UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

(Mark One)

   |X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED JANUARY 2, 1999

                                       OR

   | |     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934

                   FOR THE TRANSITION PERIOD FROM      TO

                      COMMISSION FILE NUMBER: NO. 001-13705
                             
                              KEEBLER FOODS COMPANY
             (Exact name of Registrant as specified in its charter)

                 DELAWARE                                36-3839556
     (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                 Identification No.)

         677 LARCH AVE., ELMHURST, IL                       60126
   (Address of principal executive offices)              (Zip Code)

                                  630-833-2900
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


    TITLE OF EACH CLASS            NAME OF EACH EXCHANGE ON WHICH REGISTERED    
    -------------------            -----------------------------------------
       Common Stock                         New York Stock Exchange         

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

      $125,000 OF ITS 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006 WHICH ARE
      FULLY AND UNCONDITIONALLY GUARANTEED BY THE RESTRICTED SUBSIDIARIES

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO | |

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. | |

THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF MARCH 15, 1999, BASED UPON THE CLOSING
PRICE OF THE COMMON STOCK AS REPORTED ON THE NEW YORK STOCK EXCHANGE ON SUCH
DATE, WAS APPROXIMATELY $1,358,000,000.

NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF THE CLOSE
OF BUSINESS ON MARCH 15, 1999: 84,303,958.

                      DOCUMENTS INCORPORATED BY REFERENCE:

PROXY STATEMENT TO BE FILED ON OR BEFORE APRIL 25, 1999 FOR 
  THE ANNUAL MEETING TO BE HELD ON MAY 25, 1999.....................  PART III

<PAGE>
                                FORM 10-K REPORT

                                TABLE OF CONTENTS

PART I:                                                                    PAGE

Item 1.    Business......................................................... 1

Item 2.    Properties....................................................... 7

Item 3.    Legal Proceedings................................................ 8

Item 4.    Submission of Matters to a Vote of Security Holders.............. 8

PART II:

Item 5.    Market for the Registrant's Common Equity and Related Shareholder
            Matters......................................................... 8

Item 6.    Selected Financial Data.......................................... 9

Item 7.    Management's Discussion and Analysis of Financial Condition and
            Results of Operation............................................ 10

Item 7a.   Quantitative and Qualitative Disclosures About Market Risk....... 18

Item 8.    Financial Statements and Supplementary Data...................... 19

Item 9.    Changes in and Disagreements with Accountants on Accounting and      
            Financial Disclosure............................................ 19

PART III:

Item 10.   Directors and Executive Officers of the Registrant............... 19

Item 11.   Executive Compensation........................................... 19

Item 12.   Security Ownership of Certain Beneficial Owners and Management... 19

Item 13.   Certain Relationships and Related Transactions................... 20

PART IV:

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20

<PAGE>



                                     PART I

ITEM 1.       BUSINESS

    Unless stated otherwise, market share data included in this Annual Report on
Form 10-K are based on supermarket, mass merchandiser and drug store sales,
measured in pounds sold, for the fifty-two week period ended January 3, 1999 as
reported by Information Resources, Inc. ("IRI"). Sales to club stores and
vending distributors are not included in this data. With respect to the
foodservice industry, market share data included herein are based on sales,
measured in pounds sold, for the twelve-month period ended December 31, 1998 as
reported by the International Foodservice Manufacturers Association
("IFMATRAC").

    Keebler Foods Company and its subsidiaries ("Keebler" or "the Company") is
the second largest cookie and cracker manufacturer in the United States ("U.S.")
with annualized net sales of over $2.5 billion and a 25.7% share of the U.S.
cookie and cracker market. We market a majority of our products under
well-recognized brands such as KEEBLER, CHEEZ-IT, CARR'S and FAMOUS AMOS. In the
U.S., we are the number two manufacturer of branded cookies and crackers, the
leading licensed supplier of Girl Scout cookies and the number one manufacturer
of private label cookies and the number one manufacturer of crackers for the
foodservice market. We are also the number one manufacturer of retail branded
ice cream cones in the U.S. and a major producer of retail branded pie crusts.
In addition, we produce custom-baked products for other marketers of branded
food products.

RECENT HISTORY

    Keebler was originally organized under the laws of the State of Delaware as
UB Investments US Inc. ("UBIUS" or "predecessor company") on July 14, 1992.
Keebler was acquired from UB Investments (Netherlands) B.V. on January 26, 1996
(the "Keebler acquisition") by INFLO Holdings Corporation ("INFLO"), a
corporation which was jointly owned by Artal Luxembourg S.A. ("Artal"), a
private investment company, and Flowers Industries, Inc. ("Flowers"), a New York
Stock Exchange-listed company and one of the country's largest manufacturers and
marketers of fresh and frozen baked foods. Immediately after the Keebler
acquisition, the Company was renamed Keebler Corporation. In conjunction with
the Keebler acquisition, INFLO sold 2.5% of the outstanding shares of $0.01 par
value common stock to certain members of management. On June 4, 1996, Keebler
acquired Sunshine Biscuits, Inc. ("Sunshine" or the "Sunshine acquisition") from
G.F. Industries, Inc. ("GFI"). As part of consideration paid in the sale of
Sunshine, GFI was issued common stock and a warrant to purchase 6,135,781 shares
of common stock. On November 20, 1997, INFLO was merged into Keebler Corporation
(the "Merger") and subsequently changed its name to Keebler Foods Company. After
the Merger, the stock and warrant held by GFI were transferred to Bermore,
Limited ("Bermore"), a privately held corporation and the parent of GFI, and
reissued for the same value in the name of Keebler. On February 3, 1998, Keebler
completed an initial public offering (the "Offering") of 13,386,661 shares of
common stock. Concurrent with the Offering, Bermore exercised the warrant in
exchange for 6,135,781 shares of common stock. The exercise of the warrant
resulted in Keebler receiving $19.8 million of cash proceeds. Artal and Bermore
sold all of the shares in the Offering, with no proceeds from the Offering going
to Keebler. As part of the transaction, Flowers acquired additional shares of
common stock from Artal and Bermore, which increased its ownership from
approximately 45% to 55%. Artal, having sold shares to both Flowers and the
public, retained ownership of approximately 21%. Bermore exercised the warrant,
sold shares to both Flowers and the public and retained ownership of
approximately 6%. During 1998, Bermore, through a series of transactions,
transferred its shares held to Claremont Enterprises, Limited ("Claremont"), a
privately held Bahamian limited company. On September 28, 1998, Keebler acquired
President International, Inc. ("President") from President International Trade
and Investment Corporation, a company limited by shares under the International
Business Companies Ordinance of the British Virgin Islands. On January 21, 1999,
Keebler registered 16,200,000 shares of the Company common stock in connection
with a secondary public offering. Artal and Claremont owned all of the shares
sold in the secondary offering, with no proceeds going to Keebler. As a result,
Artal's ownership percentage decreased from approximately 21% to 2% and
Claremont's ownership percentage was reduced from approximately 6% to 5% of the
outstanding common stock. Management's ownership remained at approximately 2%
and Flowers' ownership remained at approximately 55%.

                                       1
<PAGE>

GENERAL BUSINESS DESCRIPTION

    Keebler competes in the U.S. retail cookie and cracker industry which in
1998 generated sales of approximately $8.5 billion measured in retail sales to
consumers. The U.S. cookie and cracker industry, which is relatively stable, has
experienced slow, but steady growth over the past twenty years. The cookie and
cracker industry is comprised of distinct types of products. Cookie product
types include, among others, sandwich cookies, chocolate chip cookies and
fudge-covered cookies. Cracker product types include, among others, saltine
crackers, graham crackers and snack crackers. Supermarkets accounted for 76.9%
of 1998 sales in the cookie and cracker industry, with mass merchandisers (such
as Wal-Mart), convenience stores and drug stores accounting for the balance.
Since 1992, U.S. annual dollar supermarket sales of cookies and crackers have
increased by an average of 1.5% per year. We believe that non-supermarket
channels of distribution are becoming increasingly important.

    Since the acquisition of the Keebler business in January 1996, we have
employed a business strategy designed to capitalize on our competitive
strengths, which include strong national brands and a national direct to store
door sales and distribution system, which is known as a "DSD distribution
system." The acquisitions of Sunshine and President have enabled us to further
develop this business strategy. The key elements of this strategy include:

    o    building on the KEEBLER brand and taking advantage of its strength
         across product types; 
    o    expanding the CHEEZ-IT brand; 
    o    increasing sales in non-supermarket channels; 
    o    increasing the efficiency of operations and
    o    pursuing acquisitions that complement or provide further opportunities
         to use existing brands, product lines or distribution systems.

    Keebler operates its business through the use of two reportable segments.
The mass distribution of consumer food products in both the Branded and
Specialty segments is an important element in maintaining sales growth and
providing service to customers. We attempt to meet the changing demands of
customers by planning appropriate stock levels and reasonable delivery times
consistent with achieving optimal economics of distribution. In order to achieve
these objectives, we have developed a network of manufacturing plants, shipping
centers and distribution warehouses strategically located throughout the
continental U.S. to provide high national in-store presence. We use a
combination of Keebler-owned, public and contract carriers to deliver products
from distribution points to customers.

BRANDED SEGMENT

    The Branded segment produces a number of well-recognized brands including:
CHEEZ-IT, CHIPS DELUXE, CLUB, DROXIES, FAMOUS AMOS, FUDGE SHOPPE, SUNSHINE
KRISPY, MUNCH'EMS, MURRAY, OLDE NEW ENGLAND, READY CRUST, SANDIES, TOWN HOUSE,
VIENNA FINGERS, WHEATABLES and ZESTA. We also import and distribute CARR'S
crackers in the U.S. under an exclusive long-term licensing and distribution
agreement with United Biscuits. CARR'S crackers are the best-selling specialty
crackers in the U.S. In addition, we are the top manufacturer of retail branded
ice cream cones in the U.S., as well as the leading manufacturer of preformed
retail branded pie crusts which are sold under the KEEBLER READY CRUST brand
name. All of our branded products are sold in supermarkets, mass merchandisers,
club stores, convenience stores and drug stores, among others.

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

                                       2
<PAGE>

    With the acquisition of President, we acquired their franchised DSD
distribution system, which principally distributes products east of the
Mississippi River. The President DSD distribution system, which services both
supermarkets and certain non-supermarket channels, is comprised of independent
franchisees who purchase and resell certain President products.

    In addition to the Keebler and President DSD distribution systems, we use a
network of independent distributors and brokers to serve convenience stores and
vending distributors. In the case of club stores, Keebler uses a dedicated sales
force and ships products directly to the customers' warehouses. We also use a
warehouse sales and distribution system to sell and distribute KEEBLER READY
CRUST pie crusts. CARR'S crackers are sold through a network of independent
specialty distributors.

    Keebler has focused on new product introductions and line extensions within
our core product types, such as CHEEZ-IT HEADS AND TAILS, CHEEZ-IT snack mix,
CHEEZ-IT HOT & SPICY crackers, KEEBLER PEANUT BUTTER FUDGE STICKS, LEMON CREME
VIENNA FINGER cookies and HOMESTYLE SOFT BATCH cookies. We have previously
introduced innovative product types such as KEEBLER COOKIE STIX. We also
developed new sizes of our leading products to enable us to expand in
non-supermarket channels and introduced innovative new packaging, such as
holographic holiday packaging and resealable stand-up packages for our CHEEZ-IT
snack mix and FAMOUS AMOS cookies.

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

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

SPECIALTY SEGMENT

    The Specialty segment produces cookies, crackers and custom-baked products
for several markets. We are the number one manufacturer of crackers for the
foodservice market, as reported by IFMATRAC. Our foodservice products are sold
by a national sales force dedicated solely to the foodservice market, with the
assistance of independent brokers. These products are shipped directly to
customers' warehouses and in the foodservice market, we generally sell to large
distributors who sell our products to restaurants and institutions.

    With the acquisition of President, we are now also the leading licensed
supplier of cookies for the Girl Scouts of America. We exclusively supply more
than one-half of the approximately 320 Girl Scout Councils in the U.S. and are
one of only three cookie manufacturers licensed by the Girl Scouts of America to
manufacture Girl Scout cookies. Keebler employs dedicated marketing personnel to
assist the various Girl Scout Councils with sales, marketing and public
relations. A team of nine salespersons is employed, in addition to independent
brokers, which market to U.S. Girl Scout Councils.

    In addition, Keebler manufactures private label products to be sold by
retailers under their own brands. We believe we are the leading manufacturer of
private label cookie products in the U.S. We serve leading supermarkets in the
U.S. with a variety of private label products ranging from value-oriented
standard products to premium items that compete with branded alternatives. Our
Bake-Line Products, Inc. plant located in Des Plaines, Illinois, is dedicated to
producing private label cookies, and is capable of producing a wide variety of
products with numerous packaging options to meet the wide-ranging demands of our
private label customers. Our private label cookies and crackers are shipped via
common carrier directly to customer warehouses.

                                       3
<PAGE>

    We also manufacture a variety of custom-baked products for other marketers
of branded food products including: Kellogg POP TARTS, Kellogg NUTRIGRAIN bars,
MCDONALDLAND cookies and Gerber BITER biscuits, as well as crackers for Oscar
Mayer LUNCHABLES, Starkist CHARLIE TUNA snack kits and Kraft HANDI-SNACKS. Our
custom-baked products are packaged under customers' labels and shipped from
Keebler plants to the customers' regional warehouses or distribution centers via
common carrier.

    Historically, President's net sales, net income and cash flow have been
higher in the first quarter than any other fiscal quarter because substantially
all sales of Girl Scout cookies have occurred in that quarter. As such, we
expect to realize proportionately higher net sales, net income and cash flow
during the first quarter than we historically have experienced.

COMPETITION

    The U.S. branded cookie and cracker industry is led by Keebler and Nabisco,
Inc. ("Nabisco"), which together account for 59.4% of sales volume. Smaller
competitors include numerous national, regional and local manufacturers of both
branded and private label products. Competition in our markets takes many forms
including:

    o    establishing favorable brand recognition; 
    o    developing products sought by consumers; 
    o    implementing appropriate pricing; 
    o    providing strong marketing support and 
    o    obtaining access to retail outlets and sufficient shelf space.

    Nabisco is the largest manufacturer in the U.S. cookie and cracker industry.
We have a 25.7% share of the retail cookie and cracker market, while Nabisco has
a 33.7% share. The remaining industry participants primarily target certain
portions of the industry or focus on certain geographical regions of the U.S.
Keebler and Nabisco are also the only cookie and cracker producers that have
national wholly-owned DSD distribution systems, although Pepperidge Farm
operates a national DSD distribution system through independent distributors.

