<PAGE>   1
                                                                    EXHIBIT 99.1

ITEM 6.       SELECTED FINANCIAL DATA

    The selected historical financial data presented below as of and for the
year ended January 2, 1999, the year ended January 3, 1998, the forty-eight
weeks ended December 28, 1996 and the four weeks ended January 26, 1996, have
been derived from, and should be read in conjunction with the historical
consolidated financial statements of Keebler 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 30, 1995 and December 31, 1994 have been derived from the consolidated
financial statements of the predecessor company that are not included herein.
The distinction between Keebler 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 "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 Weeks         Year Ended 
                                            Year Ended  Year Ended  Weeks Ended ||    Ended     -------------------------
                                            January 2,  January 3,  December 28,|| January 26,  December 30, December 31,
                                             1999 (a)      1998        1996 (b) ||     1996         1995         1994
                                          ------------ ------------ ------------|| ------------ ------------ ------------
                                            (In Millions Except Per Share Data) ||              (In Millions)
<S>                                       <C>          <C>          <C>         || <C>          <C>          <C>
                                                                                ||
OPERATING DATA:                                                                 ||
Net sales...............................    $ 2,226.5    $ 2,065.2    $ 1,645.5 ||   $   101.7    $ 1,578.6    $ 1,599.7
Gross profit............................      1,287.6      1,177.2        871.3 ||        46.8        831.8        894.2
Loss on impairment of Salty Snacks                                              ||
  business..............................            -            -            - ||           -         86.5            -
Income (loss) from continuing operations        196.1        141.4         70.1 ||       (25.5)      (137.9)        46.4
Income tax expense (benefit)............         73.0         45.2         14.0 ||           -         (0.5)        (1.1)
Discontinued operations:                                                        ||
  Income from operations of discontinued                                        ||
    Frozen Food businesses, net of tax..            -            -            - ||           -          7.4          3.4
  Gain on disposal of Frozen Food                                               ||
    businesses, net of tax..............            -            -            - ||        18.9            -            -
Extraordinary item:                                                             ||
  Loss on early extinguishment of debt,                                         ||
    net of tax..........................          1.7          5.4          1.9 ||           -            -            -
Net income (loss).......................    $    94.9    $    57.0    $    15.8 ||   $    (6.5)   $  (158.3)   $   (23.0)
                                                                                ||
Diluted net income per share:                                                   ||
  Income from continuing operations                                             ||
    before extraordinary item...........    $    1.10    $    0.77    $    0.23 ||
  Extraordinary item....................         0.02         0.07         0.02 ||
                                          ------------ ------------ ------------||
  Net income............................    $    1.08    $    0.70    $    0.21 ||
                                          ============ ============ ============||
                                                                                ||
Weighted Average Shares Outstanding.....         87.5         80.6         76.1 ||
                                          ============ ============ ============||
OTHER DATA:                                                                     ||
EBITDA, as adjusted (c).................    $   265.2    $   202.1    $   119.6 ||   $   (23.5)   $   (93.3)   $    89.5
Depreciation and amortization (excluding                                        ||
  items related to discontinued                                                 ||         
  operations)...........................         69.1         60.7         49.5 ||         2.0         44.6         43.1           
Capital expenditures (excluding                                                 ||
  expenditures related to discontinued                                          ||
  operations)...........................         66.8         48.4         29.4 ||         3.2         54.2         54.6
                                                                                ||
CASH FLOW DATA:                                                                 ||
Cash Provided from (Used by)                                                    ||
  Operating activities..................    $   142.7    $   218.3    $    53.2 ||   $    (0.4)   $   (61.4)   $   (17.4)
  Investing activities..................       (510.7)       (41.5)      (130.1)||        65.2        (52.6)       (45.9)
  Financing activities..................        364.3       (161.6)        86.8 ||       (65.7)       104.4         69.4
                                          ------------ ------------ ------------|| ------------ ------------ ------------
(Decrease) increase in cash and cash                                            ||
  equivalents...........................    $    (3.7)   $    15.2    $     9.9 ||   $    (0.9)   $    (9.6)   $     6.1
                                          ============ ============ ============|| ============ ============ ============
----------------------------------------------------------------
(a)    Includes the operating results of President from the acquisition date of September 28, 1998 through January 2,
       1999. Other matters affecting comparability are detailed in Item 7. Management's Discussion and Analysis of
       Financial Condition and Results of Operations.
(b)    Includes the operating results of Sunshine from the 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.
(c)    EBITDA, as adjusted, is defined as income (loss) from continuing operations before interest, taxes, depreciation,
       amortization and restructuring charges (gains).
</TABLE>
                                       9
<PAGE>   2
<TABLE>
<CAPTION>
                                                   Keebler Foods Company        ||                  UBIUS
                                          --------------------------------------|| --------------------------------------
                                                           As of                ||                  As of
                                          --------------------------------------|| --------------------------------------
                                           January 2,   January 3,  December 28,|| January 26,  December 30, December 31,
                                              1999         1998         1996    ||     1996         1995         1994
                                          ------------ ------------ ------------|| ------------ ------------ ------------
                                                       (In Millions)            ||              (In Millions)
<S>                                       <C>          <C>          <C>         || <C>          <C>          <C>
                                                                                ||
BALANCE SHEET DATA:                                                             ||
Cash and cash equivalents...............    $    23.5    $    27.2    $    12.0 ||   $     2.1    $     3.0    $    12.5
Total assets............................      1,655.8      1,042.9      1,102.1 ||       849.1        926.9      1,001.2
Due to affiliate........................            -            -            - ||       105.0        108.0        551.6
Total debt (including capital leases)...        654.5        298.8        457.9 ||       371.4        437.6        333.2
Shareholders' equity (deficit)..........        329.3        222.0        165.1 ||        45.3         51.8       (234.9)
</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 2, 1999, JANUARY 3, 1998 AND DECEMBER 28,
1996. 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 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.

