<PAGE>   1
                                                                    EXHIBIT 99.1

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

        Keebler Foods Company and UB Investments US Inc. and Subsidiaries


<TABLE>
<S>                                                                                                       <C>
FINANCIAL STATEMENTS:                                                                                     Page

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

Consolidated Balance Sheets at January 3, 1998 and December 28, 1996.....................................

Consolidated Statements of Operations 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...............................................................

Consolidated Statements of Shareholders' Equity (Deficit) 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.............................................

Consolidated Statements of Cash Flows 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...............................................................

Notes to Consolidated Financial Statements...............................................................

FINANCIAL STATEMENT SCHEDULE:

Report of Independent Accountants........................................................................
Schedule II - Valuation and Qualifying Accounts..........................................................
</TABLE>

Note:    The consolidated financial statements of the Company listed in the
         above index for Keebler include the financial statements of the
         successor company for the year ended January 3, 1998 and the forty-
         eight weeks ended December 28, 1996, and the predecessor company
         for the four weeks ended January 26, 1996, the date on which UB
         Investments US Inc., the "predecessor company," was acquired by INFLO
         Holdings Corporation, and the year ended December 30, 1995. The
         distinction between the successor company's and the predecessor
         company's consolidated financial statements has been made by inserting
         a double line between such consolidated financial statements.


                                        2

<PAGE>   2
                       REPORT OF INDEPENDENT ACCOUNTANTS

THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY

We have audited the accompanying consolidated balance sheets of Keebler Foods 
Company and Subsidiaries as of January 3, 1998 and December 28, 1996 and the
related consolidated statement of operations, shareholders' equity, and cash
flows for the year and forty-eight week period then ended. We have also audited
the consolidated statements of operations, shareholders' equity, and cash flows
of UB Investments US Inc. and Subsidiaries for the four-week period ended
January 26, 1996 and the year ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Keebler Foods
Company and Subsidiaries as of January 3, 1998 and December 28, 1996 and the
consolidated results of operations and cash flows of Keebler Foods Company and
Subsidiaries for the year ended January 3, 1998 and the forty-eight weeks then
ended December 28, 1996 and the consolidated results of operations and cash
flows of UB Investments US Inc. and Subsidiaries for the four week period ended
January 26, 1996 and the year ended December 30, 1995 in conformity with
generally accepted accounting principles.


                                             COOPERS & LYBRAND L.L.P.


Chicago, Illinois
February 18, 1998

<PAGE>   3



                              KEEBLER FOODS COMPANY

                           CONSOLIDATED BALANCE SHEETS

                (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                                   JANUARY 3,       December 28,
                                                                                     1998              1996
                                                                                  ------------    --------------

ASSETS

CURRENT ASSETS:

     <S>                                                                          <C>             <C>          
     Cash and cash equivalents                                                    $      27,188   $      11,954
     Trade accounts and notes receivable, net                                            98,963         137,150
     Inventories, net:
        Raw materials                                                                    25,543          25,296
        Package materials                                                                 7,306           9,842
        Finished goods                                                                   78,131          76,054
        Other                                                                             1,482           1,473
                                                                                  -------------   -------------
                                                                                        112,462         112,665
     Deferred income taxes                                                               42,730          55,929
     Other                                                                               20,303          19,337
                                                                                  -------------   -------------
        Total current assets                                                            301,646         337,035

PROPERTY, PLANT, AND EQUIPMENT, NET                                                     478,121         486,080

TRADEMARKS AND TRADE NAMES, NET                                                         154,146         158,033

GOODWILL, NET                                                                            47,059          48,280

PREPAID PENSION                                                                          43,060          43,359

ASSETS HELD FOR SALE                                                                      3,742           6,785

OTHER ASSETS                                                                             15,077          22,502
                                                                                  -------------   -------------

        Total assets                                                              $   1,042,851   $   1,102,074
                                                                                  =============   =============
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.




                                        6

<PAGE>   4



                              KEEBLER FOODS COMPANY

                           CONSOLIDATED BALANCE SHEETS

                (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                                     JANUARY 3,         December 28,
                                                                                        1998                1996
                                                                                 ------------------  -------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                                                              <C>                 <C>        
CURRENT LIABILITIES:
     Current maturities of long-term debt                                              $    26,365          $    18,570
     Trade accounts payable                                                                126,213               96,754
     Other liabilities and accruals                                                        194,923              186,893
     Income taxes payable                                                                   13,784                    -
     Plant and facility closing costs and severance                                          6,900               19,860
                                                                                 ------------------  -------------------
        Total current liabilities                                                          368,185              322,077

LONG-TERM DEBT                                                                             272,390              439,369

OTHER LIABILITIES:
     Deferred income taxes                                                                  69,417               64,068
     Postretirement/postemployment obligations                                              60,605               56,382
     Plant and facility closing costs and severance                                         15,578               16,124
     Deferred compensation                                                                  18,669               18,205
     Other                                                                                  15,956               20,708
                                                                                 ------------------  -------------------
        Total other liabilities                                                            180,225              175,487

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
     Preferred stock ($.01 par value; 100,000,000 shares authorized and
        none issued)                                                                             -                    -
     Common stock ($.01 par value; 500,000,000 shares authorized and
        77,595,213 and 77,638,206 shares issued, respectively)                                 776                  776
     Additional paid-in capital                                                            148,538              148,613
     Retained earnings                                                                      72,737               15,752
                                                                                 ------------------  -------------------
        Total shareholders' equity                                                         222,051              165,141
                                                                                 ------------------  -------------------
        Total liabilities and shareholders' equity                                     $ 1,042,851          $ 1,102,074
                                                                                 ==================  ===================
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.




                                        7

<PAGE>   5



                              KEEBLER FOODS COMPANY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                              KEEBLER FOODS COMPANY                      UBIUS
                                       ---------------------------------- ||----------------------------------
                                                            Forty-Eight   ||     Four
                                           YEAR ENDED       Weeks Ended   ||  Weeks Ended        Year Ended
                                         JANUARY 3,1998   December 28,1996|| January 26,1996   December 30,1995
                                       -----------------  ----------------|| ---------------   ----------------
<S>                                         <C>              <C>          ||      <C>            <C>
NET SALES                                   $ 2,065,184      $ 1,645,532  ||      $ 101,656      $ 1,578,601
                                                                          ||
COSTS AND EXPENSES:                                                       ||
   Cost of sales                                888,031          774,198  ||         54,870          746,754
   Selling, marketing, and administrative                                 ||
      expenses                                1,026,245          794,837  ||         71,427          884,591
   Loss on impairment of Salty Snacks                                     ||
      business                                        -                -  ||              -           86,516
   Other                                          9,511            6,347  ||            857           (1,363)
                                       ----------------- ---------------- ||---------------- ----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS        141,397           70,150  ||        (25,498)        (137,897)
                                                                          ||
   Interest (income) from affiliates                  -                -  ||           (875)         (11,376)
   Interest (income)                             (1,191)            (450) ||             (3)            (151)
   Interest expense to affiliates                     -                -  ||            664           11,802
   Interest expense                              35,038           38,921  ||             98           27,976
                                       ----------------- ---------------- ||---------------- ----------------
INTEREST EXPENSE (INCOME), NET                   33,847           38,471  ||           (116)          28,251
                                       ----------------- ---------------- ||---------------- ----------------
                                                                          ||
INCOME (LOSS) FROM CONTINUING OPERATIONS                                  ||
   BEFORE INCOME TAX EXPENSE (BENEFIT)          107,550           31,679  ||        (25,382)        (166,148)
   Income tax expense (benefit)                  45,169           14,002  ||              -             (459)
                                       ----------------- ---------------- ||---------------- ----------------
                                                                          ||
INCOME (LOSS) FROM CONTINUING OPERATIONS                                  ||
   BEFORE EXTRAORDINARY ITEM                     62,381           17,677  ||        (25,382)        (165,689)
                                                                          ||
DISCONTINUED OPERATIONS:                                                  ||
   Income from operations of discontinued                                 ||
      Frozen Food businesses, net of tax              -                -  ||              -            7,344
   Gain on disposal of Frozen Food                                        ||
      businesses, net of tax                          -                -  ||         18,910                -
                                       ----------------- ---------------- ||---------------- ----------------
                                                                          ||
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM          62,381           17,677  ||         (6,472)        (158,345)
EXTRAORDINARY ITEM:                                                       ||
   Loss on early extinguishment of debt,                                  ||
      net of tax                                  5,396            1,925  ||              -                -
                                       ----------------- ---------------- ||---------------- ----------------
                                                                          ||
NET INCOME (LOSS)                           $    56,985      $    15,752  ||      $  (6,472)     $  (158,345)
                                       ================= ================ ||================ ================
                                                                          ||
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              77,604           75,244  ||
                                               =========        ========= ||
                                                                          ||
DILUTED NET INCOME PER SHARE:                                             ||
   Income from continuing operations                                      ||
     before extraordinary item                   $ 0.77           $ 0.23  ||
   Extraordinary item                              0.07             0.02  ||
                                               ---------        --------- ||
   Net income                                    $ 0.70           $ 0.21  ||
                                               =========        ========= ||
WEIGHTED AVERAGE SHARES OUTSTANDING              80,562           76,076  ||
                                               =========        ========= ||
</TABLE>                                                                    
                                                                            
                                                                            
        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                              FINANCIAL STATEMENTS.