CUSTOMERS

    Keebler's top ten customers in 1998 accounted for 29.6% of our net sales. No
single customer accounted for more than 4.3% of net sales.

RAW MATERIALS

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

INTELLECTUAL PROPERTY

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

                                       4
<PAGE>

RESEARCH AND DEVELOPMENT

    Keebler engages in research activities, which principally involve
development of new products, improvement of the quality of existing products and
improvement and modernization of production processes. We also carry out
development and evaluation of new processing techniques for both current and
proposed product lines. Identifiable research and development costs are set
forth on page F-11 of our consolidated financial statements.

REGULATION

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

ENVIRONMENTAL

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

EMPLOYEES

    We employ approximately 12,200 persons, of which approximately 5,800 are
represented by unions. We believe relations with our employees to be good.

<TABLE>

EXECUTIVE OFFICERS OF KEEBLER
<CAPTION>

      NAME                 AGE                 POSITION
<S>                        <C>      <C>    
Robert P. Crozer           52       Chairman of the Board and Director
Sam K. Reed                52       Chief Executive Officer, President and Director
E. Nichol McCully          44       Chief Financial Officer and Senior Vice President - Finance
David B. Vermylen          48       President - Keebler Brands
Jack M. Lotker             55       President - Specialty Products
James T. Willard           58       Senior Vice President - Operations
Thomas E. O'Neill          44       Vice President, Secretary and General Counsel
James T. Spear             44       Vice President - Finance and Corporate Controller

</TABLE>
                                       5
<PAGE>

    ROBERT P. CROZER. Mr. Crozer was elected Chairman of the Board of Directors
of Keebler in February 1998. Mr. Crozer has been a Director of Keebler since
March 1996. Mr. Crozer has served as Vice Chairman of the Board of Directors of
Flowers since 1989. He joined Flowers in 1973 and has been a director of Flowers
since 1989. Mr. Crozer served as Vice President-Marketing of Flowers from 1985
to 1989, Corporate Director of Marketing Planning of Flowers from 1979 to 1985,
as well as President and Chief Operating Officer, Convenience Products Group of
Flowers from 1979 to 1989. Mr. Crozer received both a B.A. and an M.B.A. from
the University of Virginia.

    SAM K. REED. Mr. Reed has been the Chief Executive Officer, President and a
Director of Keebler since the Keebler acquisition in January 1996. Mr. Reed has
twenty-five years of experience in the snack and baking industries. From January
1994 to January 1995 he served as Chief Executive Officer of Specialty Foods
Corporation's $450 million Western Bakery Group division. Prior to that, he was
President and Chief Executive Officer of Mother's Cake and Cookie Co. from 1991
to 1994, and held Executive Vice President positions at Wyndham Bakery Products
from 1988 to 1990 and Murray Bakery Products from 1985 to 1988. Mr. Reed managed
a natural foods company from 1984 to 1985, which later became The Quaker Oats
Company's rice cake division. He started his career in 1974 with Oroweat Foods
Company where he spent ten years in finance, manufacturing and general
management. Mr. Reed received a B.A. from Rice University and an M.B.A. from
Stanford University.

    E. NICHOL MCCULLY. Mr. McCully has been the Chief Financial Officer and
Senior Vice President-Finance of Keebler since the Keebler acquisition in
January 1996. Mr. McCully has over eleven years of experience as a senior
financial executive in the food industry, most recently as group Chief Financial
Officer for the Western Bakery Group division of Specialty Foods Corporation
from 1993 to 1995. Mr. McCully was Vice President-Finance for Mother's Cake and
Cookie Co. from 1991 until its acquisition by Specialty Foods Corporation in
1993. From 1990 to 1991, he was Vice President-Finance, and from 1988 to 1990,
he was Controller for Spreckels Sugar Co. Prior to entering the food industry,
Mr. McCully held financial management positions with Triad Systems Corporation
and Wells Fargo Leasing Corporation, and he has auditing experience with Arthur
Andersen & Co. Mr. McCully received a B.A. from the University of California at
Berkeley and an M.B.A. from the University of California at Los Angeles. Mr.
McCully is also a Certified Public Accountant.

    DAVID B. VERMYLEN. Mr. Vermylen has been the President-Keebler Brands since
the Keebler acquisition in January 1996. Mr. Vermylen manages Keebler's branded
biscuits, pie crust and imported products sector. He has twenty-four years
experience in marketing consumer packaged goods including cookies, cereals,
beverages and convenience foods. In 1995, he served as Chairman, President and
Chief Executive Officer of Brothers Gourmet Coffee, a publicly traded specialty
beverage manufacturer and retailer. He served as President and Chief Operating
Officer from 1994 to 1995 and Vice President-Marketing from 1991 to 1993 at
Mother's Cake and Cookie Co. Mr. Vermylen spent fourteen years in product
management at General Foods from 1974 to 1988 managing a variety of businesses,
including serving as Vice President of Marketing for Post Cereals. Mr. Vermylen
was also a founding partner of a consulting firm specializing in food marketing
and grocery distribution. He holds a B.A. in economics from Georgetown
University and an M.B.A. from New York University.

    JACK M. LOTKER. Mr. Lotker has been President-Specialty Products of Keebler
since the Keebler acquisition in January 1996. Mr. Lotker has worked in the food
industry for twenty-four years, most recently at Homeland Stores of Oklahoma
from 1988 to 1995. His experience in the baking industry and with DSD
distribution systems includes two years at CPC International as Vice President
and General Manager of Dry Products from 1986 to 1988 and eight years at Arnold
Food Company as Vice President and Group Executive from 1978 to 1986. Mr. Lotker
headed the American Bakers Association Industrial Relations Committee from 1983
to 1986 and has an extensive knowledge of the interaction among food retailing,
wholesale bakery distribution and unionized bakery operations. Mr. Lotker
received his B.A. from Queens College and his M.B.A. from Long Island
University.

    JAMES T. WILLARD. Mr. Willard has been Senior Vice President-Operations of
Keebler since July 1996. With thirty-four years experience in the food industry,
Mr. Willard most recently was Senior Vice President at Nabisco Biscuit Co. from
1993 to 1996, and Senior Vice President-Operations and Technical Services at
Nabisco Specialty Products Division from 1991 to 1993. From 1988 to 1991, Mr.
Willard was Senior Vice President-Operations at ALPO Pet Foods, Inc., and Mr.
Willard was Senior Vice President-North American Operations at Cadbury
Schweppes, Inc. from 1986 to 1988. Prior to those assignments, Mr. Willard held
various positions at Nestle Foods

                                       6
<PAGE>

Corporation from 1964 to 1986. These positions were Vice President-U.S.
Chocolate Manufacturing (1983 to 1986), General Manager-Chocolate Manufacturing
(1980 to 1983 and 1975 to 1978), General Manager-Fruits, Tomatoes & Meats (1978
to 1980), Division Manager-Manufacturing (1971 to 1975), Assistant
Manager-Quality Control (1970 to 1972) and Microbiologist and Chemist-Regional
Laboratory (1964 to 1970). Mr. Willard received a B.S. from Capital University
and an M.S. from Ohio State University.

    THOMAS E. O'NEILL. Mr. O'Neill has been Vice President, Secretary and
General Counsel of Keebler since December 1996. Mr. O'Neill has spent more than
thirteen years in the food industry, most recently serving as Vice President and
Division Counsel for the Worldwide Beverage Division of The Quaker Oats Company
from December 1994 to December 1996. In that position, Mr. O'Neill was
responsible for all legal matters in both domestic and international markets
concerning the $2 billion division. Mr. O'Neill was Vice President and Division
Counsel of the Gatorade Worldwide Division of The Quaker Oats Company from 1991
through 1994. Prior to joining Quaker Oats in 1985, Mr. O'Neill spent three
years with Winston & Strawn, a law firm based in Chicago. Mr. O'Neill received
both a B.A. and J.D. from the University of Notre Dame. He also completed
additional work in the executive management program at Harvard University's
Graduate School of Business.

    JAMES T. SPEAR. Mr. Spear has been Vice President Finance and Corporate
Controller of Keebler since July 1995. He originally joined Keebler in February
1992 as Corporate Controller. Before starting with Keebler, Mr. Spear was Chief
Financial Officer of Kirkland & Ellis from 1989 to 1991. From 1979 to 1989, he
was with Price Waterhouse as both an auditor and consultant, mainly with clients
in the food industry. Mr. Spear holds a B.A. from Miami University and an M.B.A.
from Indiana University Graduate School of Business. Mr. Spear is also a
Certified Public Accountant.

    All executive officers serve at the pleasure of the Board of Directors.

    There is no family relationship between any of the executive officers of
Keebler.


ITEM 2.       PROPERTIES

    We operate nineteen manufacturing facilities in the U.S. of which sixteen
are owned and three are leased. The manufacturing facilities are located in
Athens, Georgia; Augusta, Georgia; Birmingham, Alabama; Charlotte, North
Carolina; Chicago, Illinois; Cincinnati, Ohio; Cleveland, Tennessee; Columbus,
Georgia; Denver, Colorado; Des Plaines, Illinois; Florence, Kentucky; Grand
Rapids, Michigan; Kansas City, Kansas; Lake Bluff, Illinois; Louisville,
Kentucky; Macon, Georgia; Marietta, Oklahoma; North Little Rock, Arkansas and
Sayreville, New Jersey. We also own and operate a dairy in Fremont, Ohio that
produces cheese under a proprietary formula that is used as an ingredient in
CHEEZ-IT crackers. In addition, we own one idle manufacturing facility located
in Atlanta, Georgia that is held for sale. As a result of capital expenditures
made over the past decade, we believe the manufacturing facilities are modern
and efficient. Additional investment may be necessary to improve the facilities
recently acquired in conjunction with the President acquisition. We also believe
manufacturing capacity is sufficient to meet foreseeable needs.

    Distribution facilities consist of nineteen shipping centers attached to the
manufacturing facilities, eight stand-alone shipping centers (two owned and six
leased; of which two are idle) and sixty-two distribution centers (ten owned and
fifty-two leased) throughout the U.S. Of the sixty-two distribution centers,
nine were subleased and two were idle. The four idle facilities have been
accrued for in the plant and facility closing costs. We also lease seventy-seven
warehouses and eighteen depots that are located throughout the U.S. and are
utilized by the sales force in the distribution of our products. Following the
President acquisition, we own one idle warehouse that is held for sale. We
believe there is sufficient distribution capacity to meet foreseeable needs.

    In addition to manufacturing and distribution facilities, we own two office
buildings and leases two others as part of our corporate office facility.
Keebler also leases numerous sales offices throughout the country.

    All of our manufacturing, distribution and corporate office facilities are
used by both the Branded and Specialty segments of our business.

                                       7
<PAGE>

ITEM 3.       LEGAL PROCEEDINGS

    Not applicable.


ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not applicable.


                                     PART II


ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
              MATTERS

MARKET INFORMATION FOR COMMON STOCK

    The New York Stock Exchange (the "Exchange") is the principal market on
which Keebler's common stock is traded. The common stock was first traded on the
Exchange on January 29, 1998, concurrent with the underwritten initial public
offering of 13,386,661 shares of Keebler's common stock at an initial price to
the public of $24.00 per share. Prior to the Offering, there was no established
public trading market for Keebler's shares. Quarterly market price data for 1998
is as shown below:

<TABLE>
<CAPTION>
                                                                                  Market Price per share
                                                                              -------------------------------
                                                                                   High              Low
                                                                              --------------    -------------
             <S>                                                              <C>               <C>    
             1998:

                      Quarter 1............................................         $ 31.75          $ 25.88
                      Quarter 2............................................         $ 30.13          $ 24.69
                      Quarter 3............................................         $ 29.00          $ 23.88
                      Quarter 4............................................         $ 37.81          $ 26.19
</TABLE>

HOLDERS

    The approximate number of holders of record of common stock as of March 15,
1999 was 523. This number does not include beneficial owners of Keebler's
securities held in the name of nominees.

DIVIDENDS

    No dividends were declared on Keebler's common stock in 1998 or 1997.
Historically, we have not paid dividends on our common stock and do not
currently anticipate paying any cash dividends. Additionally, the existing
$700.0 million Senior Credit Facility Agreement ("Credit Facility") and the
Senior Subordinated Notes ("Notes") place limitations on our ability to pay
dividends or make other distributions on our common stock. The most limiting
dividend restriction exists under the Notes, which limits dividend payments to
the sum of: (i) 50% of consolidated cumulative net income, (ii) net cash
proceeds received from the issuance of capital stock, (iii) net cash proceeds
received from the exercise of stock options and warrants, (iv) net cash proceeds
received from the conversion of indebtedness into capital stock and (v) the net
reduction in investments made by Keebler. Any future determination as to the
payment of dividends will be subject to such limitations, will be at the
discretion of the Board of Directors and will depend on our results of
operations, financial condition, capital requirements and other factors deemed
relevant by the Board of Directors.

