoning Spray.

    The decline in Campfire sales ($17.6 million) largely correlates to a
decline in the crisp rice bar category in general. This decline was partially
offset by stronger sales of Campfire marshmallows during 1998 ($1.5 million).
Similarly, sales of Polaner products decreased during 1998 as the fruit spread
category in

                          International Home Foods 26

<PAGE>   31

general declined. The Polaner business was subsequently sold by the Company
during February 1999. The decline in Crunch 'n Munch sales ($10.2 million) is
attributable to the loss of sales to certain mass merchants that followed a
reduction by the Company of promotional activity. This decline is partially
offset by an increase in Crunch 'n Munch glazed pretzels ($1.1 million). The
declines in sales of both Ranch Style and Dennison's reflects the change in the
Company's trade promotion activity to reduce the practice of off-invoicing.

    Segment operating income of the Branded Products segment increased $7.7
million largely reflecting the factors discussed above. As a percentage of net
sales, segment operating income of the Branded Products segment increased from
19.4% during 1997 to 19.9% during 1998. This increase reflects efficiencies
realized in the Company's manufacturing activities.

SEAFOOD-The Seafood segment net sales and segment operating income reflect a
full year of both Bumble Bee Seafoods and Orleans Seafood as well as
approximately four months of Libby's salmon operations in 1998, as compared to
only six months of Bumble Bee Seafoods and approximately one month of Orleans
Seafood in 1997.

PRIVATE LABEL AND FOODSERVICE-Sales of the Private Label and Foodservice
segment increased $133.2 million due to the acquisition of Grist Mill ($80.1
million), a full year's results of Creative Products cooking sprays and
personal care products acquired October 1, 1997 ($40.8 million), an increase in
private label canned pasta sales ($6.7 million) and an increase in Foodservice
sales ($5.6 million). Segment operating income increased $18.4 million due to
the acquisition of Grist Mill ($6.1 million), private label canned pasta ($2.6
million), a full year's results of Creative Products ($6.1 million) and
Foodservice ($3.6 million).

    The All Other net sales increased $74.8 million primarily due to the 1998
acquisition of Puritan ($28.1 million), a full year's results of Productos Del
Monte ("PDM"), which was acquired October 1, 1997 ($46.5 million), increases in
Puerto Rico net sales ($7.4 million) and Canadian net sales ($1.9 million),
offset by a decrease in Export sales ($8.3 million). Segment operating income
increased $8.0 million largely reflecting the factors discussed above.

---------------------------------------------------
     YEAR ENDED DECEMBER 31, 1997
     COMPARED TO YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------

BRANDED PRODUCTS-The Branded Products segment net sales increased $31.7 million
primarily due to increased Chef Boyardee sales ($4.5 million), a full year
impact of Campfire sales in 1997 ($26.7 million, Campfire was acquired in
November 1996), an increase in Southwest brand sales ($7.1 million), an
increase in Crunch 'n Munch sales ($2.4 million) and Glazed Pretzels
introductory sales ($1.5 million), offset by a decrease in Polaner sales ($8.6
million) and PAM sales ($2.7 million). Segment operating income increased $24.9
million primarily due to Chef Boyardee ($17.9 million) and Southwest brands
($4.0 million), both primarily due to an improvement in gross margin in 1997,
offset by increases in media and trade marketing expenses, an increase in PAM
($1.6 million) and an increase in Crunch 'n Munch ($5.6 million), offset by a
decrease in Campfire ($2.5 million), Glazed Pretzels ($1.0 million) and Polaner
($0.7 million).

SEAFOOD-The Seafood segment net sales and segment operating income reflect six
months of Bumble Bee Seafoods and one month of Orleans Seafood operations in
1997.

PRIVATE LABEL AND FOODSERVICE-Sales of the Private Label and Foodservice
segment increased $31.5 million primarily due to a $17.4 million increase in
canned pasta and the October 1997 acquisition of Creative Products ($15.8
million), offset by a decrease in Foodservice ($1.7 million). Segment operating
income increased $8.3 million due to an increase in canned pasta ($4.4
million), the impact of the Creative Products acquisition ($1.9 million) and
Foodservice ($2.0 million).

    The All Other net sales increased $23.2 million and segment operating
income increased $1.1 million resulting from the impact of the fourth quarter
1997 acquisition of PDM (sales of $19.3 million and segment operating income of
$1.3 million) as well as increased sales and income from our Canadian
operations.

                        Liquidity And Capital Resources

CASH FLOWS-For the years ended December 31,
1998, 1997 and 1996, the Company generated $163.3 million, $71.9 million and
$146.0 million of cash flows from operating activities. Net income decreased
$3.1 million in 1998, however non-cash charges related to restructuring in 1998
of $114.8 million contributed to the increased operating cash flow as compared
to 1997. The decrease in 1997 amounts compared to 1996 is primarily attributable
to a full year of interest expense subsequent to the acquisition of the Company
in November 1996.

    Comparing 1998 and 1997, cash used for investing activities increased to
$311.4 million from $253.8 million, primarily due to the acquisition of
Libby's, Grist Mill and Puritan for approximately $129.4 million, $112.8
million and $41.0 million, respectively (less cash acquired of $6.1 million),
as well as investing $31.0 million in capital expenditures, an increase of
$17.4 million over 1997. Cash used for investing activities in 1996 was $41.0
million which included $11.9 million for capital expenditures. Capital
expenditures are estimated to be approximately $35.0 million in 1999.

    Cash provided by financing activities for 1998 was $151.9 million, compared
to cash provided in 1997 of $149.4 million. In 1998, the Company borrowed
$210.0 million ($650.0 million in 1997) and repaid $31.2 million ($750.0
million in 1997) under the terms of its Senior Bank Facilities and borrowed
$385.0 million ($141.0 million in 1997) and repaid $360.9 million ($101.0
million in 1997) under its revolving credit facility. In addition, the Company
used $57.2 million to purchase 4.4 million shares of its common stock from a
minority stockholder which it presently holds in treasury. In 1997, the Company
received $224.9 million from its issuance of common stock, net of issuance
costs.

    The Company is highly leveraged with Senior Bank Facilities that comprise
(i) a $516.5 million Tranche A term loan facility, maturing in 2004, (ii) a
$149.8 million Tranche B term loan facility, maturing in 2005, (iii) a $100.0
million Tranche B-1 term loan facility, maturing in 2006, and (iv) a $230.0
million revolv-

                          27 International Home Foods

<PAGE>   32


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (CONTINUED)

ing credit facility, maturing in 2004. As of December 31, 1998, the outstanding
balance of the Senior Bank Facilities was $811.4 million. In addition to
scheduled periodic repayments aggregating $51.5 million in 1999, the Company is
also required to make mandatory repayments of the loans under the Senior Bank
Facilities with a portion of its excess cash flow.

    The Company also has outstanding $400.0 million of 103/8% Senior
Subordinated Notes due 2006, without any scheduled repayments of principal
prior to maturity, requiring semi-annual interest payments.

    The Company has utilized significant cash flows from operations and
financing activities to implement strategic acquisitions. The Company acquired
Heritage in November 1996, Bumble Bee Seafoods in July 1997, Creative Products
in October 1997, Orleans Seafood in November 1997, Puritan in March 1998, Grist
Mill in April 1998, and Libby's in September 1998, requiring cash outlays of
approximately $70.8 million, $163.1 million, $52.0 million, $26.9 million,
$41.0 million, $112.8 million and $129.4 million, respectively. The acquisition
of Heritage was financed through proceeds from the Senior Subordinated Notes
and term loan borrowings under the Senior Bank Facilities at the time of the
IHF Acquisition. The acquisition of the Bumble Bee Business was financed
through term loan borrowings under the Senior Bank Facilities and cash on hand.
The acquisition of Creative Products was financed through borrowings under the
revolving credit facility. The Company acquired Productos Del Monte in October
1997 for 3,127,415 shares of Common Stock. The acquisitions of Orleans
Seafoods, Puritan, Grist Mill and Libby's were funded through borrowings under
the Senior Bank Facilities.

    Both the Senior Bank Facilities and the Senior Subordinated Notes contain a
number of significant covenants that, among other things, restrict the ability
of the Company to dispose of assets, incur additional indebtedness, repay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into capital leases, make investments or acquisitions, engage in
mergers or consolidations, make capital expenditures, engage in certain
transactions with affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facilities the Company is required to comply
with specified minimum interest coverage, maximum indebtedness to earnings
before interest, taxes, depreciation and amortization (EBITDA) and minimum
fixed charge coverage ratios.

    Management believes that cash generated from operations and borrowings
under the Senior Bank Facilities 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 issue equity securities. There can be no assurance that
additional debt or equity will be available to the Company, or if available
will be on terms acceptable to the Company.

SEASONALITY AND QUARTERLY RESULTS-The Company's historical inventory levels are
moderately seasonal and affected by the growing season for commodity products
such as tomatoes, fruits, beans and peanuts. As these products are harvested in
August through October, inventory levels tend to grow during this period. This
will primarily impact Ro*Tel in future periods as the outsourcing of tomato
paste resulting from the closing of the Vacaville facility (see Restructuring
and Other Charges), will minimize the seasonality impact on other tomato paste
products. The Company's inventory levels in its seafood businesses are also
affected by the seasonal fishing cycle causing increased inventory levels in
April through May and September through October. The Company's net sales and
results of operations are generally not seasonal.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT STRATEGIES-The Company currently does
not use derivative financial instruments for trading or speculative purposes,
nor is the Company a party to leveraged derivatives. In accordance with the
Senior Bank Facilities, the Company is required to enter into interest rate
protection agreements to the extent necessary to provide that, when combined
with the Company's Senior Subordinated Notes, at least 50% of the Company's
aggregate indebtedness is subject to either fixed interest rates or interest
rate protection through September 1999.

    The Company has entered into interest rate swap, cap and collar agreements
to reduce the impact of changes in interest rates on its floating rate debt.
The swap agreements are contracts to exchange floating interest rate payments
for fixed interest rate payments as well as fixed interest rate payments for
floating interest rate payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts
of interest rate agreements are used to measure interest to be paid or received
and do not represent the amount of exposure to credit loss. For interest rate
instruments that effectively hedge interest rate exposures, the net cash
amounts paid or received on the agreements are accrued and recognized as an
adjustment to interest expense.

    The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest swap agreements. However, the Company does not
anticipate nonperformance by the counterparties.

    As of December 31, 1998, the Company had the following interest rate
instruments in effect for which the fair value of these instruments is based on
estimated current settlement cost (notional amounts are in millions):

                          International Home Foods 28

<PAGE>   33


<TABLE>
<CAPTION>
                          -------------------------------------------------------------
                          Notional    Strike     Fair                            Rates-
                           Amount      Rate      Value          Period           LIBOR
                          --------    ------     ------      -------------      -------
<S>                        <C>         <C>       <C>          <C>    <C>        <C>    
Interest Rate Swaps        $200(2)     8.97%     $  6.4       8/98 - 11/01      6-month
                            600(1)     5.43%      (16.1)      8/98 -  8/03      3-month
Interest Rate Caps         $225(1)     6.75%         --      10/98 - 10/99      6-month
                            200(2)     6.75%         --       8/98 - 11/01      6-month
Interest Rate Floor        $200(2)     5.20%       (6.4)      8/98 - 11/01      6-month
Interest Rate Collar       $150(1)     5.75%         --      10/98 - 10/01      3-month
                                       3.76%
                           ------      ----      ------      -------------      -------
                                                 $(16.1)
                           ======      ====      ======      =============      =======
</TABLE>

(1) Agreement exchanges floating interest rate payments for fixed interest rate
    payments.

(2) Agreement exchanges fixed interest rate payments for floating interest rate
    payments.

IMPACT OF RECENT ACCOUNTING STANDARDS-On March 4, 1998 Statement of Position
(SOP) No. 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use", was issued. The SOP was issued to address diversity
in practice regarding whether and under what conditions the costs of
internal-use software should be capitalized. SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. The Company
does not expect future adoption of this statement in 1999 to have a material
effect on reported results.

    In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for accounting for derivatives
and hedging activities and supersedes and amends a number of existing
standards. This statement requires all derivatives to be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. This
statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently evaluating the effect this statement will have on its
financial statements.

READINESS FOR YEAR 2000-Many computer systems and other equipment with embedded
chips or processors use only two digits to represent the year, and as a result
may be unable to accurately process certain data before, during or after the
Year 2000. As a result, entities are at risk for possible miscalculations or
systems failures causing disruption in business operations. This Year 2000
issue can arise at any point in the Company's manufacturing, processing,
distribution and financial chains.

    A Year 2000 Compliance Project, directed by the Company's Vice President of
Information Systems, has been in process at the Company since 1997. The
Company's business systems are either being replaced with newer systems that
are Year 2000 compliant or each system that will be retained is being
remediated. The internal project team for manufacturing systems compliance is
complemented by a project control review by an outside consulting firm. The
project scope is not limited to computerized business systems. Infrastructure
issues including, but not limited to, telephone switches, personal computers,
data communication network control software and production process control
software, are also being addressed.

    Achieving Year 2000 compliance for our business systems will largely be a
by-product the Company's initiative to improve access to business information
through a common, integrated computing system across the organization. The
Company has implemented an Enterprise Resource Planning (ERP) System based on
SSA's Business Planning and Control System (BPCS) software. The remediation of
this software for Year 2000 compliance was completed as of November 15, 1998.
This software is generally being/or will be used in all existing operations by
the second quarter of 1999. Other non-Year 2000 compliant business software is
being replaced or upgraded to versions which are Year 2000 compliant. Total
business systems compliance costs are not expected to be material, excluding
internal costs.

    The Company's infrastructure issues have been assessed and a remediation
plan has been completed. Remediation cost estimates are not expected to be
material. All critical manufacturing process control systems are anticipated to
be Year 2000 compliant by May 31, 1999.

    The Company is in the process of surveying its business partners, including
customers and vendors, as well as original equipment manufacturers, financial
institutions, and employee benefit providers to determine the status of their
Year 2000 compliance efforts.

    The Company will develop contingency plans as it becomes apparent that such
plans are warranted.

    The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. The Company believes that with the completion of the remediation of
the business systems, the possibility of significant interruptions of normal
operations should be reduced. However, due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the inability to ensure
readiness of third parties, the Year 2000 compliance issue could have a
material adverse impact on the Company's results of operations, cash flows and
financial condition. Based upon information available at this time, the Company
believes that the cost of Year 2000 readiness will not have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company. Year 2000 expenditures are being funded through operating
cash flow.