                                       




                                        8

<PAGE>   6

                              KEEBLER FOODS COMPANY

            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                                 (IN THOUSANDS)


   
<TABLE>
<CAPTION>
                                                                COMMON STOCK          ADDITIONAL   RETAINED
                                                          --------------------------   PAID-IN     EARNINGS
                                                             SHARES       AMOUNT       CAPITAL     (DEFICIT)      TOTAL
                                                          ------------- ------------ ------------ ------------ ------------

<S>                                                       <C>           <C>          <C>          <C>          <C>       
BALANCE AT DECEMBER 31, 1994 (UBIUS)                             1,000      $ 1,000    $ 300,000   $ (535,898)   $(234,898)

    Net loss                                                         -            -            -     (158,345)    (158,345)

    Capital contribution from UB Investments
       (Netherlands) B.V.                                            -            -      445,000            -      445,000
                                                          ------------- ------------ ------------ ------------ ------------

BALANCE AT DECEMBER 30, 1995 (UBIUS)                             1,000        1,000      745,000     (694,243)      51,757

    Net loss for the four weeks                                      -            -            -       (6,472)      (6,472)
                                                          ------------- ------------ ------------ ------------ ------------

BALANCE AT JANUARY 26, 1996 (UBIUS)                              1,000        1,000      745,000     (700,715)      45,285

    Write-off of predecessor company equity                     (1,000)      (1,000)    (745,000)     700,715      (45,285)

    Purchase of the Company by INFLO Holdings
       Corporation effective January 26, 1996                   71,656          717      124,284            -      125,001

    Management investment                                          306            2          786            -          788

    Issuance of common stock and warrants to Bermore, Limited    5,676           57       23,543            -       23,600

    Net income for the forty-eight weeks                             -            -            -       15,752       15,752
                                                          ------------- ------------ ------------ ------------ ------------

BALANCE AT DECEMBER 28, 1996 (KEEBLER FOODS COMPANY)            77,638          776      148,613       15,752      165,141

    Purchase of treasury shares                                    (43)           -          (75)           -          (75)

    Net income                                                       -            -            -       56,985       56,985
                                                          ------------- ------------ ------------ ------------ ------------

BALANCE AT JANUARY 3, 1998 (KEEBLER FOODS COMPANY)              77,595      $   776    $ 148,538   $   72,737    $ 222,051
                                                          ============= ============ ============ ============ ============
</TABLE>
    


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                        9

<PAGE>   7



                              KEEBLER FOODS COMPANY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                  KEEBLER FOODS COMPANY        ||              UBIUS
                                                             --------------------------------- || ---------------------------------
                                                                                Forty-Eight    ||      Four
                                                                YEAR ENDED      Weeks Ended    ||   Weeks Ended        Year Ended
                                                              JANUARY 3,1998  December 28,1996 || January 26,1996   December 30,1995
                                                             ---------------- ---------------- || ----------------  ----------------
<S>                                                          <C>              <C>              || <C>               <C>
CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES                                        ||
    Net income (loss)                                               $ 56,985         $ 15,752  ||        $ (6,472)      $ (158,345)
    Adjustments to reconcile net income (loss) to cash from                                    ||
       operating activities:                                                                   ||
       Depreciation and amortization                                  60,708           49,461  ||           1,973           47,361
       Deferred income taxes                                          18,548           12,254  ||               -           (1,985)
       Accretion on Seller Note                                        2,376            2,246  ||               -                -
       Loss on early extinguishment of debt, net of tax                3,761            1,925  ||               -                -
       (Gain) loss on sale of property, plant, and equipment            (358)            (328) ||              33              159
       Loss on impairment of the Salty Snacks business, net of tax         -                -  ||               -           86,516
       Gain on the disposal of the Frozen Food businesses,                                     ||
         net of tax                                                        -                -  ||         (18,910)               -
    Changes in assets and liabilities:                                                         ||
       Trade accounts and notes receivable, net                       38,187            3,842  ||          22,068          (11,716)
       Accounts receivable/payable from affiliates, net                    -                -  ||          (1,941)          (4,737)
       Inventories, net                                                  203           (9,809) ||           4,353            6,605
       Recoverable income taxes and income taxes payable              16,113                -  ||              25           (1,304)
       Other current assets                                             (966)           1,644  ||           1,192            3,772
       Deferred debt issue costs                                      (1,344)          (8,032) ||               -                -
       Trade accounts payable and other current liabilities           36,806           26,105  ||          11,550          (13,304)
       Plant and facility closing costs and severance                (13,715)         (41,279) ||               -                -
       Restructuring reserves                                              -                -  ||         (14,469)         (24,122)
    Other, net                                                         1,044             (553) ||             246            9,702
                                                             ---------------- ---------------- || ---------------- ----------------
         Cash provided from (used by) operating activities           218,348           53,228  ||            (352)         (61,398)
                                                                                               ||
CASH FLOWS (USED BY) PROVIDED FROM INVESTING ACTIVITIES                                        ||
    Capital expenditures                                             (48,429)         (29,352) ||          (3,228)         (55,386)
    Proceeds from property disposals                                   6,950            9,236  ||             644            2,797
    Working capital adjustment paid by UB Investment                                           ||
      (Netherlands) B.V.                                                   -           32,609  ||               -                -
    Purchase of Sunshine Biscuits, Inc., net of cash acquired              -         (142,670) ||               -                -
    Disposition of the Frozen Food businesses                              -                -  ||          67,749                -
                                                             ---------------- ---------------- || ---------------- ----------------
         Cash (used by) provided from investing activities           (41,479)        (130,177) ||          65,165          (52,589)
                                                                                               ||
CASH FLOWS (USED BY) PROVIDED FROM FINANCING ACTIVITIES                                        ||
    Purchase of treasury shares/capital contributions                    (75)             788  ||               -          445,000
    Reduction of notes payable to affiliate                                -                -  ||               -         (445,000)
    Long-term debt borrowings                                        109,750          220,000  ||               -                -
    Long-term debt repayments                                       (271,310)        (134,000) ||          (2,377)         (30,078)
    Commercial paper and Revolving Loan facilities, net                    -                -  ||         (63,300)         134,500
                                                             ---------------- ---------------- || ---------------- ----------------
         Cash (used by) provided from financing activities          (161,635)          86,788  ||         (65,677)         104,422
                                                             ---------------- ---------------- || ---------------- ----------------
         Increase (decrease) in cash and cash equivalents             15,234            9,839  ||            (864)          (9,565)
         Cash and cash equivalents at beginning of period             11,954            2,115  ||           2,978           12,543
                                                             ---------------- ---------------- || ---------------- ----------------
         Cash and cash equivalents at end of period                 $ 27,188         $ 11,954  ||        $  2,114       $    2,978
                                                             ================ ================ || ================ ================
</TABLE>                                                                    


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                  STATEMENTS.


                                       10

<PAGE>   8



                              KEEBLER FOODS COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     THE CONSOLIDATED FINANCIAL STATEMENTS OF KEEBLER FOODS COMPANY (THE
"COMPANY", "KEEBLER", OR "SUCCESSOR COMPANY") INCLUDE THE FINANCIAL STATEMENTS
OF THE SUCCESSOR COMPANY FOR THE YEAR ENDED JANUARY 3, 1998 AND THE FORTY-EIGHT
WEEK PERIOD ENDED DECEMBER 28, 1996, AND UB INVESTMENTS US INC. ("UBIUS" OR
"PREDECESSOR COMPANY") FOR THE FOUR WEEK PERIOD ENDED JANUARY 26, 1996, THE DATE
ON WHICH UBIUS WAS ACQUIRED BY INFLO, AND THE YEAR ENDED DECEMBER 30, 1995. THE
DISTINCTION BETWEEN THE CONSOLIDATED FINANCIAL STATEMENTS OF THE SUCCESSOR
COMPANY AND PREDECESSOR COMPANY HAS BEEN MADE BY INSERTING A DOUBLE LINE BETWEEN
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND RELATED FOOTNOTES.

1.    BASIS OF PRESENTATION

BUSINESS AND OWNERSHIP

    Keebler Foods Company, a manufacturer and distributor of food products, was
acquired by INFLO Holdings Corporation ("INFLO") on January 26, 1996. INFLO was
owned by Artal Luxembourg S. A. ("Artal"), a private investment company, Flowers
Industries, Inc. ("Flowers"), a New York Stock Exchange-listed company, Bermore,
Limited ("Bermore"), a privately held corporation and the parent of G.F.
Industries, Inc. ("GFI"), and certain members of the Company's current
management. On November 20, 1997, INFLO was merged into Keebler Corporation (the
"Merger"), and subsequently changed its name to Keebler Foods Company. The
financial statements as of and for all periods subsequent to January 26, 1996
have been restated to reflect the Merger as if it had been effective January 26,
1996. INFLO was legally established as of November 2, 1995, but did not have any
operating activity, assets, or liabilities until the Keebler acquisition on
January 26, 1996. The Company is comprised of primarily the following
wholly-owned subsidiaries: Keebler Company, Bake-Line Products, Inc., Johnston's
Ready Crust Company, Sunshine Biscuits, Inc. ("Sunshine"), Keebler Leasing
Corp., Hollow Tree Company, L.L.C., Hollow Tree Financial Company, L.L.C., and
Elfin Equity Company, L.L.C.

    The Company, formerly UBIUS, had previously been owned by UB Investments
(Netherlands) B.V., a Dutch company (See Note 4). UB Investments (Netherlands)
B.V. is a member of the worldwide group of affiliated companies owned by United
Biscuits (Holdings) plc., a publicly held company in the United Kingdom.

FISCAL YEAR

    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.

PRINCIPLES OF CONSOLIDATION

    All subsidiaries are wholly-owned and included in the consolidated financial
statements of the Company. Intercompany accounts and transactions have been
eliminated.

GUARANTEES OF NOTES

    The subsidiaries of the Company that are not Guarantors of the Senior
Subordinated Notes are inconsequential (which means that the total assets,
revenues, income, or equity of such non-guarantors, both individually and on a
combined basis, is less than 3% of the Company's consolidated assets, revenues,
income, or equity), individually and in the aggregate, to the consolidated
financial statements of the Company. The Guarantees are full, unconditional, and
joint and several. Separate financial statements of the Guarantors are not
presented because management has determined that they would not be material to
investors in the Senior Subordinated Notes.


