<PAGE>   1
                                                                    EXHIBIT 99.3

       PORTIONS OF THE ANNUAL REPORT OF FORM 10-K FOR THE FISCAL YEAR ENDED
                  JANUARY 3, 1998 OF KEEBLER FOODS COMPANY.

ITEM 1.  BUSINESS

    Keebler Foods Company and its subsidiaries (the "Company" or "Keebler") is
the second largest cookie and cracker manufacturer in the United States ("U.S.")
with annual net sales of $2.1 billion and a 24.4% share of the U.S. cookie and
cracker market as reported by Information Resources, Inc. ("IRI"), based on
sales to supermarkets which have annual sales of $2.0 million or more, measured
in pounds sold. The Company, primarily through its Keebler Company and Sunshine
Biscuits, Inc. ("Sunshine") subsidiaries, produces and distributes a broad line
of cookie and cracker products, as well as other consumer food products.

RECENT HISTORY

    The Company was organized under the laws of the State of Delaware as UB
Investments US Inc. ("UBIUS" or "predecessor company") on July 14, 1992. The
Company was acquired from UB Investments (Netherlands) B.V. on January 26, 1996
(the "Keebler acquisition") by INFLO Holdings Corporation ("INFLO"), a
corporation which was jointly owned by Artal Luxembourg S.A. ("Artal"), a
private investment company, and Flowers Industries, Inc. ("Flowers"), a New York
Stock Exchange-listed company and one of the country's largest manufacturers and
marketers of fresh and frozen baked foods. Immediately after the Keebler
acquisition, the Company was renamed Keebler Corporation. In conjunction with
the Keebler acquisition, INFLO sold 2.5% of the outstanding shares of $0.01 par
value common stock to certain members of management. On June 4, 1996, the
Company acquired Sunshine (the "Sunshine acquisition") from G.F. Industries,
Inc. ("GFI"). As part of consideration paid in the sale of Sunshine, GFI was
issued common stock and a warrant to purchase 6,135,781 shares of common stock.
On November 20, 1997, INFLO was merged into Keebler Corporation (the "Merger")
and subsequently changed its name to Keebler Foods Company. After the Merger,
the stock and warrant held by GFI were transferred to Bermore, Limited
("Bermore"), a privately held corporation and the parent of GFI, and reissued
for the same value in the name of the Company. On February 3, 1998, the Company
completed an initial public offering (the "Offering") of 13,386,661 shares of
common stock. Concurrent with the Offering, Bermore exercised the warrant in
exchange for 6,135,781 shares of common stock. The exercise of the warrant
resulted in the Company receiving $19.8 million of cash proceeds. All of the
shares in the Offering were sold by Artal and Bermore, with no proceeds from the
Offering going to the Company. As part of the transaction, Flowers acquired
additional shares of common stock from Artal and Bermore which increased its
ownership from approximately 45% to 55%. Artal, having sold shares to both
Flowers and the public, retained ownership of approximately 21%. Bermore
exercised the warrant, sold shares to both Flowers and the public, and retained
ownership of approximately 6%.

GENERAL BUSINESS DESCRIPTION

    The Company competes in the U.S. retail cookie and cracker market which in
1997 generated sales of approximately $8.3 billion measured in retail sales to
consumers. The U.S. cookie and cracker market, which is relatively stable, has
experienced slow but steady growth over the past twenty years. Supermarkets
accounted for 77.1% of 1997 retail sales in the cookie and cracker industry,
with mass merchandisers, convenience stores, and drug stores accounting for the
balance. Since 1992, U.S. annual dollar supermarket sales of cookies and
crackers have increased by an average of 1.6% per year. The Company believes the
non-supermarket channels of distribution are becoming increasingly more
important.

    The Company produces a number of well recognized brands under the Keebler
and Sunshine labels. Major brands include: CHEEZ-IT, CHIPS DELUXE, CLUB, FUDGE
SHOPPE, HYDROX, SUNSHINE KRISPY, MUNCH'EMS, SANDIES, TOWN HOUSE, VIENNA FINGERS,
WHEATABLES, and ZESTA. The Company also imports and distributes CARR'S crackers
in the U.S. under an exclusive long-term licensing and distribution agreement
with United Biscuits. CARR'S crackers are the best-selling specialty cracker in
the U.S.

                                       1
<PAGE>   2

    In addition to retail branded products, the Company also produces private
label cookies and crackers, which are sold by retailers under their own brands.
Keebler is also the number one manufacturer of cookies and crackers for the
foodservice market, as reported by the International Foodservice Manufacturers
Association ("IFMATRAC"). The Company is the top manufacturer of retail branded
ice cream cones in the U.S., as well as the leader of preformed retail branded
pie crusts which are sold under the KEEBLER READY CRUST brand name. Keebler also
produces custom-baked products for other marketers of branded food products.

    Following the Keebler acquisition in January 1996, the Company's new
management began implementing a business strategy designed to capitalize on the
Company's competitive strengths, which include strong national brands and a
national direct store door sales and distribution system ("DSD system"). The key
elements of the Company's strategy include (i) building brand strength in new
and existing product lines, (ii) increasing sales in non-supermarket channels,
(iii) increasing the efficiency of operations, and (iv) pursuing acquisitions
that complement or provide further opportunities to use existing brands, product
lines, or distribution systems.

    The Company completed the planned integration of Sunshine's operations into
those of Keebler by the end of 1996. The combination of Keebler and Sunshine
allowed the Company to achieve efficiencies in administration, purchasing,
production, marketing, sales, and distribution. In particular, the sales and
distribution of Sunshine retail branded products were incorporated into
Keebler's DSD distribution system which had excess capacity. Filling excess
capacity with Sunshine products made Keebler's DSD distribution system more
efficient and allowed the Company to focus sales and marketing efforts on more
profitable retail branded products.

    The Company has focused on new product introductions and line extensions
within its core segments, such as KEEBLER CHOCOLATE CHEWY CHIPS DELUXE cookies
and Nacho CHEEZ-IT crackers, as well as introductions into new or less
competitive segments, such as KEEBLER COOKIE STIX cookies and KEEBLER SNACKIN'
GRAHAMS crackers. The Company has also developed new sizes of its leading
products to enable it to expand into non-supermarket channels.