OVERVIEW    

    GENERAL
   
    We sell cookies and crackers, custom-baked products to other manufacturers
of branded food products, pie crusts and ice cream cones. Our net sales are
principally affected by product pricing and quality, brand recognition, new
product introductions, product line extensions, marketing and service. We manage
these factors to achieve a sales mix favoring our higher margin products while
driving volume through our national DSD distribution system.
   
    The principal elements comprising our cost of sales are raw and packaging
materials, labor and manufacturing overhead. The major raw materials that we use
in the manufacture of our products are flour, sugar, chocolate, shortening and
milk. We also use paper products, such as corrugated cardboard, as well as films
and plastics to package our products. The prices of these raw materials have
been subject to significant volatility. We have mitigated the effect of such
volatility in the past through our hedging programs, but may not be successful
in protecting our business from price increases in the future. In addition to
the foregoing factors, our cost of sales are affected by the efficiency of
production methods and manufacturing capacity utilization.
   
    Our selling, marketing and administrative expenses are comprised mainly of
labor and lease costs associated with our national DSD distribution system,
trade and consumer promotion costs, other advertising costs and the cost of our
corporate offices. While costs associated with our national DSD distribution
system and the cost of our corporate offices are generally fixed, promotion and
other advertising costs are more variable. Promotion and other advertising costs
represent the largest component of our cost structure other than cost of sales
and are principally influenced by changes in net sales.
   
    We are in the process of integrating President into our operations. In
connection with this integration, we are currently undertaking a complete
analysis of our system-wide manufacturing and distribution operations as we
assess opportunities to improve our operational efficiencies in 1999 and beyond.
We currently anticipate that we will take a restructuring charge during 1999
when our analysis and related plans are finalized.
                                       10
<PAGE>   3
    MATTERS AFFECTING COMPARABILITY

    Keebler's fiscal year consists of thirteen four week periods (fifty-two or
fifty-three weeks) and ends on the Saturday nearest December 31. The 1998 fiscal
year consists of fifty-two weeks and 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.

    Keebler'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 2, 1999 and January 3, 1998. Keebler's operating
results for the year ended January 2, 1999 include the operating results of
President from the acquisition date of September 28, 1998. Keebler'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 subsequent years
include the operating results of Sunshine for the entire year. Additionally,
Keebler's operating results have been restated to reflect the Merger with INFLO
as if it had been effective January 26, 1996.