                                       11

<PAGE>   9


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.    BASIS OF PRESENTATION (CONTINUED)

RECLASSIFICATIONS

    Certain reclassifications of prior years' data have been made to conform
with the current year reporting.

2.  ACQUISITION OF KEEBLER FOODS COMPANY BY INFLO HOLDINGS CORPORATION

    On January 26, 1996, UB Investments (Netherlands) B.V. sold all the stock of
UBIUS to INFLO. Subsequent to the acquisition, UBIUS changed its name to Keebler
Corporation. On November 20, 1997, INFLO was merged into Keebler Corporation and
subsequently changed its name to Keebler Foods Company. The sale specifically
excluded the stock of the Frozen Food businesses as well as the Salty Snacks
business conducted by Keebler Company and other subsidiaries of UBIUS, as well
as the UBIUS finance companies of U.B.H.C., Inc. and U.B.F.C., Inc., also
wholly-owned subsidiaries (See Note 4).

    The aggregate gross purchase price of $487.5 million (excluding fees and
expenses paid at closing of approximately $15.3 million) was financed by $125.0
million in equity from INFLO, $200.0 million in Senior Term Notes, $125.0
million in Increasing Rate Notes, the assumption of $20.3 million in existing
senior indebtedness of the Company, and a note payable ("Seller Note") by INFLO
to UB Investments (Netherlands) B.V. for $32.5 million. The Seller Note does not
bear interest until January 26, 1999, and has been accounted for at a discounted
value of $24.4 million. In addition, the Company, subsequent to the purchase by
INFLO, received a working capital adjustment of $32.6 million from United
Biscuits (Netherlands) B.V. pursuant to the terms of the stock purchase
agreement between INFLO and United Biscuits (Netherlands) B.V.

    The Keebler acquisition has been accounted for as a purchase. The total
purchase price and the fair value of liabilities assumed have been allocated to
the tangible and intangible assets of the Company based on the respective fair
values.

    The following provides an allocation of the purchase price:


<TABLE>
<CAPTION>
                                                                                                    (IN MILLIONS)
<S>                                                                                              <C>          <C>    
Purchase Price..................................................................................              $ 487.5
Less: Net book value of assets acquired.........................................................                329.5
Less: Asset purchase price allocation
  - Working capital receivable from UB (Netherlands) B.V........................................ $  32.6
  - Inventories.................................................................................     4.4
  - Deferred income taxes.......................................................................    11.4
  - Property, plant, and equipment..............................................................    45.7
  - Prepaid pension.............................................................................    33.1
  - Other assets................................................................................   (14.2)
  - Trademarks and trade names..................................................................   104.0        217.0
                                                                                                 --------
Plus: Liability purchase price allocation
  - Other current liabilities and accruals......................................................     1.1
  - Plant and facility closing costs and severance..............................................    55.3
  - Deferred income taxes.......................................................................    13.8
  - Postretirement/postemployment obligations...................................................   (17.5)
  - Other.......................................................................................     6.3         59.0
                                                                                                 --------     --------
Unallocated excess purchase price over fair value of net
  assets acquired...............................................................................              $   0.0
                                                                                                              ========
</TABLE>


     See Note 3 for the unaudited pro forma consolidated results of operations
of the Keebler acquisition.


                                       12

<PAGE>   10


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.   ACQUISITION OF SUNSHINE BISCUITS, INC.

    On June 4, 1996, the Company acquired Sunshine from GFI for an aggregate
consideration of $171.7 million (excluding related fees and expenses paid at
closing of approximately $2.2 million). The Sunshine acquisition was funded by
$150.3 million in cash, of which $36.3 million was provided by the Company's
existing cash sources and $114.0 million in borrowings under the Amended and
Restated Credit Agreement (See Note 9). In addition, approximately $23.6 million
of common stock and warrants were issued to GFI and was accounted for as a
capital contribution. Subsequent to the Merger, the stock and warrants held by
GFI were transferred to Bermore and reissued for the same value in the name of
the Company. These shares and warrants represented 13.1% of the Company's common
stock on a fully diluted basis.

    The Sunshine acquisition by the Company has been accounted for as a
purchase. The total purchase price and the fair value of liabilities assumed
have been allocated to the tangible and intangible assets of Sunshine based on
the respective fair values. The acquisition resulted in goodwill of $48.8
million, which is being amortized over a forty year period.

    The following provides an allocation of the purchase price:



<TABLE>
<CAPTION>
                                                                                                      (IN MILLIONS)
<S>                                                                                                <C>          <C>   
Purchase Price....................................................................................              $171.7
Less: Net book value of assets acquired...........................................................                92.8
Less: Asset purchase price allocation
  - Trade accounts receivable..................................................................... $  0.3
  - Inventories...................................................................................    3.6
  - Deferred income taxes.........................................................................    8.4
  - Property, plant, and equipment................................................................    9.5
  - Other assets..................................................................................   (3.8)
  - Trademarks and trade names....................................................................   57.0         75.0
                                                                                                   -------
Plus: Liability purchase price allocation
  - Other current liabilities and accruals........................................................    8.4
  - Plant and facility closing costs and severance................................................   22.1
  - Deferred income taxes.........................................................................   (8.3)
  - Pension obligation............................................................................    5.0
  - Postretirement/postemployment obligations.....................................................   17.8
  - Other.........................................................................................   (0.1)        44.9
                                                                                                   -------      -------
Unallocated excess purchase price over fair value of net assets acquired..........................              $ 48.8
                                                                                                                =======
</TABLE>


    Results of operations for Sunshine from June 4, 1996 to December 28, 1996
have been included in the consolidated statements of operations. The following
unaudited pro forma information has been prepared assuming the acquisition had
taken place at January 1, 1995. The unaudited pro forma information includes
adjustments for interest expense that would have been incurred to finance the
purchase, additional depreciation of the property, plant, and equipment
acquired, and amortization of the trademarks, trade names, and goodwill arising
from the acquisition. The unaudited pro forma consolidated results of operations
are not necessarily indicative of the results that would have been had the
Keebler and Sunshine acquisitions been effected on the assumed date.



<TABLE>
<CAPTION>
                                                                                  -----------------------------------
                                                                                               Unaudited
                                                                                          For The Year Ended
                                                                                  -----------------------------------
                                                                                    December 28,        December 30,
                                                                                        1996               1995
                                                                                  ---------------     ---------------
                                                                                             (IN THOUSANDS)
<S>                                                                               <C>                 <C>          
Net sales.......................................................................  $   1,979,105       $   2,213,574
Loss from continuing operations before income taxes.............................  $     (10,894)      $    (241,323)
Net loss........................................................................  $      (6,793)      $    (253,924)
</TABLE>




                                       13
<PAGE>   11



                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.   PREDECESSOR COMPANY

    UBIUS, the predecessor company to Keebler Foods Company, was formed in 1992
as a result of the legal restructuring of United Biscuit (Holdings) plc.'s
operations in the United States. UBIUS received the stock of the subsidiaries in
exchange for the $850 million in debt with UB Investments (Netherlands) B.V. as
well as all of the capital stock of UBIUS.

    On May 20, 1995, the predecessor company adopted plans to sell the Salty
Snacks business. On January 24, 1996, the predecessor company sold to Kelly Food
Products, Inc. selected assets of the Salty Snacks business including the
production plant in Bluffton, Indiana, trademarks and other intangibles related
to the business, inventory, and property, plant, and equipment, including
selected assets related to the convenience sales division.

    During July 1995, the predecessor company adopted plans to discontinue the
operations of its Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the assets and stock of Bernardi Italian Foods Co., The
Original Chili Bowl, Inc., Chinese Food Processing Corporation (wholly-owned
subsidiaries collectively known as the Frozen Food businesses), and certain
assets of Keebler Company to Windsor Food Company Ltd. The sale was effective as
of December 31, 1995.

     On December 5, 1995, Shaffer, Clarke & Co., Inc. ("Shaffer, Clarke"),
formerly a wholly-owned subsidiary, sold certain assets related to Shaffer,
Clarke's KA-ME business to Liberty Richter, Inc. for a gain of $2.6 million.
These assets included inventory, contractual rights, and other intellectual
property.


5.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

    All highly liquid instruments purchased with an original maturity of three
months or less are classified as cash equivalents. The carrying amount of cash
equivalents approximates fair value due to the relatively short maturity of
these investments.

TRADE ACCOUNTS RECEIVABLE

    Substantially all of the Company's trade accounts receivable are from retail
dealers and wholesale distributors. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Trade accounts receivable, as shown on the consolidated balance
sheets, were net of allowances of $5.0 million as of January 3, 1998 and $5.4
million as of December 28, 1996.

INVENTORIES

    Inventories are stated at the lower of cost or market with cost determined
principally by the last-in, first-out ("LIFO") method. Inventories stated under
the LIFO method represent approximately 88% of total inventories at January 3,
1998 and 91% of total inventories at December 28, 1996. Because the Company has
adopted a natural business unit single pool approach to determining LIFO
inventory cost, classification of the LIFO reserve by inventory component is
impractical. The excess of the current production cost of inventories over LIFO
cost was approximately $2.2 million at January 3, 1998. There was no reserve
required at December 28, 1996 to state inventory on a LIFO basis.

    At January 3, 1998 and December 28, 1996, inventories are shown net of an
allowance for slow-moving and aged inventory of $6.8 million and $5.5 million,
respectively.



                                       14

<PAGE>   12


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment is stated at cost. Depreciation expense is
computed using the straight-line method based on the estimated useful lives of
the depreciable assets. Certain facilities and equipment held under capital
leases are classified as property, plant, and equipment and amortized using the
straight-line method over the lease terms, and the related obligations are
recorded as liabilities. Lease amortization is included in depreciation expense.