SUBSEQUENT EVENTS-On January 19, 1999, the Company through it's subsidiary
Bumble Bee Seafoods, Inc. acquired the canned seafood brands and business of
British Columbia Packers from George Weston Ltd. of Canada for a total purchase
price of approximately $38.0 million ($CN 57.7 million). The acquisition was
funded with borrowings under the Company's Senior Bank Facilities. In connection
with this acquisition, the Company has revised its $230.0 million Revolving
Credit Facility to allocate $37.5 million to the Canadian facility.

    On February 5, 1999 the Company sold its Polaner fruit spreads and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash and
anticipates a gain of approximately $17.0 million. The proceeds will be used to
acquire assets useful in the Company's business.

INFORMATION ABOUT FORWARD LOOKING STATEMENTS-The Company may make statements
about the trends, future plans and the Company's prospects. Actual results may
differ from those described in such forward looking statements based on the
risks and uncertainties facing the Company, including but not limited to
changes in the economic conditions and changes in the food products
manufacturing industry, possible acquisitions of assets or businesses and other
factors.

                          29 International Home Foods

<PAGE>   34

               Reports of Management and Independent Accountants

REPORT OF MANAGEMENT

Management is responsible for the preparation of the Company's consolidated
financial statements and related information appearing in this Annual Report.
Management believes that the consolidated financial statements fairly reflect
the form and substance of transactions and that the financial statements
reasonably present the Company's financial position and results of operations
in conformity with generally accepted accounting principles. Management also
has included in the Company's financial statements amounts that are based on
estimates and judgments which it believes are reasonable under the
circumstances.

    The independent accountants audit the Company's consolidated financial
statements in accordance with generally accepted auditing standards and provide
an objective, independent review of the fairness of reported operating results
and financial position.

    The Board of Directors of the Company has an Audit Committee composed of
four non-management Directors. The Committee meets periodically with financial
management and the independent accountants to review accounting, control,
auditing and financial reporting matters.


/s/ C. DEAN METROPOULOS                /s/ N. MICHAEL DION

C. Dean Metropoulos                    N. Michael Dion
Chairman and                           Senior Vice President and
Chief Executive Officer                Chief Financial Officer

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of International Home Foods, Inc.:

    In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
International Home Foods, Inc. and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
New York, New York
February 22, 1999

                          International Home Foods 30

<PAGE>   35

                       CONSOLIDATED STATEMENTS OF INCOME
          (Dollars in Thousands, Except Per Share and Share Amounts)

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                     ------------------------------------------------
                                                                         1998               1997              1996
                                                                     -----------        -----------       -----------
<S>                                                                  <C>                <C>               <C>        
Net sales                                                            $ 1,699,600        $ 1,222,434       $   942,792
Cost of sales                                                            893,398            611,153           444,879
                                                                     -----------        -----------       -----------
 Gross profit                                                            806,202            611,281           497,913
Marketing expenses                                                       335,118            250,683           191,527
Selling, general and administrative expenses                             223,544            170,582           148,903
Restructuring and other charges                                          118,087                 --             4,308
Stock option compensation (income) expense                                  (594)            46,366                --
                                                                     -----------        -----------       -----------
 Income from operations                                                  130,047            143,650           153,175
Interest expense                                                          95,987            104,933            17,072
Other expense (income), net                                                1,738             (1,046)             (177)
                                                                     -----------        -----------       -----------
 Income before provision for income taxes                                 32,322             39,763           136,280
Provision for income taxes                                                15,859             15,795            53,319
                                                                     -----------        -----------       -----------
 Income before extraordinary item                                         16,463             23,968            82,961
Extraordinary loss, net of tax benefit of $2,863 (Note 20)                    --              4,336                --
                                                                     -----------        -----------       -----------
 Net income                                                          $    16,463        $    19,632       $    82,961
                                                                     ===========        ===========       ===========
Basic earnings per share:(1)
 Income before extraordinary item                                    $      0.22        $      0.38       $      1.34
 Extraordinary item                                                           --              (0.07)               --
                                                                     -----------        -----------       -----------
 Net income                                                          $      0.22        $      0.31       $      1.34
                                                                     ===========        ===========       ===========
 Shares used in computing basic earnings per share                    76,551,789         64,020,472        61,922,990
                                                                     ===========        ===========       ===========
Diluted earnings per share:(1)
 Income before extraordinary item                                    $      0.21        $      0.36       $      1.34
 Extraordinary item                                                           --              (0.06)               --
                                                                     -----------        -----------       -----------
 Net income                                                          $      0.21        $      0.30       $      1.34
                                                                     ===========        ===========       ===========
 Shares used in computing diluted earnings per share                  79,800,116         66,242,672        61,922,990
                                                                     ===========        ===========       ===========
</TABLE>


(1) Per share and share amounts are restated to give effect to the 5.3292 for
    one reverse stock split on November 17, 1997.

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

                          31 International Home Foods

<PAGE>   36


                          CONSOLIDATED BALANCE SHEETS
          (Dollars in Thousands, Except Per Share and Share Amounts)


<TABLE>
<CAPTION>
                                                           --------------------------
                                                                   December 31,
                                                           --------------------------
                                                              1998             1997
                                                           ----------      ----------
<S>                                                        <C>             <C>       
ASSETS
Current Assets:
 Cash and cash equivalents                                 $   17,201      $   11,872
 Accounts receivable, net of allowances                       141,422         108,132
 Inventories                                                  235,730         220,565
 Prepaid expenses and other current assets                     17,522          16,661
 Deferred income taxes                                         19,616          21,102
                                                           ----------      ----------
  Total current assets                                        431,491         378,332

 Property, plant and equipment, net                           262,771         210,195
 Intangible assets, net                                       396,617         308,846
 Deferred income taxes                                        330,651         338,611
 Other assets                                                  24,667          26,066
                                                           ----------      ----------
  Total assets                                             $1,446,197      $1,262,050
                                                           ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Due to banks                                              $   17,470      $   12,228
 Current portion of long-term debt                             51,694          27,400
 Revolving credit facility                                     62,526          40,000
 Accounts payable                                              44,854          38,871
 Accrued salaries, wages and benefits                          12,757          16,591
 Accrued advertising and promotion                             39,102          50,308
 Accrued interest                                              16,311           7,844
 Other accrued liabilities                                     43,401          36,954
                                                           ----------      ----------
  Total current liabilities                                   288,115         230,196
                                                           ==========      ==========
Long-term debt                                              1,102,830         942,600
Post retirement benefits obligation                            24,487          19,545
Other non-current liabilities                                     861           2,079
                                                           ----------      ----------
  Total liabilities                                         1,416,293       1,194,420
                                                           ----------      ----------
Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock-par value $.01 per share; authorized,
 100,000,000 shares; no shares issued or outstanding       $       --      $       --
Common stock-par value $.01 per share; authorized,
 300,000,000 shares; issued 77,584,348 and 77,155,550 shares      776             772
Additional paid-in capital                                     56,051          52,202
Treasury stock, at cost: 4,400,000 shares and 0 shares        (57,200)             --
Retained earnings                                              34,497          18,034
Accumulated other comprehensive income (loss)                  (4,220)         (3,378)
                                                           ----------      ----------
  Total stockholders' equity                                   29,904          67,630
                                                           ----------      ----------
 Total liabilities and stockholders' equity                $1,446,197      $1,262,050
                                                           ==========      ==========
</TABLE>

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

                          International Home Foods 32

<PAGE>   37

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                       (Dollars and Shares in Thousands)

<TABLE>
<CAPTION>
                                     ---------------------------------------------------------------------------------------------
                                                                                  Treasury Stock       Former Parent              
                                                              Additional      ----------------------       Company's   Retained   
                                        Common Stock             Paid-In                     Amount       Investment   Earnings   
                                     Shares       Amount         Capital      Shares        at Cost     and Advances   (Deficit)  
                                     ------      ---------    -----------     ------       ---------    ------------   ---------- 
<S>                                  <C>         <C>             <C>          <C>          <C>            <C>          <C>        
Balance at December 31, 1995                     $      --       $     --         --       $      --      $ 384,997    $       -- 
Activity prior to merger
 (1/1/96-10/31/96):
    Net income                                                                                               84,559               
    Other activity, net*                                                                                   (101,256)              
Effect of merger transaction                                                                               (630,661)              
Issuance of common stock;(1)
 transfer to additional
 paid-in capital and foreign
 currency translation                61,923            619       (261,318)        --              --        262,361            -- 
                                     ------      ---------       --------     ------       ---------      ---------    ---------- 
Balance at October 31, 1996          61,923            619       (261,318)        --              --             --            -- 

Comprehensive Income
 (11/1/96-12/31/96):
  Net income (loss)                                                                                                        (1,598)
  Foreign currency translation                                                                                                    
 Total comprehensive income (loss)                                                                                                
                                     ------      ---------       --------     ------       ---------      ---------    ---------- 
Balance at December 31, 1996         61,923            619       (261,318)        --              --             --        (1,598)

Comprehensive Income:
  Net income                                                                                                               19,632 
  Foreign currency translation                                                                                                    
 Total comprehensive income                                                                                                       
 Effect of merger transaction                                       2,220                                                         
 Issuance of common stock(1)         15,233            153        224,965                                                         
 Productos Del Monte (PDM)
  acquisition                                                      39,969                                                         
 Stock option compensation                                         46,366                                                         
                                     ------      ---------       --------     ------       ---------      ---------    ---------- 
 Balance at December 31, 1997        77,156            772         52,202         --              --             --        18,034 

Comprehensive Income:
  Net income                                                                                                               16,463 
  Foreign currency translation,
   net of tax expense of $204                                                                                                     
  Minimum pension liability                                                                                                       
 Total comprehensive income                                                                                                       
 Sale of shares under benefit
  plans, including tax benefits         429              4          4,443                                                         
 Purchase of treasury stock                                                   (4,400)        (57,200)                             
 Stock option compensation                                           (594)                                                        
                                     ------      ---------       --------     ------       ---------      ---------    ---------- 
 Balance at December 31, 1998        77,585      $     776       $ 56,051     (4,400)      $ (57,200)     $      --    $   34,497 
                                     ======      =========       ========     ======       =========      =========    ========== 

<CAPTION>
                                     ---------------------------
                                      Accumulated
                                            Other
                                     Comprehensive
                                     Income/(Loss)       Total
                                     -------------     ---------
<S>                                    <C>             <C>      
Balance at December 31, 1995           $       --      $ 384,997
Activity prior to merger
 (1/1/96-10/31/96):
    Net income                                            84,559
    Other activity, net*                                (101,256)
Effect of merger transaction                            (630,661)
Issuance of common stock;(1)
 transfer to additional
 paid-in capital and foreign
 currency translation                      (1,662)            --
                                       ----------      ---------
Balance at October 31, 1996                (1,662)      (262,361)

Comprehensive Income
 (11/1/96-12/31/96):
  Net income (loss)                                       (1,598)
  Foreign currency translation               (236)          (236)
                                                       ---------
 Total comprehensive income (loss)                        (1,834)
                                       ----------      ---------
Balance at December 31, 1996               (1,898)      (264,195)

Comprehensive Income:
  Net income                                              19,632
  Foreign currency translation             (1,480)        (1,480)
                                                       ---------
 Total comprehensive income                               18,152
                                                       ---------
 Effect of merger transaction                              2,220
 Issuance of common stock(1)                             225,118
 Productos Del Monte (PDM)
  acquisition                                             39,969
 Stock option compensation                                46,366
                                       ----------      ---------
 Balance at December 31, 1997              (3,378)        67,630

Comprehensive Income:
  Net income                                              16,463
  Foreign currency translation,
   net of tax expense of $204                (593)          (593)
  Minimum pension liability                  (249)          (249)
                                                       ---------
 Total comprehensive income                               15,621
                                                       ---------
 Sale of shares under benefit
  plans, including tax benefits                            4,447
 Purchase of treasury stock                              (57,200)
 Stock option compensation                                  (594)
                                       ----------      ---------
 Balance at December 31, 1998          $   (4,220)     $  29,904
                                       ==========      =========
</TABLE>

*   Consists principally of advances, withdrawals, dividends and foreign
    currency translation adjustments.

(1) Share amounts are restated to give effect to the 5.3292 for one reverse
    stock split on November 17, 1997.