    The Company recognizes that the mass distribution of consumer food products
is an important element in maintaining sales growth and providing service to
customers. The Company attempts to meet the changing demands of customers by
planning appropriate stock levels and reasonable delivery times consistent with
achieving optimal economics of distribution. In order to achieve these
objectives, Keebler has developed a network of manufacturing plants, shipping
centers, and distribution warehouses strategically located throughout the
continental U.S. to provide high national in-store presence. The Company uses a
combination of Keebler-owned, public, and contract carriers to deliver products
from its distribution points to customers.

    The Company distributes retail branded cookie and cracker products through
its DSD distribution system, which services substantially all supermarkets in
the U.S., as measured by IRI. The Company believes its DSD distribution system
provides certain competitive advantages. Members of Keebler's sales force,
rather than store employees, stock and arrange the Company's products on store
shelves and build end-aisle and free-standing product displays. Frequent store
presence of Keebler's sales force employees provides the Company with a high
level of control over the availability and presentation of its products. The
Company believes this control allows it to maintain shelf space, more
effectively introduce new products, and permits better execution of in-store
promotions. In addition, store presence allows the Company to monitor
competitors' in-store product promotions. Keebler believes in-store promotions
are important because purchases of cookies and crackers are often impulse
driven.

    In addition to Keebler's DSD system, the Company uses a network of
independent distributors and brokers to serve convenience stores and vending
distributors. In the case of club stores and foodservice distribution, Keebler
uses a dedicated sales force and ships its products directly to the customers'
warehouses. The Company uses a warehouse sales and distribution system to sell
and distribute KEEBLER READY CRUST pie crusts and private label cookies and
crackers to its customers, including retail outlets otherwise served by
Keebler's DSD distribution system. CARR'S crackers are sold through a network of
independent specialty distributors.

                                       2
<PAGE>   3

COMPETITION

    The U.S. branded cookie and cracker industry is led by Keebler and Nabisco,
Inc. ("Nabisco"), which together account for 58.5% of sales volume, as reported
by IRI. Smaller competitors include numerous national, regional, and local
manufacturers of both branded and private label products. Competition in
Keebler's target markets takes many forms including (i) establishing favorable
brand recognition, (ii) developing products sought by consumers, (iii)
implementing appropriate pricing, (iv) providing strong marketing support, and
(v) obtaining access to retail outlets and sufficient shelf space.

    Nabisco is the largest manufacturer in the U.S. cookie and cracker industry.
Keebler has a 24.4% share of the retail cookie and cracker market, while Nabisco
has a 34.1% share, as measured by IRI. The remaining industry participants
primarily target certain segments of the industry or focus on certain
geographical regions of the U.S. Keebler and Nabisco are also the only cookie
and cracker producers that have national wholly-owned DSD distribution systems,
although Pepperidge Farms operates a national DSD distribution system through
independent distributors.

SEASONALITY

    The Company's net sales, net income, and cash flows are affected by the
timing of new product introductions, promotional activities, price increases,
and a seasonal sales bias toward the second half of the year due to events such
as back-to-school, Thanksgiving, and Christmas. The relative mix between cookie
and cracker sales varies throughout the year with stronger cracker sales in the
last quarter of the calendar year.

CUSTOMERS

    The Company's top ten customers in 1997 accounted for 27.7% of Keebler's net
sales. No single customer accounted for more than 4.6% of net sales.

RAW MATERIALS

    The principal raw materials used in the Company's food products consist of
flour, sugar, chocolate, shortening, and milk. Keebler also uses paper products,
such as corrugated cardboard, as well as films and plastics to package its
products. Raw materials and packaging supplies are readily available from
various suppliers. There is no significant reliance on any one supplier. The
Company uses hedging techniques to minimize the impact of price fluctuations in
raw materials but not for speculative or trading purposes. The hedging
techniques, however, may not result in a reduction in the Company's raw material
costs or protect the Company from sharp increases in certain raw material costs,
which the Company has experienced in the past.

INTELLECTUAL PROPERTY

    The Company owns a number of patents, licenses, trademarks, and trade names.
Principal trademarks and trade names include KEEBLER, Ernie the Keebler Elf, the
Hollow Tree logo, CHEEZ-IT, CHIPS DELUXE, CLUB, FUDGE SHOPPE, HI-HO, HYDROX,
SUNSHINE KRISPY, MUNCH'EMS, READY CRUST, SANDIES, SOFT BATCH, SUNSHINE,
TOASTEDS, TOWN HOUSE, VIENNA FINGERS, WHEATABLES, and ZESTA. The Company is the
exclusive licensee of the CARR'S brand name in the U.S. Such trademarks and
trade names are considered to be of material importance to the business of the
Company since they have the effect of developing brand identification and
maintaining consumer loyalty. Management is not aware of any fact that would
negatively impact the continuing use of any patents, licenses, trademarks, or
trade names.

                                       3
<PAGE>   4

RESEARCH AND DEVELOPMENT

    The Company engages in research activities, which principally involve
development of new products, improvement of the quality of existing products,
and improvement and modernization of production processes. The Company also
carries out development and evaluation of new processing techniques for both
current and proposed product lines. Identifiable research and development costs
are set forth on page F-12 of the Company's consolidated financial statements.

REGULATION

    As a manufacturer and marketer of food items, the Company's operations are
subject to regulation by various federal government agencies, including the Food
and Drug Administration, the Department of Agriculture, the Federal Trade
Commission (the "FTC"), the Environmental Protection Agency, and the Department
of Commerce, as well as various state agencies, with respect to production
processes, product quality, packaging, labeling, storage, and distribution.
Under various statutes and regulations, such agencies prescribe requirements and
establish standards for quality, purity, and labeling. The finding of a failure
to comply with one or more regulatory requirements can result in a variety of
sanctions, including monetary fines or compulsory withdrawal of products from
store shelves. In addition, the Company is subject to certain health and safety
regulations issued under the Occupational Safety and Health Act, as well as
regulation by the FTC of advertising performed by the Company.

ENVIRONMENTAL

    The Company's operations and properties are subject to federal, state, and
local laws and regulations relating to the storage, handling, emission, and
discharge of materials and wastes into the environment. The primary
environmental laws affecting Keebler's operations are the Federal Clean Air Act
and Clean Water Act. The Company may be required to spend significant sums in
order to maintain compliance with environmental laws, particularly with respect
to emission control equipment, replacement of chlorofluorocarbons (i.e.
ozone-depleting substances) in cooling equipment, and asbestos abatement
projects. Although it is difficult to estimate the cost of complying with
environmental laws, the Company does not believe that compliance with, or
liability under, any environmental laws individually or in the aggregate will
have a material adverse effect on its results of operations or financial
condition.