                                       8
<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA

    The selected historical financial data presented below as of and for the
year ended January 2, 1999, the year ended January 3, 1998, the forty-eight
weeks ended December 28, 1996 and the four weeks ended January 26, 1996, have
been derived from, and should be read in conjunction with the historical
consolidated financial statements of Keebler and UBIUS, the predecessor company,
including the respective notes thereto, included elsewhere. The selected
historical financial data presented below as of and for the fiscal years ended
December 30, 1995 and December 31, 1994 have been derived from the consolidated
financial statements of the predecessor company that are not included herein.
The distinction between Keebler and the predecessor company's selected financial
data, as shown below, has been made by inserting a double line. The results of
operations presented below are not necessarily indicative of results to be
expected for any future period. The information set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and
respective notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
                                                   Keebler Foods Company        ||                  UBIUS
                                          --------------------------------------|| --------------------------------------
                                                                    Forty-Eight ||  Four Weeks         Year Ended 
                                            Year Ended  Year Ended  Weeks Ended ||    Ended     -------------------------
                                            January 2,  January 3,  December 28,|| January 26,  December 30, December 31,
                                             1999 (a)      1998        1996 (b) ||     1996         1995         1994
                                          ------------ ------------ ------------|| ------------ ------------ ------------
                                            (In Millions Except Per Share Data) ||              (In Millions)
<S>                                       <C>          <C>          <C>         || <C>          <C>          <C>
                                                                                ||
OPERATING DATA:                                                                 ||
Net sales...............................    $ 2,226.5    $ 2,065.2    $ 1,645.5 ||   $   101.7    $ 1,578.6    $ 1,599.7
Gross profit............................      1,287.6      1,177.2        871.3 ||        46.8        831.8        894.2
Loss on impairment of Salty Snacks                                              ||
  business..............................            -            -            - ||           -         86.5            -
Income (loss) from continuing operations        196.1        141.4         70.1 ||       (25.5)      (137.9)        46.4
Income tax expense (benefit)............         73.0         45.2         14.0 ||           -         (0.5)        (1.1)
Discontinued operations:                                                        ||
  Income from operations of discontinued                                        ||
    Frozen Food businesses, net of tax..            -            -            - ||           -          7.4          3.4
  Gain on disposal of Frozen Food                                               ||
    businesses, net of tax..............            -            -            - ||        18.9            -            -
Extraordinary item:                                                             ||
  Loss on early extinguishment of debt,                                         ||
    net of tax..........................          1.7          5.4          1.9 ||           -            -            -
Net income (loss).......................    $    94.9    $    57.0    $    15.8 ||   $    (6.5)   $  (158.3)   $   (23.0)
                                                                                ||
Diluted net income per share:                                                   ||
  Income from continuing operations                                             ||
    before extraordinary item...........    $    1.10    $    0.77    $    0.23 ||
  Extraordinary item....................         0.02         0.07         0.02 ||
                                          ------------ ------------ ------------||
  Net income............................    $    1.08    $    0.70    $    0.21 ||
                                          ============ ============ ============||
                                                                                ||
Weighted Average Shares Outstanding.....         87.5         80.6         76.1 ||
                                          ============ ============ ============||

OTHER DATA:                                                                     ||
EBITDA, as adjusted (c).................    $   265.2    $   202.1    $   119.6 ||   $   (23.5)   $   (93.3)   $    89.5
Depreciation and amortization (excluding                                        ||
  items related to discontinued                                                 ||         
  operations)...........................         69.1         60.7         49.5 ||         2.0         44.6         43.1           
Capital expenditures (excluding                                                 ||
  expenditures related to discontinued                                          ||
  operations)...........................         66.8         48.4         29.4 ||         3.2         54.2         54.6
                                                                                ||
CASH FLOW DATA:                                                                 ||
Cash Provided from (Used by)                                                    ||
  Operating activities..................    $   142.7    $   218.3    $    53.2 ||   $    (0.4)   $   (61.4)   $   (17.4)
  Investing activities..................       (510.7)       (41.5)      (130.1)||        65.2        (52.6)       (45.9)
  Financing activities..................        364.3       (161.6)        86.8 ||       (65.7)       104.4         69.4
                                          ------------ ------------ ------------|| ------------ ------------ ------------
(Decrease) increase in cash and cash                                            ||
  equivalents...........................    $    (3.7)   $    15.2    $     9.9 ||   $    (0.9)   $    (9.6)   $     6.1
                                          ============ ============ ============|| ============ ============ ============

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

(a)    Includes the operating results of President from the acquisition date of September 28, 1998 through January 2,
       1999. Other matters affecting comparability are detailed in Item 7. Management's Discussion and Analysis of
       Financial Condition and Results of Operations.

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

(c)    EBITDA, as adjusted, is defined as income (loss) from continuing operations before interest, taxes, depreciation,
       amortization and restructuring charges (gains).
</TABLE>
                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                   Keebler Foods Company        ||                  UBIUS
                                          --------------------------------------|| --------------------------------------
                                                           As of                ||                  As of
                                          --------------------------------------|| --------------------------------------
                                           January 2,   January 3,  December 28,|| January 26,  December 30, December 31,
                                              1999         1998         1996    ||     1996         1995         1994
                                          ------------ ------------ ------------|| ------------ ------------ ------------
                                                       (In Millions)            ||              (In Millions)
<S>                                       <C>          <C>          <C>         || <C>          <C>          <C>
                                                                                ||
BALANCE SHEET DATA:                                                             ||
Cash and cash equivalents...............    $    23.5    $    27.2    $    12.0 ||   $     2.1    $     3.0    $    12.5
Total assets............................      1,655.8      1,042.9      1,102.1 ||       849.1        926.9      1,001.2
Due to affiliate........................            -            -            - ||       105.0        108.0        551.6
Total debt (including capital leases)...        654.5        298.8        457.9 ||       371.4        437.6        333.2
Shareholders' equity (deficit)..........        329.3        222.0        165.1 ||        45.3         51.8       (234.9)

</TABLE>
 
ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS

SET FORTH BELOW IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 3, 1998 AND DECEMBER 28,
1996. THE YEAR ENDED DECEMBER 28, 1996 INCLUDES BOTH THE FORTY-EIGHT WEEKS OF
KEEBLER FOODS COMPANY UNDER CURRENT MANAGEMENT AND THE FOUR WEEKS OF UBIUS UNDER
FORMER MANAGEMENT. THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF KEEBLER FOODS COMPANY AND THE RELATED NOTES
THERETO APPEARING ELSEWHERE.

OVERVIEW

    GENERAL

    We sell cookies and crackers, custom-baked products to other manufacturers
of branded food products, pie crusts and ice cream cones. Our net sales are
principally affected by product pricing and quality, brand recognition, new
product introductions, product line extensions, marketing and service. We manage
these factors to achieve a sales mix favoring our higher margin products while
driving volume through our national DSD distribution system.

    The principal elements comprising our cost of sales are raw and packaging
materials, labor and manufacturing overhead. The major raw materials that we use
in the manufacture of our products are flour, sugar, chocolate, shortening and
milk. We also use paper products, such as corrugated cardboard, as well as films
and plastics to package our products. The prices of these raw materials have
been subject to significant volatility. We have mitigated the effect of such
volatility in the past through our hedging programs, but may not be successful
in protecting our business from price increases in the future. In addition to
the foregoing factors, our cost of sales are affected by the efficiency of
production methods and manufacturing capacity utilization.

    Our selling, marketing and administrative expenses are comprised mainly of
labor and lease costs associated with our national DSD distribution system,
trade and consumer promotion costs, other advertising costs and the cost of our
corporate offices. While costs associated with our national DSD distribution
system and the cost of our corporate offices are generally fixed, promotion and
other advertising costs are more variable. Promotion and other advertising costs
represent the largest component of our cost structure other than cost of sales
and are principally influenced by changes in net sales.

    We are in the process of integrating President into our operations. In
connection with this integration, we are currently undertaking a complete
analysis of our system-wide manufacturing and distribution operations as we
assess opportunities to improve our operational efficiencies in 1999 and beyond.
We currently anticipate that we will take a restructuring charge during 1999
when our analysis and related plans are finalized.

                                       10
<PAGE>

    MATTERS AFFECTING COMPARABILITY

    Keebler's fiscal year consists of thirteen four week periods (fifty-two or
fifty-three weeks) and ends on the Saturday nearest December 31. The 1998 fiscal
year consists of fifty-two weeks and the 1997 fiscal year consists of
fifty-three weeks. As a result of the Keebler acquisition, which closed on the
last day of the first four week period of 1996, the fiscal year for 1996
consisted of the forty-eight weeks ended December 28, 1996.

    Keebler's operating results for the forty-eight weeks ended December 28,
1996 have been combined with the operating results of the predecessor company
for the four weeks ended January 26, 1996 to compare the year ended December 28,
1996 to the years ended January 2, 1999 and January 3, 1998. Keebler's operating
results for the year ended January 2, 1999 include the operating results of
President from the acquisition date of September 28, 1998. Keebler's operating
results for the year ended December 28, 1996 include the operating results of
Sunshine from the acquisition date of June 4, 1996, whereas the subsequent years
include the operating results of Sunshine for the entire year. Additionally,
Keebler's operating results have been restated to reflect the Merger with INFLO
as if it had been effective January 26, 1996.

RESULTS OF OPERATIONS

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

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

    BRANDED SEGMENT

    The Branded segment sells a number of well-recognized products, primarily to
retail outlets such as supermarkets, mass merchandisers, warehouse club stores,
convenience stores and drug stores. This segment also imports and distributes
CARR'S crackers in the U.S. under an exclusive long-term licensing and
distribution agreement with United Biscuits.
<TABLE>
<CAPTION>
                                                          Years Ended
                          ----------------------------------------------------------------------------
                               January 2, 1999           January 3, 1998         December 28, 1996
                          ------------------------  ------------------------  ------------------------
                                $           %             $           %             $           %
                          ------------- ----------  ------------- ----------  ------------- ----------
                                                         ($ IN MILLIONS)
   <S>                    <C>           <C>         <C>           <C>         <C>           <C>
   NET SALES                $  1,726.7                $  1,566.7                $  1,247.9
                                                                                    
   PROFIT CONTRIBUTION      $    282.6      16.4%     $    226.9     14.5%      $    154.0      12.3%
                                                                                   
</TABLE>
                                       11
<PAGE>

    Net sales in the Branded segment increased 10.2% in 1998 to $1,726.7
million. The acquisition of President contributed $78.9 million in incremental
revenue. Adjusting to an equal number of selling days and before including the
acquisition growth, branded revenues grew 6.7% over the prior year. The primary
drivers of the increase were higher sales of products under both the KEEBLER and
CHEEZ-IT brands. The KEEBLER brand name was used to leverage new product
introductions through line extensions such as the KEEBLER PEANUT BUTTER FUDGE
STICKS. The growth in CHEEZ-IT sales was partly attributed to new products such
as CHEEZ-IT HEADS AND TAILS, CHEEZ-IT sandwich crackers and CHEEZ-IT snack mix.
Additionally, we redirected marketing support into brand-building advertising
and consumer promotions. For example, with this support, sales of KEEBLER FUDGE
SHOPPE cookies and CHEEZ-IT products grew in 1998, with CHEEZ-IT products
increasing 22.1% over 1997. A favorable sales mix of KEEBLER branded products,
combined with selected price increases, also generated higher revenues. Further
contributing to the improvement was continued revenue growth outside
supermarkets, such as in mass merchandisers, convenience and club stores. Net
sales in 1997 were 25.6% higher compared to 1996. Revenue growth in 1997 was
achieved by incremental sales associated with the Sunshine acquisition as well
as increased volumes. In 1996, sales of Sunshine products by the Branded segment
were approximately $216.0 million from the acquisition date until year end
compared to approximately $486.0 million for all of 1997. Successful new product
introductions and growth in the retail businesses outside supermarkets also
propelled increased volume.

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

    SPECIALTY SEGMENT

    The Specialty segment produces cookies and crackers for the foodservice
market, the Girl Scouts of America and private label retailers. In addition, we
also produce custom-baked products for other marketers of branded food products.

<TABLE>
<CAPTION>
                                                         Years Ended
                          ----------------------------------------------------------------------------
                               January 2, 1999           January 3, 1998         December 28, 1996
                          ------------------------  ------------------------  ------------------------
                                $           %             $           %             $           %
                          ------------- ----------  ------------- ----------  ------------- ----------
                                                             ($ IN MILLIONS)
   <S>                    <C>           <C>         <C>           <C>         <C>           <C>
   NET SALES                 $  499.8                   $  498.5                  $  499.3
                                                                                    
   PROFIT CONTRIBUTION       $   85.9        17.2%      $   80.3       16.1%      $   58.2       11.7%

</TABLE>
 
    Net revenues in the Specialty segment in 1998 were flat compared to 1997.
The acquisition of President contributed $16.2 million of incremental sales.
Adjusting to an equal number of selling days and before including the
acquisition growth, net sales in the Specialty segment were $9.0 million, or
1.8%, below 1997. Net sales in 1997 were also flat compared to 1996. While an
improved sales mix benefited each year, the overall decrease in net sales for
each year-on-year comparison was principally associated with lower margin
products that were either discontinued or re-positioned at higher price levels.
Volume declines in custom-baked products in 1997 also served to offset gains
received from selected price increases.

                                       12
<PAGE>

    The Specialty segment's profit contribution of $85.9 million was 1.1
percentage point above the prior year, as a percent of net sales. Before
considering the impact of President, profit contribution was 17.3% of net sales
in 1998 compared to 16.1% in 1997. The improvement in profit contribution was
primarily achieved by a more profitable sales mix, selected price increases and
productivity gains received through bakery automation projects and supply chain
initiatives in distribution and inventory management. Profit contribution was
$80.3 million in 1997 which resulted in a 4.4 percentage point increase in
profit contribution over 1996 that was principally driven by a more favorable
sales mix in 1997 coupled with growth in sales of private label products. Lower
raw material costs in 1997 also contributed to the profit contribution
improvement.

    COST OF SALES

    Cost of sales was $938.9 million in 1998 which included an additional $61.3
million related to cost of sales for President that was not included in prior
years. Excluding the impact of President, cost of sales, as a percent of net
sales, was 41.2% for 1998 compared to 43.0% in 1997 and 47.5% in 1996. The
improvements made in each year were principally achieved from initiatives
implemented to increase automation and productivity at our manufacturing
facilities along with other cost reduction programs. The streamlining of our
manufacturing facilities, creating increased capacity utilization, also
contributed to a lower cost of sales. Additionally, the cost of certain raw and
packaging materials has declined from previous years.

    SELLING, MARKETING AND ADMINISTRATIVE EXPENSES

    Selling, marketing and administrative expenses were $53.8 million higher
compared to 1997, however, 1.2 percentage points better as a percent of net
sales. After removing $27.2 million of additional expense attributable to
President, selling, marketing and administrative expenses were $26.6 million
above the prior year. Higher marketing expenses related to our continued focus
on building brand equity through advertising and consumer promotions was the
primary driver of the increased spending. Partially offsetting these higher
marketing expenses were savings achieved in distribution costs due to improved
inventory handling and deployment. In 1997, selling, marketing and
administrative spending increased $160.0 million compared to 1996, yet remained
consistent as a percentage of net sales. Increased spending was driven by higher
volume captured through both internal growth and the Sunshine acquisition. In
1997, we began spending more on advertising and other consumer promotions to
create increased brand and consumer awareness. Selling, marketing and
administrative expenses remained comparable as a percent of net sales in 1997
and 1996 due to higher volumes passing through a more efficient, fixed cost,
selling and distribution network.