RESULTS OF OPERATIONS

    Keebler's results of operations, expressed as a percentage of net sales, for
the last three years ended January 2, 1999, January 3, 1998 and December 28,
1996 are set forth below:
<TABLE>
<CAPTION>
                                                                                      Years Ended
                                                                    ------------------------------------------------
                                                                      January 2,       January 3,      December 28,
                                                                         1999             1998             1996
                                                                    --------------   --------------   --------------
<S>                                                                 <C>              <C>              <C>    
 NET SALES.......................................................         100.0%           100.0%           100.0%
 Cost of sales...................................................          42.2             43.0             47.5
 Selling, marketing and administrative expenses..................          48.5             49.7             49.6
 INCOME FROM CONTINUING OPERATIONS...............................           8.8              6.8              2.5
 Interest Expense, Net...........................................           1.2              1.6              2.2
 Loss on early extinguishment of debt, net of tax................             -              0.3              0.1
 NET INCOME......................................................           4.3%             2.7%             0.5%
</TABLE>    

    Keebler's reportable segments are Branded and Specialty, which were
determined using Keebler's method of internal reporting, which divides and
analyzes the business by sales channel. The reportable segments represent an
aggregation of similar sales channels. We evaluate the performance of the
reportable segments and allocate resources based on the segment's profit
contribution, defined as earnings before certain functional support costs,
amortization, interest and income taxes. While the accounting policies for each
reportable segment are the same as for the total company, the cost of sales used
to determine a segment's profit contribution is calculated using standard costs
for each product, whereas actual cost of sales is used to determine consolidated
operating income (loss).    
  
    BRANDED SEGMENT

    The Branded segment sells a number of well-recognized products, primarily to
retail outlets such as supermarkets, mass merchandisers, warehouse club stores,
convenience stores and drug stores. This segment also imports and distributes
CARR'S crackers in the U.S. under an exclusive long-term licensing and
distribution agreement with United Biscuits.
<TABLE>
<CAPTION>
                                                          Years Ended
                          ----------------------------------------------------------------------------
                               January 2, 1999           January 3, 1998         December 28, 1996
                          ------------------------  ------------------------  ------------------------
                                $           %             $           %             $           %
                          ------------- ----------  ------------- ----------  ------------- ----------
                                                         ($ IN MILLIONS)
   <S>                    <C>           <C>         <C>           <C>         <C>           <C>
   NET SALES                $  1,726.7                $  1,566.7                $  1,247.9
                                                                                    
   PROFIT CONTRIBUTION      $    282.6      16.4%     $    226.9     14.5%      $    154.0      12.3%
                                                                                   
</TABLE>                                       11
<PAGE>   4
    Net sales in the Branded segment increased 10.2% in 1998 to $1,726.7
million. The acquisition of President contributed $78.9 million in incremental
revenue. Adjusting to an equal number of selling days and before including the
acquisition growth, branded revenues grew 6.7% over the prior year. The primary
drivers of the increase were higher sales of products under both the KEEBLER and
CHEEZ-IT brands. The KEEBLER brand name was used to leverage new product
introductions through line extensions such as the KEEBLER PEANUT BUTTER FUDGE
STICKS. The growth in CHEEZ-IT sales was partly attributed to new products such
as CHEEZ-IT HEADS AND TAILS, CHEEZ-IT sandwich crackers and CHEEZ-IT snack mix.
Additionally, we redirected marketing support into brand-building advertising
and consumer promotions. For example, with this support, sales of KEEBLER FUDGE
SHOPPE cookies and CHEEZ-IT products grew in 1998, with CHEEZ-IT products
increasing 22.1% over 1997. A favorable sales mix of KEEBLER branded products,
combined with selected price increases, also generated higher revenues. Further
contributing to the improvement was continued revenue growth outside
supermarkets, such as in mass merchandisers, convenience and club stores. Net
sales in 1997 were 25.6% higher compared to 1996. Revenue growth in 1997 was
achieved by incremental sales associated with the Sunshine acquisition as well
as increased volumes. In 1996, sales of Sunshine products by the Branded segment
were approximately $216.0 million from the acquisition date until year end
compared to approximately $486.0 million for all of 1997. Successful new product
introductions and growth in the retail businesses outside supermarkets also
propelled increased volume.