EMPLOYEES

    The Company employs approximately 9,500 persons, of which approximately
5,200 are represented by unions. Keebler believes its relations with its
employees to be good.


ITEM 2.  PROPERTIES

    The Company operates eleven manufacturing facilities in the U.S. of which
ten are owned and one is leased. The manufacturing facilities are located in
Athens, Georgia; Chicago, Illinois; Cincinnati, Ohio; Columbus, Georgia; Denver,
Colorado; Des Plaines, Illinois; Florence, Kentucky; Grand Rapids, Michigan;
Kansas City, Kansas; Macon, Georgia; and Sayreville, New Jersey. Keebler also
owns and operates a dairy in Fremont, Ohio that produces cheese under a
proprietary formula that is used as an ingredient in CHEEZ-IT crackers. In
addition, the Company owns one idle manufacturing facility located in Atlanta,
Georgia that is held for sale. As a result of capital expenditures made over the
past decade, management believes the manufacturing facilities are modern and
efficient. Management also believes manufacturing capacity is sufficient to meet
foreseeable needs.

                                       4
<PAGE>   5

    Distribution facilities consist of eleven shipping centers attached to the
manufacturing facilities, ten stand-alone shipping centers (two owned and eight
leased; of which one is idle), and sixty-six distribution centers (eleven owned
and fifty-five leased) throughout the U.S. Of the sixty-six distribution
centers, seven were subleased and seven were idle. These seven idle facilities
have been accrued for in the plant and facility closing costs. In addition, one
of the owned, but idle, distribution facilities is held for sale. The Company
also leases thirty-two warehouses and eighteen depots that are located
throughout the U.S. and are utilized by the sales force in the distribution of
the Company's products. Management believes there is sufficient distribution
capacity to meet foreseeable needs.

    In addition to manufacturing and distribution facilities, the Company owns
two office buildings and leases two others as part of its corporate office
facility. The Company also leases numerous sales offices throughout the country.

ITEM 6.  SELECTED FINANCIAL DATA

    The selected historical financial data presented below as of and for the
year ended January 3, 1998, the forty-eight weeks ended December 28, 1996, the
four weeks ended January 26, 1996, and the year ended December 30, 1995 have
been derived from, and should be read in conjunction with the historical
consolidated financial statements of the Company and UBIUS, the predecessor
company, including the respective notes thereto, included elsewhere. The
selected historical financial data presented below as of and for the fiscal
years ended December 31, 1994 and January 1, 1994 have been derived from the
consolidated financial statements of the predecessor company that are not
included herein. The distinction between the Company's and the predecessor
company's selected financial data, as shown below, has been made by inserting a
double line. The results of operations presented below are not necessarily
indicative of results to be expected for any future period. The information set
forth below should be read in conjunction with "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and respective notes thereto, included
elsewhere herein.

<TABLE>
<CAPTION>
                                                   Keebler Foods Company  ||                      UBIUS
                                                  ------------------------||  -----------------------------------------------
                                                              Forty-Eight ||     Four                 Year Ended
                                                  Year Ended  Weeks Ended ||  Weeks Ended -----------------------------------
                                                   January 3, December 28,||  January 26, December 30,December 31, January 1,
                                                      1998      1996 (a)  ||     1996        1995        1994         1994
                                                  ----------- ------------||  ----------- ----------- ----------- -----------
                                                   (In Millions Except    ||                   (In Millions)
                                                      Per Share Data)     ||
<S>                                               <C>         <C>         ||  <C>         <C>         <C>         <C>
OPERATING DATA:                                                           ||
Net sales .......................................   $2,065.2    $1,645.5  ||      $101.7   $1,578.6   $1,599.7    $1,650.1
Gross profit ....................................    1,177.2       871.3  ||        46.8      831.8      894.2       931.5
Restructuring charges ...........................          -           -  ||           -          -          -       120.1
Loss on impairment of Salty Snacks business .....          -           -  ||           -       86.5          -           -
Income (loss) from continuing operations ........      141.4        70.1  ||       (25.5)    (137.9)      46.4       (67.6)
Income tax expense (benefit) ....................       45.2        14.0  ||           -       (0.5)      (1.1)      (22.3)
Discontinued operations:                                                  ||
    Income from operations of discontinued Frozen                         ||
     Food businesses, net of tax ................          -           -  ||           -        7.4        3.4         0.6
    Gain on disposal of Frozen Food businesses,                           ||
     net of tax .................................          -           -  ||        18.9          -          -           -
Extraordinary item:                                                       ||
    Loss on early extinguishment of debt,                                 ||
     net of tax .................................        5.4         1.9  ||           -          -          -           -
Net income (loss) ...............................   $   57.0    $   15.8  ||      $ (6.5)  $ (158.3)  $  (23.0)   $ (147.2)
                                                                          ||
Basic Net Income per Share:                                               ||
    Income from continuing operations                                     ||
     before extraordinary item ..................   $   0.80    $   0.24  ||
    Extraordinary item ..........................       0.07        0.03  ||
                                                    --------    --------  ||
    Net income ..................................   $   0.73    $   0.21  ||
                                                    ========    ========  ||
Weighted Average Shares Outstanding .............       77.6        75.2  ||
                                                    ========    ========  ||
</TABLE>