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

                          33 International Home Foods

<PAGE>   38

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in Thousands)




<TABLE>
<CAPTION>
                                                                                 ----------------------------------------------
                                                                                            Years Ended December 31,
                                                                                 ----------------------------------------------
                                                                                   1998               1997             1996
                                                                                 --------          ---------        -----------
<S>                                                                              <C>               <C>              <C>        
OPERATING ACTIVITIES:
 Net income                                                                      $ 16,463          $  19,632        $    82,961
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                                                   39,997             30,080             19,019
   Deferred income taxes                                                            4,365              2,584             (1,032)
   Restructuring and other charges                                                114,773                 --              4,308
   Stock option compensation                                                         (594)            46,366                 -- 
   Extraordinary item, net of tax                                                      --              4,336                 -- 
 Changes in operating assets and liabilities (net of acquisitions)
   (Increase)/decrease in accounts receivable                                     (23,012)           (13,249)             1,253
   Decrease in inventories                                                         19,092              1,046             14,970
   Decrease/(increase) in other current assets                                      9,079             (3,526)            (3,133)
   Increase/(decrease) in accounts payable                                            637                 82               (352)
   (Decrease)/increase in accrued liabilities                                     (14,865)             3,247             30,298
   (Increase) in non-current assets                                                (4,134)            (8,175)                -- 
   Increase/(decrease) in non-current liabilities                                   1,521            (10,729)                -- 
   Other                                                                               --                247             (2,342)
                                                                                 --------          ---------        -----------
    Net cash provided by operating activities                                     163,322             71,941            145,950
                                                                                 --------          ---------        -----------

INVESTING ACTIVITIES:
 Purchases of plant and equipment, net                                            (30,968)           (13,563)           (11,905)
 Purchase of businesses, net of cash acquired                                    (280,443)          (240,246)           (29,136)
                                                                                 --------          ---------        -----------
  Net cash used in investing activities                                          (311,411)          (253,809)           (41,041)
                                                                                 --------          ---------        -----------

FINANCING ACTIVITIES:
 Increase in due to banks                                                           5,184              2,157              9,278
 Issuance of long-term bank debt                                                  210,000            650,000            670,000
 Repayment of long-term bank debt                                                 (31,193)          (750,000)                -- 
 Issuance of Senior Subordinated Notes                                                 --                 --            400,000
 Payment of debt issuance costs                                                    (1,841)            (1,188)           (30,649)
 Retirement of Heritage long-term debt and accrued interest                            --                 --            (40,763)
 Borrowings from revolving credit facility                                        385,000            141,000                 -- 
 Repayment of borrowings from revolving credit facility                          (360,911)          (101,000)                -- 
 Proceeds from exercise of stock options                                            2,843                 --                 -- 
 Issuance of common stock, net of issuance costs                                       --            224,948            242,744
 Purchase of treasury stock                                                       (57,200)                --                 -- 
 Dividends paid to American Home Products Corporation                                  --                 --             (1,539)
 Redemption of common stock of IHF and distribution
  to American Home Products Corporation                                                --                 --         (1,209,000)
 Payment to American Home Products Corporation as
  final purchase price adjustment                                                      --            (16,556)                -- 
 Change in former parent company's investment and advances, net                        --                 --            (99,121)
                                                                                 --------          ---------        -----------
  Net cash provided by (used in) financing activities                             151,882            149,361            (59,050)
                                                                                 --------          ---------        -----------
 Effect of exchange rate changes on cash                                            1,536             (1,480)                -- 
                                                                                 --------          ---------        -----------
 Increase/(Decrease) In Cash And Cash Equivalents                                   5,329            (33,987)            45,859
 Cash and cash equivalents at beginning of year                                    11,872             45,859                 -- 
                                                                                 --------          ---------        -----------
 Cash and cash equivalents at end of year                                        $ 17,201          $  11,872        $    45,859
                                                                                 ========          =========        ===========
 Cash paid during the year for:
  Interest, net of capitalized amounts                                           $ 83,619          $ 103,199        $     5,568
  Income taxes                                                                   $ 11,530          $   1,579        $       827
                                                                                 ========          =========        ===========
</TABLE>


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

                          International Home Foods 34

<PAGE>   39


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in Thousands, Except Per Share Amounts)

-----------------------------------------------------------
1   DESCRIPTION OF BUSINESS, MERGER AND ACQUISITION
-----------------------------------------------------------

                     Background and Basis of Presentation

On September 5, 1996, American Home Products Corporation ("American Home
Products" or "AHP"), AHP Subsidiary Holding Corporation and other parties
entered into an agreement ("Agreement") pursuant to which an affiliate ("Hicks
Muse Holding") of Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("Hicks
Muse") acquired, effective November 1, 1996, an 80 percent interest in
International Home Foods, Inc. ("IHF" or "the Company") and its subsidiary, M.
Polaner, Inc., for approximately $1,226,000. In connection with this
transaction (the "IHF Acquisition"), American Home Products contributed all of
its other food products businesses into IHF. Effective November 1, 1996, these
entities and businesses constitute IHF. In connection with the Agreement, IHF
received $264,000 of equity financing and incurred indebtedness of $1,070,000.
Approximately $962,000 of the proceeds was used to redeem shares of common
stock of IHF which were indirectly held by American Home Products and $264,000
was distributed to American Home Products. At December 31, 1996, the Company
had a liability to American Home Products of $16,556 for the unpaid redemption
amount due upon final determination of the purchase price. As a result of the
redemption, American Home Products continued to beneficially own approximately
20 percent of the Company, which declined upon completion of the Company's
initial public offering (Note 14) and subsequent sales of shares by AHP to the
Company (Note 15). The IHF Acquisition was accounted for as a leveraged
recapitalization such that the Company's assets and liabilities remain at their
historical bases for financial reporting purposes; for income tax purposes, the
transaction was treated as a taxable business combination such that the
consolidated financial statements reflect a "step-up" in tax basis (Note 10).

    Earnings, advances, withdrawals, dividends, foreign currency translation
adjustments and other transactions between the Company and American Home
Products for periods prior to November 1, 1996 are reflected in Former Parent
Company's Investment and Advances in the accompanying financial statements
which are presented on a combined basis prior to November 1, 1996 and on a
consolidated basis subsequent to November 1, 1996. The combined financial
statements for the periods prior to November 1, 1996 reflect the financial
position, results of operations and cash flows of the Company as if the Company
was a stand-alone entity. The Company began presenting retained earnings
(accumulated deficit) as a separate component of stockholders' equity (deficit)
effective November 1, 1996.

    The effects of the IHF Acquisition are summarized as follows:

<TABLE>
<S>                                                    <C>         
Redemption and distribution to AHP Subsidiary
  Holding Corporation                                  $(1,225,556)
Issuance of Common Stock                                   264,000
Fees                                                       (21,256)
Recognition of post retirement benefits obligation         (16,207)
Deferred income taxes                                      368,358
                                                       ----------- 
                                                       $  (630,661)
                                                       =========== 
</TABLE>

    Pro forma unaudited net income for the year ended December 31, 1996,
assuming the IHF Acquisition had occurred at the beginning of 1996, would have
been $31,241. The decrease in reported net income resulted from increased pro
forma interest expense, partially offset by the related tax effects. The
unaudited pro forma amount does not purport to be indicative of what the
Company's actual results of operations would have been had the IHF Acquisition
been consummated on January 1, 1996 or to project the Company's results of
operations for any future period.

    The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and necessarily include amounts based
on judgments and estimates made by management. Actual results could differ from
these estimates. Estimates are used when accounting for potential bad debts,
inventory obsolescence and spoilage, trade and promotion allowances, coupon
redemptions, depreciation and amortization, stock option compensation, deferred
income taxes and tax valuation allowances, restructuring charges and
contingencies, among other items.

                                  Acquisition

Immediately after the IHF Acquisition and effective November 1, 1996, the
Company acquired Heritage Brands Holdings, Inc. and subsidiaries ("Heritage")
from an affiliate of Hicks Muse for approximately $70,800, including the
assumption of approximately $40,800 of debt which was repaid immediately
following consummation of the acquisition, in a transaction accounted for using
the purchase method of accounting. The excess of the purchase price of Heritage
over the fair value of assets acquired and liabilities assumed resulted in
goodwill and other intangible assets of approximately $59,100 which are being
amortized over 20 years. The acquisition was not significant and, accordingly,
pro forma financial information has not been provided. The

                          35 International Home Foods

<PAGE>   40


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

results of operations and cash flows of Heritage have been included in the
accompanying consolidated financial statements of the Company since November 1,
1996.

                                   Business

The Company manufactures and markets a diversified portfolio of shelf-stable
food products including entrees, side dishes, spreadable fruit products,
snacks, canned fish and canned meats, among others. The Company operates in
three reportable business segments (Note 24). The Company sells its products
primarily in the United States, Canada and Mexico, and is not dependent on any
single or major group of customers for its sales.

---------------------------------------------------------
2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

                    Principles of Combination/Consolidation

For periods through October 31, 1996, the accompanying financial statements
included the operations of the following indirect wholly-owned subsidiaries of
AHP: American Home Food Products, Inc. (now the Company) and its subsidiary M.
Polaner, Inc., American Home Foods, Inc. (now I.H.F.P., Inc.), Luck's
Incorporated, Canadian Home Products Limited (now International Home Foods
(Canada), Inc.), and certain related assets owned by AHP (collectively,
American Home Food Products) and its subsidiaries. The consolidated operations
of the Company include the aforementioned entities and the following
wholly-owned subsidiaries: Heritage (effective November 1, 1996), Bumble Bee
Seafoods, Inc. and Subsidiaries (effective July 1, 1997), Productos Del Monte
("PDM") (effective October 1, 1997), Creative Products, Inc. (effective October
1, 1997), Orleans Seafood, Inc. (effective November 24, 1997), Grist Mill Co.
(effective April 14, 1998) and Trenton Home Foods (which is comprised of the
Libby's(R) brand of retail and international canned meat products ("Libby's"))
(effective September 8, 1998). Effective March 9, 1998, through its Canadian
subsidiary, International Home Foods Canada, Inc., the Company purchased
certain assets relating to the Puritan stews and canned meats business
("Puritan"). All significant intercompany balances and transactions have been
eliminated in the combined and consolidated financial statements. The
accompanying combined and consolidated financial statements are referred to
herein as "consolidated" financial statements.

                           Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less
are considered to be cash equivalents. The Company's cash and cash equivalents
at December 31, 1998 and 1997 consist of cash in banks and investments in money
market funds.

                                  Inventories

Inventories are valued at the lower of cost or market, with cost determined on a
first-in, first-out basis. Raw fish inventories are stated at specifically
identified cost.

                         Property, Plant and Equipment

Property, plant and equipment are stated at cost. Normal maintenance and
repairs are expensed. Additions and improvements either to provide necessary
capacity, improve the efficiency of production or to modernize facilities are
capitalized. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets, generally 40 years for buildings,
15 years for machinery and equipment and 5-20 years for furniture and fixtures.
Leasehold improvements are amortized over the remaining lives of the respective
leases.

                          Intangible and Other Assets

As of December 31, 1998, the Company's Intangible and Other Assets include
goodwill and trademarks for Heritage which are amortized over twenty years and
have a net book value of $6.5 million, goodwill for the acquisitions of Ranch,
Ro*Tel, Bumble Bee Seafoods, Inc., PDM, Creative Products, Inc., Orleans
Seafood, Inc., Puritan, Grist Mill Co. and Libby's, all of which are amortized
over forty years with a net book value of $306.0 million, tradenames for Bumble
Bee and Libby's which are amortized over 40 years with a net book value of
$54.6 million, Libby's trademarks which are amortized over fifteen years with a
net book value of $24.5 million and other intangible assets with a net book
value of $1.5 million, which are amortized over eight to ten years. Intangible
assets of $3.5 million acquired prior to 1971 are not amortized.

    Deferred financing costs incurred in connection with the agreements for
bank and other indebtedness are being amortized over the terms of the
financings using the interest method. Amortization of deferred financing costs
is included in interest expense.

    The Company continually reviews goodwill to evaluate whether changes have
occurred that would suggest that goodwill may be impaired based on the
estimated undiscounted cash flows of the entity acquired over the remaining
amortization period. If this review indicates that the remaining estimated
useful life of

                          International Home Foods 36

<PAGE>   41


goodwill requires revision or that goodwill is not recoverable,
the carrying amount of the goodwill is reduced by the estimated shortfall of
cash flows on a discounted basis.

                              Revenue Recognition

The Company recognizes revenue from product sales upon shipment to customers.

                           Research and Development

Research and development costs are charged to expense as incurred and amounted
to $2,796, $1,913 and $3,823 for the years ended December 31, 1998, 1997 and
1996, respectively.

                                  Advertising

Advertising and promotion costs are charged to expense as incurred. Advertising
costs amounted to $64,781, $63,675 and $58,551 for the years ended December 31,
1998, 1997 and 1996, respectively.

                          Environmental Expenditures

The Company capitalizes expenditures that increase the life or efficiency of
property or that reduce or prevent environmental contamination. The Company
accrues for environmental expenses resulting from existing conditions when the
costs are probable and reasonably estimable.

                Former Parent Company's Investment and Advances

Former Parent Company's Investment and Advances includes the stockholders'
equity of the individual AHP subsidiaries as described in Note 2. The equity of
the individual subsidiaries represents the original investment by AHP, plus
accumulated net income and net advances, withdrawals and dividends. For periods
prior to November 1, 1996, cash receipts were transferred to AHP by daily cash
sweeps, and AHP made funds available for operating expenses.

                         Foreign Currency Translation

The assets and liabilities of International Home Foods Canada, whose functional
currency is the Canadian dollar, are translated at year-end exchange rates.
Translation gains and losses are not included in determining net income, but
are recorded in Accumulated Other Comprehensive Income as a separate component
of stockholders' equity. For the Company's Mexican subsidiary, Productos Del
Monte, operating in a highly inflationary economy in 1998, the U.S. dollar is
the functional currency and translation gains and losses are included in
determining net income. Foreign currency transaction gains and losses are
included in determining net income.

                             Financial Instruments

The acquisition cost of interest rate instruments is amortized as interest
expense over the terms of the related agreements. Interest expense is adjusted,
if required, to reflect the interest rates included in the agreements.

                                 Income Taxes

The Company's operations were included in the consolidated income tax returns
of AHP through October 31, 1996. The Company was charged by AHP based on the
statutory tax rates adjusted for permanent differences, but without regard for
temporary differences. Accordingly, the Company's financial statements for
periods prior to the IHF Acquisition do not reflect deferred tax assets or
liabilities since those amounts were being provided for by AHP. Deferred tax
assets and liabilities prior to the IHF Acquisition would have reflected
temporary differences between assets and liabilities for financial reporting
and income tax purposes. Such temporary differences were primarily attributable
to depreciation, allowances for doubtful accounts and nondeductible reserves
and were not significant through October 31, 1996. The income tax provision on
a stand-alone basis for periods prior to November 1, 1996 would not differ
materially from the income tax provision reflected in the accompanying
consolidated financial statements.

    For periods after November 1, 1996, the Company's income tax provision has
been prepared with deferred income taxes provided for differences in the
financial statement and tax bases of assets and liabilities. The tax effects of
the temporary differences which resulted from the "step-up" in tax basis (Notes
1 and 10) have been reflected in stockholders' deficiency as of November 1,
1996. The Company intends to permanently reinvest the undistributed earnings of
the Canadian operations; accordingly, deferred income taxes, which would not be
significant, have not been provided for the repatriation of such undistributed
earnings.

                               Reclassifications

Certain 1997 and 1996 amounts have been reclassified to conform with the 1998
presentation.

------------------------------------------------------
3   ACQUISITIONS
------------------------------------------------------

Effective July 1, 1997, the Company consummated the acquisition of
substantially all of the assets (the "Assets") of Bumble Bee Seafoods, Inc. and
its wholly-owned subsidiaries, Bumble Bee International, Inc., Santa Fe Springs
Holding Company and Commerce Distributing Company ("CDC") (collectively, the
"Sellers"), pursuant to the terms of an Asset Purchase and Sale Agreement dated
as of May 1, 1997 (the "Agreement") by and among the Sellers, the Company and
its wholly-owned subsidiary, Bumble Bee Acquisition Corporation. The aggregate
consideration paid for the Assets was approximately $163,100, including
transaction fees. The Assets consisted primarily of inventory, accounts
receivable, property, plant and equipment and trademarks formerly used by the
Sellers for the processing and marketing of canned seafood products,
principally tuna and salmon, including processing facilities in Puerto Rico,
Ecuador and California. The transaction was approved by an order of the Federal
Bankruptcy Court for the Southern District of California on June 19, 1997, as
part of the bankruptcy proceedings of the

                          37 International Home Foods

<PAGE>   42
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)



Sellers. The Company financed the purchase of the Assets with approximately
$110,000 of borrowings under its Senior Bank Facilities and the balance of the
purchase price from the Company's available cash balances as of the date of the
closing.