    INTEREST EXPENSE

    Interest expense was $26.5 million in 1998, $33.8 million in 1997 and $38.4
million in 1996. The steady decline was primarily due to both a continuing
overall lower average debt balance and more favorable interest rates. Interest
expense declined from 1997, despite the $530.0 million of additional debt
incurred from the acquisition of President, due to lower interest rates, fees
and favorable terms. In conjunction with the President acquisition, the $145.0
million outstanding balance on the term note was extinguished, also contributing
to the reduction in interest expense. The 1997 decrease in the average debt
balance from 1996 was the result of principal pre-payments of $113.8 million on
the term loans and a $29.0 million pre-payment of the seller note. In addition,
the 1998 weighted average interest rate was 0.62 percentage points lower than
the previous year while the 1997 weighted average rate was 0.28 percentage
points lower than 1996.

    INCOME TAXES

    Income taxes were provided at an effective tax rate of 43% in 1998, 42% in
1997 and 44.2% in 1996. In each year, the effective tax rate exceeded the
statutory rate due to nondeductible expenses, principally amortization of
intangibles, including trademarks, trade names, other intangibles and goodwill.
The 1.0 percentage point increase in the effective tax rate from 1997 to 1998
was due primarily to the increase in nondeductible expenses, principally the
amortization of intangibles, resulting from the President acquisition. The
effective tax rate declined in 1997, compared to 1996, as earnings were
significantly higher in 1997, thereby reducing the impact of nondeductible
expenses, such as amortization of intangibles, on the calculation of the
effective tax rate. Income tax expense was

                                       13
<PAGE>

not provided for during the first four weeks of 1996. As part of the Keebler
acquisition, the valuation allowance on deferred taxes was adjusted by $25.1
million to reflect the elimination of certain deferred tax assets revalued in
the purchase price allocation. We carried a deferred tax valuation allowance of
$84.4 million at January 2, 1999, January 3, 1998 and December 28, 1996 to
provide for the uncertainty in realizing the deductibility of deferred tax
assets recognized. Pursuant to the terms of the Keebler acquisition, the
predecessor company retained the right to use the net operating losses for
potential carrybacks. Any unused operating losses are then available to us, but
are significantly restricted under current tax law. Therefore, all net operating
loss carryforwards have been fully reserved due to the uncertainty of their
realization.

    DISCONTINUED OPERATIONS

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

    EXTRAORDINARY ITEM NET OF INCOME TAXES

    In the latter part of 1998, an after-tax extraordinary charge of $1.7
million was recorded for the write-off of unamortized bank fees related to the
early extinguishment of the term note. Similarly, in 1997 and 1996, we also
recorded extraordinary charges, net of income taxes, of $5.4 million and $1.9
million, respectively. In 1997, $3.8 million of the extraordinary charges, net
of tax, also related to the write-off of debt issuance costs associated with the
early retirement of term loans. An additional $1.6 million, net of income taxes,
extraordinary charge was recorded due to a loss on the early extinguishment of
the seller note which was entered into at the time of the Keebler acquisition.
The 1996 extraordinary charge of $1.9 million, net of income taxes, related to
the write-off of debt issuance costs made in connection with the $125.0 million
early extinguishment of increasing rate notes.

    NET INCOME

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

LIQUIDITY AND CAPITAL RESOURCES

    A condensed cash flow statement of Keebler follows:
<TABLE>
<CAPTION>
                                                                         Years Ended
                                                  ------------------------------------------------------------
                                                      January 2,          January 3,            December 28, 
                                                        1999                 1998                   1996
                                                  -----------------    ------------------    -----------------
                                                                         (IN MILLIONS)
<S>                                               <C>                  <C>                   <C>    
CASH PROVIDED FROM (USED BY)

  Operating activities...........................     $    142.7           $     218.3           $     52.8
  Investing activities...........................         (510.7)                (41.5)               (64.9)
  Financing activities...........................          364.3                (161.6)                21.1
                                                  -----------------    ------------------    -----------------
 (DECREASE) INCREASE IN CASH AND CASH
   EQUIVALENTS...................................     $     (3.7)          $      15.2           $      9.0
                                                  =================    ==================    =================
</TABLE>
                                       14
<PAGE>

    CASH FLOW FOR 1998

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

    Cash used by investing activities was $510.7 million, of which $444.8
million, net of cash acquired, was attributable to the acquisition of President
in September 1998. An additional $66.8 million of capital spending was made for
modifications related to new products, to update and enhance production
facilities and to achieve near-term cost savings and efficiencies in the
manufacturing, sales and distribution process. At year end, we held the idle
Atlanta, Georgia manufacturing facility, a distribution center in Kensington,
Connecticut and a warehouse in Houston, Texas for sale and expect the
disposition of these facilities to be completed before the end of 1999.

    Financing activities generated $364.3 million of cash for the year
principally from proceeds of long-term debt borrowings under $825.0 million of
available new debt facilities used to finance the acquisition of President. We
also received $19.8 million of cash proceeds resulting from Bermore exercising a
warrant in exchange for 6,135,781 shares of common stock at the time of our
initial public offering. Employee stock options exercised during the year
provided another $0.8 million of cash. These cash sources were partially offset
by the pre-payment of the $145.0 million outstanding term note balance and a
$20.0 million repayment on the revolving facility. In addition, cash totaling
$8.6 million was used to repurchase common stock into treasury under the stock
repurchase program.

    CASH FLOW FOR 1997 AND 1996

    Cash provided from operating activities was $218.3 million in 1997 which was
an increase of $165.5 million over the cash provided from operations in 1996.
The primary contributors to the positive cash flow for 1997 were net earnings of
$57.0 million, a lower investment in trade accounts receivable and reduced
funding of current liabilities and income taxes. Improved accounts receivable
collection procedures provided $38.2 million of working capital. The reduced
funding of current liabilities was attributable primarily to the timing of
payments, while the increase in income taxes payable was attributable to a $47.7
million increase in earnings over 1996. Partially offsetting these benefits was
spending on plant and facility closing costs and severance and the payment of an
arbitration award. Spending on plant and facility closing costs and severance
relating to exit costs associated with the Keebler and Sunshine acquisitions,
although down from 1996, accounted for $13.7 million of cash used by operations
for the year ended January 3, 1998. Exit cost spending associated with these
acquisitions was substantially complete at the end of 1998, with the exception
of noncancelable lease obligations, which are expected to continue until 2004.
In addition, we paid an arbitration award in 1997 regarding a contract
production arrangement, which was entered into by the predecessor company, in
the amount of $6.8 million plus legal fees.

    Cash used by investing activities was $41.5 million in 1997 compared to
$64.9 million in 1996. The cash used in 1997 was primarily used to fund capital
expenditures. Capital expenditures were $48.4 million and $32.6 million in 1997
and 1996, respectively. In 1997, capital spending was made principally to
enhance, update or realign the existing production lines, provide distribution
and production efficiencies and to achieve near-term cost savings. Proceeds
received from asset disposals of $7.0 million partially offset capital
expenditures. The sale of the Santa Fe Springs plant in 1997 accounted for $3.6
million of the proceeds, with the remainder provided mainly from the sale of
trucks and machinery and equipment.
                                       15
<PAGE>

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

    CAPITAL RESOURCES

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

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

                                       16
<PAGE>

SEASONALITY

    Our net sales, net income and cash flow are affected by the timing of new
product introductions, promotional activities, price increases and a seasonal
bias toward the second half of the year due to events such as back-to-school,
Thanksgiving and Christmas. The relative mix between cookie and cracker sales
varies throughout the year with stronger cracker sales in the last quarter of
the calendar year. President's net sales, net income and cash flow historically
has been higher in the first quarter than in any other fiscal quarter because
substantially all sales of Girl Scout cookies have occurred in that quarter. For
this reason, going forward, we expect to realize proportionately higher net
sales, net income and cash flow during the first quarter of our fiscal year than
we historically have experienced.

SELF INSURANCE

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

YEAR 2000 ISSUE

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

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

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

    We currently estimate that the incremental costs for becoming Y2K compliant
are approximately $2.0 - $3.0 million, which will be funded from cash provided
by operations and expensed as incurred. Spending of $1.0 million against this
estimate has occurred to date. This estimate is exclusive of Y2K issues
regarding the President acquisition. We have completed a comprehensive review of
President's computer systems and non-information technology systems to identify
potential Y2K issues. Many of the Y2K risks at President will be mitigated
through our implementation of the SAP R/3 management information system,
Manugistics software and our warehouse management system at the President
facilities. We expect this implementation to be completed during 1999. We
estimate additional costs of approximately $0.3 million will be necessary to
correct or upgrade President's secondary information systems in order to make
them Y2K compliant.

                                       17
<PAGE>

    Based on the progress we have made in addressing our Y2K issues and our
compliance with Y2K issues on our primary business information systems, we do
not foresee significant risks associated with our Y2K compliance at this time.
As our plan is to address any significant risks associated with our Y2K issues
prior to being affected by them, a comprehensive contingency plan has not been
developed. However, if a significant risk related to our Y2K compliance or a
delay in the anticipated timeline for compliance occurs, we will develop
contingency plans as deemed necessary at that time.

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

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

FORWARD-LOOKING STATEMENTS

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

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

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

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


ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The principal market risks to which we are exposed that may adversely affect
results of operations and financial position include changes in future interest
rates and raw material prices. We seek to minimize or manage these market risks
through normal operating and financing activities and through the use of
interest rate swap agreements and commodity futures and options contracts. The
use of these instruments is limited to hedging activities and they are not
entered for trading or speculative purposes. These agreements and contracts are
entered into at a corporate level and as such, any income or expense associated
with these transactions is not allocated to our reportable segments.

                                       18
<PAGE>

    Our exposure to market risk for changes in interest rates relates primarily
to long-term debt obligations. Our current debt structure consists of both fixed
and floating rate debt. Interest rate swap agreements are used to effectively
manage changes in interest rates related to the majority of our borrowings with
the objective of reducing overall interest costs. Sensitivity analysis was used
to assess the impact that changes in market prices have on the fair value of
interest rate swap agreements. Assuming a ten percent increase in market price,
the fair value of the interest rate swap agreements at January 2, 1999, with a
notional amount of $527.3 million, would increase the net receivable to $3.1
million, while the impact of a ten percent decrease in market price would result
in a net payable of $4.4 million.

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


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Refer to the Index to Financial Statements and Financial Statement Schedule
on F-1 for the required information.


ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

    Not applicable.


                                    PART III


ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding our Directors is incorporated by reference to
Keebler's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with our 1999 annual meeting.

    Information regarding our Executive Officers can be found in Part I of this
Annual Report on Form 10-K on pages 5 through 7.


ITEM 11.      EXECUTIVE COMPENSATION

     Incorporated by reference to Keebler's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 1999 annual meeting.


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference to Keebler's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 1999 annual meeting.

                                       19
<PAGE>

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Not applicable.


                                     PART IV


ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    1.   The financial statements listed in the accompanying Index to
            Financial Statements and Financial Statement Schedule are filed as
            part of this report on pages F-2 to F-30.

       2.   The financial statement schedule listed in the accompanying Index to
            Financial Statements and Financial Statement Schedule is filed as
            part of this report on page S-2.

       3.   The exhibits listed in the accompanying Index to Exhibits are filed
            as part of this Form 10-K unless noted otherwise.

(b)    Reports on Form 8-K

       1.   Current Report on Form 8-K/A dated December 10, 1998 related to the
            acquisition of President International, Inc. by Keebler Foods
            Company on September 28, 1998.

(c)    Exhibits

       See Exhibit Index at page i.

(d)    Financial Statement Schedule

       See Index to Financial Statements and Financial Statement Schedule on 
       page F-1.





                                       20
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                        KEEBLER FOODS COMPANY
                                            (Registrant)

                         /s/   SAM K. REED
                        --------------------------------------------------------
                        Sam K. Reed
                        President, Chief Executive Officer and Director

                        Date:  March 22, 1999


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 22, 1999.

<TABLE>

<CAPTION>


<S>                                                             <C>    
/s/  SAM K. REED                                                /s/  ROBERT P. CROZER
----------------------------------------------------------      --------------------------------------------------------
Sam K. Reed                                                     Robert P. Crozer
President, Chief Executive Officer and Director                 (Director)
(Principal Executive Officer)

/s/  E. NICHOL MCCULLY                                          /s/  AMOS R. MCMULLIAN
----------------------------------------------------------      --------------------------------------------------------
E. Nichol McCully                                               Amos R. McMullian
Senior Vice President and Chief Financial Officer               (Director)
(Principal Financial Officer)

/s/  JAMES T. SPEAR                                             /s/  WAYNE H. PACE
----------------------------------------------------------      --------------------------------------------------------
James T. Spear                                                  Wayne H. Pace
Vice President Finance and Corporate Controller                 (Director)
(Chief Accounting Officer)

/s/  JOHNSTON C. ADAMS, JR.                                     /s/  C. MARTIN WOOD III
----------------------------------------------------------      --------------------------------------------------------
Johnston C. Adams, Jr.                                          C. Martin Wood III
(Director)                                                      (Director)

/s/  FRANKLIN L. BURKE                                          /s/  JIMMY M. WOODWARD
----------------------------------------------------------      --------------------------------------------------------
Franklin L. Burke                                               Jimmy M. Woodward
(Director)                                                      (Director)

/s/  G. ANTHONY CAMPBELL
----------------------------------------------------------
G. Anthony Campbell
(Director)




                                       21
</TABLE>
<PAGE>

<TABLE>

                                   INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                  Keebler Foods Company and UB Investments US Inc. and Subsidiaries
<CAPTION>

<S>                                                                                                            <C>    
FINANCIAL STATEMENTS:                                                                                          PAGE

  Report of Independent Accountants.......................................................................      F-2

  Consolidated Balance Sheets at January 2, 1999 and January 3, 1998......................................      F-3

  Consolidated  Statements of Operations  for the year ended  January 2, 1999,  the year ended January 3,
    1998,  the forty-eight weeks ended December 28, 1996 and the four weeks ended January 26, 1996........      F-5

  Consolidated  Statements of Shareholders' Equity (Deficit) for the year ended January 2, 1999, the
    year ended January 3, 1998,  the  forty-eight  weeks ended  December 28, 1996 and the four weeks
    ended January 26, 1996................................................................................      F-6

  Consolidated  Statements  of Cash Flows for the year ended January 2, 1999,  the year ended  January 3,
    1998,  the forty-eight weeks ended December 28, 1996 and the four weeks ended January 26, 1996........      F-7

  Notes to Consolidated Financial Statements..............................................................      F-8

FINANCIAL STATEMENT SCHEDULE:

     Report of Independent Accountants....................................................................      S-1

     Schedule II - Valuation and Qualifying Accounts......................................................      S-2


 Note:   The  consolidated  financial  statements  listed in the above index for Keebler Foods  Company  include the
         financial statements of the successor company for the year ended January 2, 1999, 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  UBIUS was  acquired by INFLO.  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.