                                       5
<PAGE>   6
<TABLE>
<CAPTION>
                                                   Keebler Foods Company  ||                      UBIUS
                                                  ------------------------||  -----------------------------------------------
                                                              Forty-Eight ||     Four                 Year Ended
                                                  Year Ended  Weeks Ended ||  Weeks Ended -----------------------------------
                                                   January 3, December 28,||  January 26, December 30,December 31, January 1,
                                                      1998      1996 (a)  ||     1996        1995        1994         1994
                                                  ----------- ------------||  ----------- ----------- ----------- -----------
                                                   (In Millions Except    ||                   (In Millions)
                                                      Per Share Data)     ||
<S>                                               <C>         <C>         ||  <C>         <C>         <C>         <C>
OTHER DATA:                                                               ||
EBITDA, as adjusted (b) .........................   $  202.1    $  119.6  ||    $  (23.5)  $  (93.3)  $   89.5    $   98.4
Depreciation and amortization (excluding items                            ||
    related to discontinued operations) .........       60.7        49.5  ||         2.0       44.6       43.1        45.9
Capital expenditures (excluding expenditures                              ||
    related to discontinued operations) .........       48.4        29.4  ||         3.2       54.2       54.6        30.6
                                                                          ||
CASH FLOW DATA:                                                           ||
Cash Provided from (Used by)                                              ||
    Operating activities ........................   $  218.3    $   53.2  ||    $   (0.4)  $  (61.4)  $  (17.4)   $   22.0
    Investing activities ........................      (41.5)     (130.1) ||        65.2      (52.6)     (45.9)      (92.1)
    Financing activities ........................     (161.6)       86.8  ||       (65.7)     104.4       69.4        58.3
                                                    ---------   --------- ||    ---------  ---------  ---------   ---------
Increase (decrease) in cash and cash equivalents    $   15.2    $    9.9  ||    $   (0.9)  $   (9.6)  $    6.1    $  (11.8)
                                                    =========   ========= ||    =========  =========  =========   =========
</TABLE>

---------------------------------------------


(a)  Includes the operating results of Sunshine from acquisition date of June 4,
     1996 through December 28, 1996. Other matters affecting comparability are
     detailed in Item 7. Management's Discussion and Analysis of Financial
     Condition and Results of Operations.

(b)  EBITDA, as adjusted, is defined as income (loss) from continuing operations
     before interest, taxes, depreciation, amortization, and restructuring
     charges (gains).


<TABLE>
<CAPTION>
                                                          As of           ||                       As of
                                                  ------------------------||  --------------------------------------------------
                                                   January 3, December 28,||  January 26,  December 30, December 31,  January 1,
                                                      1998        1996    ||     1996         1995         1994          1994
                                                  ----------- ------------||  -----------  -----------  -----------  -----------
                                                       (In Millions)      ||                    (In Millions)
<S>                                               <C>         <C>         ||  <C>          <C>          <C>          <C>
BALANCE SHEET DATA:                                                       ||
Cash and cash equivalents .......................  $    27.2   $    12.0  ||     $   2.1      $   3.0     $   12.5     $    6.4
Total assets ....................................    1,042.9     1,102.1  ||       849.1        926.9      1,001.2      1,043.0
Due to affiliate ................................         --          --  ||       105.0        108.0        551.6        872.7
Total debt (including capital leases) ...........      298.8       457.9  ||       371.4        437.6        333.2        263.8
Shareholders' equity (deficit) ..................      222.0       165.1  ||        45.3         51.8       (234.9)      (511.9)

</TABLE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

SET FORTH BELOW IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER
30, 1995. THE YEAR ENDED DECEMBER 28, 1996 INCLUDES BOTH THE FORTY-EIGHT WEEKS
OF KEEBLER FOODS COMPANY UNDER CURRENT MANAGEMENT AND THE FOUR WEEKS OF UBIUS
UNDER FORMER MANAGEMENT. THE 1995 FINANCIAL RESULTS INCLUDE FINANCIAL
INFORMATION RELATING TO THE SALTY SNACKS BUSINESS AND PRESENTS THE FROZEN FOODS
BUSINESSES AS A DISCONTINUED OPERATION (BOTH DEFINED ON PAGE F-11 OF THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS), BOTH OF WHICH WERE SOLD OR
LIQUIDATED BY UBIUS PRIOR TO THE ACQUISITION OF UBIUS BY INFLO. THE FOLLOWING
DISCUSSION OF RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES SHOULD
BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF KEEBLER
FOODS COMPANY AND THE RELATED NOTES THERETO APPEARING ELSEWHERE.




                                       6
<PAGE>   7

RESULTS OF OPERATIONS

    MATTERS AFFECTING COMPARABILITY

    The Company's fiscal year consists of thirteen four week periods (fifty-two
or fifty-three weeks) and ends on the Saturday nearest December 31. The 1997
fiscal year consists of fifty-three weeks. As a result of the Keebler
acquisition, which closed on the last day of the first four week period of 1996,
the fiscal year for 1996 consisted of the forty-eight weeks ended December 28,
1996. The 1995 fiscal year of the predecessor company was comprised of fifty-two
weeks.

    The Company's operating results for the forty-eight weeks ended December 28,
1996 have been combined with the operating results of the predecessor company
for the four weeks ended January 26, 1996 to compare the year ended December 28,
1996 to the years ended January 3, 1998 and December 30, 1995. The Company's
operating results for the year ended December 28, 1996 include the operating
results of Sunshine from the acquisition date of June 4, 1996, whereas the year
ended January 3, 1998 includes the operating results of Sunshine for the entire
year. Additionally, the Company's operating results have been restated to
reflect the Merger as if it had been effective January 26, 1996.

    For the year ended December 30, 1995, the financial results of the
predecessor company include the operating results of the Salty Snacks business.
The Salty Snacks business was liquidated by prior management in connection with
the Keebler acquisition. The 1995 results of operations include net sales of
$135.7 million and a loss from operations of $25.6 million related to the Salty
Snacks business. The 1995 operating results for the Salty Snacks business
excluded an allocation of the fixed portion of selling, distribution, and
general administrative expenses. In addition, the December 30, 1995 financial
results of the predecessor company also include the results of operations of the
Frozen Food businesses presented as a discontinued operation.