   The Branded segment had a 1998 profit contribution of $282.6 million or
16.4% of net sales. After removing the impact of President, profit contribution
was 16.8% of net sales, which represented a 2.3 percentage point increase over
1997. A higher gross profit and lower distribution expenses drove the
improvement. The benefit noted in gross profit was attributed to improved sales
mix, selected price increases and continued productivity gains in our bakeries.
Lower distribution expenses were due to more fully utilizing available trailer
capacity and productivity and cost savings programs designed to minimize
inventory losses. The 1997 profit contribution of $226.9 million was 14.5% of
net sales compared to the 1996 profit contribution of 12.3% of net sales. A
higher gross profit was also the main contributor to the 2.2 percentage point
improvement in the 1997 profit contribution. After discontinuing several less
profitable products in 1996, the 1997 sales mix consisted of higher margin
products. Additionally, the 1997 profit contribution reflected lower prices on
certain raw materials and lower production costs due to the implementation of
several productivity programs in our manufacturing facilities. Selling and
distribution expenses also decreased as a percent of net sales due to increased
volume coupled with the benefit of cost reduction initiatives. Somewhat
offsetting these improvements were higher marketing expenses primarily spent on
brand-building, national advertising.    

   SPECIALTY SEGMENT

   The Specialty segment produces cookies and crackers for the foodservice
market, the Girl Scouts of America and private label retailers. In addition, we
also produce custom-baked products for other marketers of branded food products.
<TABLE>
<CAPTION>
                                                         Years Ended
                          ----------------------------------------------------------------------------
                               January 2, 1999           January 3, 1998         December 28, 1996
                          ------------------------  ------------------------  ------------------------
                                $           %             $           %             $           %
                          ------------- ----------  ------------- ----------  ------------- ----------
                                                             ($ IN MILLIONS)
   <S>                    <C>           <C>         <C>           <C>         <C>           <C>
   NET SALES                 $  499.8                   $  498.5                  $  499.3
                                                                                    
   PROFIT CONTRIBUTION       $   85.9        17.2%      $   80.3       16.1%      $   58.2       11.7%
</TABLE> 
    Net revenues in the Specialty segment in 1998 were flat compared to 1997.
The acquisition of President contributed $16.2 million of incremental sales.
Adjusting to an equal number of selling days and before including the
acquisition growth, net sales in the Specialty segment were $9.0 million, or
1.8%, below 1997. Net sales in 1997 were also flat compared to 1996. While an
improved sales mix benefited each year, the overall decrease in net sales for
each year-on-year comparison was principally associated with lower margin
products that were either discontinued or re-positioned at higher price levels.
Volume declines in custom-baked products in 1997 also served to offset gains
received from selected price increases.                                       
                                      12
<PAGE>   5
    The Specialty segment's profit contribution of $85.9 million was 1.1
percentage point above the prior year, as a percent of net sales. Before
considering the impact of President, profit contribution was 17.3% of net sales
in 1998 compared to 16.1% in 1997. The improvement in profit contribution was
primarily achieved by a more profitable sales mix, selected price increases and
productivity gains received through bakery automation projects and supply chain
initiatives in distribution and inventory management. Profit contribution was
$80.3 million in 1997 which resulted in a 4.4 percentage point increase in
profit contribution over 1996 that was principally driven by a more favorable
sales mix in 1997 coupled with growth in sales of private label products. Lower
raw material costs in 1997 also contributed to the profit contribution
improvement.    

    COST OF SALES
   
    Cost of sales was $938.9 million in 1998 which included an additional $61.3
million related to cost of sales for President that was not included in prior
years. Excluding the impact of President, cost of sales, as a percent of net
sales, was 41.2% for 1998 compared to 43.0% in 1997 and 47.5% in 1996. The
improvements made in each year were principally achieved from initiatives
implemented to increase automation and productivity at our manufacturing
facilities along with other cost reduction programs. The streamlining of our
manufacturing facilities, creating increased capacity utilization, also
contributed to a lower cost of sales. Additionally, the cost of certain raw and
packaging materials has declined from previous years.
   