    On October 1, 1997, the Company acquired PDM from an affiliate of Hicks
Muse for 3,127,415 shares of Common Stock. The shares issued for PDM were
valued at their estimated fair value of approximately $40,000, which
approximated the purchase price that the Hicks Muse affiliate paid for PDM in
1996. PDM is a leading manufacturer and marketer of branded catsup, canned
vegetables and bottled salsa in Mexico. The acquisition of PDM was treated as a
combination of entities under common control. Accordingly, the historical
accounting values of PDM were carried over for financial accounting purposes.
In February 1998, the Company settled a dispute between the Hicks Muse
affiliate and PDM's former owners. The settlement was received by the Company
and resulted in a reduction of goodwill recorded by the Company.

    On October 1, 1997, the Company acquired all the stock of Creative
Products, Inc. of Rossville ("Creative Products") for approximately $52,000 in
cash. The acquisition was funded through borrowings under the Company's Senior
Bank Facilities. Creative Products is the leading manufacturer of cooking spray
sold to private label customers and food service operators. In addition,
Creative Products manufactures on a contract basis a number of health and
beauty aid products, including hair mousses, hair sprays and deodorants.

    On November 21, 1997 the Company acquired substantially all of the assets
of Orleans Seafood, Inc. ("Orleans") for $26,900, including transaction fees.
The acquisition was funded through borrowings under the Company's Senior Bank
Facilities. Orleans is a specialty canned seafood manufacturer and marketer.

    On March 9, 1998, the Company, through its Canadian subsidiary,
International Home Foods (Canada), Inc., purchased certain assets relating to
the Puritan stews and canned meats business from Unilever's T. J. Lipton Canada
division for a total purchase price of approximately $41,009, including
transaction fees. The acquisition was funded with borrowings under the
Company's Senior Bank Facilities. Puritan is the largest processor and marketer
of canned stews and meats in Canada, with products marketed under the Puritan
and Fraser Farms brand names.

    On April 14, 1998, the Company acquired all of the stock of Grist Mill Co.
("Grist Mill") for approximately $112,813, including transaction fees. The
Company financed the acquisition with borrowings under its Senior Bank
Facilities. Grist Mill is a manufacturer and distributor of private label and
value-priced branded food products including ready-to-eat cereals, fruit
snacks, granola bars, fruit-filled cereal bars, crisp rice marshmallow bars and
preformed pie crusts.

    On September 8, 1998 the Company, through its subsidiary Trenton Home
Foods, Inc., acquired the Libby's brand of retail and international canned meat
products, and the Trenton, Missouri manufacturing facility for those products
from Nestle USA, Inc. for approximately $129,409, including transaction fees.
The Company, through a fifteen year license agreement with Nestle, will
continue to use the Libby's trademark. In addition, the Company and Nestle have
entered into a long-term supply agreement through December 31, 2002 with three
additional one-year terms at the option of Nestle under which the Company will
continue to manufacture Nestle foodservice products at the facility in Trenton,
Missouri. This supply agreement provides that the Company is reimbursed for the
variable cost per case, as defined, for all product which has been produced and
packaged by the Company and shipped on behalf of Nestle, plus an amount paid
quarterly which approximates the Company's fixed costs. The Company financed
the acquisition of the Libby's canned meat business with borrowings under its
Senior Bank Facilities. Libby's is a leading domestic manufacturer, importer
and global marketer of canned meat products, including Vienna sausages, corned
beef, salmon, hash and chili, and the Spreadables(R) and Broadcast(R) brands.

    The excess of cost over fair value of net assets acquired for the above
acquisitions will be amortized over 15 to 40 years (Note 2). These acquisitions
have been accounted for using the purchase method of accounting, with the
exception of PDM, and the operating results of the acquired companies have been
included in the consolidated financial statements from the dates of
acquisition. The information below includes non-cash investing and financing
activities supplemental to the consolidated statements of cash flows. A summary
of the excess of cost over fair value of net assets acquired resulting from
preliminary purchase price allocations for the 1998 acquisitions is as follows:

<TABLE>
<CAPTION>
                                                         Puritan          Grist Mill         Libby's
                                                         -------          ----------         --------
<S>                                                      <C>               <C>               <C>     
Cost of acquisition,
 including transaction fees                              $41,009           $112,813          $129,409
Less: acquired assets
 Current assets                                            4,620             19,154            20,218
 Property, plant and
   equipment                                               6,473             37,866            25,001
 Other assets                                                 --                717                --
Add: liabilities assumed                                      --              5,016             5,528
                                                         -------           --------          --------
Excess of cost over
  net assets acquired                                    $29,916           $ 60,092          $ 89,718
                                                         =======           ========          ========
</TABLE>

                          International Home Foods 38

<PAGE>   43


    The following unaudited proforma consolidated results of operations have
been prepared as if the acquisitions of Bumble Bee and the Other acquisitions
(PDM, Creative Products, Orleans, Puritan, Grist Mill and Libby's) had occurred
as of the beginning of 1997, and reflect proforma adjustments for goodwill,
interest expense and tax expense:

<TABLE>
<CAPTION>
                                                       1998                                            1997
                                      --------------------------------------   ----------------------------------------------------
                                          IHF    Acquisitions(1)    Total          IHF       Bumble Bee    Other    Acquisitions(2)
                                      ---------- --------------- -----------   -----------   ----------   --------  ---------------
<S>                                   <C>           <C>          <C>           <C>           <C>          <C>          <C>       
Total
Net sales                             $1,699,600    $ 129,906    $ 1,829,506   $ 1,222,434   $  183,888   $395,216     $1,801,538
Operating income/(loss)               $  130,047    $   7,671    $   137,718   $   143,650   $   (7,862)  $ 24,813     $  160,601
Income before
 extraordinary items                  $   16,463    $    (925)   $    15,538   $    23,968   $   (7,103)  $    302     $   17,167
Net income/(loss)                     $   16,463    $    (925)   $    15,538   $    19,632   $   (7,103)  $    302     $   12,831
Income per share before
 extraordinary items:
Basic                                 $     0.22    $   (0.02)   $      0.20   $      0.38   $    (0.11)  $     --     $     0.27
Diluted                               $     0.21    $   (0.02)   $      0.19   $      0.36   $    (0.11)  $     --     $     0.25
Earnings per share:
Basic                                 $     0.22    $   (0.02)   $      0.20   $      0.31   $    (0.11)  $     --     $     0.20
Diluted                               $     0.21    $   (0.02)   $      0.19   $      0.30   $    (0.11)  $     --     $     0.19
                                      ==========    =========    ===========   ===========   ==========   ========     ==========
</TABLE>

(1) Amounts include Puritan, Grist Mill and Libby's.

(2) Amounts include PDM, Creative Products, Orleans, Puritan, Grist Mill and
    Libby's.

    The proforma consolidated results do not purport to be indicative of
results that would have occurred had the acquisitions been in effect for the
period presented, nor do they purport to be indicative of the results that will
be obtained in the future.

---------------------------------------------------------
4   INVENTORIES
---------------------------------------------------------

Inventories are as follows:

<TABLE>
<CAPTION>
                                            December 31,
                                 ---------------------------------
                                    1998                    1997
                                 --------                 --------
<S>                              <C>                      <C>     
Raw materials                    $ 47,468                 $ 46,127
Work in progress                   18,101                   20,770
Finished goods                    170,161                  153,668
                                 --------                 --------
Total                            $235,730                 $220,565
                                 ========                 ========
</TABLE>

---------------------------------------------------------
5   PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------

Property, plant and equipment are as follows:

<TABLE>
<CAPTION>
                                                     December 31,
                                              ---------------------------
                                                1998               1997
                                              --------           --------
<S>                                           <C>                <C>     
Land                                          $ 21,468           $ 19,397
Buildings and
  leasehold improvements                       124,602            114,919
Machinery and equipment                        253,591            204,956
Furniture and fixtures                          28,404             25,238
                                              --------           --------
                                               428,065            364,510
Less: accumulated depreciation                 165,294            154,315
                                              --------           --------
  Total                                       $262,771           $210,195
                                              ========           ========
</TABLE>

Depreciation expense aggregated $25,350, $18,333 and $15,683 for the years
ended December 31, 1998, 1997 and 1996, respectively.

---------------------------------------------------------
6   INTANGIBLE AND OTHER ASSETS
---------------------------------------------------------

Intangible assets are as follows:

<TABLE>
<CAPTION>
                                                December 31,
                                            -------------------
                                              1998       1997
                                            --------   --------
<S>                                         <C>        <C>     
Goodwill, tradenames and trademarks         $426,056   $331,663
Less: accumulated amortization                29,439     22,817
                                            --------   --------
 Intangible assets, net                     $396,617   $308,846
                                            ========   ========
</TABLE>

    Amortization of intangibles totaled $11,580, $7,006 and $2,675 for the
years ended December 31, 1998, 1997 and 1996, respectively. All fully amortized
intangibles have been retired.

    Other assets include deferred financing costs, net of amortization, in
connection with the Company's issuance of long-term debt. At December 31, 1998
and 1997, deferred financing costs, net were $22,475 and $23,701, respectively.
Amortization expense for the years ended December 31, 1998 and 1997, excluding
the write-off due to debt refinancing in 1997 (Note 20), and for the period
from November 1, 1996 (date of debt issuance) to December 31, 1996, amounted to
$3,067, $4,741 and $661, respectively.

                          39 International Home Foods

<PAGE>   44


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

----------------------------------------------------------------------------
7   ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS AND ALLOWANCES
----------------------------------------------------------------------------

The allowance for doubtful accounts and sales returns and allowances and their
related activity are as follows:

<TABLE>
<CAPTION>
                                                                      Write-Offs and
                                  Beginning                 Charged   Reductions, Net  Ending
                                   Balance      Other*     to Expense  of Recoveries   Balance
                                  ---------     ------     ---------- ---------------  -------
<S>                                <C>          <C>          <C>          <C>           <C>   
Year ended December 31, 1998       $6,184       $  177       $  935       $  (47)       $7,343
Year ended December 31, 1997        4,331        1,490        1,357          994         6,184
Year ended December 31, 1996        4,064           --          563          296         4,331
                                   ======       ======       ======       ======        ======
</TABLE>

*   Relates to balances assumed of companies acquired in 1998 and 1997.

------------------------------------------------------
8   ALLOWANCE FOR OBSOLETE INVENTORIES
------------------------------------------------------

The allowance for obsolete inventories and the related activity is as follows:

<TABLE>
<CAPTION>
                                                                      Write-Offs and
                                  Beginning                 Charged   Reductions, Net  Ending
                                   Balance      Other*     to Expense  of Recoveries   Balance
                                  ---------     ------     ---------- ---------------  -------
<S>                                <C>          <C>          <C>          <C>           <C>   
Year ended December 31, 1998       $7,597       $  685       $1,531       $6,409       $3,404
Year ended December 31, 1997        3,667        1,061        3,984        1,115        7,597
Year ended December 31, 1996        4,150           --        2,947        3,430        3,667
                                   ======       ======       ======       ======       ======
</TABLE>

*   Relates to balances assumed of companies acquired in 1998 and 1997.

-------------------------------------------------------
9   RESTRUCTURING AND OTHER CHARGES
-------------------------------------------------------

In September 1998, in conjunction with management's plan to reduce costs and
improve operational efficiencies, the Company recorded a restructuring charge
of $118.1 million ($75.3 million after tax). The principal actions in the
restructuring plan involve the closure of its Vacaville, California and
Clearfield, Utah production facilities and the related impact of the transfer
of production to other facilities, mainly Milton, Pennsylvania, and to the
write-down of goodwill associated with the Campfire crisp rice snack bar brand
and the Polaner fruit spreads brand. These charges impact the Branded Products
segment.

    The Vacaville, California production facility ceased operations in December
1998, while the adjacent distribution center and the Clearfield, Utah facility
are expected to close in the second quarter of 1999. The total closure costs of
approximately $40.6 million represent $29.5 million of non-cash charges,
primarily for the write-down of property, plant and equipment to net realizable
value, cash charges of $9.0 million for severance and related benefit costs for
affected employees, and $2.1 million in facility closure costs. The severance
and related costs relate to the termination of approximately 600 employees,
which includes seasonal employees not eligible for severance, of which 553 had
been terminated as of December 31, 1998.

    With the exception of outsourced products, the Company has moved all of the
products that were manufactured at the Vacaville facility to other facilities,
mainly Milton, Pennsylvania. Production of tomato paste used in Chef Boyardee
canned pasta products and of Ro*Tel diced tomatoes, both of which were
manufactured at the Vacaville facility, prior to its closure, have been
outsourced. The manufacturing of the Campfire products is being transferred
from Clearfield, Utah to the Company's Lakeville, Minnesota facility. The
Company anticipates that approximately $2.4 million of additional
non-capitalizable expenses will be incurred as the transfer and installation of
the relocated equipment from these facilities occurs. The Company incurred
approximately $0.6 million of such costs in 1998. It is expected that the
entire process will be completed by the end of 1999.

    The total writedown of goodwill associated with the Campfire and Polaner
brands was $47.7 million and $29.7 million, respectively. These brands have
been impacted by their significant respective retail category sales declines,
which have

                          International Home Foods 40

<PAGE>   45


continued to deteriorate in recent months. The current and projected sales
trends and the resulting impact on these brands' profitability have impaired
their valuation. Goodwill was written down to reflect each brand's fair value.
The Polaner business was subsequently sold (Note 25).

     At December 31, 1998, $7.8 million of restructuring charges remained in
Other accrued liabilities. This amount is comprised of severance and related
costs and facility closure costs. Payments in the amount of $3.3 million were
made in 1998.

     In December 1996, a pretax charge was recorded for severance costs of
$3,240 and other charges (principally non-cash) of $1,068. The severance charge
covered both voluntary and involuntary terminations of approximately 125
employees, including management, sales and marketing, technical and
administrative personnel. Employee separations were substantially completed
prior to December 31, 1996. During 1996, cash payments of $437 were charged
against the business restructuring reserve and the remaining amounts were paid
during 1997.