    The Company's results of operations, expressed as a percentage of net sales,
for the last three years ended January 3, 1998, December 28, 1996, and December
30, 1995 are set forth below:

<TABLE>
<CAPTION>
                                                                                      Years Ended
                                                                    ------------------------------------------------
                                                                      January 3,      December 28,     December 30,
                                                                         1998            1996              1995
                                                                    --------------   --------------   --------------
<S>                                                                 <C>              <C>              <C>
NET SALES .......................................................         100.0%           100.0%           100.0%
 COSTS AND EXPENSES:
   Cost of sales.................................................          43.0             47.5             47.3
   Selling, marketing, and administrative expenses...............          49.7             49.6             56.0
   Loss on impairment of Salty Snacks business ..................            --               --              5.5
   Other.........................................................           0.5              0.4             (0.1)
                                                                    -----------      -----------      -----------
 INCOME (LOSS) FROM CONTINUING OPERATIONS........................           6.8              2.5             (8.7)
 INTEREST EXPENSE, NET...........................................           1.6              2.2              1.8
                                                                    -----------      -----------      -----------
 INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX
    EXPENSE......................................................           5.2              0.3            (10.5)
   Income tax expense............................................           2.2              0.8               --
                                                                    -----------      -----------      -----------
 INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
    ITEM ........................................................           3.0             (0.5)           (10.5)
 DISCONTINUED OPERATIONS:
   Income from operations of discontinued Frozen Food businesses,
     net of tax..................................................            --               --              0.5
   Gain on disposal of discontinued Frozen Food businesses,
     net of tax .................................................            --              1.1               --
                                                                    -----------      -----------      -----------
 INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................           3.0              0.6            (10.0)
 EXTRAORDINARY ITEM:
   Loss on early extinguishment of debt, net of tax..............           0.3              0.1               --
                                                                    -----------      -----------      -----------
 NET INCOME (LOSS)...............................................           2.7%             0.5%           (10.0)%
                                                                    ===========      ===========      ===========
</TABLE>


                                       7
<PAGE>   8

    COMPARISON OF FISCAL 1997 TO 1996

    NET SALES. Net sales of $2,065.2 million in 1997 were $318.0 million, or
18.2%, higher than net sales of $1,747.2 million in 1996. The growth in net
sales for 1997 was achieved through incremental sales from both the Sunshine
acquisition and increased volumes. Sunshine results for 1996 were only included
from the acquisition date of June 4, 1996. In 1996, net sales of Sunshine for
the twenty-two weeks ended June 4, 1996 were $229.8 million. Sunshine net sales,
in a full year-on-year comparison, were 27.3% and 29.6% of total Company net
sales in 1997 and 1996, respectively. In addition to the incremental revenue
associated with the Sunshine acquisition, increased volumes in 1997 provided
4.5% growth in net sales over the prior year. The volume growth was achieved
through emphasis on more profitable cookie and cracker products, while
discontinuing or repositioning less strategic products, and the introduction of
new products and line extensions.

    GROSS PROFIT. Gross profit in 1997 of $1,177.2 million was $259.0 million
higher than the prior year and 4.5 percentage points better as a percent of net
sales. The increase in gross profit in 1997 was due to higher sales, lower
commodity and package material prices, and the implementation of cost reduction
and productivity programs. Of the total improvement, approximately 64.5% was
attributed to incremental sales associated with both the Sunshine acquisition
and increased volume. The balance of the improvement was achieved through a more
profitable sales mix and cost savings and productivity improvements achieved
mainly through further automation of the manufacturing facilities and higher
capacity utilization attributed to streamlining the manufacturing facilities.
The shift toward higher margin brands benefited gross profit by $11.8 million
compared to the prior year. Also contributing to the increase in gross profit in
1997 were lower prices paid for raw materials, particularly for flour and
soybean oil, and lower prices paid for package materials, primarily for cartons,
corrugated cardboard, and flexible film.

    SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and
administrative expenses for 1997 of $1,026.2 million, or 49.7% of net sales,
increased $160.0 million from 1996, but remained relatively stable as a percent
of net sales. Spending rose in 1997 due to both the impact of higher sales and
increased marketing expense. The impact of higher sales contributed $126.9
million to the increase in selling, marketing, and administrative expenses.
Marketing expense represented 23.8% of net sales in 1997 compared to 22.2% in
1996. The higher spending rate in 1997 was due to increased brand-building
national advertising and consumer promotions which were up $29.2 million over
the prior year. The increased spending as a result of these factors, along with
inflation, was offset by the impact of higher volumes in a more efficient,
relatively fixed cost, selling and distribution network. Therefore, selling,
marketing, and administrative expenses as a percent of net sales remained
comparable to the prior year.

    OTHER. Other expense for 1997 was $2.3 million, or 32.0%, higher than 1996
due to higher bank fees and amortization of intangibles. Bank fees in 1997 were
higher than the prior year due to several amendments to the Company's financing
agreement. Other expense for 1997 included a full year of amortization of
trademarks and goodwill recorded as part of the Sunshine acquisition compared to
only twenty-eight weeks in 1996.

    INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
of $141.4 million was $96.7 million higher than 1996. The improvement was
attributed to a 18.2% increase in net sales driven by volume growth compounded
by enhanced gross margins resulting from a more profitable mix, cost reductions,
and improved productivity. Total benefits realized more than offset incremental
marketing and amortization expense.

    INTEREST EXPENSE. Interest expense of $33.8 million for 1997 was $4.5
million lower than in 1996, primarily due to a lower average debt balance in
1997. The decrease in the average debt balance was the result of principal
pre-payments of $113.8 million on the term loans and a $29.0 million pre-payment
of the Seller Note. In addition, the weighted average interest rate for 1997 was
0.28 percentage points lower than the 1996 weighted average rate.

    INCOME TAXES. Income taxes for the year were provided at an effective tax
rate of 42%. The effective tax rate exceeded the statutory rate due to
nondeductible expenses, principally amortization of intangibles, including
trademarks, trade names, and goodwill. In 1996, the effective tax rate for the
forty-eight weeks ended December 28, 1996 was 44.2% and was higher than the 1997
rate due to a preliminary estimate of nondeductible expenses. Income tax expense
was not provided for during the first four weeks of 1996. As part of the Keebler
acquisition, the


                                       8
<PAGE>   9

Company adjusted the valuation allowance on deferred taxes by $25.1 million to
reflect the elimination of certain deferred tax assets revalued in the purchase
price allocation. The Company carried a deferred tax valuation allowance of
$84.4 million at January 3, 1998 and December 28, 1996 to provide for the
uncertainty in realizing the deductibility of deferred tax assets recognized.
Pursuant to the terms of the Keebler acquisition, the predecessor company
retained the right to use the net operating losses for potential carrybacks. Any
unused operating losses are then available to Keebler, but are significantly
restricted under current tax law. Therefore, all net operating loss
carryforwards have been fully reserved due to the uncertainty of their
realization.

    DISCONTINUED OPERATIONS. In 1995, the predecessor company adopted plans to
discontinue the operations of the Frozen Food businesses, and in the first four
weeks of 1996, a gain of $18.9 million, net of income taxes, was recognized on
the disposal of the Frozen Food businesses.