TRADEMARKS AND TRADE NAMES

    Trademarks and trade names are stated at cost and are amortized on a
straight-line basis over a period of forty years. Accumulated amortization of
trademarks and trade names was $7.1 million and $3.1 million at January 3, 1998
and December 28, 1996, respectively.

GOODWILL

    Goodwill shown in the consolidated financial statements at January 3, 1998
and December 28, 1996 is related to the excess cost over the fair value of the
tangible net assets acquired from the Sunshine purchase (See Note 3). Goodwill
is amortized on a straight-line basis over a period of forty years. Accumulated
amortization of goodwill was $1.8 million and $0.5 million at January 3, 1998
and December 28, 1996, respectively.

RESEARCH AND DEVELOPMENT

    Activities related to new product development and major improvements to
existing products and processes are expensed as incurred and were $10.2 million
for the year ended January 3, 1998, $4.3 million for the forty-eight weeks ended
December 28, 1996, $0.6 million for the four weeks ended January 26, 1996, and
$14.5 million for the year ended December 30, 1995.

ADVERTISING AND CONSUMER PROMOTION

     Advertising and consumer production costs are generally expensed when
incurred or no later than when the advertisement appears or the event is run.
Advertising and consumer promotion expense was $67.6 million for the year ended
January 3, 1998, $33.3 million for the forty-eight weeks ended December 28,
1996, $5.1 million for the four weeks ended January 26, 1996, and $87.9 million
for the year ended December 30, 1995. There were no deferred advertising costs
at January 3, 1998 and December 28, 1996.

DERIVATIVE FINANCIAL INSTRUMENTS

    The Company enters into derivative financial transactions to hedge existing
or future exposures to changes in commodity prices. The Company does not enter
into derivative transactions for speculative purposes. Gains and losses on
commodity futures and options transactions are deferred in inventory until the
contracts are liquidated (See Note 20).

INCOME TAXES

    The consolidated financial statements reflect the application of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting For Income
Taxes". The Company files a consolidated federal income tax return.


                                       15

<PAGE>   13


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME PER SHARE

    In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share". The consolidated financial statements reflect the
application of SFAS No. 128 which replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options and warrants.
Diluted earnings per share is similar to fully diluted earnings per share. 

USE OF ESTIMATES

    The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

    In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
determines whether there has been an impairment of long-lived assets and the
related unamortized goodwill, based on whether certain indicators of impairment
are present. In the event that facts and circumstances indicate that the cost of
any long-lived assets and the related unamortized goodwill may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.


6.    PROPERTY, PLANT, AND EQUIPMENT

    A summary of property, plant, and equipment, including related accumulated
depreciation follows:




<TABLE>
<CAPTION>
                                                                            JANUARY 3, 1998          December 28, 1996
                                                                        ----------------------    ----------------------
                                                                                          (IN THOUSANDS)

<S>                                                                        <C>                       <C>           
Land..............................................................         $      16,487             $       16,344
Buildings.........................................................               130,241                    126,824
Machinery and equipment...........................................               328,473                    301,588
Office furniture and fixtures.....................................                56,559                     54,985
Delivery equipment................................................                 6,946                      6,785
Construction in progress..........................................                38,080                     23,980
                                                                        ----------------------    ----------------------
                                                                                 576,786                    530,506
Accumulated depreciation..........................................               (98,665)                   (44,426)
                                                                        ----------------------    ----------------------
                                                                           $     478,121             $      486,080
                                                                        ======================    ======================
</TABLE>



                                       16

<PAGE>   14


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.    PROPERTY, PLANT, AND EQUIPMENT (CONTINUED)

    Property, plant, and equipment is depreciated on a straight-line basis over
the estimated useful lives of the depreciable assets. Buildings are depreciated
over a useful life of ten to forty years. Machinery and equipment is depreciated
over a useful life of five to twenty-five years. Office furniture and fixtures
are depreciated over a useful life of three to fifteen years. Delivery equipment
is depreciated over a useful life of two to twelve years.


7.   ASSETS HELD FOR SALE

    In 1996, as part of the Keebler and Sunshine acquisitions, management
executed a strategic plan to reduce inefficiencies and excess capacity by
closing the manufacturing facilities in Atlanta, Georgia and Santa Fe Springs,
California. In 1997, a distribution center in Kensington, Connecticut was also
held for sale. The Santa Fe Springs, California facility was subsequently sold
on March 27, 1997 with no gain or loss recognized. Disposition of the Atlanta,
Georgia manufacturing facility and the Kensington distribution center is
expected to occur before the end of 1998 without a significant gain or loss.

8.   OTHER CURRENT LIABILITIES AND ACCRUALS

    Other current liabilities and accruals consisted of the following at January
3, 1998 and December 28, 1996:



<TABLE>
<CAPTION>
                                                                          JANUARY 3, 1998          December 28, 1996
                                                                       ----------------------   ------------------------
                                                                                        (IN THOUSANDS)

<S>                                                                         <C>                       <C>          
Self insurance reserves...........................................          $      55,185             $      58,527
Employee compensation.............................................                 55,724                    42,555
Marketing and consumer promotions.................................                 52,838                    45,892
Other.............................................................                 31,176                    39,919
                                                                       ----------------------   ------------------------
                                                                            $     194,923             $     186,893
                                                                       ======================   ========================
</TABLE>


    The Company obtains insurance to manage potential losses and liabilities
related to workers' compensation, health and welfare claims, and general product
and vehicle liability. The Company has elected to retain a significant portion
of the expected losses through the use of deductibles and stop-loss limitations.
Provisions for losses expected under these programs are recorded based on the
Company's estimates of aggregate liability for claims incurred. These estimates
utilize the Company's prior experience and actuarial assumptions provided by the
Company's insurance carrier. The total estimated liability for these losses at
January 3, 1998 and December 28, 1996 was $55.2 million and $58.5 million,
respectively, and is included in other current liabilities and accruals. The
Company has collateralized its liability for potential self-insurance losses in
several states by obtaining standby letters of credit which aggregate to
approximately $17.0 million.



                                       17

<PAGE>   15


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    DEBT AND LEASE COMMITMENTS

    Long-term debt consisted of the following at January 3, 1998 and December
28, 1996:



<TABLE>
<CAPTION>
                                    Interest Rate        Final Maturity       JANUARY 3, 1998      December 28, 1996
                                   ----------------    ------------------   -------------------   -------------------
                                                                      (IN THOUSANDS)
<S>                                <C>                 <C>                  <C>                   <C> 
Term-A Loans...................           6.683%           April 7, 2003    $          156,000    $          132,875
Term-B Loans...................     7.880-8.375%           July 31, 2003                    --                89,400
Term-C Loans...................     8.130-8.625%           July 31, 2004                    --                64,575
Senior Subordinated Notes......          10.750%            July 1, 2006               125,000               125,000
Seller Note....................          10.000%        January 26, 2007                    --                26,664
Other Senior Debt..............          various               2001-2005                12,645                14,290
Capital Lease Obligations......          various               2004-2005                 5,110                 5,135
                                                                            -------------------   -------------------
                                                                                       298,755               457,939
Less: Current maturities.......                                                         26,365                18,570
                                                                            -------------------   -------------------
                                                                            $          272,390    $          439,369
                                                                            ===================   ===================
</TABLE>


    At January 3, 1998, the Company's primary credit financing was provided by a
$380.0 million Second Amended and Restated Credit Agreement ("Credit Agreement")
consisting of a $140.0 million Revolving Loan facility and a $240.0 million Term
Loan of which the current outstanding balance was $156.0 million with quarterly
scheduled principal payments through the final maturity in April 2003. The
amendment to the Credit Agreement was entered into on April 8, 1997 in order to
obtain more favorable terms, fees, and interest rates.

    The available balance on the Revolving Loan facility as of January 3, 1998,
was $140.0 million. Actual available borrowings under the Revolving Loan
facility can be reduced by the level of qualifying working capital as defined in
the Credit Agreement. This gross available balance is further reduced by certain
letters of credit totaling $9.9 million and outstanding borrowings. There were
no amounts outstanding under this facility as of January 3, 1998. Any unused
borrowings under the Revolving Loan facility are subject to a commitment fee,
which will vary from 0.125%-0.375% based on the relationship of debt to adjusted
earnings.

    Interest on the Revolving Loan facility and Term Loan is calculated based on
a base rate plus applicable margin. The base rate can, at the Company's option,
be 1) the higher of the base domestic lending rate as established by the
Administrative Agent for the Lenders under the Credit Agreement, or the Federal
Funds Rate plus one-half of one-percent, or 2) a reserve percentage adjusted
LIBO Rate as offered by the Administrative Agent's office in London. Base rate
loan interest rates fluctuate immediately based upon a change in the established
base rate by the Administrative Agent. 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.

    During the fourth quarter of 1997, using existing cash resources, the
Company pre-paid $70.0 million of principal on the Term Loan; $30.0 million on
December 8, 1997 and $40.0 million on November 10, 1997. The pre-payments
resulted in the recognition of a $1.1 million after-tax extraordinary charge
related to the expensing of certain unamortized bank fees which were incurred at
the time the Term Loan was issued.

    On November 21, 1997, the Company settled the Seller Note with a payment of
$31.7 million funded through working capital. The Company assumed the $32.5
million Seller Note, previously held by INFLO, as a result of the Merger. The
Seller Note did not bear interest until January 26, 1999 and was recorded at a
discounted value of $24.4 million on January 26, 1996. The discount was being
amortized over three years at an effective interest rate of 10.0%. The Company
recorded a before-tax extraordinary charge of $2.6 million on the early
extinguishment of debt. The related after-tax charge was $1.6 million.

                                       18

<PAGE>   16



                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    DEBT AND LEASE COMMITMENTS (CONTINUED)

    In conjunction with the amendment to the Credit Agreement on April 8, 1997,
Term Loans B and C were extinguished using $40.0 million of borrowings under the
Revolving Loan facility, $109.8 million of increased borrowings against Term
Loan A, and $3.8 million from cash resources. The Company recorded a before-tax
extraordinary charge of $4.6 million related primarily to expensing certain
unamortized bank fees which were incurred at the time Term Loans B and C were
issued. The related after-tax charge was $2.7 million.