    SELLING, MARKETING AND ADMINISTRATIVE EXPENSES
   
    Selling, marketing and administrative expenses were $53.8 million higher
compared to 1997, however, 1.2 percentage points better as a percent of net
sales. After removing $27.2 million of additional expense attributable to
President, selling, marketing and administrative expenses were $26.6 million
above the prior year. Higher marketing expenses related to our continued focus
on building brand equity through advertising and consumer promotions was the
primary driver of the increased spending. Partially offsetting these higher
marketing expenses were savings achieved in distribution costs due to improved
inventory handling and deployment. In 1997, selling, marketing and
administrative spending increased $160.0 million compared to 1996, yet remained
consistent as a percentage of net sales. Increased spending was driven by higher
volume captured through both internal growth and the Sunshine acquisition. In
1997, we began spending more on advertising and other consumer promotions to
create increased brand and consumer awareness. Selling, marketing and
administrative expenses remained comparable as a percent of net sales in 1997
and 1996 due to higher volumes passing through a more efficient, fixed cost,
selling and distribution network. 

    INTEREST EXPENSE

    Interest expense was $26.5 million in 1998, $33.8 million in 1997 and $38.4
million in 1996. The steady decline was primarily due to both a continuing
overall lower average debt balance and more favorable interest rates. Interest
expense declined from 1997, despite the $530.0 million of additional debt
incurred from the acquisition of President, due to lower interest rates, fees
and favorable terms. In conjunction with the President acquisition, the $145.0
million outstanding balance on the term note was extinguished, also contributing
to the reduction in interest expense. The 1997 decrease in the average debt
balance from 1996 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 1998 weighted average interest rate was 0.62 percentage points lower than
the previous year while the 1997 weighted average rate was 0.28 percentage
points lower than 1996. 

    INCOME TAXES

    Income taxes were provided at an effective tax rate of 43% in 1998, 42% in
1997 and 44.2% in 1996. In each year, the effective tax rate exceeded the
statutory rate due to nondeductible expenses, principally amortization of
intangibles, including trademarks, trade names, other intangibles and goodwill.
The 1.0 percentage point increase in the effective tax rate from 1997 to 1998
was due primarily to the increase in nondeductible expenses, principally the
amortization of intangibles, resulting from the President acquisition. The
effective tax rate declined in 1997, compared to 1996, as earnings were
significantly higher in 1997, thereby reducing the impact of nondeductible
expenses, such as amortization of intangibles, on the calculation of the
effective tax rate. Income tax expense was
                                       13
<PAGE>   6
not provided for during the first four weeks of 1996. As part of the Keebler
acquisition, the valuation allowance on deferred taxes was adjusted by $25.1
million to reflect the elimination of certain deferred tax assets revalued in
the purchase price allocation. We carried a deferred tax valuation allowance of
$84.4 million at January 2, 1999, 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 us, 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 the latter part of 1998, an after-tax extraordinary charge of $1.7
million was recorded for the write-off of unamortized bank fees related to the
early extinguishment of the term note. Similarly, in 1997 and 1996, we also
recorded extraordinary charges, net of income taxes, of $5.4 million and $1.9
million, respectively. In 1997, $3.8 million of the extraordinary charges, net
of tax, also related to the write-off of debt issuance costs associated with the
early retirement of term loans. An additional $1.6 million, net of income taxes,
extraordinary charge was recorded due to a loss on the early extinguishment of
the seller note which was entered into at the time of the Keebler acquisition.
The 1996 extraordinary charge of $1.9 million, net of income taxes, related to
the write-off of debt issuance costs made in connection with the $125.0 million
early extinguishment of increasing rate notes.

    NET INCOME

    In 1998, net income of $94.9 million was 66.5% higher than the prior year
and net income of $57.0 million for 1997 was $47.7 million above 1996. The
substantial growth in net earnings in year-over-year comparisons was achieved
through revenue gains combined with lower operating expenses resulting from
productivity and cost savings programs. Revenue growth in both 1998 and 1997 was
achieved through volume increases, higher prices and an improved sales mix.
Compared to 1996, 1997 also benefited from increased revenue due to the
inclusion of the Sunshine business for the entire fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

    A condensed cash flow statement of Keebler follows:
<TABLE>
<CAPTION>
                                                                         Years Ended
                                                  ------------------------------------------------------------
                                                      January 2,          January 3,            December 28, 
                                                        1999                 1998                   1996
                                                  -----------------    ------------------    -----------------
                                                                         (IN MILLIONS)
<S>                                               <C>                  <C>                   <C>    
CASH PROVIDED FROM (USED BY)
  Operating activities...........................     $    142.7           $     218.3           $     52.8
  Investing activities...........................         (510.7)                (41.5)               (64.9)
  Financing activities...........................          364.3                (161.6)                21.1
                                                  -----------------    ------------------    -----------------
 (DECREASE) INCREASE IN CASH AND CASH
   EQUIVALENTS...................................     $     (3.7)          $      15.2           $      9.0
                                                  =================    ==================    =================
</TABLE>                                       14
<PAGE>   7
    CASH FLOW FOR 1998