    EXTRAORDINARY ITEM NET OF INCOME TAXES. In 1997 and 1996, Keebler recorded
extraordinary charges net of tax of $5.4 million and $1.9 million, respectively.
In 1997, $3.8 million of the extraordinary charges, net of tax, related to the
write-off of debt issuance costs associated with the early retirement of the
term loans. An additional $1.6 million net of tax extraordinary charge was
recorded due to a loss on the early extinguishment of the Seller Note entered
into at the time of the Keebler acquisition. In 1996, the $1.9 million
extraordinary charge, net of tax, related to the write-off of debt issuance
costs associated with the $125.0 million early extinguishment of increasing rate
notes.

    NET INCOME (LOSS). Net income of $57.0 million in 1997 was $47.7 million
higher than net income of $9.3 million for 1996. The substantial growth in net
income was the result of increased volume, the inclusion of the Sunshine
business for the entire year, improved gross margins, and savings achieved by
leveraging the fixed cost structure of the sales and distribution network.

    COMPARISON OF FISCAL 1996 TO 1995

    NET SALES. Net sales in 1996 increased $168.6 million, or 10.7%, over 1995.
The 1996 net sales included Sunshine revenues of $291.2 million, while net sales
in 1995 included sales of the Salty Snacks business of $135.7 million. After
adjusting for these changes in the Company's business, the year-on-year sales
increase was up $13.1 million. Along with achieving this growth, the Company
also shifted its sales focus to more profitable products. The new focus was
accomplished through selected price increases on Keebler branded cookie and
cracker products, a more targeted marketing emphasis, new products, and the
discontinuation of weaker products. While volumes in 1996 were relatively flat
compared to volumes in 1995, higher revenues were achieved through these changes
in product mix and selected price increases. Temporary volume decreases in sales
to convenience stores, associated with a change in the selling organization and
product discontinuations, were offset by volume gains from new products and
broadened distribution.

    GROSS PROFIT. Gross profit as a percentage of net sales for 1996 was 52.6%
compared to 52.7% in 1995. While gross margins were down slightly year-on-year,
this belies the significant improvements that were achieved. The change in sales
mix noted above, resulted in an emphasis on more profitable volume. However, the
value-added products emphasized as part of the 1996 sales strategy carried
higher production costs than the products sold in 1995. The impact on gross
profit of this change in sales mix along with higher flour prices contributed to
higher cost of sales in 1996 versus 1995. Gross profit margins in 1996 also
reflect the inclusion of Sunshine products, which historically carried a lower
gross margin than Keebler products. The impact of higher costs was more than
fully offset by increasing capacity utilization, cost reductions at the
bakeries, as well as lowering scrap levels and achieving a more balanced
production. In addition, reductions in bakery overhead staffing and a more
efficient balancing of internal and co-packing arrangements achieved a lower
cost of production.

    SELLING, MARKETING, AND ADMINISTRATIVE EXPENSES. Selling, marketing, and
administrative expenses decreased $18.3 million and improved by 6.4 percentage
points as a percent of net sales in 1996 compared to 1995. Included in 1996
expenses were selling, marketing, and administrative expenses of $131.9 million
directly attributable to the Sunshine business; while 1995 included expenses of
$87.4 million directly associated with the Salty Snacks business (excluding
allocation of the fixed portions of selling, distribution, and administrative
expenses). Excluding these influences, selling, marketing, and administrative
expenses decreased in 1996 compared to 1995 by $62.8





                                       9
<PAGE>   10

million. The improvement was principally accomplished through a targeted
marketing plan behind Keebler products and Keebler's cost reduction program to
rationalize the selling and administrative cost structure. In 1996, the
Company's focus on spending for trade promotions at the store level resulted in
higher trade allowances which were more than offset by the $49.5 million
decrease in national advertising and consumer promotions. The cost reductions in
the selling and administrative structures were achieved primarily through
headcount reductions of approximately 1,740 and changing from a relatively
higher cost step-van selling organization to independent distributors to serve
the convenience store channel. A decrease in research and development costs of
$9.6 million was primarily attributed to headcount reductions, more focused new
product programs in 1996, and lower project activity due in part to the
liquidation of the Salty Snacks business prior to the Keebler acquisition. The
cost reductions more than offset increased administrative expenses of management
incentives and increased depreciation as a result of the Keebler and Sunshine
acquisitions.

    OTHER. Other income and expense for 1996 was $7.2 million compared to $1.4
million of income for 1995. Other expense in 1996 consisted of $5.2 million of
amortization resulting from both the Keebler and Sunshine acquisitions and bank
service charges. In 1995, other income and expense consisted of $1.7 million of
amortization expense, $1.4 million of miscellaneous expenses and bank service
charges, and other income of $4.5 million representing the gain on the sale of
interests in certain logos, trade names, trademarks, and service marks
registered or pending registration in Australia, New Zealand, Asia, and Europe.

    INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
was $44.7 million in 1996, an improvement of $182.5 million over the loss from
continuing operations for 1995. After adjusting the 1995 net operating loss of
$137.9 million for the $25.6 million loss in the Salty Snacks business and the
impairment write down of $86.5 million associated with that business, the
earnings improvement in 1996 over 1995 was $70.5 million. The turnaround
resulted from improved gross margins on Keebler brands, more efficient marketing
expenditures, and cost savings achieved in sales and distribution and corporate
overhead. The cumulative savings from these initiatives more than offset
incremental depreciation and amortization expense totaling $9.7 million recorded
as a result of the Keebler and Sunshine acquisitions.

    INTEREST EXPENSE. For 1996, net interest expense was $38.4 million compared
to $28.3 million in 1995. The increase was due to the amortization of debt
issuance costs and higher overall borrowings carrying a higher average interest
rate as compared to the prior year.

    INCOME TAXES. The Company provided for income taxes at an effective tax rate
of 44.2% for the forty-eight weeks ended December 28, 1996. The predecessor
company did not provide for any income tax expense for the four weeks ended
January 26, 1996. The effective tax rate was higher than the statutory rate
because of nondeductible expenses (principally, amortization of intangibles,
including trademarks, trade names, and goodwill). In 1995, there was no current
provision for income taxes due to operating losses incurred and the inability to
carryback the losses to recover taxes paid in prior years. As part of the
Keebler acquisition, the Company adjusted the valuation allowance on deferred
taxes by $25.1 million to reflect the elimination of certain deferred tax assets
revalued in the purchase price allocation. The deferred tax valuation allowance
of $84.4 million at December 28, 1996 provided for the uncertainty in realizing
the deductibility of deferred tax assets recognized. The predecessor company,
pursuant to the terms of the Keebler acquisition, retained the right to use the
net operating losses for potential carrybacks. Any unused operating losses are
then available to Keebler, but are significantly restricted under current tax
law. Therefore, all net operating loss carryforwards have been fully reserved
due to the uncertainty of their realization.