                                                         F-1
</TABLE>
<PAGE>


                        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  2, 1999 and  January 3, 1998 and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows for the years then ended,  and the forty-eight  week period ended December
28,  1996.  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. 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 2, 1999 and  January 3, 1998,  and the
consolidated  results of operations  and cash flows of Keebler Foods Company and
Subsidiaries  for the years ended  January 2, 1999 and January 3, 1998,  and the
forty-eight  weeks 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 in conformity  with  generally  accepted
accounting principles.




                                                PRICEWATERHOUSECOOPERS LLP




Chicago, Illinois
February 2, 1999













                                      F-2
<PAGE>

<TABLE>

                                                        KEEBLER FOODS COMPANY

                                                     CONSOLIDATED BALANCE SHEETS

                                          (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
                                                                                       JANUARY 2,           January 3,
                                                                                          1999                 1998
                                                                                     --------------       --------------
<S>                                                                                  <C>                  <C>    
ASSETS

CURRENT ASSETS:

     Cash and cash equivalents                                                         $    23,515          $    27,188
     Trade accounts and notes receivable, net                                              141,077               98,963
     Inventories, net:

        Raw materials                                                                       31,722               25,543
        Package materials                                                                   13,081                7,306
        Finished goods                                                                     120,550               78,131
        Other                                                                                1,024                1,482
                                                                                     --------------       --------------
                                                                                           166,377              112,462

     Deferred income taxes                                                                  57,713               42,730
     Other                                                                                  26,636               20,303
                                                                                     --------------       --------------
        Total current assets                                                               415,318              301,646

PROPERTY, PLANT AND EQUIPMENT, NET                                                         564,524              478,121

GOODWILL, NET                                                                              391,449               47,059

TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET                                         226,084              154,146

PREPAID PENSION                                                                             38,205               43,060

ASSETS HELD FOR SALE                                                                         2,972                3,742

OTHER ASSETS                                                                                17,228               15,077
                                                                                     --------------       --------------

        Total assets                                                                   $ 1,655,780          $ 1,042,851
                                                                                     ==============       ==============


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

                                                                 F-3
</TABLE>

<PAGE>
<TABLE>

                                                        KEEBLER FOODS COMPANY

                                                     CONSOLIDATED BALANCE SHEETS

                                          (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>
                                                                                       JANUARY 2,           January 3,
                                                                                          1999                 1998
                                                                                     --------------       --------------
<S>                                                                                  <C>                  <C>    
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

     Current maturities of long-term debt                                              $   112,730          $    26,365
     Trade accounts payable                                                                143,572              126,213
     Other liabilities and accruals                                                        232,087              194,923
     Income taxes payable                                                                   10,779               13,784
     Plant and facility closing costs and severance                                         11,018                6,900
                                                                                     --------------       --------------
        Total current liabilities                                                          510,186              368,185

LONG-TERM DEBT                                                                             541,765              272,390

OTHER LIABILITIES:
     Deferred income taxes                                                                 147,098               69,417
     Postretirement/postemployment obligations                                              63,754               60,605
     Plant and facility closing costs and severance                                         15,563               15,578
     Deferred compensation                                                                  19,368               18,669
     Other                                                                                  28,745               15,956
                                                                                     --------------       --------------
        Total other liabilities                                                            274,528              180,225

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
        84,125,164 and 77,638,206 shares issued, respectively)                                 841                  776
     Additional paid-in capital                                                            169,532              148,613
     Retained earnings                                                                     167,608               72,737
     Treasury stock                                                                         (8,680)                 (75)
                                                                                     --------------       --------------
        Total shareholders' equity                                                         329,301              222,051
                                                                                     --------------       --------------

        Total liabilities and shareholders' equity                                     $ 1,655,780          $ 1,042,851
                                                                                     ==============       ==============


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

                                                                 F-4
</TABLE>

<PAGE>

<TABLE>
                                                        KEEBLER FOODS COMPANY

                                                CONSOLIDATED STATEMENTS OF OPERATIONS

                                               (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<CAPTION>

                                                            KEEBLER FOODS COMPANY                  ||       UBIUS
                                           --------------------------------------------------------|| ------------------
                                                                                    Forty-Eight    ||       Four
                                               YEAR ENDED         Year Ended        Weeks Ended    ||    Weeks Ended
                                            JANUARY 2, 1999    January 3, 1998   December 28, 1996 ||  January 26, 1996
                                           ------------------ ------------------ ------------------|| ------------------
<S>                                        <C>                <C>                <C>               || <C>    
NET SALES                                        $ 2,226,480        $ 2,065,184        $ 1,645,532 ||         $ 101,656
                                                                                                   ||
COSTS AND EXPENSES:                                                                                || 
   Cost of sales                                     938,896            888,031            774,198 ||            54,870
   Selling, marketing and administrative                                                           ||
      expenses                                     1,080,044          1,026,245            794,837 ||            71,427
   Other                                              11,501              9,511              6,347 ||               857
                                           ------------------ ------------------ ------------------|| ------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS             196,039            141,397             70,150 ||           (25,498)
                                                                                                   ||     
   Interest (income) from affiliates                       -                  -                  - ||              (875)
   Interest (income)                                  (3,763)            (1,191)              (450)||                (3)
   Interest expense to affiliates                          -                  -                  - ||               664
   Interest expense                                   30,263             35,038             38,921 ||                98
                                           ------------------ ------------------ ------------------|| ------------------
INTEREST EXPENSE (INCOME), NET                        26,500             33,847             38,471 ||              (116)
                                           ------------------ ------------------ ------------------|| ------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                                           || 
   BEFORE INCOME TAX EXPENSE                         169,539            107,550             31,679 ||           (25,382)
   Income tax expense                                 72,962             45,169             14,002 ||                 -
                                           ------------------ ------------------ ------------------|| ------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                                           ||
   BEFORE EXTRAORDINARY ITEM                          96,577             62,381             17,677 ||           (25,382)
                                                                                                   || 
DISCONTINUED OPERATIONS:                                                                           ||
   Gain on disposal of Frozen Food                                                                 || 
      businesses, net of tax                               -                  -                  - ||            18,910
                                           ------------------ ------------------ ------------------|| ------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM               96,577             62,381             17,677 ||            (6,472)
EXTRAORDINARY ITEM:                                                                                ||
   Loss on early extinguishment of debt,                                                           || 
      net of tax                                       1,706              5,396              1,925 ||                 -
                                           ------------------ ------------------ ------------------|| ------------------
NET INCOME (LOSS)                                $    94,871        $    56,985        $    15,752 ||         $  (6,472)
                                           ================== ================== ==================|| ==================
BASIC NET INCOME PER SHARE:                                                                        ||
   Income from continuing operations                                                               || 
     before extraordinary item                   $      1.16        $      0.80        $      0.24 || 
   Extraordinary item                                   0.02               0.07               0.03 ||
                                           ================== ================== ==================|| 
   Net income                                    $      1.14        $      0.73        $      0.21 ||
                                           ================== ================== ==================|| 
WEIGHTED AVERAGE SHARES OUTSTANDING                   83,254             77,604             75,244 ||
                                           ================== ================== ==================||
DILUTED NET INCOME PER SHARE:                                                                      || 
   Income from continuing operations                                                               || 
     before extraordinary item                   $      1.10        $      0.77        $      0.23 || 
   Extraordinary item                                   0.02               0.07               0.02 ||
                                           ================== ================== ==================||
   Net income                                    $      1.08        $      0.70        $      0.21 ||
                                           ================== ================== ==================||
WEIGHTED AVERAGE SHARES OUTSTANDING                   87,486             80,562             76,076 ||
                                           ================== ================== ==================||

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

                                                                F-5
</TABLE>

<PAGE>
<TABLE>
                                                        KEEBLER FOODS COMPANY

                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

                                                           (IN THOUSANDS)
<CAPTION>


                                                                               
                                                COMMON STOCK        ADDITIONAL  RETAINED      TREASURY STOCK
                                            ----------------------   PAID-IN    EARNINGS   ---------------------
                                              SHARES     AMOUNT      CAPITAL    (DEFICIT)    SHARES     AMOUNT      TOTAL
                                            ----------- ---------- ----------- ----------- ---------- ---------- -----------
<S>                                         <C>         <C>        <C>         <C>         <C>        <C>        <C>
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        5,676         57      23,543           -          -          -      23,600
     to Bermore

    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)                       77,638        776     148,613      72,737        (43)       (75)    222,051

    Exercise of Bermore warrant                  6,136         61      19,740           -          -          -      19,801

    Purchase of treasury shares                      -          -           -           -       (292)    (8,605)     (8,605)

    Exercise of employee stock options             351          4       1,179           -          -          -       1,183

    Net income                                       -          -           -      94,871          -          -      94,871
                                            ----------- ---------- ----------- ----------- ---------- ---------- -----------
BALANCE AT JANUARY 2, 1999
  (KEEBLER FOODS COMPANY)                       84,125    $   841   $ 169,532  $  167,608       (335)  $ (8,680)  $ 329,301
                                            =========== ========== =========== =========== ========== ========== ===========


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

                                                                F-6
</TABLE>
<PAGE>
<TABLE>
                                                        KEEBLER FOODS COMPANY

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           (IN THOUSANDS)
<CAPTION>

                                                                           KEEBLER FOODS COMPANY               ||      UBIUS
                                                             --------------------------------------------------|| ----------------
                                                                                                 Forty-Eight   ||      Four
                                                               YEAR ENDED       Year Ended       Weeks Ended   ||   Weeks Ended
                                                             JANUARY 2, 1999  January 3, 1998  December 28,1996|| January 26, 1996
                                                             ---------------- ---------------- ----------------|| ----------------
<S>                                                          <C>              <C>              <C>             || <C>    
CASH FLOWS PROVIDED FROM (USED BY) OPERATING ACTIVITIES                                                        ||
    Net income (loss)                                               $ 94,871         $ 56,985         $ 15,752 ||        $ (6,472)
    Adjustments to reconcile net income (loss) to cash from                                                    || 
       operating activities:                                                                                   || 
       Depreciation and amortization                                  69,125           60,708           49,461 ||           1,973
       Deferred income taxes                                          10,075           18,548           12,254 ||               -
       Accretion on Seller Note                                            -            2,376            2,246 ||               -
       Loss on early extinguishment of debt, net of tax                1,706            3,761            1,925 ||               -
       Loss (gain) on sale of property, plant and equipment              424             (358)            (328)||              33
       Gain on the disposal of the Frozen Food businesses,                                                     ||
         net of tax                                                        -                -                - ||         (18,910)
       Other                                                           1,460                -                - ||               -
    Changes in assets and liabilities:                                                                         ||
       Trade accounts and notes receivable, net                       (5,082)          38,187            3,842 ||          22,068
       Accounts receivable/payable from affiliates, net                    -                -                - ||          (1,941)
       Inventories, net                                              (13,830)             203           (9,809)||           4,353
       Recoverable income taxes and income taxes payable              (4,556)          16,113                - ||              25
       Other current assets                                           (2,845)            (966)           1,644 ||           1,192
       Deferred debt issue costs                                      (1,845)          (1,344)          (8,032)||               -
       Trade accounts payable and other current liabilities              869           36,806           26,105 ||          11,550
       Plant and facility closing costs and severance                 (5,373)         (13,715)         (41,279)||               -
       Restructuring reserves                                              -                -                - ||         (14,469)
    Other, net                                                        (2,319)           1,044             (553)||             246
                                                             ---------------- ---------------- ----------------|| ----------------
         Cash provided from (used by) operating activities           142,680          218,348           53,228 ||            (352)
                                                                                                               ||
CASH FLOWS (USED BY) PROVIDED FROM INVESTING ACTIVITIES                                                        ||
    Capital expenditures                                             (66,798)         (48,429)         (29,352)||          (3,228)
    Proceeds from property disposals                                     917            6,950            9,236 ||             644
    Working capital adjustment paid by UB Investment                                                           ||
       (Netherlands) B.V.                                                  -                -           32,609 ||               -
    Purchase of President International, Inc., net of cash                                                     ||
       acquired                                                     (444,818)               -                - ||               -
    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          (510,699)         (41,479)        (130,177)||          65,165
                                                                                                               ||
CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES                                                        ||
                                                                                                               ||
    Purchase of treasury stock/capital contributions                  (8,605)             (75)             788 ||               -
    Exercise of options and warrant                                   20,577                -                - ||               -
    Long-term debt borrowings                                        425,000          109,750          220,000 ||               -
    Long-term debt repayments                                       (157,626)        (271,310)        (134,000)||          (2,377)
    Commercial paper and Revolving Loan facilities, net               85,000                -                - ||         (63,300)
                                                             ---------------- ---------------- ----------------|| ----------------
         Cash provided from (used by) financing activities           364,346         (161,635)          86,788 ||         (65,677)
                                                             ---------------- ---------------- ----------------|| ----------------
         (Decrease) increase in cash and cash equivalents             (3,673)          15,234            9,839 ||            (864)
         Cash and cash equivalents at beginning of period             27,188           11,954            2,115 ||           2,978
                                                             ---------------- ---------------- ----------------|| ----------------
         Cash and cash equivalents at end of period                 $ 23,515         $ 27,188         $ 11,954 ||        $  2,114
                                                             ================ ================ ================|| ================

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

                                                                F-7
</TABLE>
<PAGE>

                              KEEBLER FOODS COMPANY

                 NOTES TO THE 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 2, 1999, 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  HOLDINGS
CORPORATION  ("INFLO").  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 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 Keebler'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. On January 29,
1998,  Keebler made an initial  public  offering of 13,386,661  shares of common
stock ("the Offering"). As part of the transaction,  Flowers acquired additional
shares  of  common  stock  from  Artal  and  Bermore  so that its  ownership  of
outstanding  stock  increased to  approximately  55%. In addition,  during 1998,
Bermore,  through a series  of  transactions,  transferred  its  shares  held to
Claremont Enterprises,  Limited ("Claremont"), a privately held Bahamian limited
company.   Keebler  is  comprised  of  primarily  the   following   wholly-owned
subsidiaries: Keebler Company, Bake-Line Products, Inc. ("Bake-Line"),  Sunshine
Biscuits,  Inc.  ("Sunshine"),   President  International,  Inc.  ("President"),
Keebler Leasing Corp. and Johnston's Ready Crust Company.