    Operating activities provided $142.7 million of cash during 1998. Net
earnings of $94.9 million coupled with the deferral of additional income taxes
were the primary drivers of the favorable cash flow. Partially offsetting these
sources of cash was an increased investment in inventories and trade accounts
receivable of $13.8 million and $5.1 million, respectively. A build in finished
goods, principally associated with the upcoming Girl Scout cookie season,
accounted for the larger investment in inventory. The increase in trade accounts
receivable was due principally to the addition of the President's trade accounts
receivable subsequent to the acquisition. Also offsetting these cash sources was
$5.4 million of current year net spending for plant and facility closing costs
and severance related to the exit costs associated with the Keebler, Sunshine
and President acquisitions. Spending on plant and facility closing costs and
severance is expected to be substantially completed by the end of 1999, except
for noncancelable lease obligations which are expected to continue until 2006.
Higher income tax payments attributable to a $62.0 million increase in pre-tax
income over the prior year also offset the positive cash flow.

    Cash used by investing activities was $510.7 million, of which $444.8
million, net of cash acquired, was attributable to the acquisition of President
in September 1998. An additional $66.8 million of capital spending was made for
modifications related to new products, to update and enhance production
facilities and to achieve near-term cost savings and efficiencies in the
manufacturing, sales and distribution process. At year end, we held the idle
Atlanta, Georgia manufacturing facility, a distribution center in Kensington,
Connecticut and a warehouse in Houston, Texas for sale and expect the
disposition of these facilities to be completed before the end of 1999.
 
    Financing activities generated $364.3 million of cash for the year
principally from proceeds of long-term debt borrowings under $825.0 million of
available new debt facilities used to finance the acquisition of President. We
also received $19.8 million of cash proceeds resulting from Bermore exercising a
warrant in exchange for 6,135,781 shares of common stock at the time of our
initial public offering. Employee stock options exercised during the year
provided another $0.8 million of cash. These cash sources were partially offset
by the pre-payment of the $145.0 million outstanding term note balance and a
$20.0 million repayment on the revolving facility. In addition, cash totaling
$8.6 million was used to repurchase common stock into treasury under the stock
repurchase program.    

    CASH FLOW FOR 1997 AND 1996
    
    Cash provided from operating activities was $218.3 million in 1997 which was
an increase of $165.5 million over the cash provided from operations in 1996.
The primary contributors to the positive cash flow for 1997 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 1996. 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 1996, accounted for $13.7 million of cash used by operations
for the year ended January 3, 1998. Exit cost spending associated with these
acquisitions was substantially complete at the end of 1998, with the exception
of noncancelable lease obligations, which are expected to continue until 2004.
In addition, we paid an arbitration award in 1997 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 was $41.5 million in 1997 compared to
$64.9 million in 1996. The cash used in 1997 was primarily used to fund capital
expenditures. Capital expenditures were $48.4 million and $32.6 million in 1997
and 1996, respectively. In 1997, capital spending 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 in 1997 accounted for $3.6
million of the proceeds, with the remainder provided mainly from the sale of
trucks and machinery and equipment.

                                      15
<PAGE>   8
    Cash used by financing activities in 1997 was $161.6 million. In 1997, we
entered into an amendment and restatement of our prior senior credit agreement,
proceeds from which were used to extinguish existing term loans 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. During 1997, the draw
down on the revolving loan facility was completely repaid. Additionally, in the
fourth quarter of 1997, we extinguished $29.0 million of debt related to the
seller note and made $70.0 million in principal pre-payments on the term loan
using existing cash resources. Scheduled principal payments of $18.7 million
were made on the term loan and other debt during the year.