    DISCONTINUED OPERATIONS. During 1995, the predecessor company decided to
dispose of the Frozen Food businesses and, therefore, presented the operations
of those businesses as a discontinued item in the statement of operations. In
the first four weeks of 1996, a gain of $18.9 million net of income taxes on the
disposal of the Frozen Food businesses was recognized.

    EXTRAORDINARY ITEM NET OF INCOME TAXES. A before-tax extraordinary loss of
$3.2 million on the early extinguishment of debt was recorded in the second
quarter of 1996. The loss consisted primarily of the write-off of unamortized
bank fees incurred when the Company replaced the Keebler acquisition bridge loan
with the Notes. The tax benefit on the extraordinary loss was $1.3 million
resulting in an after-tax loss of $1.9 million.




                                       10
<PAGE>   11


    NET INCOME (LOSS). Net income of $9.3 million for 1996 represented a
substantial improvement over the $158.3 million net loss for the prior year. The
improvement was attributable to operating improvements, the divestiture of the
unprofitable Salty Snacks business, and the recognized gain of $18.9 million on
the disposition of the Frozen Food businesses.

LIQUIDITY AND CAPITAL RESOURCES

    A condensed cash flow statement of the Company follows:

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                  ------------------------------------------------
                                                    January 3,      December 28,     December 30,
                                                       1998            1996              1995
                                                  --------------   --------------   --------------
                                                                   (IN MILLIONS)
<S>                                               <C>              <C>              <C>
CASH PROVIDED FROM (USED BY)
  Operating activities...........................    $   218.3         $   52.8         $  (61.4)
  Investing activities...........................        (41.5)           (64.9)           (52.6)
  Financing activities...........................       (161.6)            21.1            104.4
                                                     ---------         --------         --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.    $    15.2         $    9.0         $   (9.6)
                                                    ==========         ========         ========

</TABLE>

    CASH FLOW FOR 1997

    During 1997, cash provided from operating activities was $218.3 million. The
primary contributors to the positive cash flow for the year were net earnings of
$57.0 million, a lower investment in trade accounts receivable, and reduced
funding of current liabilities and income taxes. Improved accounts receivable
collection procedures provided $38.2 million of working capital. The reduced
funding of current liabilities was attributable primarily to the timing of
payments, while the increase in income taxes payable was attributable to a $47.7
million increase in earnings over the prior year. Partially offsetting these
benefits was spending on plant and facility closing costs and severance and the
payment of an arbitration award. Spending on plant and facility closing costs
and severance relating to exit costs associated with the Keebler and Sunshine
acquisitions, although down from the prior year, accounted for $13.7 million of
cash used by operations for the year ended January 3, 1998. Spending on plant
and facility closing costs and severance is expected to conclude by the end of
1998, with the exception of noncancellable lease obligations which are expected
to continue until 2004. In addition, the Company paid an arbitration award
regarding a contract production arrangement, which was entered into by the
predecessor company, in the amount of $6.8 million plus legal fees.

    Cash used by investing activities of $41.5 million for 1997 was primarily
used to fund capital expenditures. Capital spending of $48.4 million was made
principally to enhance, update or realign the existing production lines, provide
distribution and production efficiencies, and to achieve near-term cost savings.
Proceeds received from asset disposals of $7.0 million partially offset capital
expenditures. The sale of the Santa Fe Springs plant accounted for $3.6 million
of the year-to-date proceeds, with the remainder of the proceeds provided mainly
from the sale of trucks and machinery and equipment. The Company continues to
carry the Atlanta, Georgia manufacturing facility as an asset held for sale and
expects the disposition to occur before the end of 1998 without a significant
gain or loss.

    Cash used by financing activities in 1997 was $161.6 million. In 1997, the
Company entered into an amendment and restatement of the Credit Agreement,
proceeds from which were used to extinguish existing term loans under the Credit
Agreement of $153.6 million. The extinguishment was funded primarily by a draw
down on the revolving loan facility and $109.8 million under a new term loan, in
each case under the Credit Agreement. During 1997, the draw down on the
revolving loan facility was completely repaid. Additionally, in the fourth
quarter of 1997, the Company extinguished $29.0 million of debt related to the
Seller Note and made $70.0 million in principal pre-payments on the term loan
under the Credit Agreement using existing cash resources. Scheduled principal
payments of $18.7 million were made during the year on the term loan and other
debt.


                                       11
<PAGE>   12

    CASH FLOW FOR 1996 AND 1995

    Cash provided from operating activities increased $114.2 million in 1996
over the cash used in operations in 1995. The significant increase reflects the
net earnings improvement along with improved working capital management.
Adjusting the 1995 net loss of $158.3 million by both the $86.5 million loss
recorded on the impairment of the Salty Snacks business and the Salty Snacks
business operating loss of $25.6 million, yields a 1995 net loss of $46.2
million compared to 1996 net income of $9.3 million. The net earnings
improvement of $55.5 million was achieved through increased revenues attributed
to price increases, a more profitable sales mix, and cost reductions. Lower
costs resulted from lower fixed overhead, reduced selling, distribution, and
administrative expense resulting from headcount reductions, and more effective
marketing spending. The improved cash provided by working capital resulted from
a sustained improvement in cash collections of accounts receivable and higher
accounts payable. The additional cash provided from working capital more than
funded the combined $41.3 million of spending on plant and facility closing
costs and severance, as a result of actions in connection with the Keebler and
Sunshine acquisitions. Keebler believes that spending on plant and facility
closing costs and severance should be substantially completed over the next two
years. Only noncancellable lease obligations are expected to exceed such
two-year time frame.