    On October 23, 1996, pursuant to an exchange and registration rights
agreement, the Company registered its 10.75% Senior Subordinated Notes due 2006
(the "Notes") under the Securities Act of 1933 in exchange for previously held
Increasing Rate Notes. The Notes were issued under an indenture dated June 15,
1996 between the Company, the Company's Restricted Subsidiaries (as defined in
the indenture), and the U.S. Trust Company of New York, as trustee. The Notes
are unsecured, senior subordinated obligations of the Company guaranteed by the
Restricted Subsidiaries. Interest on the Notes is paid semi-annually on January
1 and July 1 of each year, commencing January 1, 1997. At the Company's option,
up to 35.0% of the aggregate original principal of the Notes can be redeemed at
a redemption price of 110.0% on or prior to July 1, 1999 following a public
equity offering. In addition, the Company's ability to pay dividends or make
other distributions on its common stock is limited by the terms of the indenture
governing the Notes to an amount equal to 50% of the consolidated net income of
the Company for the relevant period, subject to other limitations.

    The Increasing Rate Notes, issued to finance the Keebler acquisition, were
repaid in June 1996 with the proceeds from a private placement offering for the
10.75% Senior Subordinated Notes due in 2006. The Company recorded a before-tax
extraordinary loss of $3.2 million on the early extinguishment of the Increasing
Rate Notes. The loss consisted primarily of bank fees incurred at the time the
Increasing Rate Notes were issued. The after-tax loss was $1.9 million.

    On January 30, 1996, the Company entered into a swap transaction with the
Bank of Nova Scotia, who also serves as the Administrative Agent for the Lenders
under the Credit Agreement. The swap transaction had the effect of converting
the base rate on $170.0 million of the Term Loans to a fixed rate obligation of
5.0185% plus applicable margin through February 1, 1999. The maturity date on
the swap transaction can be extended to February 1, 2001 at the option of the
Bank of Nova Scotia on January 28, 1999.

    Interest of $39.0 million, $25.2 million, $3.8 million, and $37.6 million
was paid on debt 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, respectively.

    Aggregate scheduled annual maturities of long-term debt as of January 3,
1998 are as follows:

<TABLE>
                                                       (IN THOUSANDS)
<S>                                                    <C>      
1998...............................................       $  26,365
1999...............................................          32,575
2000...............................................          32,990
2001...............................................          34,455
2002...............................................          34,225
2003 and thereafter................................         138,145
                                                        ------------
                                                          $ 298,755
                                                        ============
</TABLE>

                                       19

<PAGE>   17



                             KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.    DEBT AND LEASE COMMITMENTS (CONTINUED)

    Assets recorded under capitalized lease agreements included in property,
plant, and equipment consist of the following:

<TABLE>
<S>                                         <C>                   <C>
                                             JANUARY 3,           December 28,
                                                1998                  1996
                                            ------------          ------------
                                                      (IN THOUSANDS)
Land.....................................    $    1,209            $    1,209
Buildings................................         2,165                 2,881
Machinery and equipment..................         1,740                 6,361
Other leased assets......................            --                   259
                                            ------------          ------------
                                                  5,114                10,710
Accumulated amortization.................          (527)               (1,000)
                                            ------------          ------------
                                             $    4,587            $    9,710
                                            ============          ============
</TABLE>

    Future minimum lease payments under scheduled capital and operating leases
that have initial or remaining noncancellable terms in excess of one year are as
follows:

<TABLE>
<CAPTION>
                                                  Capital           Operating
                                                  Leases             Leases
                                               ------------      -------------
                                                       (IN THOUSANDS)
<S>                                             <C>               <C>       
1998.........................................   $     243         $   29,128
1999.........................................         263             24,330
2000.........................................         333             21,654
2001.........................................         351             17,603
2002.........................................         393             14,497 
2003 and thereafter..........................       5,401             33,071
                                               ------------      -------------
Total minimum payments.......................       6,984         $  140,283
                                                                 =============
Amount representing interest.................      (1,874)
                                               ------------
Obligations under capital lease..............       5,110
Obligations due within one year..............         (25)
                                               ------------
Long-term obligations under capital leases...   $   5,085
                                               ============
</TABLE>

    Rent expense for all operating leases was $36.1 million, $30.1 million, $2.7
million, and $37.4 million 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, respectively.


10.   PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

    As part of acquiring Keebler and Sunshine, management adopted and began
executing a plan to reduce costs and inefficiencies. Certain exit costs totaling
$77.4 million were provided for in the allocation of the purchase price of both
the Keebler and Sunshine acquisitions. Management's plan included company-wide
staff reductions, the closure of manufacturing, distribution, and sales force
facilities, and information system exit costs.

                                       20

<PAGE>   18



                             KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE (CONTINUED) 

    Severance, outplacement, and other related costs associated with staff
reductions were estimated at $30.7 million. Costs incurred related to the
closing of manufacturing, distribution, and sales force facilities, which
include primarily severance and lease termination and carrying costs, were
expected to total $39.9 million. In addition, the Company expects to incur $6.8
million in lease costs related to exiting legacy information systems. Spending
against the reserves established for the year ended January 3, 1998 and the
forty-eight weeks ended December 28, 1996 totaled $16.2 million and $41.4
million, respectively. During the year ended January 3, 1998, the Company also
provided an additional $2.7 million principally for anticipated costs related to
the closure of distribution facilities not included in the original plan to
reduce costs and inefficiencies. No additional provisions were made during the
forty-eight weeks ended December 28, 1996. At January 3, 1998 and December 28,
1996, the plant and facility closing costs and severance reserve balance was
$22.5 million and $36.0 million, respectively.

    The plans initiated by management are expected to be completed prior to the
end of 1998. Only noncancellable lease obligations are expected to extend beyond
1998, to be paid out over the next seven years concluding in 2004.

11.    EMPLOYEE BENEFIT PLANS

    The Retirement Plan for Salaried and Certain Hourly-Paid Employees of
Keebler Company (the "pension plan") is a trusteed, noncontributory,
defined-benefit, pension plan. The pension plan covers certain salaried and
hourly-paid employees. Assets held by the pension plan consist primarily of
common stocks, collective trust funds, government securities, bonds, and
guaranteed insurance contracts. Benefits provided under the pension plan are
primarily based on years of service and the employee's final level of
compensation. The Company's funding policy is to contribute annually not less
than the ERISA minimum funding requirements. Effective January 1, 1997, the
pension plans of Sunshine Biscuits, Inc., Athens Packaging, Bake-Line Products,
Inc., and Emerald Industries were merged with the Company's pension plan.

    Pension expense included the following components:




<TABLE>
<CAPTION>
                                                                   Forty-Eight     ||    Four Weeks
                                                 YEAR ENDED        Weeks Ended     ||      Ended            Year Ended
                                                 JANUARY 3,        December 28,    ||   January 26,        December 30,
                                                    1998               1996        ||       1996                1995
                                               ---------------   ----------------- || ---------------    ----------------
                                                                              (IN THOUSANDS)
                                                                                   ||
                                                                                   ||
<S>                                            <C>               <C>               ||  <C>                <C>
Service cost...............................      $    8,560        $      7,711    ||    $      599         $     6,611
Interest cost..............................          29,673              21,338    ||         1,133              13,877
Actual return on plan assets...............         (63,745)            (12,752)   ||        (1,693)            (43,661)
Net amortization of transition obligation..              --                  --    ||            47                 616
Deferral of gains (losses).................          25,810             (15,495)   ||            --              24,468
Prior service cost.........................              --                  --    ||           (12)               (155)
Net gain...................................              --                  --    ||            --                (437)
                                               ---------------   ----------------- || ----------------    ----------------
Pension expense............................      $      298        $        802    ||    $       74         $     1,319
                                               ===============   ================= || ================    ================
</TABLE>                                                                     
                                                                             
                                                                             

                                       21

<PAGE>   19



                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.    EMPLOYEE BENEFIT PLANS (CONTINUED)

    The funded status of the Company's pension plan and amounts recognized in
the consolidated balance sheets are as follows:



<TABLE>
<CAPTION>
                                                                              JANUARY 3, 1998        December 28, 1996
                                                                            -------------------    ---------------------
                                                                                          (IN THOUSANDS)

<S>                                                                         <C>                    <C>
Actuarial present value of accumulated benefit obligation:

  Vested..............................................................        $      (392,512)       $      (366,253)
  Nonvested...........................................................                (20,983)                (7,255)
                                                                            -------------------    ---------------------
                                                                              $      (413,495)       $      (373,508)
                                                                            ===================    =====================
Projected benefit obligation..........................................        $      (437,334)       $      (408,060)
Plan assets at fair value.............................................                499,379                464,433
                                                                            -------------------    ---------------------
Plan assets greater than projected benefit obligation.................                 62,045                 56,373
Unrecognized transition obligation....................................                     --                     --
Unrecognized prior service............................................                  5,044                     --
Unrecognized net gain.................................................                (24,029)               (13,014)
                                                                            -------------------    ---------------------
Prepaid pension.......................................................        $        43,060        $        43,359
                                                                            ===================    =====================
</TABLE>


    Assumptions used in accounting for the pension plan at each of the
respective period-ends are as follows:


<TABLE>
<CAPTION>
                                                                         Forty-Eight    ||   Four Weeks
                                                       YEAR ENDED        Weeks Ended    ||     Ended          Year Ended
                                                       JANUARY 3,        December 28,   ||   January 26,      December 30,
                                                          1998               1996       ||      1996              1995
                                                     --------------    ---------------- || ---------------   ---------------
                                                                                        ||
<S>                                                  <C>               <C>              || <C>                <C>
Discount rate.....................................         7.3%               7.5%      ||       7.5%                7.5%
Rate of compensation level increases..............         4.0                4.0       ||       4.0             4.0-6.0
Expected long-term rate of return on plan assets..         9.0                8.6       ||      10.0             8.0-9.0
</TABLE>                                                                      
                                                                             

    The plan assets, as of January 3, 1998 and December 28, 1996, include a real
estate investment of $3.1 million in a distribution center which is under an
operating lease to the Company.