-------------------------------------------------
10   INCOME TAXES
-------------------------------------------------

Income before provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                For Years Ended December 31,
                        -------------------------------------------
                         1998              1997              1996
                        -------           -------          --------
<S>                     <C>               <C>              <C>     
Domestic                $12,661           $29,006          $133,524
Foreign                  19,661            10,757             2,756
                        -------           -------          --------
 Total                  $32,322           $39,763          $136,280
                        =======           =======          ========
</TABLE>

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                             For Years Ended December 31,
                       -------------------------------------------
                         1998             1997              1996
                       --------          -------           -------
<S>                    <C>               <C>               <C>    
Domestic               $  7,963          $11,066           $45,334
Foreign                   5,751            2,809             1,193
State                     2,145            1,920             6,792
                       --------          -------           -------
 Total                 $ 15,859          $15,795           $53,319
                       ========          =======           =======
</TABLE>

A reconciliation between the Company's effective tax rate and U.S. statutory
rate is as follows:

<TABLE>
<CAPTION>
                                                  For Years Ended December 31,
                                               ----------------------------------
                                               1998           1997           1996
                                               ----           ----           ---- 
<S>                                            <C>            <C>            <C>  
U.S. statutory rate                            35.0%          35.0%          35.0%
State tax, net of federal benefit               4.3            3.5            4.1
Non deductible goodwill                        12.1            0.4             --
Foreign income taxes                           (3.5%)          0.2             --
Other                                           1.2            0.6             --
                                               ----           ----           ----
Effective tax rate                             49.1%          39.7%          39.1%
                                               ====           ====           ==== 
</TABLE>

The current and deferred provision for income taxes for 1998, 1997 and 1996, is
as follows:

<TABLE>
<CAPTION>
                                        For Years                Period from     Period from
                                          Ended                  January 1,      November 1,
                                       December 31,               1996 to         1996 to
                                 ------------------------        October 31,     December 31,
                                  1998             1997             1996            1996
                                 -------          -------        -----------     ------------
<S>                              <C>              <C>              <C>             <C>   
Current:
  Federal                        $ 6,539          $ 2,239          $46,136         $    -
  Foreign                          4,350            2,809            1,228             41
  State                            3,247              772            6,944              2
                                 -------          -------          -------         ------ 
                                  14,136            5,820           54,308             43
Deferred:
  Federal                          1,424            8,827               --           (802)
  Foreign                          1,401               --               --            (76)
  State                           (1,102)           1,148               --           (154)
                                 -------          -------          -------         ------ 
                                   1,723            9,975               --         (1,032)
                                 -------          -------          -------         ------ 
                                 $15,859          $15,795          $54,308         $ (989)
                                 =======          =======          =======         ====== 
</TABLE>

     For federal and state income tax purposes, the IHF Acquisition (Note 1)
was a taxable business combination and was a qualified stock purchase. The
buyer and seller have elected jointly to treat the IHF Acquisition as an asset
acquisition under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. A preliminary allocation of the purchase price to the tax bases of
assets and liabilities based on their respective estimated fair values at
November 1, 1996 was made for income tax purposes. During 1997, finalization of
the purchase price allocation resulted in an increase of $2,220 in additional
paid-in capital. In connection with the IHF Acquisition, the Company recorded a
deferred tax asset of approximately $368,000 at November 1, 1996 related to
future tax deductions for the net excess of the tax bases of the assets and
liabilities over the financial statement carrying amounts with a corresponding
credit to additional paid-in capital.

     Historically, the Company has generated operating income and realization
of the deferred tax assets is dependent upon the Company's ability to generate
sufficient future taxable income which management believes is more likely than
not. The Company anticipates future taxable income sufficient to realize the
recorded deferred tax assets. Future taxable income is based on management's
forecasts of the operating results of the Company and there can be no assurance
that such results will be achieved.

     Management continually reviews such forecasts in comparison with actual
results and expected trends. In the event management determines that sufficient
future taxable income may not be generated to fully realize the deferred tax
assets, the Company will provide a valuation allowance by a charge to income
tax expense in the period of such determination.

     As discussed in Note 2, the Company's consolidated financial statements
for periods prior to November 1, 1996 do not reflect deferred income taxes as
all such taxes were provided for by AHP. Deferred tax assets and liabilities
existing prior to the

                          41 International Home Foods

<PAGE>   46


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

IHF Acquisition and the purchase of Heritage have been reflected on the
accompanying consolidated balance sheets, effective November 1, 1996, as an
adjustment to the former parent company's investment and advances account or
goodwill, as appropriate.

     The components of deferred tax assets at December 31, 1998 and December
31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                    ----------------------------
                                                            December 31,
                                                    ----------------------------
                                                      1998                1997
                                                    --------            --------
<S>                                                 <C>                 <C>     
Current deferred tax assets:
  Allowance for doubtful accounts                   $    899            $  1,999
  Inventory reserves                                   3,252               4,968
  Trade accruals                                       3,892               7,705
  Restructuring                                        3,658               1,234
  Alternative minimum tax                              3,107                  --
  Accrued expenses                                     4,808               5,196
                                                    --------            --------
    Net current deferred tax assets                 $ 19,616            $ 21,102

Non-current deferred tax assets:
  Property, plant and equipment                           --                 146
  Tradenames                                         162,597             174,952
  Goodwill and intangible assets                     147,271             134,271
  Stock options                                       17,579              18,036
  Post-retirement benefit                              8,365               7,200
  Restructuring                                          978                  --
  Alternative minimum tax                                 --                 688
  Net operating loss carryforwards                     2,017               6,046
  Valuation allowance                                 (3,107)             (3,000)
  Other                                                   --                 272
                                                    --------            --------
    Non-current deferred tax assets                  335,700             338,611
Non-current deferred tax liabilities:
  Property, plant and equipment                       (4,709)                 --
  Other                                                 (340)                 --
                                                    --------            --------
    Non-current deferred tax liabilities              (5,049)                 --
                                                    --------            --------
    Net non-current deferred tax assets              330,651             338,611
                                                    --------            --------
Net deferred tax assets                             $350,267            $359,713
                                                    ========            ========
</TABLE>

     At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $2,900, which expire in years
ending through 2010 and an alternative minimum tax credit carryforward of
$3,107 which has an unlimited carryforward period. The Company had state income
tax loss carryforwards of approximately $24,000 at December 31, 1998 which
expire in years ending through 2012. The Company has established a valuation
allowance at December 31, 1998 of $3,107 related to foreign and state net
operating loss carryforwards and the realization of certain deferred tax
assets.

---------------------------------------------------
11   LONG-TERM DEBT
---------------------------------------------------

In connection with the IHF Acquisition, the Company entered into a $770,000
Credit Agreement ("Senior Bank Facilities") with Chase Manhattan Bank, Bankers
Trust Company and Morgan Stanley Senior Funding, Inc. and issued $400,000 of
10 3/8 percent Senior Subordinated Notes ("Notes"). The Senior Bank Facilities
provided for term loans in three tranches aggregating $670,000 and a revolving
credit loan facility of $100,000. The Company amended its Senior Bank
Facilities as of September 16, 1998. The Senior Bank Facilities are comprised
of (i) a $516.5 million Tranche A term loan facility, maturing in 2004 with
mandatory semiannual repayments aggregating $50.8 million, $72.4 million, $92.8
million, $104.2 million and $115.6 million in the years 1999 through 2003,
respectively, and the remaining $63.5 million on May 31, 2004; (ii) a $149.8
million Tranche B term loan facility, maturing in 2005 with mandatory
semiannual repayments commencing September 30, 1998 aggregating $0.4 million in
the years 1999 through 2003, $20.2 million in 2004, and the remaining $127.4
million in 2005; (iii) a $100.0 million Tranche B-1 term loan facility,
maturing in 2006 with mandatory semiannual repayments commencing March 31, 1999
aggregating approximately $0.3 million in each of the years 1999 through 2005,
and the remaining $98.2 million in 2006; (iv) a $230.0 million revolving credit
facility (the Revolving Credit Facility), which includes a Canadian facility of
$50.0 million, for which the initial allocation was $30.0 million, maturing in
2004, or earlier upon repayment of the Tranche A term loans. In addition to
scheduled periodic repayments, the Company is also required to make mandatory
repayments of the loans under the Senior Bank Facilities with a portion of its
excess cash flow, as defined.

     Borrowings under the amended Senior Bank Facilities bear interest based on
the Eurodollar Rate or an Alternate Base Rate, as defined, plus applicable
margins. The Canadian portion of the Revolving Credit Facility bears interest
at the Canadian Prime Rate, or the Canadian Bankers' Acceptance Rate, as
defined, plus applicable margins. Margins range from 0.5% to 2.0%. The weighted
average interest rate for 1998 was 7.18%. At December 31, 1998, interest rates
in effect for Tranches A, B, B-1 and the Revolving Credit Facility were 6.47%,
6.72%, 7.16% and 6.70%, respectively.

                          International Home Foods 42

<PAGE>   47


     The obligations of the Company under the Senior Bank Facilities are
unconditionally and irrevocably guaranteed by each of the Company's direct or
indirect domestic subsidiaries (collectively, the "Guarantors"). In addition,
the Senior Bank Facilities are secured by first priority or equivalent security
interests in (i) all the capital stock of, or other equity interests in, each
direct or indirect domestic subsidiary of the Company and 65% of the capital
stock of, or other equity interests in, each direct foreign subsidiary of the
Company, or any of its domestic subsidiaries and (ii) all tangible and
intangible assets (including, without limitation, intellectual property and
owned real property) of the Company and the Guarantors (subject to certain
exceptions and qualifications).

     The Senior Bank Facilities also contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness or amend other
debt instruments, pay dividends, create liens on assets, make investments or
acquisitions, engage in mergers or consolidations, make capital expenditures,
or engage in certain transactions with affiliates, amend the Indenture and
otherwise restrict corporate activities. In addition, under the Senior Bank
Facilities the Company is required to comply with specified minimum interest
coverage, maximum leverage and minimum fixed charge coverage ratios.

     The Company pays a commission on the face amount of all outstanding
letters of credit drawn under the Senior Bank Facilities at a per annum rate
equal to the Applicable Margin then in effect with respect to Eurodollar loans
under the Revolving Credit Facility minus the Fronting Fee (as defined). A
fronting fee equal to 1/4% per annum on the face amount of each Letter of
Credit is payable quarterly in arrears to the issuing lender for its own
account. The Company has entered into agreements for letters of credit
amounting to $3.9 million at December 31, 1998. The Company also pays a per
annum fee equal to 0.375% on the undrawn portion of the commitments with
respect to the Revolving Credit Facility. As of December 31, 1998 and 1997, the
Company had unused Revolving Credit Facility balances of $163.6 million and
$158.6 million, respectively.

     The Notes are due November 1, 2006, and bear interest at a rate of 103/8
percent, which is payable semiannually on May 1 and November 1 of each year.
The Notes may be redeemed prior to November 1, 2000 in up to an aggregate
principal amount of $160.0 million with the proceeds of one or more equity
offerings, as defined, by the Company under certain conditions at a redemption
price of 110.375%. The Notes may also be redeemed prior to November 1, 2001 at
a redemption price of 100% upon the occurrence of a change of control, as
defined. Except as discussed above, the Notes are not redeemable prior to
November 1, 2001. The Notes will be redeemable, in whole or in part, at the
Company's option at redemption prices decreasing from 105.188% at November 1,
2001 to 100% on November 1, 2004 and thereafter.

     Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, on a senior subordinated basis, the full and prompt payment of
principal and interest on the Notes.

     The Notes contain certain restrictive covenants limiting, among other
things (i) the incurrence of additional indebtedness; (ii) the declaration or
payment of dividends or other capital stock distributions or redemptions; (iii)
the redemption of certain subordinated obligations; (iv) investments; (v) sale
of assets; and (vi) consolidations, mergers and transfers of all or
substantially all of the Company's assets.

     In connection with the acquisition of Grist Mill, the Company assumed a
$5.7 million term loan on its facility. The term loan bears interest at 8.625%
and matures on June 1, 2000, with a balloon payment of $5.2 million.

     Long-term debt at December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                         December 31,
                                  --------------------------
                                    1998              1997
                                  ---------         --------
<S>                               <C>               <C>     
Senior bank facilities:
  Tranche A                       $ 499,347         $420,000
  Tranche B                         149,600          150,000
  Tranche B-1                       100,000               --
                                  ---------         --------
                                    748,947          570,000
  Senior Subordinated Notes         400,000          400,000
  Grist Mill term loan                5,577               --
                                  ---------         --------
                                  1,154,524          970,000
  Less: Current portion              51,694           27,400
                                  ---------         --------
        Long-term debt           $1,102,830         $942,600
                                 ==========         ========
</TABLE>

     The aggregate maturities of all long-term debt during each of the next
five years are $51,694, $78,451, $93,414, $104,849 and $116,285 for 1999, 2000,
2001, 2002 and 2003, respectively, and $709,831 thereafter.

-------------------------------------------------
12   FINANCIAL INSTRUMENTS
-------------------------------------------------

The Company's financial instruments recorded on the balance sheet include cash
and cash equivalents, accounts receivable, accounts payable and debt. Because
of their short maturity, the carrying amount of these items, excluding debt,
approximates fair value.

     The Company's $400.0 million Notes at December 31, 1998 and 1997 had an
estimated fair value of approximately $433 million and $440 million,
respectively, based on their publicly quoted rates. The fair value of the
Senior Bank Facilities at December 31, 1998 and 1997 approximated its carrying
value because the interest rates change with market interest rates.

                          International Home Funds 44

<PAGE>   48

     The Company currently does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to leveraged
derivatives. In accordance with the Senior Bank Facilities, the Company is
required to enter into interest rate protection agreements to the extent
necessary to provide that, when combined with the Company's Senior Subordinated
Notes, at least 50% of the Company's aggregate indebtedness is subject to
either fixed interest rates or interest rate protection through September 1999.

     The Company has entered into interest rate swap, cap and collar agreements
to reduce the impact of changes in interest rates on its floating rate debt.
The swap agreements are contracts to exchange floating interest rate payments
for fixed interest rate payments as well as fixed interest rate payments for
floating interest rate payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts
of interest rate agreements are used to measure interest to be paid or received
and do not represent the amount of exposure to credit loss. For interest rate
instruments that effectively hedge interest rate exposures, the net cash
amounts paid or received on the agreements are accrued and recognized as an
adjustment to interest expense.