    Cash used by investing activities was $64.9 million in 1996 compared to
$52.6 million in 1995. The cash used in 1996 was directly attributable to the
$142.7 million used to finance the Sunshine acquisition. Offsetting this use of
cash was the receipt of $32.6 million working capital adjustment paid by UB
Investments (Netherlands) B.V. in connection with the Keebler acquisition and a
$67.7 million source of cash received by the predecessor company resulting from
the disposition of the Frozen Food businesses. Capital expenditures were $32.6
million and $55.4 million in 1996 and 1995, respectively. In 1996 under current
management, capital projects were mostly designed to generate near-term cost
savings and to complete the investment in improved management information
systems. Capital expenditures in 1996 were down from the prior years reflecting
the near completion of the installation of the Company's SAP R/3 management
information system and tighter restrictions on additional capital expenditures.
The Company believes that the capital expenditure program will continue at a
level sufficient to support its strategies and operating needs.

    Cash flow provided from financing activities decreased $83.3 million in 1996
from 1995. In 1996, the $21.1 million cash provided from financing activities
was comprised of $220.0 million in long-term debt borrowings of which $95.0
million was used to finance the Sunshine acquisition. An additional $125.0
million of borrowings represents the issuance of the Notes which was done to
refinance the bridge loan used to finance the Keebler acquisition. Draw downs
and repayments on the revolving loan facility were $37.2 million of which $19.0
million was used to finance a portion of the Sunshine acquisition. The remaining
$18.2 million was used to finance working capital requirements. Offsetting these
sources was $63.3 million paid by the predecessor company to settle commercial
paper and revolving credit obligations and $2.4 million of principal payments on
equipment obligations. The cash provided from financing activities of $104.4
million in 1995 was through commercial paper borrowings used to finance
operating losses, capital expenditures, and cash spent on restructuring
initiatives.

LIQUIDITY

    The Company's liquidity in 1997 and 1996 was provided from a revolving loan
facility. In 1996 available borrowings under the revolving loan facility were
$155.0 million which was reduced to $140.0 million in 1997. Borrowings under the
revolving loan facility in 1997 and 1996 were $32.8 million and $37.2 million,
respectively, all of which had been repaid as of January 3, 1998 and December
28, 1996. In 1995, borrowings for the predecessor company were provided by a
$200.0 million commercial paper program and a revolving credit agreement. Both
the commercial paper program and revolving credit agreement were no longer
available after the Keebler acquisition.

    Capital expenditures for 1998 are expected to be approximately $50.0
million, up nearly $2.0 million from 1997. The majority of capital spending in
1998 will be used to increase the automation in production and distribution
facilities to obtain cost savings. The Company anticipates that capital
expenditures will be funded from cash provided by working capital.





                                       12
<PAGE>   13

    The Company historically has not paid dividends, currently does not
anticipate paying dividends, and intends to retain all future earnings to fund
the development and growth of the business. The existing Credit Agreement and
the Notes place limitations on the Company's ability to pay dividends or make
other distributions on its common stock. Additionally, the Credit Agreement
requires the Company to meet certain financial covenants including net worth;
earnings before interest, taxes, depreciation, and amortization; and cash flow
and interest coverage ratios. In 1997 and 1996, the Company met all financial
covenants in all of its financing agreements. Total debt was $298.8 million,
$457.9 million, and $437.6 million as of January 3, 1998, December 28, 1996, and
December 30, 1995, respectively. Current maturities on the total debt
outstanding were $26.4 million, $18.6 million, and $286.5 million as of such
respective dates. Cash and cash equivalents on January 3, 1998, December 28,
1996, and December 30, 1995 were $27.2 million, $12.0 million, and $3.0 million,
respectively.

    Concurrent with the Offering, Bermore exercised a warrant in exchange for
6,135,781 shares of common stock. The exercise of the warrant resulted in the
Company receiving $19.8 million of cash proceeds on February 3, 1998. At the
time of the Offering, the Company was also required to make an offer to the
holders of the Notes to purchase the Notes at 101% of the principal amount. None
of the holders sold into the change of control offer on the Notes. The Company
believes that available cash, as well as existing credit facilities, are
sufficient to meet the Company's normal operating requirements for the
foreseeable future.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective in fiscal year 1998. The new statement
establishes standards for reporting and the display of comprehensive income and
its components (revenues, expenses, gains, and losses) in the financial
statements. The statement requires all items recognized under accounting
standards as components of comprehensive income be reported in a financial
statement displayed with the same prominence as other financial statements. The
Company has not yet determined the impact the new statement may have on
disclosures in the consolidated financial statements.

    Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective in fiscal year
1999. The new statement revises standards for public companies to report
information about segments of the business and also requires disclosure of
selected segment information in quarterly financial reports. The statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company has not yet determined the
impact the new statement may have on disclosures in the consolidated financial
statements.

    In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective in fiscal
year 1998. The new statement improves disclosures about pensions and other
postretirement benefits to provide information to analyze: the benefit
obligation, the fair value of the plan assets, and changes to the obligation and
fair value of plan assets, including unrecognized gains and losses. In addition,
the statement provides information on the quality of earnings, including
recognized and unrecognized amounts used when projecting benefit costs and
earnings of future periods. The Company has not yet determined the impact the
new statement may have on disclosures in the consolidated financial statements.

    The FASB also issued certain other disclosure-related accounting
pronouncements during 1997. While these new statements are effective for future
reporting periods, the Company does not anticipate they will have any
significant impact on the consolidated financial statements.

SEASONALITY

    The Company's net sales, net income, and cash flows are affected by the
timing of new product introductions, promotional activities, price increases,
and a seasonal sales bias toward the second half of the year due to events such
as back-to-school, Thanksgiving, and Christmas. The relative mix between cookie
and cracker sales varies throughout the year with stronger cracker sales in the
last quarter of the calendar year.




                                       13
<PAGE>   14


SELF INSURANCE

    The Company purchases insurance coverage for worker's compensation, general,
product, and vehicle liability maintaining certain levels of retained risk
(self-insured portion). Potential losses relating to claims under the
self-insured portion of the policies are accrued in accordance with the
requirements of SFAS No. 5, "Accounting for Contingencies." There are no
unasserted claims that require a reserve or disclosure in accordance with SFAS
No. 5.

FORWARD-LOOKING STATEMENTS

    When used in this discussion, the words "believes" and "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, over which the Company has no
control, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligations to republish revised forward-looking statements to
reflect events or circumstances after the date thereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company, in this report, as
well as the Company's periodic reports filed with the Securities and Exchange
Commission.












                                       14