    The Company, in addition to the pension plan, also maintains an unfunded
supplemental retirement plan for certain highly compensated former executives.
Benefits provided are based on years of service. Vesting is graduated depending
on termination after age 55.

    The supplemental retirement plan expense includes the following components:


<TABLE>
<CAPTION>
                                                                   Forty-Eight   ||  Four Weeks
                                                   YEAR ENDED      Weeks Ended   ||    Ended         Year Ended
                                                   JANUARY 3,      December 28,  ||  January 26,     December 30,
                                                      1998             1996      ||     1996             1995
                                                  ------------     ------------  || ------------     ------------
                                                                          (IN THOUSANDS)
                                                                                 ||
<S>                                               <C>              <C>           || <C>              <C>
Service cost...............................        $     --         $     --     ||  $     35         $     452
Interest cost..............................             732              637     ||        66               854
Net amortization of transition obligation..              --               --     ||         8               111
Prior service cost.........................              --               --     ||        13               170
                                                  ------------     ------------  || ------------     ------------
Plan expense...............................        $    732         $    637     ||  $    122         $   1,587
                                                  ============     ============  || ============     ============
</TABLE>                                                                     
                                                                             

                                       22


<PAGE>   20



                            KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.    EMPLOYEE BENEFIT PLANS (CONTINUED)

    The unfunded status of the supplemental retirement plan and the amounts
recognized in the consolidated balance sheets are as follows:


<TABLE>
<CAPTION>
                                                                                       JANUARY 3,        December 28,
                                                                                         1998               1996
                                                                                     ---------------   -----------------
                                                                                               (IN THOUSANDS)
     <S>                                                                             <C>               <C>         
     Actuarial present value of accumulated benefit obligation:

       Vested.....................................................................     $   (10,303)      $   (10,028)
       Nonvested..................................................................              --                --
                                                                                     ---------------   -----------------
                                                                                       $   (10,303)      $   (10,028)
                                                                                     ===============   =================
     Projected benefit obligation.................................................     $   (10,097)      $    (9,890)
     Plan assets at fair value....................................................              --                --
                                                                                     ---------------   -----------------
     Projected benefit obligation in excess of plan assets........................         (10,097)           (9,890)
     Unrecognized transition obligation...........................................              --                --
     Unrecognized prior service cost..............................................              --                --
     Unrecognized net (gain) loss.................................................            (458)             (754)
                                                                                     ---------------   -----------------
     Plan obligation included in other liabilities................................     $   (10,555)      $   (10,644)
                                                                                     ===============   =================
</TABLE>


    Assumptions used in accounting for the supplemental retirement plan at each
of the respective period-ends are as follows:




<TABLE>
<CAPTION>
                                                                    Forty-Eight    ||   Four Weeks
                                                  YEAR ENDED        Weeks Ended    ||     Ended            Year Ended
                                                  JANUARY 3,        December 28,   ||   January 26,        December 30,
                                                     1998              1996        ||      1996               1995
                                                 --------------   ---------------- || ---------------    ---------------
<S>                                              <C>              <C>              || <C>                <C>
Discount rate.............................            7.3%              7.5%       ||       7.5%              7.5%
Rate of compensation level increase.......            N/A               N/A        ||       4.0               4.0
</TABLE>                                                                     
                                                                             
                                                                             
        Contributions are also made by the Company to a retirement program for
Grand Rapids union employees. Benefits provided under the plan are based
on a flat monthly amount for each year of service and are unrelated to
compensation. Contributions are made based on a negotiated hourly rate. 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, the
Company expensed contributions of $2.6 million, $2.3 million, $0.2 million, and
$2.5 million, respectively.

    The Company contributes to various multiemployer union administered
defined-benefit and defined-contribution pension plans. Benefits provided under
the multiemployer pension plans are generally based on years of service and
employee age. Expense under these plans was $10.5 million, $7.8 million, $0.9
million, and $9.6 million 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, respectively.

    The Company also offers certain employees participation in the Keebler
Company Salaried Savings Plan, a defined-contribution plan. Prior to July 1,
1995, certain nonunion employees who met length-of-service requirements could
elect to participate in the plan. Currently, participation in the plan can be
elected immediately. Contributions made by participants are based on an elected
percentage of the participants' compensation within a specified range. Beginning
in 1997, a matching program was established whereby the Company makes a
contribution ranging from zero to fifty cents, depending on Company performance,
for every before-tax dollar contributed by the employee, up to 6% of the
employees' eligible pay. The Company's matching contribution was $3.1 million
for 1997. There

                                       23

<PAGE>   21


was no Company  matching  contribution  prior to 1997.  Expenses incurred by the
Company to administer the plan were nominal.



                                       24

<PAGE>   22



                            KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.    EMPLOYEE BENEFIT PLANS (CONTINUED)

    During 1996, the Company matched a portion of employee contributions to a
defined contribution savings plan for qualified salaried employees of Sunshine.
Contributions made by the Company were not to exceed 6% of gross wages. The
Company also provided a savings plan for certain hourly employees of Sunshine
which provided no matching company contributions. Expenses in 1996 for the plans
were nominal. Effective January 1, 1997, all Sunshine employees became eligible
for the Keebler Company Salaried Savings Plan, thus terminating the Sunshine
plans.

    A Voluntary Employee Beneficiary Association ("VEBA") provided health and
welfare benefits for certain Sunshine employees. Payments were made by the
Company to the VEBA to fund employee health and welfare claims. The Company
funded $6.6 million and $10.0 million during the year ended January 3, 1998 and
the forty-eight weeks ended December 28, 1996, respectively. In July 1997, the
Company integrated all Sunshine employees into the existing Keebler Welfare
Benefit Plan and no further VEBA payments were made.

    Prior to 1997, Bake-Line Products, Inc. administered a money purchase
pension plan for certain hourly and salaried employees. Contributions were based
on 4% of employees' annual salary. Effective January 1, 1997, the Bake-Line
money purchase pension plan was merged into the Company's pension plan. Expenses
paid to administer the Bake-Line money purchase pension plan were nominal.

12.   POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

    The Company provides certain medical and life insurance benefits for
eligible retired employees. The medical plan, which covers nonunion employees
with ten or more years of service, is a comprehensive indemnity-type plan. The
plan incorporates an up-front deductible, coinsurance payments, and employee
contributions which are based on length of service. The life insurance plan
offers a small amount of coverage versus the amount the employees had while
employed. The Company does not fund the plan.

    The net periodic postretirement benefit expense includes the following
components:



<TABLE>
<CAPTION>
                                                                     Forty-Eight   ||     Four
                                                    YEAR ENDED       Weeks Ended   ||   Weeks Ended       Year Ended
                                                    JANUARY 3,       December 28,  ||   January 26,       December 30,
                                                       1998              1996      ||      1996              1995
                                                   -------------    -------------- ||  -------------   ---------------
                                                                             (IN THOUSANDS)
                                                                                   ||
<S>                                                <C>              <C>            ||  <C>              <C>
    Service cost..................................  $     2,242      $      2,142  ||  $       123     $       1,598
    Interest cost.................................        3,888             2,729  ||          246             3,194
                                                   -------------    -------------- || -------------   ---------------
    Net periodic postretirement benefit expense...  $     6,130      $      4,871  ||  $       369     $       4,792
                                                   =============    ============== || =============   ===============
</TABLE>


    The unfunded status of the plan reconciled to the postretirement obligation
in the Company's consolidated balance sheets are as follows:


<TABLE>
<CAPTION>
                                                                           JANUARY 3, 1998          December 28, 1996
                                                                       ----------------------    ----------------------
                                                                                        (IN THOUSANDS)
    <S>                                                                <C>                       <C>              
    Accumulated postretirement benefit obligation:                    
      Retirees......................................................     $        (35,981)         $        (33,054)
      Fully eligible active participants............................               (7,154)                   (8,579)
      Other active participants.....................................              (12,941)                  (11,815)
                                                                       ----------------------    ----------------------
                                                                                  (56,076)                  (53,448)
    Unrecognized prior service cost.................................                 (689)                       --
    Unrecognized net gain...........................................               (4,215)                   (3,857)
                                                                       ----------------------    ----------------------
    Postretirement obligation.......................................     $        (60,980)         $        (57,305)
                                                                       ======================    ======================
</TABLE>



                                       25


<PAGE>   23



                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.  POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)

     The accumulated postretirement benefit obligation was determined using a
weighted-average discount rate of 7.3% for the year ended January 3, 1998, and
7.5% for the forty-eight weeks ended December 28, 1996, the four weeks ended
January 26, 1996, and the year ended December 30, 1995.

     The weighted-average annual assumed rate of increase in the cost of covered
benefits is 7.0% for 1997 declining gradually to an ultimate trend rate of 5.0%
by the year 1999. A 1% increase in the trend rate for health care costs would
have increased the accumulated benefit obligation as of January 3, 1998 by $2.4
million and the net periodic benefit cost by $0.5 million.

     The Company also provides postemployment medical benefits to employees on
long-term disability. The plan is a comprehensive indemnity-type plan which
covers nonunion employees on long-term disability. There is no length of service
requirement. The plan incorporates coinsurance payments and deductibles. The
Company does not fund the plan. The postemployment obligation included in the
consolidated balance sheets at January 3, 1998 and December 28, 1996 was $4.7
million and $4.6 million, respectively.