    The Company,  formerly  UBIUS,  had previously  been owned by UB Investments
(Netherlands)  B.V., a Dutch company (See Note 3). 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

    Keebler's  fiscal year consists of thirteen four week periods  (fifty-two or
fifty-three weeks) and ends on the Saturday nearest December 31. The 1998 fiscal
year  consisted  of  fifty-two  weeks  and the 1997  fiscal  year  consisted  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 1996 fiscal year  consisted
of the forty-eight weeks ended December 28, 1996.

PRINCIPLES OF CONSOLIDATION

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

GUARANTEES OF NOTES

    The   subsidiaries  of  Keebler  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 Keebler's  consolidated  assets,  revenues,
income  or  equity),  individually  and in the  aggregate,  to the  consolidated
financial  statements of Keebler.  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.

                                      F-8
<PAGE>

                              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 PRESIDENT INTERNATIONAL, INC.

    On September 28, 1998, Keebler acquired President  International,  Inc. from
President International Trade and Investment  Corporation,  a company limited by
shares  under the  International  Business  Companies  Ordinance  of the British
Virgin Islands,  for an aggregate  purchase price of $446.1  million,  excluding
related fees and expenses paid of $4.5 million. The acquisition of President was
a cash  transaction  funded  with  approximately  $75.0  million  from  existing
resources and the remainder  from  borrowings  under the $700.0  million  Senior
Credit  Facility  Agreement  ("Credit  Facility")  and a $125.0  million  Bridge
Facility, both dated as of September 28, 1998.

    The  acquisition  of  President  by  Keebler  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 President based on
respective fair values.  The  acquisition has resulted in an unallocated  excess
purchase price over fair value of net assets acquired of $329.2  million,  which
is being amortized on a straight-line basis over a forty year period.

    Results of operations  for President  from  September 28, 1998 to January 2,
1999 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 the beginning of fiscal year 1997. The unaudited
pro forma information  includes adjustments for interest expense that would have
been incurred related to financing the purchase,  additional depreciation of the
property, plant and equipment acquired and amortization of the trademarks, trade
names,  other  intangibles  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  reported  had the  President
acquisition been effected on the assumed date.

                                                              Unaudited
                                                          For the Year Ended
                                                       -------------------------
                                                       January 2,    January 3,
                                                          1999          1998
                                                       -----------   -----------
                                                             (IN THOUSANDS)
Net sales..............................................$  2,583.5    $  2,501.5
Income before extraordinary item.......................$    104.7    $     56.7
Net income.............................................$    102.7    $     49.3
Diluted net income per share:
    Income before extraordinary item...................$     1.20    $     0.70
    Net income.........................................$     1.18    $     0.61


3.   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 $850.0 million in debt with UB Investments  (Netherlands) B.V.,
as well as all of the capital stock of UBIUS.

                                      F-9
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.   PREDECESSOR COMPANY (CONTINUED)

    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. for $70.0 million.  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.
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.


4.   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 Keebler's  trade  accounts  receivable are from retail
dealers and wholesale distributors. Keebler 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 $7.8  million as of  January  2, 1999 and $5.0  million as of
January 3, 1998.

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  94% of total inventories at January 2,
1999 and 88% of total  inventories  at  January  3, 1998.  Because  Keebler  has
adopted a natural  business  unit  single  pool  approach  to  determining  LIFO
inventory  cost,  classification  of the LIFO reserve by inventory  component is
impractical.  There was no  reserve  required  at  January  2, 1999 to state the
inventory  on a LIFO  basis.  The  excess  of the  current  production  cost  of
inventories over LIFO cost was $2.2 million at January 3, 1998.

    At January 2, 1999 and  January  3,  1998,  inventories  are shown net of an
allowance for  slow-moving  and aged inventory of $9.6 million and $6.8 million,
respectively.

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.

                                      F-10
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES

    Trademarks,  trade  names and other  intangibles  are stated at cost and are
amortized  on a  straight-line  basis  over a period of  twenty to forty  years.
Accumulated  amortization of trademarks,  trade names and other  intangibles was
$11.8  million  and $7.1  million  at  January  2,  1999 and  January  3,  1998,
respectively.

GOODWILL

    Goodwill  represents the excess cost over the fair value of the tangible and
identifiable intangible net assets of acquired businesses. Goodwill is amortized
on a straight-line basis over a period of forty years.  Accumulated amortization
of goodwill  was $4.9 million and $1.8 million at January 2, 1999 and January 3,
1998, respectively.

REVENUE RECOGNITION

    Revenue from the sale of products is  recognized at the time of the shipment
to customers.

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 2, 1999,  $10.2 million for the year ended January 3,
1998,  $4.3 million for the  forty-eight  weeks ended December 28, 1996 and $0.6
million for the four weeks ended January 26, 1996.

ADVERTISING AND CONSUMER PROMOTION

    Advertising  and  consumer  promotion  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 $87.2 million for the year ended
January 2, 1999, $67.6 million for the year ended January 3, 1998, $33.3 million
for the forty-eight  weeks ended December 28, 1996 and $5.1 million for the four
weeks  ended  January 26,  1996.  There were no  deferred  advertising  costs at
January 2, 1999 and January 3, 1998.

DERIVATIVE FINANCIAL INSTRUMENTS

    Keebler uses derivative financial instruments as part of an overall strategy
to manage  market  risk.  Keebler  uses  forward  commodity  futures and options
contracts to hedge existing or future exposures to changes in commodity  prices.
Interest  rate swap  agreements  are used to reduce  the  impact of  changes  in
interest  rates.   Keebler  does  not  enter  into  these  derivative  financial
instruments for trading or speculative purposes (See Note 16).

INCOME TAXES

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

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
determination  as to whether there has been an  impairment of long-lived  assets
and the related unamortized  goodwill, is 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
were 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.

                                      F-11
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4.   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.

SEGMENTS

    In 1998,  Keebler  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and  Related  Information."  SFAS No.  131  supersedes  SFAS No. 14,
"Financial  Reporting  for  Segments of a Business  Enterprise,"  replacing  the
"industry  segment"  approach with the  "management"  approach.  The  management
approach  designates  the  internal  organization  used  by  management  to make
operating  decisions and to assess  performance as the source in identifying and
reporting  segment  information.   In  addition,  SFAS  No.  131  also  requires
disclosures  about products and services,  geographic areas and major customers.
The  adoption  of SFAS No.  131 did not  affect the  results  of  operations  or
financial  position,  but did affect the disclosure of segment  information (See
Note 17).

PENSION PLANS AND POSTRETIREMENT BENEFITS

    In 1998,  the  FASB  issued  SFAS No.  132,  "Employers'  Disclosures  about
Pensions  and  Other  Postretirement   Benefits."  The  consolidated   financial
statements and related  footnotes  reflect the  application of SFAS No. 132 (See
Notes 10 and 11).

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.


5.   PROPERTY, PLANT AND EQUIPMENT

    A summary of property,  plant and equipment,  including related  accumulated
depreciation follows:
<TABLE>
<CAPTION>

                                                                           JANUARY 2, 1999      January 3, 1998
                                                                          -----------------    -----------------   
                                                                                      (IN THOUSANDS)
<S>                                                                       <C>                  <C>    
Land..............................................................         $      18,374        $      16,487
Buildings.........................................................               140,907              130,241
Machinery and equipment...........................................               424,574              328,473
Office furniture and fixtures.....................................                76,447               56,559
Delivery equipment................................................                 7,208                6,946
Construction in progress..........................................                51,717               38,080
                                                                          -----------------    -----------------   
                                                                                 719,227              576,786
Accumulated depreciation..........................................              (154,703)             (98,665)
                                                                          -----------------    -----------------   
                                                                           $     564,524        $     478,121
                                                                          =================    =================   
</TABLE>

    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 three 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.


                                      F-12
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6.   ASSETS HELD FOR SALE

    In 1998,  a  warehouse  located in Houston,  Texas,  acquired as part of the
President  acquisition,  was placed for sale. In addition,  Keebler continued to
hold an idle  manufacturing  facility  in Atlanta,  Georgia  and a  distribution
center in Kensington,  Connecticut for sale. During 1998,  Keebler recognized an
impairment charge of $0.9 million in order to reflect the manufacturing facility
at fair  value.  Disposition  of all assets  held for sale is  expected to occur
before the end of 1999 without a significant gain or loss.


7.   OTHER CURRENT LIABILITIES AND ACCRUALS

    Other current liabilities and accruals consisted of the following at January
2, 1999 and January 3, 1998:
<TABLE>
<CAPTION>

                                                                          JANUARY 2, 1999       January 3, 1998
                                                                         -----------------     -----------------
                                                                                      (IN THOUSANDS)
<S>                                                                      <C>                   <C>    
Self insurance reserves...........................................         $    52,202           $    55,185
Employee compensation.............................................              73,017                55,724
Marketing and consumer promotions.................................              53,027                52,838
Other.............................................................              53,841                31,176
                                                                         -----------------     -----------------
                                                                           $   232,087           $   194,923
                                                                         =================     =================
</TABLE>

    Keebler obtains insurance to manage potential losses and liabilities related
to workers'  compensation,  health and welfare  claims and general,  product and
vehicle  liability.  Keebler 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
Keebler's estimates of aggregate liability for claims incurred.  These estimates
utilize  Keebler's prior  experience and actuarial  assumptions  provided by the
Company's  insurance carrier.  The total estimated liability for these losses at
January  2,  1999 and  January  3,  1998 was $52.2  million  and $55.2  million,
respectively, and is included in other current liabilities and accruals. Keebler
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.


8.   DEBT AND LEASE COMMITMENTS

    Long-term  debt consisted of the following at January 2, 1999 and January 3,
1998:
<TABLE>
<CAPTION>
                                     Interest Rate         Final Maturity        JANUARY 2, 1999     January 3, 1998
                                   -----------------   ---------------------    -----------------   -----------------
                                                                                           (IN THOUSANDS)
<S>                                <C>                 <C>                      <C>                 <C>    
Bridge Facility................        6.263%            September 26, 1999         $   75,000          $        -
Revolving Facility.............        6.073%            September 28, 2004             85,000                   -
Term Facility..................        5.944%            September 28, 2004            350,000                   -
Term-A Loans...................        6.144%                 April 7, 2003                  -             156,000
Senior Subordinated Notes......       10.750%                  July 1, 2006            124,400             125,000
Other Senior Debt..............       Various                     2001-2005             11,805              12,645
Capital Lease Obligations......       Various                     2002-2042              8,290               5,110
                                                                                -----------------   -----------------
                                                                                       654,495             298,755
Less: Current maturities.......                                                        112,730              26,365
                                                                                -----------------   -----------------
                                                                                    $  541,765          $  272,390
                                                                                =================   =================
</TABLE>

    At January 2, 1999,  Keebler's  primary  credit  financing was provided by a
$700.0 million Credit  Facility and a $125.0  million Bridge  Facility.  Keebler
entered  into  new  debt  facilities  in order to  finance  the  acquisition  of
President on September 28, 1998.  The new debt structure  specifically  provides
for available  borrowings of $825.0  million  consisting of $350.0 million under
the Revolving Facility, $350.0 million under the Term Facility and an additional
$125.0 million under the Bridge Facility.

                                      F-13
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.   DEBT AND LEASE COMMITMENTS (CONTINUED)

    The current  outstanding balance on the Term Facility at January 2, 1999 was
$350.0 million with quarterly  scheduled  principal  payments  through the final
maturity of September 2004. The Revolving  Facility,  with a current outstanding
balance of $85.0 million and available  balance of $265.0  million at January 2,
1999,  has a final  maturity of  September  2004,  with no  scheduled  principal
payments.  Certain letters of credit totaling $42.2 million reduce the available
balance on the Revolving  Facility.  Any unused  borrowings  under the Revolving
Facility are subject to a commitment  fee. The current  commitment fee will vary
from 0.1250% - 0.30% based on the relationship of debt to adjusted earnings with
a minimum  commitment fee of 0.20%  required  through March 28, 1999. The Bridge
Facility, which is anticipated to be refinanced with a receivables facility (See
Note 19), has a final maturity of September  1999,  with no scheduled  principal
payments.  At January 2, 1999,  the  current  outstanding  balance on the Bridge
Facility  was $75.0  million  with an  additional  $50.0  million  in  available
borrowings.

    Interest  on the  Credit  Facility  is  calculated  based on base  rate plus
applicable  margin. The base rate can, at Keebler's option, be: i) the higher of
the base domestic  lending rate as established by the  administrative  agent for
the lender of the Credit  Facility,  or the Federal  Funds Rate plus one-half of
one  percent or ii) a reserve  percentage  adjusted  LIBO Rate as offered by the
administrative  agent.  The Credit  Facility  requires  Keebler to meet  certain
financial  covenants   including  debt  to  earnings  before  interest,   taxes,
depreciation and amortization  ratio and cash flow coverage ratios.  Interest on
the Bridge  Facility is calculated in the same manner as the Credit Facility and
also is restricted by the same financial covenants.

    In conjunction  with the President  acquisition on September 28, 1998,  Term
Loan A was  extinguished  by using $145.0  million of  borrowings  under the new
Credit  Facility.  Keebler  recorded a before-tax  extraordinary  charge of $2.8
million  related  primarily  to  expensing  certain  bank fees  which were being
amortized  and which  were  incurred  at the time Term  Loan A was  issued.  The
related after-tax charge was $1.7 million.

    At January 3, 1998,  Keebler'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 outstanding balance at January 3, 1998 was $156.0 million. The
amendment  to the Credit  Agreement  was entered into on April 8, 1997 to obtain
more favorable terms, fees and interest rates. The interest  expense,  including
commitment fee, on the Credit Agreement was calculated in substantially the same
manner as is done under the current Credit Facility.

    During the fourth quarter of 1997,  using existing cash  resources,  Keebler
pre-paid $70.0 million of principal on Term Loan A; $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 Term
Loan A was issued.

    On  November  21,  1997,  Keebler  settled the Seller Note with a payment of
$31.7 million funded through working capital.  Keebler 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%.  Keebler
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.

    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.  Keebler  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.

                                      F-14
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.   DEBT AND LEASE COMMITMENTS (CONTINUED)

    On October  23,  1996,  pursuant  to an  exchange  and  registration  rights
agreement, Keebler 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  Keebler,  Keebler'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  Keebler  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 Keebler'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,  Keebler's  ability  to pay  dividends  or  make  other
distributions  on its  common  stock is  limited  by the terms of the  indenture
governing the Notes.