    CAPITAL RESOURCES

    In 1998 and 1997, our capital resources were provided under two separate
credit arrangements. In order to consummate the acquisition of President in
September 1998, we entered into a new Credit Facility consisting of a $350.0
million revolving facility and a $350.0 million term facility. In addition, we
also entered into a $125.0 million bridge facility that was subsequently
refinanced with a receivables facility on January 29, 1999. These new debt
facilities replaced the available $140.0 million revolving loan facility and an
existing term loan which were outstanding in 1997 and 1998 until the time of the
President acquisition. Available borrowings under the revolving facility and the
previous revolving loan facility were $265.0 million and $140.0 million in 1998
and 1997, respectively. Borrowings under the $350.0 million revolving facility
in 1998 were $105.0 million, with $20.0 million repaid as of January 2, 1999.
There were no borrowings under the $140.0 million revolving loan facility in
1998, however, there were $32.8 million of borrowings in 1997, which was all
repaid as of January 3, 1998.

    Capital expenditures for 1999 are expected to be approximately $90.0
million, up nearly $23.2 million from 1998. The majority of capital spending in
1999 will be used to increase the automation in production and distribution
facilities in order to obtain additional productivity and cost savings. We
anticipate that capital expenditures will be funded from cash provided by
operations and will continue at a level sufficient to support our strategies and
operating needs.

    Historically, we have not paid dividends, and at this time do not anticipate
paying any cash dividends. The existing Credit Facility and Notes place
limitations on our ability to pay dividends or make other distributions on our
common stock. Additionally, the Credit Facility requires us to meet certain
financial covenants including a debt to earnings before interest, taxes,
depreciation and amortization ratio and cash flow coverage ratios. In addition
to these ratios, the credit agreement also requires us to meet net worth and
interest coverage ratios. In 1998 and 1997, we met all financial covenants in
each of our financing agreements. Total debt was $654.5 million, $298.8 million
and $457.9 million as of January 2, 1999, January 3, 1998 and December 28, 1996,
respectively. Current maturities on the total debt outstanding were $112.7
million, $26.4 million and $18.6 million as of such respective dates. Cash and
cash equivalents on January 2, 1999, January 3, 1998 and December 28, 1996 were
$23.5 million, $27.2 million and $12.0 million, respectively. We believe that
available cash, as well as amounts available under our new debt facilities, will
be sufficient to meet normal operating requirements for the foreseeable future.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The new statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. The statement requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that the
instruments be measured at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. We have not yet determined the impact the new statement
may have on the consolidated financial statements.
                                       16
<PAGE>   9
SEASONALITY

    Our net sales, net income and cash flow are affected by the timing of new
product introductions, promotional activities, price increases and a seasonal
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. President's net sales, net income and cash flow historically
has been higher in the first quarter than in any other fiscal quarter because
substantially all sales of Girl Scout cookies have occurred in that quarter. For
this reason, going forward, we expect to realize proportionately higher net
sales, net income and cash flow during the first quarter of our fiscal year than
we historically have experienced.

SELF INSURANCE

    We purchase insurance coverage for worker's compensation as well as 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.

YEAR 2000 ISSUE

    The Year 2000 issue arose because many existing computer programs use only
the last two digits to refer to a year. As a result, computer programs may not
properly recognize a year that begins with "20" instead of the familiar "19." If
not corrected, many businesses are at risk for possible computer application
miscalculations or systems failures causing disruptions in business operations.
These risks are commonly referred to as the "Y2K issues."

    We utilize software and related technologies that will be affected by the
date change in the year 2000. We have completed a comprehensive review of our
computer systems and non-information technology systems to identify potential
Y2K issues. Since we have implemented the SAP R/3 management information system
and Manugistics software, both of which were developed/purchased as Y2K
compliant, we do not anticipate that the impact of Y2K issues on our business
will be material. Additionally, secondary information systems, which are not
material to our ability to forecast, manufacture or deliver product, have been
reviewed and Y2K issues identified. We are currently in the process of
correcting or upgrading these systems. We intend to be Y2K compliant on all
critical systems by the middle of 1999.

    We have undertaken efforts to verify that all of our material vendors and
suppliers will be Y2K compliant. Specifically, we sent a comprehensive
questionnaire to all of our significant suppliers and vendors regarding their
Y2K compliance in an attempt to identify any problem areas with respect to these
groups. Although the results of the questionnaire indicated that our material
vendors and suppliers intend to be Y2K compliant before the end of 1999, they
were not able to provide us any assurances. We are currently in the process of
developing a contingency plan to address any potential Y2K failures caused by a
third party. While we cannot assure that third parties will convert their
systems in a timely manner and in a way compatible with our systems, we believe
that our actions with third parties detailed above, along with the development
of a contingency plan, will minimize these risks.