     The Company is exposed to credit loss in the event of nonperformance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counterparties.

     As of December 31, 1998, the Company had the following interest rate
instruments in effect for which the fair value of these instruments is based on
estimated current settlement cost (notional amounts are in millions):

<TABLE>
<CAPTION>
                          Notional       Strike      Fair                           Rates-
                           Amount         Rate       Value            Period        LIBOR
                          --------       ------     ------        -------------    -------
<S>                        <C>            <C>       <C>            <C>             <C>    
Interest Rate Swaps        $200(2)        8.97%     $  6.4         8/98 - 11/01    6-month
                            600(1)        5.43%      (16.1)        8/98 -  8/03    3-month
Interest Rate Caps         $225(1)        6.75%         --        10/98 - 10/99    6-month
                            200(2)        6.75%         --         8/98 - 11/01    6-month
Interest Rate Floor        $200(2)        5.20%       (6.4)        8/98 - 11/01    6-month
Interest Rate Collar       $150(1)        5.75%         --        10/98 - 10/01    3-month
                                          3.76%
                           ----           ----      ------        -------------    -------
                                                    $(16.1)
                           ====           ====      ======        =============    =======
</TABLE>

(1) Agreement exchanges floating interest rate payments for fixed interest rate
    payments.

(2) Agreement exchanges fixed interest rate payments for floating interest rate
    payments.

     As of December 31, 1997, the Company had entered into an interest rate
collar transaction that expired in December 1998. The notional amount of the
collar was $135.0 million with the cap set at 8.0% and the floor set at 5.25%
and had an immaterial fair value.

------------------------------------------------------
13   GUARANTOR FINANCIAL DATA
------------------------------------------------------

The Company's Senior Subordinated Notes are fully unconditionally guaranteed by
each of the Company's subsidiaries on a joint and several basis. The Company
has not presented separate financial statements and other disclosures
concerning each of the subsidiary guarantors because management has determined
that such information is not material to the holders of the Senior Subordinated
Notes.

     Presented below is summarized combined financial information of the
subsidiary guarantors:

<TABLE>
<CAPTION>
                                          December 31,
                                   --------------------------
                                     1998              1997
                                   --------          --------
<S>                                <C>               <C>     
Current assets                     $281,119          $262,531
Non-current assets                  569,830           426,396
Current liabilities                 111,632            80,108
Non-current liabilities              49,637           245,491

<CAPTION>
                                For the Years Ending December 31,
                             ----------------------------------------
                                1998           1997            1996
                             ---------       --------        --------
<S>                          <C>             <C>             <C>     
Net sales                    $ 844,038       $356,921        $136,873
Gross profit                   306,180        128,707          58,382
Net (loss) income              (12,965) (1)    32,983          (1,054)
Net cash provided by
  operating activities         142,947         33,071          11,540
Net cash used in
  investing activities        (200,607)        (5,876)        (11,457)
Net cash provided by (used in)
  financing activities          56,351        (21,942)          1,029
                             =========       ========        ========
</TABLE>

(1) Includes restructuring charge of $61.3 million (net of $33.8 million tax
    benefit).1997 amounts restated from amounts previously reported. Amounts
    are not intended to report results as if the subsidiaries were separate
    stand-alone entities.

------------------------------------------------
14   INITIAL PUBLIC OFFERING
------------------------------------------------

In November 1997, the Company completed the issuance of 12.1 million common
shares through an initial public offering, resulting in net proceeds (after
deducting issuance costs) of $224.9 million. The proceeds of the offering were
used to repay indebtedness under the Senior Bank Facilities.

<PAGE>   49

---------------------------------------------
15   STOCK REPURCHASE
---------------------------------------------

On October 23, 1998, the Company purchased 4.4 million shares of its common
stock, par value $.01 per share, from AHP Subsidiary Holding Corporation, a
subsidiary of American Home Products, for approximately $57,200 ($13.00 per
share) which it presently holds in treasury. The purchase of the common stock
was financed by the Company with borrowings under its Senior Bank Facilities.

---------------------------------------------
16   EMPLOYEE BENEFIT PLANS
---------------------------------------------

The Company maintains non-contributory defined benefit pension plans covering
the majority of its employees and retirees, and post-retirement benefit plans
for the majority of its employees and retirees that include health care
benefits and life insurance coverage. Prior to November 1, 1996, the Company's
financial statements reflect costs charged to the Company by AHP.

Pension-related benefits are based primarily on compensation levels and years
of service. It is the Company's policy to contribute the amounts necessary to
meet the minimum funding requirements of defined benefit plans under applicable
laws. Plan assets include principally cash equivalents and debt and equity
securities.

     The following table summarizes the balance sheet impact, as well as the
benefit obligations, assets, funded status and rate assumptions associated with
the pension and post-retirement benefit plans.

<TABLE>
<CAPTION>
                                                         --------------------------------------------------
                                                              Pension Benefits    Post-retirement Benefits 
                                                                December 31,              December 31,
                                                         --------------------------------------------------
                                                          1998(2)           1997      1998(3)         1997
                                                         --------        ---------   --------       -------
<S>                                                      <C>             <C>         <C>            <C>
Change in benefit obligations
 Beginning of year obligations                           $  8,865        $   5,959   $ 21,798)(3)   $17,300
 Service cost                                               3,630            3,177      1,233         1,241
 Interest cost                                                713              234      1,492         1,202
 Plan amendments(1)                                            --               --     (3,069)           --
 Actuarial losses/(gains)                                     690              180      4,855          (596)
 Benefits paid                                             (1,544)            (685)       (81)          (12)
 Other                                                        (13)              --         --            --
                                                         --------        ---------   --------       -------
End of year benefit obligations                            12,341            8,865     26,228        19,135
                                                         --------        ---------   --------       -------
Change in plans' assets
 Beginning of year fair value of plans' assets              4,416            4,359         --            --
 Actual return on plans' assets                               628              189         --            --
 Employer contributions                                     7,184              553         81            12
 Benefits paid                                             (1,544)            (685)       (81)          (12)
 Other                                                        (13)              --         --            --
                                                         --------        ---------   --------       -------
 End of year fair value of plans' assets                   10,671            4,416         --            --
                                                         --------        ---------   --------       -------
Funded status of the plans
 Benefit obligation                                       (12,341)          (8,865)   (26,228)      (19,135)
 Fair value of plan assets                                 10,671            4,416         --            --
 Unrecognized transition obligation                            18               20     (2,576)           --
 Unamortized prior service cost                               378              425         --            --
 Unrecognized net actuarial loss/(gain)                       983              381      4,317          (410)
                                                         --------        ---------   --------       -------
 Net amount recognized                                       (291)          (3,623)   (24,487)      (19,545)

Amounts recognized in the consolidated balance sheets
 Prepaid benefit cost                                         504               11         --            --
 Accrued benefit liability                                 (1,283)          (4,052)   (24,487)      (19,545)
 Intangible asset                                             239              374         --            --
 Accumulated other comprehensive income                       249               44         --            --
                                                         --------        ---------   --------       -------
 Net amount recognized                                       (291)          (3,623)   (24,487)      (19,545)
                                                         ========        =========   ========       =======
Rate Assumptions:
 Discount rate                                                7.0%            7.25%       7.0%         7.25%
 Rate of return on plans' assets                              8.0%         7.0-8.0%       7.0%         7.25%
Salary increases/decreases                                3.5-5.0%         3.5-5.0%       n/a           n/a
Annual increase in cost of benefits                           n/a              n/a   8.5-10.0%       8.5-10%
                                                                                    to 6% over    to 6% over
                                                                                      11 years      12 years
                                                         ========        =========   ========       =======
</TABLE>

(1) Plan amendments relate to a charge in retiree contribution levels and plan
    eligibility requirements.

(2) 1998 amounts include Grist Mill covered employees.

(3) 1998 amounts include Grist Mill and Libby's covered employees.

                          45 International Home Foods

<PAGE>   50

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

         The projected benefit obligation, accumulated benefit obligation and
    fair value of plan assets for pension plans with accumulated benefit
    obligations in excess of plan assets were $12,341, $10,825 and $10,671,
    respectively, as of December 31, 1998 and $8,865, $7,678 and $4,416,
    respectively, as of December 31, 1997.

         The following table shows the components of pension and post-retirement
    benefit costs for the periods indicated:

<TABLE>
<CAPTION>
                                                                                    For Years Ended December 31,
                                                                                    ----------------------------
Pension Cost:                                                                         1998                1997
                                                                                    --------           ---------
<S>                                                                                  <C>                <C>   
 Service cost                                                                        $3,630             $3,176
 Interest cost                                                                          713                234
 (Expected return on plan assets)                                                      (578)              (394)
 Recognized net actuarial loss/(gain)                                                    36                 (2)
 Amortization of transition obligation                                                    2                  2
 Amortization of prior service cost                                                      48                 50
                                                                                     ------             ------
 Net pension cost                                                                    $3,851             $3,066
                                                                                     ======             ======
Post-retirement Benefit Cost:
 Service cost-benefits earned attributable to service during the period              $1,233             $1,241
 Interest cost on the accumulated post-retirement benefit obligation                  1,492              1,202
 Recognized net actuarial (gain)                                                         (3)                --
 Amortization of transition obligation                                                   20                 --
                                                                                     ------             ------
Net post-retirement benefit cost                                                     $2,742             $2,443
                                                                                     ======             ======
</TABLE>

         Assumed health care cost trend rates have a significant effect on the
amounts reported for the post-retirement medical benefit plans. The effects of a
one percentage point change in the assumed health care cost trend rates would
have the following effects:

<TABLE>
<CAPTION>
                                                                      1% Point           1% Point 
                                                                      Increase           Decrease
                                                                      --------           -------- 
<S>                                                                    <C>               <C>     
Effect on total of service and interest cost components                $  615            $  (560)
Effect on post-retirement benefit obligation                           $5,190            $(4,767)
                                                                       ======            ======= 
</TABLE>

     Prior to November 1, 1996, the Company participated in AHP's defined
pension plans, certain defined contribution plans and post-retirement plan
(these charges represented actual retiree benefit costs based on the ratio of
the Company's participants to total AHP participants) for which the Company was
charged $3,188, $955 and $3,239, respectively, for the period January 1, 1996
to October 31, 1996. For the period November 1, 1996 to December 31, 1996, the
Company's defined benefit plan's costs and defined contribution plan's costs,
were insignificant and the post-retirement cost was $482.

                                 Savings Plans

The Company sponsors a 401(k) defined contribution plan for nonunion employees.
Employer contributions for the years ended December 31, 1998 and 1997 were
$1,373 and $1,638, respectively. Employer contributions for the period from
November 1, 1996 to December 31, 1996 were insignificant.

                              Multiemployer Plans

The Company also participates in union-sponsored multiemployer pension, life
insurance and health and welfare plans which provide benefits to union
employees located at the Company's facilities in Vacaville, CA and Danville, IL
(Danville, IL plan was added in 1998). The Company's contributions to these
plans were $3,002, $2,778 and $2,993 for the years ended December 31, 1998,
1997 and 1996, respectively.

-----------------------------------------------------
17   RELATED PARTY TRANSACTIONS
-----------------------------------------------------

Effective November 1, 1996, the Company entered into a 10-year monitoring and
oversight agreement with an affiliate of its majority stockholder. The
agreement provides for an annual fee of the greater of $1,000 or 0.1% of the
budgeted consolidated net sales of the Company for the current year. In
addition, effec-

                          International Home Foods 46

<PAGE>   51


tive November 1, 1996, the Company entered into a financial advisory
agreement with the affiliate under which the affiliate will be entitled to a fee
of 1.5% of the transaction value, as defined, for each add-on transaction, as
defined. In 1998, 1997 and 1996, the Company incurred monitoring and oversight
fees of $1,749, $1,254 and $167, respectively, and financial advisory fees of
$3,967, $3,607 and $19,320, respectively.

     The consolidated statements of income for periods through October 31, 1996
included the costs of certain administrative and other services provided by
AHP. These services included treasury, tax, personnel, legal, environmental,
safety, public relations, audit and other related costs, which on an annualized
basis approximated $2,500 for 1996. Such charges are representative of costs
which would have been incurred by the Company on a stand alone basis.

     AHP also charged the Company for its share of group insurance costs
(medical, dental, basic life, etc.) based on AHP's historical claims experience
and current claim trends and the ratio of the Company's employees to total AHP
domestic employees. The charges, which are reflected in the accompanying
consolidated statements of income, amounted to $9,143 for the 10 months ended
October 31, 1996.

     The consolidated statements of income include rent for 35,000 square feet
of space in AHP's corporate headquarters. The rent expense related to this
space amounted to $946 for the year ended December 31, 1996. The Company
vacated this space and relocated its corporate headquarters at the end of 1996.

     Various self-insurance coverages were provided to the Company through
AHP's consolidated programs through October 31, 1996. Auto, property, product
liability and other insurance coverages provided by AHP were allocated to the
Company based on past claims history, exposure, trends and judgment. The
charges, which are reflected in the accompanying consolidated statements of
income amounted to $346 for the 10 months ended October 31, 1996.

     The Company purchased advertising through a wholly-owned subsidiary of AHP
through 1996. The rates at which the Company purchased advertising reflected
the rates obtained by the consolidated purchasing of AHP. The charges, which
are reflected in the accompanying consolidated statements of income for the
year ended December 31, 1996, amounted to $45,186.

     Effective November 1, 1996, the Company entered into a transition services
agreement with AHP under which AHP, until six months after November 1, 1996,
provided to the Company, for a fee, certain facilities and services. In
addition, AHP agreed to assist the Company for 90 days after November 1, 1996
with the administration of welfare benefit plans for payment by the Company to
AHP based on past practices. Charges by AHP to the Company under these
arrangements were insignificant.