    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.  Keebler  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 July 1, 1998,  Keebler entered into a swap  transaction  with the Bank of
Nova Scotia, who also serves as the  administrative  agent for the lenders under
the Credit Facility, which matures on July 1, 2001. The swap transaction had the
effect of converting  the fixed rate of 10.75% on $124.0 million of the Notes to
a rate of 10.26%  through  January 1, 1999 and 10.32%  through July 1, 1999.  In
addition,  on September 30, 1998 and October 5, 1998,  Keebler  entered into two
swap  transactions  with the Bank of Nova Scotia both  maturing on September 30,
2004.  Each swap  transaction  converts  the base rate on $116.7  million of the
Credit  Facility to fixed rate debt of 5.084% and 4.89%,  respectively.  Keebler
also  continues to maintain the swap  transaction  entered into with the Bank of
Nova Scotia on January 30, 1996 which  converts the base rate on $170.0  million
of the Credit Facility to a fixed rate obligation of 5.0185% through February 1,
1999. The maturity date on the $170.0 million swap  transaction  was extended to
February 1, 2001 by the Bank of Nova Scotia on January 28, 1999.

    Interest of $24.0 million, $39.0 million, $25.2 million and $3.8 million was
paid on debt for the year ended January 2, 1999, the year ended January 3, 1998,
the  forty-eight  weeks ended December 28, 1996 and the four weeks ended January
26, 1996, respectively.

    Aggregate  scheduled  annual  maturities of long-term  debt as of January 2,
1999 are as follows:

                                                                  (IN THOUSANDS)
1999............................................................    $  112,730
2000............................................................        27,814
2001............................................................        51,151
2002............................................................        68,871
2003............................................................       105,929
2004 and thereafter.............................................       288,000
                                                                 ---------------
                                                                    $  654,495
                                                                 ===============

                                      F-15

<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8.   DEBT AND LEASE COMMITMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                       JANUARY 2,         January 3,
                                                          1999               1998
                                                     --------------     --------------
                                                               (IN THOUSANDS)
<S>                                                  <C>                <C>    
Land.............................................        $    980           $    980
Buildings........................................           2,894                 51
Machinery and equipment..........................           2,853                212
Other leased assets..............................               1                  1
                                                     --------------     --------------
                                                            6,728              1,244
Accumulated depreciation.........................            (242)              (105)
                                                     --------------     --------------
                                                         $  6,486           $  1,139
                                                     ==============     ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                        Capital           Operating
                                                         Leases             Leases
                                                     --------------     --------------
                                                               (IN THOUSANDS)
<S>                                                  <C>                <C>    
1999.............................................      $      986         $   29,488
2000.............................................           1,018             25,450
2001.............................................           1,073             21,454
2002.............................................           1,481             17,614
2003.............................................             460             16,186
2004 and thereafter..............................           6,170             25,530
                                                     --------------     --------------
Total minimum payments...........................          11,188         $  135,722
                                                                        ==============
Amount representing interest.....................          (2,898)
                                                     --------------
Obligations under capital lease..................           8,290
Obligations due within one year..................            (680)
                                                     --------------
Long-term obligations under capital leases.......      $    7,610
                                                     ==============
</TABLE>

    Rent expense for all  operating  leases was $38.7  million,  $36.1  million,
$30.1  million and $2.7 million,  for the year ended  January 2, 1999,  the year
ended January 3, 1998,  the  forty-eight  weeks ended  December 28, 1996 and the
four weeks ended January 26, 1996, respectively.


9.   PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

    As part of accounting for the acquisition of President,  Keebler  recognized
costs  pursuant  to a plan to exit  certain  activities  and  operations  of the
acquired  company.  These  exit  costs,  for which  there is no future  economic
benefit,  were provided for in the  allocation of the purchase price and totaled
$12.8 million.  Company-wide  staff  reductions  were estimated at $6.7 million,
with  the  balance  of  the  reserves   allocated  to  costs   associated   with
manufacturing,  sales and  distribution  facility  closings,  which  principally
include lease  termination  and carrying  costs.  Spending  against the reserves
established  related to the President  acquisition for the year ended January 2,
1999 totaled $0.1  million.  Management's  plan is expected to be  substantially
complete  before  the end of 1999  with  only  noncancelable  lease  obligations
exceeding the one year time frame.

    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.

                                      F-16
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


9.   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.  An additional $6.8 million was anticipated for lease costs
related to exiting legacy  information  systems.  Spending  against the reserves
established  for the year ended January 2, 1999,  the year ended January 3, 1998
and the  forty-eight  weeks ended December 28, 1996 totaled $7.7 million,  $16.2
million and $41.4  million,  respectively.  In addition,  during the years ended
January 2, 1999 and January 3, 1998, Keebler expensed an additional $2.8 million
and $2.7 million, respectively,  principally for costs related to the closure of
distribution  facilities  not  included  in the  original  plan.  No  additional
provisions were made during the forty-eight  weeks ended December 28, 1996. Also
during the year ended  January 2, 1999,  Keebler  adjusted  accruals  previously
established in the accounting for prior  acquisitions  by reducing  goodwill and
other  intangibles by $3.7 million to recognize exit costs that are now expected
to be less than initially anticipated.

    At January 2, 1999 and January 3, 1998, the total plant and facility closing
costs and  severance  reserve  balance  was  $26.6  million  and $22.5  million,
respectively.  Only  noncancelable  lease  obligations are anticipated to extend
beyond 1999, to be paid out over the next eight years concluding in 2006.

10.  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,  government  securities and bonds.  Benefits  provided under the
pension plan are primarily  based on years of service and the  employee's  final
level of compensation.  Keebler's  funding policy is to contribute  annually not
less than the ERISA minimum funding  requirements.  Effective December 31, 1998,
the pension plans of President  were merged with  Keebler's  pension  plan.  The
pension plans of Sunshine,  Athens Packaging,  Bake-Line and Emerald  Industries
were merged with Keebler's pension plan effective January 1, 1997.

    Pension expense included the following components:
<TABLE>
<CAPTION>

                                                                                     Forty-Eight    ||   Four Weeks
                                                 YEAR ENDED        Year Ended        Weeks Ended    ||     Ended 
                                                 JANUARY 2,        January 3,        December 28,   ||   January 26, 
                                                    1999              1998              1996        ||      1996
                                               ---------------   ---------------    --------------  || ---------------
                                                                         (IN THOUSANDS)                
<S>                                            <C>               <C>                <C>             || <C>    
Service cost...............................       $   9,040         $   8,560          $   7,711    ||    $     599
Interest cost..............................          31,080            29,673             21,338    ||        1,133
Expected return on plan assets.............         (39,352)          (37,935)           (28,247)   ||       (1,693)
Amortization of transition obligation......               -                 -                  -    ||           47
Amortization of prior service cost.........             689                 -                  -    ||          (12)
                                               ---------------   ---------------    --------------- || ---------------
Pension expense............................       $   1,457         $     298          $     802    ||    $      74   
                                               ===============   ===============    =============== || ===============

</TABLE>

                                      F-17

<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.  EMPLOYEE BENEFIT PLANS (CONTINUED)

    The funded  status of Keebler's  pension plan and amounts  recognized in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
                                                                              JANUARY 2, 1999       January 3, 1998
                                                                             -----------------     -----------------
                                                                                          (IN THOUSANDS)
<S>                                                                          <C>                   <C>    
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................            $ (437,334)           $ (408,060)
  Service cost........................................................                (9,040)               (8,560)
  Interest cost.......................................................               (31,080)              (29,673)
  Amendments..........................................................                (4,874)               (5,045)
  Actuarial loss......................................................               (45,871)              (14,795)
  Acquisition.........................................................               (22,805)                    -
  Benefits and expenses paid..........................................                30,692                28,799
                                                                             -----------------     -----------------    
  Benefit obligation at year end......................................              (520,312)             (437,334)
                                                                             -----------------     -----------------    

Change in plan assets:
  Fair value of plan assets at beginning of year......................               499,379               464,433
  Actual return on plan assets........................................                77,731                63,745
  Acquisition.........................................................                19,292                     -
  Benefits and expenses paid..........................................               (30,692)              (28,799)
                                                                             -----------------     -----------------
  Fair value of plan assets at year end...............................               565,710               499,379
                                                                             -----------------     -----------------

  Funded status.......................................................                45,398                62,045
  Unrecognized actuarial gain.........................................               (16,538)              (24,029)
  Unrecognized prior service cost.....................................                 9,230                 5,044
  Contributions subsequent to measurement date........................                   115                     -
                                                                             -----------------     -----------------
  Prepaid pension.....................................................            $   38,205            $   43,060
                                                                             =================     =================
</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        Year Ended         Weeks Ended    ||     Ended 
                                                      JANUARY 2,        January 3,         December 28,   ||   January 26, 
                                                         1999              1998                1996       ||      1996
                                                     --------------    --------------    ---------------- || ---------------
<S>                                                  <C>               <C>               <C>              || <C>    
Discount rate.....................................         6.5%              7.3%               7.5%      ||       7.5%
Rate of compensation level increases..............         4.0               4.0                4.0       ||       4.0
Expected long-term rate of return on plan assets..         9.0               9.0                8.6       ||      10.0

</TABLE>

    The plan assets,  as of January 2, 1999 and January 3, 1998,  include a real
estate  investment  of $3.1 million in a  distribution  center which is under an
operating lease to Keebler.

    In  addition  to the  pension  plan,  Keebler  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.

                                      F-18
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.  EMPLOYEE BENEFIT PLANS (CONTINUED)

    The supplemental retirement plan expense includes the following components:
<TABLE>
<CAPTION>
                                                                                     Forty-Eight    ||   Four Weeks
                                                 YEAR ENDED        Year Ended        Weeks Ended    ||     Ended 
                                                 JANUARY 2,        January 3,        December 28,   ||   January 26, 
                                                    1999              1998               1996       ||      1996
                                               ---------------   ---------------   ---------------  || ---------------
                                                                         (IN THOUSANDS)                
<S>                                            <C>               <C>               <C>              || <C>   
Service cost...............................        $     -           $     -           $     -      ||     $    35
Interest cost..............................            722               732               637      ||          66
Amortization of transition obligation......              -                 -                 -      ||           8
Amortization of prior service cost.........              -                 -                 -      ||          13
                                               ---------------   ---------------   ---------------  || ---------------
Plan expense...............................        $   722           $   732           $   637      ||     $   122
                                               ===============   ===============   ===============  || ===============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              JANUARY 2, 1999        January 3, 1998
                                                                            -------------------    -------------------
                                                                                         (IN THOUSANDS)
<S>                                                                         <C>                    <C>    
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................           $  (10,303)            $  (10,028)
  Interest cost.......................................................                 (722)                  (732)
  Actuarial loss......................................................                 (844)                  (296)
  Benefits and expenses paid..........................................                  750                    753
                                                                            -------------------    -------------------
  Benefit obligation at year end......................................              (11,119)               (10,303)
  Fair value of plan assets...........................................                    -                      -
                                                                            -------------------    -------------------
  Funded status.......................................................              (11,119)               (10,303)
  Unrecognized actuarial loss (gain)..................................                  387                   (458)
  Benefit payments subsequent to measurement date.....................                  109                    206
                                                                            -------------------    -------------------
  Accrued obligation..................................................           $  (10,623)            $  (10,555)
                                                                            ===================    ===================
</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        Year Ended       Weeks Ended   ||     Ended
                                                JANUARY 2,        January 3,       December 28,  ||   January 26,
                                                   1999              1998              1996      ||      1996
                                               --------------    --------------   -------------- || --------------
<S>                                            <C>               <C>              <C>            || <C>    
Discount rate.............................           6.5%              7.3%             7.5%     ||       7.5%
Rate of compensation level increase.......           4.0               N/A              N/A      ||       4.0

</TABLE>

    Contributions  are also made by Keebler 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 2, 1999,  the year ended January 3, 1998,  the  forty-eight  weeks ended
December 28, 1996 and the four weeks ended  January 26, 1996,  Keebler  expensed
contributions  of $2.3  million,  $2.6  million,  $2.3 million and $0.2 million,
respectively.

    Keebler   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 $8.9 million,  $10.5 million,  $7.8
million  and $0.9  million  for the year ended  January 2, 1999,  the year ended
January 3, 1998,  the  forty-eight  weeks ended  December  28, 1996 and the four
weeks ended January 26, 1996, respectively.

                                      F-19
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10.  EMPLOYEE BENEFIT PLANS (CONTINUED)

    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 Keebler's  pension plan.  Expenses
paid to administer the Bake-Line money purchase pension plan were nominal.


11.  POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

    Keebler  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. Keebler does not fund the plan.

    The net periodic  postretirement  benefit  expense  includes  the  following
components:

<TABLE>
<CAPTION>
                                                                                        Forty-Eight   ||  Four Weeks
                                                       YEAR ENDED       Year Ended      Weeks Ended   ||     Ended
                                                       JANUARY 2,       January 3,      December 28,  ||  January 26,
                                                          1999             1998             1996      ||     1996
                                                     --------------   --------------   -------------- || -------------
                                                                            (IN THOUSANDS)            
<S>                                                  <C>              <C>              <C>            || <C>    
Service cost......................................       $ 2,045          $ 2,242          $ 2,142    ||     $  123
Interest cost.....................................         3,961            3,888            2,729    ||        246
Amortization of prior service cost................          (115)               -                -    ||          -
                                                     --------------   --------------   -------------- || -------------
Net periodic postretirement benefit expense.......       $ 5,891          $ 6,130          $ 4,871    ||     $  369
                                                     ==============   ==============   ============== || =============

</TABLE>

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

<TABLE>
<CAPTION>
                                                                              JANUARY 2, 1999        January 3, 1998
                                                                             -----------------      ----------------- 
                                                                                          (IN THOUSANDS)
<S>                                                                          <C>                    <C>    
Change in accumluated postretirement benefit obligation:
  Benefit obligation at beginning of year.............................          $   (56,690)           $   (54,324)
  Service cost........................................................               (2,045)                (2,242)
  Interest cost.......................................................               (3,961)                (3,888)
  Amendments..........................................................                    -                    689
  Actuarial gain......................................................                3,641                    357
  Acquisition.........................................................               (1,598)                     -
  Benefits and expenses paid..........................................                4,384                  2,718
                                                                             -----------------      -----------------
  Benefit obligation at year end......................................              (56,269)               (56,690)
  Fair value of plan assets...........................................                    -                      -
                                                                             -----------------      ----------------- 
  Funded status.......................................................              (56,269)               (56,690)
  Unrecognized actuarial gain.........................................               (7,856)                (4,215)
  Unrecognized prior service cost.....................................                 (574)                  (689)
  Benefit payments subsequent to measurement date.....................                  978                    614
                                                                             -----------------      ----------------- 
  Postretirement obligation...........................................          $   (63,721)           $   (60,980)
                                                                             =================      ================= 
</TABLE>

                                      F-20
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


11.  POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)

    The accumulated  postretirement  benefit  obligation was determined  using a
weighted  average discount rate of 6.5% for the year ended January 2, 1999, 7.3%
for the year ended January 3, 1998 and 7.5% for both the forty-eight weeks ended
December 28, 1996 and the four weeks ended January 26, 1996.