    We currently estimate that the incremental costs for becoming Y2K compliant
are approximately $2.0 - $3.0 million, which will be funded from cash provided
by operations and expensed as incurred. Spending of $1.0 million against this
estimate has occurred to date. This estimate is exclusive of Y2K issues
regarding the President acquisition. We have completed a comprehensive review of
President's computer systems and non-information technology systems to identify
potential Y2K issues. Many of the Y2K risks at President will be mitigated
through our implementation of the SAP R/3 management information system,
Manugistics software and our warehouse management system at the President
facilities. We expect this implementation to be completed during 1999. We
estimate additional costs of approximately $0.3 million will be necessary to
correct or upgrade President's secondary information systems in order to make
them Y2K compliant.
                                       17
<PAGE>   10
    Based on the progress we have made in addressing our Y2K issues and our
compliance with Y2K issues on our primary business information systems, we do
not foresee significant risks associated with our Y2K compliance at this time.
As our plan is to address any significant risks associated with our Y2K issues
prior to being affected by them, a comprehensive contingency plan has not been
developed. However, if a significant risk related to our Y2K compliance or a
delay in the anticipated timeline for compliance occurs, we will develop
contingency plans as deemed necessary at that time.

    The information presented above sets forth the steps we have taken to
address the Y2K issues. We do not expect compliance with Y2K issues or the most
reasonably likely worst case scenario and related contingency plan to have a
material impact on our business, results of operations or financial condition.

    The above discussion of our efforts and expectations relating to Y2K
compliance is forward-looking. Readers are cautioned that forward-looking
statements contained in this discussion should be read in conjunction with our
disclosure under the heading "FORWARD-LOOKING STATEMENTS" that follows below.

FORWARD-LOOKING STATEMENTS

    Certain statements incorporated by reference or made in this discussion are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). These statements are subject
to the safe harbor provisions of the Reform Act. Such forward-looking statements
include, without limitation, statements about:

    o    the competitiveness of the cookie and cracker industry; 
    o    the future availability and prices of raw and packaging materials; 
    o    potential regulatory obligations;     o    our strategies and 
    o    other statements that are not historical facts.

     When used in this discussion, the words "anticipate," "believe," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements, including but not limited to:

    o    changes in general economic or business conditions (including in the
         cookie and cracker industry);    o    actions of competitors;
    o    our ability to recover material costs in the pricing of our products;
    o    the extent to which we are able to develop new products and markets for
         our products;    o    the time required for such development;
    o    the level of demand for such products and
    o    changes in our business strategies.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    The principal market risks to which we are exposed that may adversely affect
results of operations and financial position include changes in future interest
rates and raw material prices. We seek to minimize or manage these market risks
through normal operating and financing activities and through the use of
interest rate swap agreements and commodity futures and options contracts. The
use of these instruments is limited to hedging activities and they are not
entered for trading or speculative purposes. These agreements and contracts are
entered into at a corporate level and as such, any income or expense associated
with these transactions is not allocated to our reportable segments.
                                       18
<PAGE>   11
    Our exposure to market risk for changes in interest rates relates primarily
to long-term debt obligations. Our current debt structure consists of both fixed
and floating rate debt. Interest rate swap agreements are used to effectively
manage changes in interest rates related to the majority of our borrowings with
the objective of reducing overall interest costs. Sensitivity analysis was used
to assess the impact that changes in market prices have on the fair value of
interest rate swap agreements. Assuming a ten percent increase in market price,
the fair value of the interest rate swap agreements at January 2, 1999, with a
notional amount of $527.3 million, would increase the net receivable to $3.1
million, while the impact of a ten percent decrease in market price would result
in a net payable of $4.4 million.

    We enter into commodity futures and options contracts to neutralize the
impact of price increases on raw material purchases that are not likely to be
recovered through higher prices on our products. We also used sensitivity
analysis to assess the potential impact on the fair value of commodity futures
and options contracts. Assuming a ten percent increase or decrease in market
price, the fair value of open contracts with a notional amount of $61.7 million
at January 2, 1999 would be impacted by $5.8 million.