13.   INCOME TAXES

    The components of income tax expense (benefit) were as shown below:


<TABLE>
<CAPTION>
                                                                        Forty-Eight   ||   Four Weeks
                                                     YEAR ENDED         Weeks Ended   ||     Ended            Year Ended
                                                     JANUARY 3,         December 28,  ||   January 26,       December 30,
                                                        1998                1996      ||      1996               1995
                                                   ---------------    ----------------|| ---------------   ----------------
                                                                                 (IN THOUSANDS)
<S>                                                 <C>               <C>             || <C>               <C>
Current:                                                                              ||
  Federal.......................................    $     22,172       $          --  ||  $         --      $       1,526
  State.........................................           3,840                  --  ||            --                 --
                                                   ---------------    ----------------|| ---------------   ----------------
Current provision for income taxes..............          26,012                  --  ||            --              1,526
Deferred:                                                                             ||
  Federal.......................................          17,203              11,524  ||         6,490            (63,212)
  State.........................................           1,954               2,478  ||           843             (9,215)
  Valuation allowance (federal and state).......              --                  --  ||        (7,333)            70,442
                                                   ---------------    ----------------|| ---------------   ----------------
Deferred provision (benefit) for income taxes...          19,157              14,002  ||            --             (1,985)
                                                   ---------------    ----------------|| ---------------   ----------------
                                                    $     45,169       $      14,002  ||  $         --      $        (459)
                                                   ===============    ================|| ===============   ================
</TABLE>




                                       26

<PAGE>   24


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13.   INCOME TAXES (CONTINUED)

    The differences between the income tax expense (benefit) calculated at the
federal statutory income tax rate and the Company's consolidated income tax
expense (benefit) are as follows:




<TABLE>
<CAPTION>
                                                                 Forty-Eight   ||   Four Weeks
                                                YEAR ENDED       Weeks Ended   ||     Ended           Year Ended
                                                JANUARY 3,       December 28,  ||   January 26,      December 30,
                                                   1998              1996      ||      1996              1995
                                              --------------    -------------- || --------------    --------------
                                                                         (IN THOUSANDS)
<S>                                           <C>               <C>            || <C>               <C>
U.S. federal statutory rate................    $     37,643      $     11,140  ||  $         --      $    (64,843)
State income taxes (net of federal benefit)           3,766             1,608  ||            --            (8,208)
Deferred tax asset valuation adjustment....              --                --  ||            --            70,442
Intangible amortization....................           1,836             1,268  ||            --               828
Non-taxable items..........................           1,076               (14) ||            --               883
All others.................................             848                --  ||            --               439
                                              --------------    -------------- || --------------    --------------
                                               $     45,169      $     14,002  ||  $         --      $       (459)
                                              ==============    ============== || ==============    ==============
</TABLE>
        
        
    The deferred tax assets and deferred tax (liabilities) recorded on the    
consolidated balance sheets consist of the following:                        



<TABLE>
<CAPTION>
                                                                            JANUARY 3, 1998        December 28, 1996
                                                                         --------------------    --------------------
                                                                                        (IN THOUSANDS)
<S>                                                                      <C>                     <C>              
Depreciation.......................................................        $        (82,204)       $        (91,860)
Prepaid pension....................................................                 (16,164)                (17,050)
Inventory valuation................................................                  (5,257)                 (7,073)
Other..............................................................                     (88)                   (144)
                                                                         --------------------    --------------------
                                                                                   (103,713)               (116,127)
                                                                         --------------------    --------------------
Net operating loss carryforwards...................................                  80,195                  94,659
Postretirement/postemployment benefits.............................                  25,123                  24,997
Workers' compensation..............................................                  15,119                  16,703
Plant and facility closing costs and severance.....................                  10,996                  14,232
Incentives and deferred compensation...............................                  11,493                  11,658
Charitable contributions...........................................                   8,425                  10,067
Employee benefits..................................................                   9,583                   8,251
Other current assets...............................................                      --                   3,121
Other..............................................................                     442                   8,650
                                                                         --------------------    --------------------
                                                                                    161,376                 192,338
Valuation allowance................................................                 (84,350)                (84,350)
                                                                         --------------------    --------------------
                                                                           $        (26,687)       $         (8,139)
                                                                         ====================    ====================
</TABLE>


    Net operating loss carryforwards total approximately $203.2 million through
1997 and expire in 2008 through 2011. 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.

    Income taxes paid, net of refunds, were approximately $9.9 million, $1.6
million, and $2.3 million for the year ended January 3, 1998, the forty-eight
weeks ended December 28, 1996, and the year ended December 30, 1995,
respectively. There were no taxes paid or refunded during the four weeks ended
January 26, 1996.


                                       27

<PAGE>   25



                            KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.   SHAREHOLDERS' EQUITY

    There were no cash dividends declared 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. The Company's ability to pay cash
dividends is limited by the Credit Agreement and the Senior Subordinated Notes.
The most restrictive dividend restriction exists under the terms of the Credit
Agreement which limits dividends to $25.0 million.

    On July 29, 1997, the Board of Directors of the Company approved a 1-for-10
reverse stock split of the Company's common stock. In addition, on January 22,
1998, the Board of Directors approved a 57.325-for-1 stock split of the common
stock. All per share and related amounts contained in these financial statements
and notes have been adjusted to reflect the stock splits as if they had been
effective January 26, 1996.

    As a result of the Sunshine acquisition in 1996, the Company issued GFI
5,675,633 shares of the Company's common stock and a warrant to purchase
6,135,781 shares of the Company's common stock. The shares of $.01 par value
stock were valued at $3.23 per share. The warrant is exercisable at $3.23 per
share over a seven year period, beginning June 4, 1996 and expiring June 4,
2003. The total value of the stock and warrant held by GFI was $23.6 million at
December 28, 1996. Subsequent to the Merger, the stock and warrant held by GFI
were transferred to Bermore and reissued for the same value in the name of the
Company. At January 3, 1998, the warrant had not been exercised.

    During the forty-eight weeks ended December 28, 1996, management invested
$3.7 million in exchange for 1,963,361 shares of the Company's common stock. The
Company repurchased 1,657,036 shares of the common stock to be sold to
management from Flowers and Artal for $2.9 million. The additional 306,325
shares of common stock were issued and sold to management for $0.8 million.

15.   STOCK OPTION PLAN

    The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for employee stock options. Under the Company's
1996 Stock Option Plan 9,673,594 shares of the Company's stock were authorized
for future grant. There were 7,031,198 options granted in 1996. In 1997, there
were an additional 49,873 options granted to management personnel and no
forfeitures of the Company's stock options. All options granted have ten year
terms and vest at the end of nine years. Vesting can be accelerated on a pro
rata basis over the first five years after grant if certain Company performance
measures are achieved.

    The following table summarizes stock option activity:



<TABLE>
<CAPTION>
                                                                                          Forty-Eight Weeks Ended
                                                    YEAR ENDED JANUARY 3, 1998               December 28, 1996
                                                 ---------------------------------   --------------------------------
                                                                      WEIGHTED                           Weighted
                                                                      AVERAGE                            Average
                                                    OPTIONS        EXERCISE PRICE       Options       Exercise Price
                                                 --------------   ----------------   -------------   ----------------

<S>                                              <C>              <C>                <C>             <C>   
Outstanding at the beginning of the period...        6,802,471            $ 1.98               --            $   --
Granted......................................           49,873              5.23        7,031,198              1.98
Exercised....................................               --                --               --                --
Forfeited....................................               --                --          228,727              1.74
Expired......................................               --                --               --                --
                                                 --------------                      -------------
Outstanding at the end of the period.........        6,852,344            $ 2.01        6,802,471            $ 1.98
                                                 ==============                      =============
Exercisable at the period end................        1,587,243                --               --                --
                                                 ==============                      =============
</TABLE>



                                       28

<PAGE>   26


                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.   STOCK OPTION PLAN (CONTINUED)

    Exercise prices as of January 3, 1998 for options outstanding arising from
the July 1997 grant (49,873 options), the December 1996 grant (1,114,398
options), and the May 1996 grant (5,688,073 options) were $5.23, $3.23, and
$1.74, respectively. The weighted average fair value for options granted in 1997
was $5.23. The weighted average remaining contractual life of the options is
approximately eight years.

    Pro forma information regarding net income is required by the SFAS No. 123,
"Accounting for Stock-Based Compensation", and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair value for the options was estimated at the date of
grant using a present value approach with the following weighted-average
assumptions: risk-free interest rate of 6.0%; no expected dividend yield;
volatility of zero; and a weighted-average expected life of the option of five
years.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income and basic earnings per share would have been approximately
$55.0 million and $0.71 per share for the year ended January 3, 1998 and $14.0
million and $0.19 per share for the forty-eight weeks ended December 28, 1996,
respectively.


16.   RESTRUCTURING CHARGE

     In 1993, the predecessor company had recorded an operating charge of $122.7
million to restructure operations. During the first four weeks of 1996, there
was no spending against the restructuring reserves. The restructuring reserve
balance was $38.2 million at January 26, 1996, and was not a cost assumed as
part of the Keebler acquisition. There were no restructuring reserves at January
3, 1998 and December 28, 1996.


17.    DISCONTINUED OPERATIONS

    During July 1995, the predecessor company adopted plans to discontinue the
operations of the Frozen Food businesses. On January 9, 1996, UB Investments
(Netherlands) B.V. sold the Frozen Food businesses to the Windsor Food Company
Ltd. for $70.0 million. A gain on sale of $18.9 million was recorded during the
four weeks ended January 26, 1996. Income tax expense was not recognized on the
gain on the sale of the Frozen Food businesses as the predecessor company did
not provide for any income taxes during the four weeks ended January 26, 1996.