     Following is an analysis of the activity in the Former Parent Company's
Investment and Advances account for the ten months ended October 31, 1996:






<TABLE>
<CAPTION>
                                                               Ten Months
                                                                    Ended
                                                              October 31,
                                                                     1996
                                                              -----------
<S>                                                              <C>     
Beginning balance
Former parent company's investment and advances                  $384,997
Net income                                                         84,559
Distribution of net income through parent
  company's investment and advances account                       (84,559)
                                                                 --------
                                                                  384,997
                                                                 --------
Changes in other assets and liabilities
  through the accounts:
Depreciation and amortization                                      15,093
Accounts receivable                                                (6,585)
Inventories                                                        10,903
Prepaid expenses and other current assets                            (820)
Other non-current assets                                               34
Accounts payable                                                    1,334
Accrued salaries, wages and benefits                                2,248
Accrued advertising and promotion                                    (168)
Other accrued liabilities                                             672
Other                                                               1,132
Purchases of plant and equipment, net                              (7,146)
                                                                 --------
                                                                   16,697
                                                                 --------
Effect of merger transaction                                     (630,661)
Issuance of common stock, additional paid-in
  capital, and foreign currency translation
  adjustment on November 1, 1996                                  262,361
                                                                 --------
Ending balance
  Parent company's investment and advances                       $     --
                                                                 ========
</TABLE>

-----------------------------------------------------
18   STOCK COMPENSATION PLANS
-----------------------------------------------------

During 1996 and in prior years, certain employees of the Company were granted
stock options under the AHP stock option plans. These options had a ten-year
term and generally vested one year from date of grant. The AHP stock options
awarded to Company employees during 1996 or prior were exercised, canceled or
settled in cash by January 31, 1997, except for options granted to certain
individuals who are now AHP retirees (some of whom are currently employed by
the Company) which must be exercised over a three-year period ending November
1, 1999.

                          47 International Home Foods

<PAGE>   52

     Effective November 1, 1996, the Company adopted the International Home
Foods, Inc. 1996 Stock Option Plan (the IHF Plan) which provides for the grant
of stock options at fair value on the date of grant. Generally, stock options
have a ten-year term and vest immediately or ratably over three years. Certain
options were granted with an exercise price which increased by 8% per year
until the exercise date. These indexed options were modified during 1997 to
reflect a fixed exercise price. Shares and options have been adjusted for the
5.3292 for one reverse stock split. The total number of shares of common stock
authorized for grant under the IHF Plan is 8,444,021.

     Effective October 23, 1997, the Company amended and restated the IHF Plan.
The amended and restated plan is named the International Home Foods, Inc. 1997
Stock Option Plan (the Plan). The option term and vesting provisions, and
number of shares authorized, are consistent with the IHF Plan. Certain options
granted vest based on targeted stock prices. Effective June 12, 1998, the
Company amended the Plan to increase the number of shares of common stock
authorized for grant to 13,444,021.

     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", but applies Accounting Principles
Board Opinion No. 25 (APB No. 25) and related interpretations in accounting for
its plans. No compensation expense was recognized for 1996 or for the first six
months in 1997. In accordance with APB No. 25, during 1997 the Company recorded
a non-cash stock option compensation charge of $46,366 including $44,673 for
indexed options granted to senior management and other employees. In the third
quarter of 1997, the variable exercise price of these options was fixed.
Unearned stock compensation of $474 has been recorded as a reduction of
paid-in-capital. This amount will be amortized to compensation expense as the
related options vest. In 1998, $594 was recorded as a compensation benefit due
to options that lapsed and were initially charged to expense. Estimated charges
for the years 1999 and 2000 as these options vest are $267 and $207,
respectively. If the Company had elected to recognize compensation cost based
on the fair value of the options at the grant dates, consistent with the method
prescribed by SFAS No. 123, net income and per share amounts would have been
adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                        1998         1997         1996
                                      -------      -------      -------
<S>                                   <C>          <C>          <C>    
Net income:
  As reported                         $16,463      $19,632      $82,961
  Pro forma                           $12,648      $43,632      $81,793
Basic earnings per share:
  As reported                         $  0.22      $  0.31      $  1.34
  Pro forma                           $  0.17      $  0.68      $  1.32
Diluted earnings per share:
  As reported                         $  0.21      $  0.30      $  1.34
  Pro forma                           $  0.16      $  0.66      $  1.32
                                      =======      =======      =======
</TABLE>

Note: The pro forma disclosures shown above are not representative of the
effects on net income and per share amounts in future years.

     The fair value of the AHP stock options used to compute pro forma net
income disclosures is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                            1996
                                          -------
<S>                                       <C>    
Expected volatility                         15.0%
Expected term                             4 years
Dividend yield                               4.3%
Risk-free interest rate                      6.4%
                                          ======
</TABLE>

     1998 and 1997 pro forma net income and pro forma per share amounts are not
impacted by AHP stock options, as there were no AHP options granted in 1998 and
1997.

     For IHF options granted in 1998, the following assumptions were used: a
45% volatility, 0% dividend yield, a four year expected term, and a weighted
average risk-free interest rate of 4.79%.

     For IHF options granted before and after the date of the Company's initial
filing for its public offering, in 1997, a 0% and a 20% volatility were
assumed, respectively. A 0% dividend yield, expected term of four years, and a
weighted average risk-free interest rate of 6.1% were utilized in 1997.

     IHF options granted in November 1996 were valued using the minimum value
method permitted under SFAS No. 123 for companies which do not have publicly
traded equity securities and the following assumptions: expected term of four
years, 0% dividend yield, and 5.9% weighted average risk-free interest rate.

                          International Home Foods 48

<PAGE>   53


     Presented below is a summary of the status of IHF stock options and the
AHP options held by the Company's employees for 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                    1998                     1997                       1996**
                                             ------------------------------------------------------------------------------
                                                         Weighted                 Weighted                   Weighted
                                             Shares  Average Exercise  Shares  Average Exercise    Shares  Average Exercise
                                             (000's)  Price Per Share  (000's)  Price Per Share    (000's) Price Per Share
                                             ------- ----------------  -------  ---------------    ------- ----------------
<S>                                           <C>          <C>        <C>          <C>         <C>         <C>
IHF non-indexed options:
 Outstanding at beginning of year             7,751       $ 7.74           38        $ 5.33           --           --
 Granted                                      2,427       $16.50        4,162        $ 8.75           38       $ 5.33
 Exercised                                      429       $ 6.63           --            --           --           --
 Forfeited                                    1,115       $10.69          624        $ 5.33           --           --
 Other, transfer                                 --           --        4,175+       $ 6.40           --           --
 Outstanding at end of year                   8,634       $ 9.88        7,751        $ 7.74           38       $ 5.33
IHF options exercisable at end of year        4,950       $ 7.02        4,387        $ 6.73           38       $ 5.33
                                             ------       ------       ------        ------       ------       ------
IHF indexed options:
 Outstanding at beginning of year                --           --        4,175        $ 5.38           --           --
 Granted                                         --           --        1,314        $ 5.33        4,175       $ 5.33
 Forfeited                                       --           --        1,314        $ 5.33           --           --
 Other, transfer                                 --           --        4,175+       $ 5.76           --           --
 Outstanding at end of year                      --           --           --            --        4,175       $ 5.38
IHF options exercisable at end of year           --           --           --            --        4,081       $ 5.38
                                             ------       ------       ------        ------       ------       ------
AHP options:++
 Outstanding at beginning of year                --           --           --            --        1,394       $33.07
 Granted                                         --           --           --            --          153       $52.97
 Exercised                                       --           --           --            --          758       $32.64
 Forfeited/Expired                               --           --           --            --           12       $45.11
 Settled                                         --           --           --            --          150            *
 Outstanding at end of year                      --           --           --            --          627       $33.51
                                             ======       ======       ======        ======       ======       ======
</TABLE>

*   150,000 AHP options were settled for $61.19 per option which represents the
    stock's fair value at November 1, 1996.

**  1996 amounts have been restated from amounts previously reported.

+   The indexed options originally issued with a grant price of $5.33 were
    fixed at $6.40 during 1997 and are included as non-indexed options as of
    December 31, 1998 and 1997.

++  Information pertaining to AHP options is not presented due to its
    insignificance.

     The weighted average fair values of IHF stock options granted during 1998
and 1997 were $7.71 and $3.73 per option, respectively. The weighted average
fair value of AHP stock options granted during 1996 was $7.21 per option. The
weighted average fair value of IHF non-indexed options granted in November 1996
was $5.97 per option. The IHF indexed options, which provided for an 8% per
annum increase in exercise price, had no value under the minimum value method
at December 31, 1996.

     As of December 31, 1998, the 8,634 stock options outstanding under the IHF
plan have exercise prices ranging from $5.33 to $20.00 and a weighted average
exercise price of $9.88. Such options have a remaining contractual life of
approximately 8.5 years and 4,950 were exercisable at December 31, 1998. The
following table summarizes the status of stock options outstanding and
exercisable as of December 31, 1998, by range of exercise price:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Range                Weighted Average                                                                          Weighted average
of Exercise              Shares                Remaining               Weighted Average         Shares         Exercise Price on
Prices                 Outstanding          Contractual Life            Exercise Price        Exercisable     Exercisable Options
------                 -----------          ----------------            --------------        -----------     -------------------
<S>                      <C>                    <C>                         <C>                   <C>                <C>   
  $5.33-$9.06            5,612                  7.9 years                   $ 6.32                4,499              $ 6.37
$10.66-$15.00            1,909                  9.3 years                   $14.48                  445              $13.44
$17.10-$20.00            1,113                  9.9 years                   $19.94                    6              $17.24
=============            =====                  =========                   ======                =====              ======
</TABLE>

                          49 International Home Foods

<PAGE>   54
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

     Stock options outstanding at December 31, 1998 which were issued with
exercise prices equal to, less than and more than the market price of the stock
on the grant date are as follows:

<TABLE>
<CAPTION>
                                       Number of    Wtd. Ave.     Wtd. Ave.
Grants                                  Options  Exercise Price   Fair Value
                                        -------  --------------   ----------
<S>                                      <C>          <C>          <C>   
Exercise price equals
  market price                           1,647        $ 6.94       $ 1.49
Exercise price less than
  market price                           4,471        $ 6.93       $11.39
Exercise price more than
  market price                           2,516        $16.99       $ 5.92
                                         =====        ======       ======
</TABLE>

----------------------------------------------------------
19   COMMITMENTS AND CONTINGENCIES
----------------------------------------------------------

The Company has ongoing royalty arrangements with several parties, primarily
representing licensing agreements for its wet spices business and for the use
of characters in the Company's canned pasta business. The accompanying
condensed consolidated statements of income include royalty costs which
amounted to $539, $1,907 and $2,113 for the years ended December 31, 1998, 1997
and 1996.

     The Company has responsibility for environmental, safety and cleanup
obligations under various local, state and federal laws, including the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. Based upon its experience to date, the Company believes
that the future cost of compliance with existing environmental laws,
regulations and decrees and liability for known environmental claims, will not
have a material adverse effect on the Company's financial statements as a
whole. However, 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.

     In the ordinary course of business, the Company enters into contracts for
the purchase of certain of its raw materials and is involved in various pending
or threatened litigation and claims. Although the outcome of any legal
proceeding cannot be predicted with certainty, management believes through its
discussions with counsel that its liability arising from or the resolution of
any pending or threatened litigation or claims, in the aggregate will not have
a material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.

-----------------------------------------------------------
20   EXTRAORDINARY ITEM
-----------------------------------------------------------

In 1997, the Company recorded an extraordinary after-tax charge of $4.3
million, or $0.06 per share on a diluted basis (net of $2.9 million of related
tax benefit) associated with the write-off of unamortized deferred financing
costs included in other assets in connection with the Senior Bank Facilities
amendment in November 1997.

-----------------------------------------------------------
21   EARNINGS PER SHARE
-----------------------------------------------------------

The computation of basic and diluted earnings per share ("EPS") is as follows:

<TABLE>
<CAPTION>
                                        For the Years Ended December 31,
                                        ---------------------------------
(Shares in thousands)                     1998        1997         1996
                                        -------      -------      -------
<S>                                     <C>          <C>          <C>    
Basic EPS computation:
  Net income available to
    common shares                       $16,463      $19,632      $82,961
  Average number of
    shares outstanding                   76,552       64,020       61,923
  Basic earnings per share              $  0.22      $  0.31      $  1.34
Diluted EPS computation:
  Net income available to
    common shares                       $16,463      $19,632      $82,961
  Average number of shares
    outstanding                          76,552       64,020       61,923
  Effect of dilutive stock options        3,248        2,223           --
                                        -------      -------      -------
  Total number of shares outstanding     79,800       66,243       61,923
  Diluted earnings per share            $  0.21      $  0.30      $  1.34
                                        =======      =======      =======
</TABLE>


                         International Home Foods 50
<PAGE>   55
22   IMPACT OF RECENT ACCOUNTING STANDARDS

On March 4, 1998 Statement of Position (SOP) No. 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use", was issued. The
SOP was issued to address diversity in practice regarding whether and under what
conditions the costs of internal-use software should be capitalized. SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
The Company does not expect future adoption of this statement in 1999 to have a
material effect on reported results. 

     In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued to establish standards for accounting for derivatives
and hedging activities and supersedes and amends a number of existing standards.
This statement requires all derivatives to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS 133. This statement is effective
for fiscal years beginning after June 15, 1999. The Company is currently
evaluating the effect this statement will have on its financial statements.

23   LEASES

The Company leases certain facilities and equipment under operating leases.
Rental expenses, aggregated $7,886, $4,181 and $1,884 for the years ended
December 31, 1998, 1997 and 1996, respectively. Future minimum lease payments
under noncancelable operating leases at December 31, 1998 are as follows:


<TABLE>
<S>                           <C>    
1999                          $ 5,637
2000                            4,647
2001                            3,418
2002                            2,814
2003 and later years            7,220
                              -------
                              $23,736
                              =======
</TABLE>


24   BUSINESS SEGMENT INFORMATION

The Company has three reportable business segments-Branded Products, Seafood,
and Private Label and Foodservice. Branded Products is defined as U.S. grocery
sales for the following products: Chef Boyardee, Libby's brand of canned meats,
Southwest brands (Luck's, Ro*Tel, Dennison's and Ranch Style Brands), Specialty
brands (PAM cooking spray, Polaner, Gulden's, Maypo, Wheatena, Maltex and G.
Washington's) and Snack brands (Crunch 'n Munch, Jiffy Pop and Campfire).
Seafood includes all sales for the Bumble Bee, Orleans and Libby's brand of
canned seafood products, private label and foodservice seafood sales. Private
Label and Foodservice includes all private label canned pasta, cooking spray,
fruit snacks, ready-to-eat cereals, wholesome snack bars, pie crust and personal
care products and the sales to foodservice distributors. The All Other category
is comprised of sales to the military and the International division which
includes branded, private label and foodservice sales in Canada, Mexico, Puerto
Rico and other export sales.

     The Company sells the products in each of its segments primarily to grocery
wholesalers and distributors, grocery stores and supermarkets, convenience
stores, drug and mass merchants and warehouse clubs.

     The Company evaluates segment performance based upon segment operating
income (earnings before interest expense, other (income) expense, net and income
taxes excluding unusual or infrequently occurring items, restructuring charge
and stock compensation expense (income)). Certain centrally incurred costs
(Corporate), are not allocated to the operating segments. Asset and long-lived
expenditure information is not available at the segment level, is not reviewed
by the chief operating decision maker, and is therefore not disclosed. 


                          51 International Home Foods

<PAGE>   56

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)


The Company allocates certain charges, including depreciation, amortization,
agent and broker commissions, storage, packing and shipping charges, and
administrative costs for salaries, insurance and employee benefits, to its
Branded Products segment, and to its Private Label and Foodservice segment based
on a percentage of net sales.

<TABLE>
<CAPTION>
                                                                  Private        Total
                                    Branded                      Label and     Reportable         All         
                                    Products       Seafood      Foodservice     Segments         Other          Total
                                  ----------     ----------     ----------     ----------     ----------     ----------
<S>                               <C>            <C>            <C>            <C>            <C>            <C>       
1998
Net sales                         $  800,248     $  443,229     $  249,873     $1,493,350     $  206,250     $1,699,600
Segment operating income             158,939         30,677         35,634        225,250         31,431        256,681
Depreciation and amortization         19,960          5,817          7,135         32,912          4,018         36,930

1997
Net sales                            781,076        193,291        116,633      1,091,000        131,434      1,222,434
Segment operating income             151,213          9,524         17,185        177,922         23,449        201,371
Depreciation and amortization         19,344          2,355          1,444         23,143          2,196         25,339

1996
Net sales                            749,411             --         85,112        834,523        108,269        942,792
Segment operating income             126,306             --          8,847        135,153         22,330        157,483
Depreciation and amortization         16,179             --            942         17,121          1,237         18,358
                                  ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>


<TABLE>
<CAPTION>
Reconciliation to Consolidated Results      1998         1997         1996
                                          -------       -------      -------
<S>                                       <C>           <C>          <C>    
Segment operating income                  256,681       201,371      157,483
Less:
 Restructuring charge                     118,087            --        4,308
 Stock compensation (income) expense         (594)       46,366           --
 Corporate                                  9,141        11,355           --
                                          -------       -------      -------
    Total consolidated income from 
          operations                      130,047       143,650      153,175
                                          =======       =======      =======
</TABLE>


     In 1998, the Corporate line includes $8,148 of income that was not
specifically allocated to the brands.

                               OTHER INFORMATION

<TABLE>
<CAPTION>
Geographic Information:         1998          1997           1996 
                              ---------     ---------       -------  
<S>                           <C>           <C>             <C>      
Net sales:                                                           
 United States                1,514,856     1,113,352       855,237  
 Foreign                        184,744       109,082        87,555  
                              ---------     ---------       -------  
  Consolidated                1,699,600     1,222,434       942,792  
Long-lived assets:                                                   
 United States                  232,210       191,856       180,365  
 Foreign                         30,561        18,339         5,637  
                              ---------     ---------       -------  
  Consolidated                  262,771       210,195       186,002  
                              =========     =========       =======  
</TABLE>
                              
25   SUBSEQUENT EVENTS (UNAUDITED)

On January 19, 1999, the Company through it's subsidiary Bumble Bee Seafoods,
Inc. acquired the canned seafood brands and business of British Columbia Packers
from George Weston Ltd. of Canada for a total purchase price of approximately
$38.0 million ($CN 57.7 million). The acquisition was funded with borrowings
under the Company's Senior Bank Facilities. In connection with the acquisition,
the Company has revised the $230.0 million Revolving Credit Facility to allocate
$37.5 million to the Canadian Facility. 

     On February 5, 1999 the Company sold its Polaner fruit spreads and spices
business to B&G Foods, Inc. for approximately $30.0 million in cash and
anticipates a gain of approximately $17.0 million. The proceeds will be used to
acquire assets useful in the Company's business.



                           International Home Foods 52


<PAGE>   57

                        QUARTERLY RESULTS OF OPERATIONS

                (Dollars in Millions, Except Per Share Amounts)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                          March 31    June 30    September 30     December 31
                                                          --------    -------    ------------     -----------
<S>                                                      <C>         <C>         <C>             <C>        
Net sales:
  1998                                                   $   388.5   $   402.5   $   439.7       $   468.9  
  1997                                                       244.6       249.9       349.5           378.5  
Gross profit:                                                                                             
  1998                                                       186.7       193.0       208.5           218.0  
  1997                                                       128.9       134.7       167.4           180.3  
Operating income (loss):                                                                                  
  1998                                                        54.2        58.9       (50.8)(1)        67.7  
  1997                                                        37.4        40.9         9.5 (2)        55.8  
Income (loss) before extraordinary item:                                    
  1998                                                        19.3        21.1       (49.0)(1)        25.1  
  1997                                                         7.5         9.4       (10.8)(2)        17.9  
Basic earnings per share, before extraordinary item:                        
  1998                                                   $    0.25   $    0.27   $   (0.63)(1)   $    0.34 
  1997                                                   $    0.12   $    0.15   $   (0.17)(2)   $    0.25 
Diluted earnings per share, before extraordinary item:                      
  1998                                                   $    0.24   $    0.26   $   (0.63)(1)   $    0.33 
  1997                                                        0.12        0.15       (0.17)(2)        0.24 
Net income (loss):                                                                                        
  1998                                                        19.3        21.1       (49.0)(1)        25.1  
  1997                                                         7.5         9.4       (10.8)(2)        13.5  
Basic earnings per share:                                                                                 
  1998                                                   $    0.25   $    0.27   $   (0.63)(1)   $    0.34 
  1997                                                        0.12        0.15       (0.17)(2)        0.19 
Diluted earnings per share:                                                 
  1998                                                   $    0.24   $    0.26   $   (0.63)(1)   $    0.33 
  1997                                                        0.12        0.15       (0.17)(2)        0.18 
                                                         =========   =========   =========       =========
</TABLE>

                                                       
(1)  Includes restructuring charge of $118.1 million ($75.3 million, net of
     tax).

(2)  Includes non-cash stock option compensation expense of $44.8 million ($27.0
     million, net of tax).

                            STOCK MARKET INFORMATION

International Home Foods, Inc. common stock (symbol IHF) is traded on the New
York Stock Exchange. The following table sets forth the range of high and low
closing prices for each period since the Company's initial public offering in
November 1997.

<TABLE>
<CAPTION>
                                           1998                 1997
                                   --------------------  --------------------
                                      High       Low        High      Low
                                   ---------  ---------  ---------  ---------
<S>                                <C>        <C>        <C>        <C>      
First quarter                      $   34.50  $   25.25         --         --
Second quarter                         32.13      22.75         --         --
Third quarter                          25.63      12.88         --         --
Fourth quarter                         20.19      10.38  $   28.00  $   22.50
                                   =========  =========  =========  =========
</TABLE>


                          53 International Home Foods


<PAGE>   58

                            SELECTED FINANCIAL DATA
                (Dollars in Thousands, Except Per Share Amounts)



<TABLE>
                                                             1998             1997              1996             1995       1994
                                                         -----------       -----------      -----------       --------   --------
<S>                                                      <C>               <C>              <C>               <C>         <C>     
STATEMENT OF OPERATIONS DATA:
Net sales                                                $   1,699.6(5)    $1,222.4)(3)     $     942.8       $  818.9   $  997.3
Gross profit                                                   806.2             611.3            497.9          420.7      534.2
Stock option compensation (income) expense                      (0.6)             46.4               --             --         --
Restructuring and other charges                                118.1                --              4.3             --         --
Operating income                                               130.0             143.7            153.2           68.6      159.2
Interest expense                                                96.0             104.9             17.1(1)          --         --
Income before extraordinary item                                16.5              23.9             83.0           39.2       95.9
Extraordinary loss, net of tax                                  --                 4.3               --             --         --
Net income                                                      16.5              19.6             83.0           39.2       95.9
Basic earnings per share                                 $      0.22       $      0.31      $      1.34             --         --
Diluted earnings per share                               $      0.21       $      0.30      $      1.34             --         --

BALANCE SHEET DATA:
Inventories                                              $     235.7       $     220.6      $     129.2       $  139.9   $  148.0
Working capital 
  (excluding current portion of long-term debt)                195.1             175.5            107.6          120.6      197.1
Property, plant and equipment, net                             262.8             210.2            186.0          176.8      169.7
Total assets                                                 1,446.2           1,262.1            968.3          463.6      540.5
Long-term debt (including current portion)                   1,154.5             970.0          1,070.0(1)          --         --
Stockholders' equity (deficit)                                  29.9(6)           67.6(4)        (264.2)(2)      385.0      467.1

OTHER FINANCIAL DATA:
Depreciation and amortization                            $      40.0       $      30.1      $      19.0       $   30.2   $   26.4
Capital expenditures                                            31.0              13.6             11.9           24.2       31.1
                                                         ===========       ===========      ===========       ========   ========
</TABLE>


(1)  Effective November 1, 1996, the Company entered into a $770.0 million
     credit agreement and issued $400.0 million of 10 3/8 percent Senior
     Subordinated Notes in connection with the acquisition. Prior to November 1,
     1996, the Company did not maintain a credit facility and accordingly, did
     not incur any interest expense.

(2)  For the periods 1994 and 1995, and through October 31, 1996 the Selected
     Financial Data presented included the operations of the following indirect
     wholly-owned subsidiaries of American Home Products, Inc. (AHP): American
     Home Food Products, Inc. (now the Company) and its subsidiary M. Polaner,
     Inc., American Home Foods, Inc. (now I.H.F.P., Inc.), Luck's Incorporated,
     Canadian Home Products Limited (now International Home Foods (Canada),
     Inc.), and certain related assets owned by AHP (collectively, American Home
     Food Products) and its subsidiaries. Effective November 1, 1996 these
     entities and businesses constituted International Home Foods, Inc., which
     was acquired through a leveraged recapitalization (See Note 1).

(3)  In 1997, the Company acquired Bumble Bee Seafoods, Inc. and Subsidiaries
     (effective July 1, 1997), Productos Del Monte (effective October 1, 1997),
     Creative Products, Inc. (effective October 1, 1997), and Orleans Seafood,
     Inc. (effective November 24, 1997). The 1997 combined net sales of these
     acquired companies totaled $228.3 million from their respective dates of
     acquisition.

(4)  In November 1997, the Company completed the issuance of 12.1 million common
     shares, through an initial public offering, resulting in net proceeds of
     $224.9 million. (See Note 15.)

(5)  In 1998, the Company acquired Puritan (effective March 9, 1998), Grist Mill
     Co. (effective April 14, 1998) and Libby's (effective September 8, 1998).
     The 1998 combined net sales of these acquired companies totaled $161.4
     million from their respective dates of acquisition. The Company also
     benefited from a full year of net sales from the companies acquired in
     1997.

(6)  On October 23, 1998, the Company purchased 4.4 million shares of its common
     stock from AHP Subsidiary Holding Corporation for approximately $57.2
     million and presently holds the shares in treasury. (See Note 15.) 


                           International Home Foods 54


<PAGE>   59

                             OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
CORPORATE OFFICERS                      BOARD OF DIRECTORS                          TRANSFER AGENT                               
<S>                                     <C>                                         <C>    
C. DEAN METROPOULOS                     C. DEAN METROPOULOS                         Bank of New York                             
Chairman of the Board of Directors      Chairman of the Board of Directors          101 Barclay Street                           
and Chief Executive Officer             and Chief Executive Officer,                New York, New York 10007                     
                                        Executive Committee                                                                      
N. MICHAEL DION                                                                     ANNUAL MEETING                               
Senior Vice President and               THOMAS O. HICKS                             May 5, 1999, 2:00pm                          
Chief Financial Officer                 Chairman and Chief Executive Officer        The Madison Hotel                            
                                        of Hicks, Muse, Tate & Furst                One Convent Road                             
M. KELLEY MAGGS                                                                     Morristown, New Jersey 07960                 
Senior Vice President, Secretary        L. HOLLIS JONES                                                                          
and General Counsel                     President of Hollis Jones, Inc.             CORPORATE HEADQUARTERS                       
                                        Audit Committee                             International Home Foods, Inc.               
ANDREW S. ROSEN                                                                     1633 Littleton Road                          
Vice President and                      MICHAEL J. LEVITT                           Parsippany, New Jersey 07054                 
Assistant Secretary                     Managing Director and Principal of          973-359-9920                                 
                                        Hicks, Muse, Tate & Furst                                                                
LYNNE M. MISERICORDIA                   Audit Committee                             STOCK LISTING                                
Treasurer                                                                           International Home Foods, Inc.               
                                        M. L. LOWENKRON                             (ticker symbol IHF) is listed on             
                                        Audit Committee,                            the New York Stock Exchange.                 
                                        Compensation Committee                                                                   
                                                                                    Common shares outstanding at                 
                                        MICHAEL J. CRAMER                           February 28, 1999: 73,334,727                
                                        Chief Operating Officer                                                                  
                                        Southwest Sports Group, Inc.                Approximate number of                        
                                                                                    stockholders: 4,925                          
                                        JOHN R. MUSE                                                                             
                                        Managing Director and Principal             STOCK PRICE                                  
                                        of Hicks, Muse, Tate & Furst                High: $34.50  March 18, 1998                 
                                                                                    Low:  $10.38  October 13, 1998               
                                        ROGER T. STAUBACH                                                                        
                                        Chairman and Chief Executive Officer        The Company has not paid cash dividends on   
                                        of The Staubach Company                     the common stock, has no present plans to do 
                                        Audit Committee, Compensation Committee     so and is restricted by the Senior Bank      
                                                                                    Facilities from paying dividends (Note 11).  
                                        CHARLES W. TATE                                                                          
                                        President of Hicks, Muse, Tate & Furst      OTHER REPORTS                                
                                        Compensation Committee,                     Copies of the Annual Report on Form 10-K are
                                        Executive Committee                         available without charge.                    
                                                                                    Contact:                                     
                                                                                    Investor Relations                           
                                                                                    International Home Foods, Inc.               
                                                                                    1633 Littleton Road                          
                                                                                    Parsippany, New Jersey 07054                 
                                                                                    800-639-9865                                 
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