    Net sales from these operations were $70.9 million for the year ended
December 30, 1995. Expenses charged against discontinued operations include
expenses associated with the costs of production, marketing, and specific
administrative expenses. Expenses do not include an allocation of shared
selling, distribution, and general administrative costs. Income from
discontinued operations relating to the Frozen Food businesses was $7.3 million
for the year ended December 30, 1995. Income tax expense was not recognized for
discontinued operations in 1995 due to the Company having a net loss on a
consolidated basis. There were no operating activities for the Frozen Food
businesses during the four weeks ended January 26, 1996 as the sale was
effective as of December 31, 1995. The net assets of the Frozen Food businesses
as of December 30, 1995 were $47.7 million. Included in the net assets were
primarily inventory, other current assets, property, plant, and equipment, and
certain current liabilities and accruals.



                                       29

<PAGE>   27



                            KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18.   AFFILIATE TRANSACTIONS

    On December 29, 1995, the predecessor company transferred certain assets and
the stock of the Frozen Food businesses to U.B. Investments (Netherlands) B.V.
for promissory notes that aggregated $70.0 million. On January 9, 1996, U.B.
Investments (Netherlands) B.V. sold both these assets and stock to Windsor Food
Company Ltd. for $70.0 million, effective December 31, 1995. The aggregate
carrying value of these businesses and assets reflected in the December 30, 1995
consolidated balance sheet is $47.7 million, consisting primarily of goodwill of
$22.0 million, property, plant, and equipment of $21.2 million, and inventory of
$7.6 million, which resulted in a pre-tax realized gain, net of a $3.4 million
charge for severance arising from the sale, of $18.9 million for UBIUS.

     On  December  29,  1995,  the  predecessor  company  sold the stock of both
U.B.F.C.,  Inc. and U.B.H.C.,  Inc. to U.B. Investments plc. for $100 each which
resulted in no significant gain or loss.

    Near the end of 1995, and in consideration of completing various pending
stock and asset purchase agreements, as described in Note 4, the predecessor
company entered into several transactions with affiliated companies within
United Biscuits (Holdings) plc. The accompanying consolidated financial
statements have not been adjusted to reflect these transactions which are
summarized below, as it is the Company's policy to only give effect to
dispositions resulting in a gain on the completion of the transaction with the
ultimate third party acquirer.

    On November 30, 1995, Keebler Company sold to UB Group Ltd., ultimately
United Biscuits (Holdings) plc., for a $5.0 million affiliate receivable, the
entire rights, titles and interests in certain logos, trade names, trademarks,
and service marks registered or pending registration by Keebler Company in
Australia, New Zealand, Asia, and Europe. The proceeds of this transaction were
offset by certain legal fees and registration and licensing costs aggregating
$0.5 million. The net gain on the sale of these trademarks is included in other
costs and expenses for the year ended December 30, 1995.

    In 1995, the predecessor company conducted business with various affiliated
companies that ultimately were under the control of United Biscuits (Holdings)
plc. Transactions with related parties included working capital financing and
the purchase of product for resale in the United States. Purchases of product
from affiliated companies for resale in the United States were $11.3 million for
the year ended December 30, 1995.


19.    NET INCOME PER SHARE

    Earnings per share is calculated using the weighted average number of common
and common equivalent shares outstanding during each period. The common
equivalent shares relate to the 1996 Stock Option Plan and the warrant issued in
connection with the Sunshine acquisition and are calculated using the treasury
stock method.



                                       30

<PAGE>   28



                            KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19.    NET INCOME PER SHARE (CONTINUED)

    The following table sets for the computation of basic and diluted net income
per share:



<TABLE>
<CAPTION>
                                                                                                  Forty-Eight
                                                                              YEAR ENDED          Weeks Ended
                                                                            JANUARY 3, 1998    December 28, 1996
                                                                           -----------------   -----------------
                                                                                      (IN THOUSANDS)
<S>                                                                        <C>                 <C>         
NUMERATOR:
   Income from operations before extraordinary item.....................      $     62,381        $     17,677
   Extraordinary item, net of tax.......................................             5,396               1,925
                                                                           -----------------   -----------------
   Net income...........................................................      $     56,985        $     15,752
                                                                           =================   =================
DENOMINATOR:
   Denominator for Basic Earnings Per Share
        Weighted average shares.........................................            77,604              75,244
   Effect of Dilutive Securities:
        Stock options...................................................             2,168                 832
        Warrants........................................................               790                  --
                                                                           -----------------   -----------------
        Diluted potential common shares.................................             2,958                 832
                                                                           -----------------   -----------------
   Denominator for Diluted Earnings Per Share...........................            80,562              76,076
                                                                           =================   =================
</TABLE>


     Options to purchase 56,216 shares of common stock at $3.23 per share were
outstanding at December 28, 1996, but were excluded from the computation of
diluted net income per share as the exercise price of the options exceeded the
average market price of common shares; and therefore, the effect would have been
antidilutive.


20.   FAIR VALUE OF FINANCIAL INSTRUMENTS

    The fair market value of financial instruments, which includes short and
long-term borrowings, was estimated using discounted cash flow analyses based on
current interest rates which would be obtained for similar financial
instruments. The carrying amounts of these financial instruments approximate
fair value.

    The Company often enters into exchange traded commodity futures and options
contracts to protect the Company against a portion of adverse raw material price
movements. Gains or losses realized from the liquidation or expiration of the
contracts are recognized as part of the cost of raw materials. Gains or losses
are deferred in inventory until realized. Cost of sales was increased by losses
on futures and options transactions of $3.8 million in 1997, and reduced by
gains on futures and options transactions of $0.8 million for the forty-eight
weeks ended December 28, 1996, and $3.4 million in 1995. Operations for the four
weeks ended January 26, 1996, was unaffected by gains or losses on futures and
options as the $0.5 million loss was recorded as an adjustment to the opening
balance sheet. As of January 3, 1998, $4.9 million in unrealized futures and
options contract losses have been deferred in inventory. The notional amount of
open futures and options contracts at January 3, 1998 was $58.1 million and $0.7
million, respectively. The open contracts will expire between March 1998 and
November 1998.



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<PAGE>   29




                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21.    UNAUDITED QUARTERLY FINANCIAL DATA

    Results of operations for each of the four quarters of the fiscal years
ended January 3, 1998 and December 28, 1996 follow. Each quarter represents a
period of twelve weeks except the first quarter which includes sixteen weeks. In
1996, earnings per share amounts have been restated to comply with SFAS No. 128,
"Earnings per Share" (See Note 19).


<TABLE>
<CAPTION>
                                               Quarter 1           Quarter 2           Quarter 3           Quarter 4
                                           ------------------- ------------------- ------------------- -------------------
                                              1997     1996*      1997      1996     1997      1996      1997**     1996
                                           --------- --------- --------- --------- --------- --------- --------- ---------
                                                               (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>   
Net sales.............................       $597.0    $335.3    $459.8    $383.8    $485.3    $452.3    $523.1    $474.1
Gross profit..........................        337.0     177.8     259.7     197.9     277.0     235.0     303.5     260.6
Income before extraordinary item......          7.6       1.3      13.0       0.5      18.5       0.8      23.3      15.1
Extraordinary item....................          2.7        --        --       1.9        --        --       2.7        --
Net income (loss).....................          4.9       1.3      13.0      (1.4)     18.5       0.8      20.6      15.1

Basic net income (loss) per share:
   Income before extraordinary item...       $ 0.10    $ 0.02    $ 0.16    $ 0.01    $ 0.24    $ 0.01    $ 0.30    $ 0.20
   Extraordinary item.................         0.04        --        --      0.03        --        --      0.03        --
                                           --------- --------- --------- --------- --------- --------- --------- ---------
   Net income (loss)..................       $ 0.06    $ 0.02    $ 0.16    $(0.02)   $ 0.24    $ 0.01    $ 0.27    $ 0.20
                                           ========= ========= ========= ========= ========= ========= ========= =========
Weighted average shares...............         77.6      71.7      77.6      74.4      77.6      77.5      77.6      77.5
                                           ========= ========= ========= ========= ========= ========= ========= =========
Diluted net income (loss) per share:
   Income before extraordinary item...       $ 0.10    $ 0.02    $ 0.16    $ 0.01    $ 0.23    $ 0.01    $ 0.28    $ 0.19
   Extraordinary item.................         0.04        --        --      0.02        --        --      0.03        --
                                           --------- --------- --------- --------- --------- --------- --------- ---------
   Net income (loss)..................       $ 0.06    $ 0.02    $ 0.16    $(0.01)   $ 0.23    $ 0.01    $ 0.25    $ 0.19
                                           ========= ========= ========= ========= ========= ========= ========= =========
Weighted average shares...............         79.2      71.7      79.2      75.2      81.3      79.1      81.7      79.1
                                           ========= ========= ========= ========= ========= ========= ========= =========
----------

* Quarter 1, 1996 excludes the financial data of the predecessor company for the
four weeks ended January 26, 1996. ** Quarter 4, 1997 includes thirteen weeks as
fiscal 1997 is a fifty-three week year.
</TABLE>
</FN>


22.    SUBSEQUENT EVENTS

    The consolidated financial statements reflect the Company's declaration of a
57.325-for-1 stock split of common stock ("Stock Split") effective January 22,
1998. The Stock Split was effected in the form of a stock dividend. Accordingly,
all references in the consolidated financial statements to number of shares,
options, warrants, and the related prices, as well as per share amounts and the
average number of shares outstanding, have been restated to reflect these
changes.

    On January 29, 1998, the Company made a public offering of 13,386,661 shares
of common stock (the "Offering"). Concurrent with the Offering, Bermore
exercised a warrant to purchase 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 so
that its ownership of outstanding common stock increased from approximately 45%
to 55%. Sales of shares and the exercise of the warrant resulted in Artal's
ownership decreasing from approximately 45% to 21%, and Bermore's ownership
decreasing from approximately 7% to 6% of outstanding common stock. Management's
ownership remained at approximately 2%, with the balance of the outstanding
common stock being sold to non-affiliates.



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