    The weighted  average annual assumed rate of increase in the cost of covered
benefits is 6.0% for 1998 declining to an ultimate trend rate of 5.0% in 1999. A
1% increase in the trend rate for health  care costs  would have  increased  the
accumulated benefit obligation as of January 2, 1999 by $2.6 million and the net
periodic  benefit  cost by $0.3  million.  A 1%  decrease  in the trend rate for
health care costs would have decreased the  accumulated  benefit  obligation and
net periodic benefit cost by $2.7 million and $0.3 million,  respectively, as of
January 2, 1999.

    Keebler  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. Keebler
does  not  fund  the  plan.  The  postemployment   obligation  included  in  the
consolidated balance sheets at both January 2, 1999 and January 3, 1998 was $4.7
million.


12.  INCOME TAXES

    The components of income tax expense were as shown below:

<TABLE>
<CAPTION>
                                                                                        Forty-Eight   ||  Four Weeks
                                                     YEAR ENDED        Year Ended       Weeks Ended   ||     Ended
                                                     JANUARY 2,        January 3,       December 28,  ||  January 26,
                                                        1999              1998              1996      ||      1996
                                                   --------------    --------------    -------------- || --------------
                                                                              (IN THOUSANDS)           
<S>                                                <C>               <C>               <C>            || <C>    
Current:                                                                                              ||
  Federal.......................................     $  58,269         $  22,172         $       -    ||   $       -
  State.........................................         4,618             3,840                 -    ||           -
                                                   --------------    --------------    -------------- || --------------
Current provision for income taxes..............        62,887            26,012                 -    ||           -
Deferred:                                                                                             ||
  Federal.......................................         8,494            17,203            11,524    ||       6,490
  State.........................................         1,581             1,954             2,478    ||         843
  Valuation allowance (federal and state).......             -                 -                 -    ||      (7,333)
                                                   --------------    --------------    -------------- || --------------
Deferred provision for income taxes.............        10,075            19,157            14,002    ||           -
                                                   --------------    --------------    -------------- || --------------
                                                     $  72,962         $  45,169         $  14,002    ||   $       -
                                                   ==============    ==============    ============== || ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                        Forty-Eight   ||   Four Weeks
                                                     YEAR ENDED        Year Ended       Weeks Ended   ||     Ended
                                                     JANUARY 2,        January 3,       December 28,  ||   January 26,
                                                        1999              1998              1996      ||      1996
                                                   --------------    --------------    -------------- || --------------
                                                                             (IN THOUSANDS)           
<S>                                                <C>               <C>               <C>            || <C>   
U.S. federal statutory rate.....................     $  59,339         $  37,643         $  11,140    ||   $       -
State income taxes (net of federal benefit).....         5,813             3,766             1,608    ||           -
Intangible amortization.........................         3,160             1,836             1,268    ||           -
All others......................................         4,650             1,924               (14)   ||           -
                                                   --------------    --------------    -------------- || --------------
                                                     $  72,962         $  45,169         $  14,002    ||   $       -
                                                   ==============    ==============    ============== || ==============

</TABLE>
                                      F-21

<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


12.  INCOME TAXES (CONTINUED)

    The  deferred  tax assets and  deferred  tax  (liabilities)  recorded on the
consolidated balance sheets consist of the following:

<TABLE>
<CAPTION>
                                                                              JANUARY 2, 1999         January 3, 1998
                                                                             -----------------       ----------------- 
                                                                                          (IN THOUSANDS)
<S>                                                                          <C>                     <C>    
Depreciation.......................................................             $  (108,866)            $   (82,204)
Trademarks, trade names and intangibles............................                 (49,348)                    (88)
Prepaid pension....................................................                 (14,283)                (16,164)
Inventory valuation................................................                  (6,779)                 (5,257)
                                                                             -----------------       -----------------  
                                                                                   (179,276)               (103,713)
                                                                             -----------------       -----------------  
Net operating loss carryforwards...................................                  80,195                  80,195
Postretirement/postemployment benefits.............................                  26,171                  25,123
Plant and facility closing costs and severance.....................                  23,728                  10,996
Workers' compensation..............................................                  14,769                  15,119
Incentives and deferred compensation...............................                  12,063                  11,493
Employee benefits..................................................                  10,879                   9,583
Charitable contributions...........................................                   3,425                   8,425
Other..............................................................                   3,011                     442
                                                                             -----------------       -----------------  
                                                                                    174,241                 161,376
Valuation allowance................................................                 (84,350)                (84,350)
                                                                             -----------------       -----------------  
                                                                                $   (89,385)            $   (26,687)
                                                                             =================       =================  
</TABLE>

    Net operating loss carryforwards total approximately  $203.2 million through
1998 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.   In  the  event  the  net  operating  loss
carryforwards  become  realizable,  the  valuation  allowance  would be reversed
against trademarks, trade names and other intangibles.

    Income taxes paid, net of refunds,  were approximately  $67.1 million,  $9.9
million  and $1.6  million  for the year ended  January 2, 1999,  the year ended
January 3, 1998 and the forty-eight weeks ended December 28, 1996, respectively.
There were no taxes paid or  refunded  during the four weeks  ended  January 26,
1996.


13.  SHAREHOLDERS' EQUITY

COMMON STOCK

    There were no cash  dividends  declared for the year ended  January 2, 1999,
the year ended January 3, 1998, the forty-eight weeks ended December 28, 1996 or
the four weeks ended January 26, 1996.  Keebler's  ability to pay cash dividends
is limited by the Credit Facility and the Senior  Subordinated  Notes.  The most
limiting dividend  restriction exists under the Senior Subordinated Notes, which
limits dividend  payments to the sum of: (i) 50% of consolidated  cumulative net
income,  (ii) net cash  proceeds  received  from the issuance of capital  stock,
(iii)  net cash  proceeds  received  from the  exercise  of  stock  options  and
warrants,  (iv) net cash proceeds  received from the conversion of  indebtedness
into capital stock and (v) the net reduction in investments made by Keebler.

    On January 29, 1998,  Keebler made an initial public  offering of 13,386,661
shares of common  stock.  Concurrent  with the  Offering,  Bermore  exercised  a
warrant to  purchase  6,135,781  shares of common  stock that had been issued in
conjunction with the Sunshine acquisition.  The exercise of the warrant resulted
in Keebler receiving $19.8 million of cash proceeds.  Artal and Bermore sold all
of the shares in the Offering, with none of the proceeds going to Keebler.


                                      F-22
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13.  SHAREHOLDERS' EQUITY (CONTINUED)

    The consolidated  financial  statements  reflect Keebler's  declaration of a
57.325-for-1  stock split of common stock (the "Stock Split")  effective January
22, 1998. The Stock Split was effected in the form of a stock dividend.  On July
29, 1997,  the Board of Directors  of Keebler also  approved a 1-for-10  reverse
stock split of  Keebler's  common  stock.  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 the stock splits as if they had been
effective January 26, 1996.

TREASURY STOCK

    In March 1998,  Keebler's Board of Directors  authorized the repurchase,  at
management's  discretion,  of up to $30.0  million  of shares  of the  Company's
common stock.  The share repurchase  program was primarily  instituted to offset
dilution  which may  result  from the  exercise  and sale of shares  related  to
employee stock options.  The  repurchases of shares of common stock are recorded
as  treasury  stock  using  the  cost  method  and  result  in  a  reduction  of
shareholders' equity. Should the treasury shares be reissued, Keebler intends to
use a first-in, first-out method of reissuance.


14.  STOCK OPTION PLAN

    Keebler 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 APB 25, no
compensation expense is recognized when the exercise price of options equals the
fair value (market value) of the underlying  stock options at the date of grant.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined
as if Keebler had accounted for its employee  stock options under the fair value
method of that Statement.  For purposes of pro forma disclosures,  the estimated
fair value of the options is  amortized  to expense  over the  options'  vesting
period.  The four weeks ended January 26, 1996 are not included in the pro forma
disclosures,  as it was prior to the Keebler acquisition and the adoption of any
stock option plan.  The following  table  summarizes  the pro forma  disclosures
regarding  net income and earnings per share for the year ended January 2, 1999,
the year ended January 3, 1998 and the forty-eight weeks ended December 28,1996:

<TABLE>
<CAPTION>
                                                                                                      Forty-Eight
                                                                                                      Weeks Ended
                                                            YEAR ENDED           Year Ended           December 28,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)                  JANUARY 2, 1999       January 3, 1998            1996
                                                        -----------------     -----------------     ----------------
<S>                                                     <C>                   <C>                   <C>   
Net income:
   As reported.....................................         $   94,871            $   56,985            $   15,752
   Pro forma.......................................         $   91,032            $   55,032            $   14,027              
Basic net income per share:
   As reported.....................................         $     1.14            $     0.73            $     0.21
   Pro forma.......................................         $     1.09            $     0.71            $     0.19
Diluted net income per share:
   As reported.....................................         $     1.08            $     0.70            $     0.21
   Pro forma.......................................         $     1.04            $     0.68            $     0.18
Weighted  average  grant date fair value of options
   granted during the year.........................         $     8.53            $     8.09            $     1.87

</TABLE>

                                      F-23

<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.  STOCK OPTION PLAN (CONTINUED)

    These pro forma  amounts  may not be  representative  of future  disclosures
because the  estimated  fair value of stock options is amortized to expense over
the vesting period, which is variable,  and additional options may be granted in
future years.  In 1998,  the fair value of each option grant is estimated on the
date of grant using the  Black-Scholes  option-pricing  model. The Black-Scholes
option  valuation  model was developed  for use in estimating  the fair value of
traded options,  which have no vesting  restrictions and are fully transferable.
In addition,  option  valuation  models  require the input of highly  subjective
input  assumptions  including  the  expected  stock  price  volatility.  Because
Keebler's stock options have characteristics  significantly different from those
of traded options,  and because changes in the subjective input  assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.  For purposes of the pro forma  disclosures for 1997
and 1996,  the fair value for the  options  was  estimated  at the date of grant
using a present value approach as Keebler was not a public company.

    For options granted, the following weighted average assumptions were used to
determine the fair value:

<TABLE>
<CAPTION>
                                                                                      Forty-Eight 
                                                                                      Weeks Ended
                                                YEAR ENDED         Year Ended         December 28, 
                                             JANUARY 2, 1999*    January 3, 1998          1996
                                             ----------------    ----------------    --------------
<S>                                          <C>                 <C>                 <C>    
Dividend yield............................               0.0%                0.0%              0.0%
Expected volatility.......................              27.2%                0.0%                **
Risk-free interest rate...................              5.04%               6.00%             6.00%
Expected option life (years)..............                  5                   5                 5

</TABLE>

*    Utilized the Black-Scholes option pricing model.
**   Volatility  accounted  for  with a  discount  rate  of 20%  applied  to the
     valuation  of Keebler's  stock based upon the present  value of future cash
     flows discounted at the weighted average cost of capital of 19% after tax.

    Under Keebler's 1996 Stock Option Plan,  9,673,594 shares of Keebler's stock
were  authorized for future grant.  All options granted have ten year terms and,
due to  acceleration  resulting  from the  achievement  of  certain  performance
measures, vest by 2001.

    The following table summarizes the 1996 Stock Option Plan activity:

<TABLE>
<CAPTION>
                                                                                         Forty-Eight Weeks Ended
                                                                                            December 28, 1996
                                                                                  --------------------------------------
                                                                                                       Weighted Average
                                                                                       Options          Exercise Price    
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>    
Outstanding at the beginning of the period....................................                  -       $        -
Granted.......................................................................          7,031,198             1.98
Exercised.....................................................................                  -                -
Forfeited.....................................................................            228,727             1.74
Expired.......................................................................                  -                - 
                                                                                  ------------------
Outstanding at the end of the period..........................................          6,802,471       $     1.98
                                                                                  ==================
Exercisable at the period end.................................................                  -                -
                                                                                  ==================

------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-24
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.  STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
                                                                                        Year Ended January 3, 1998
                                                                                  --------------------------------------
                                                                                                      Weighted Average
                                                                                       Options         Exercise Price
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>    
Outstanding at the beginning of the period....................................          6,802,471       $     1.98
Granted.......................................................................             49,873             5.23
Exercised.....................................................................                  -                -
Forfeited.....................................................................                  -                -
Expired.......................................................................                  -                -
                                                                                  ------------------
Outstanding at the end of the period..........................................          6,852,344       $     2.01
                                                                                  ==================
Exercisable at the period end.................................................          1,587,243       $     1.98
                                                                                  ==================

------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED JANUARY 2, 1999
                                                                                  --------------------------------------
                                                                                                      WEIGHTED AVERAGE
                                                                                       OPTIONS         EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>    
Outstanding at the beginning of the period....................................          6,852,344       $     2.01
Granted.......................................................................                  -                -
Exercised.....................................................................            351,177             2.21
Forfeited.....................................................................             44,887             3.23
Expired.......................................................................                  -                -
                                                                                  ------------------
Outstanding at the end of the period..........................................          6,456,280       $     1.99
                                                                                  ==================
Exercisable at the period end.................................................          4,433,774       $     1.98
                                                                                  ==================

------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Exercise prices as of January 2, 1999 for options outstanding under the 1996
Stock  Option Plan range from $1.74 to $5.23.  The  weighted  average  remaining
contractual life of these options is approximately seven and one-half years.

    Under  Keebler's  1998 Omnibus Stock  Incentive  Plan,  2,850,200  shares of
Keebler's stock were authorized for future grant. All options granted  generally
have  ten  year  terms  and  vest  at the  end of  five  years.  Vesting  can be
accelerated if certain stock price performance measures are met.

    The  following  table  summarizes  the 1998  Omnibus  Stock  Incentive  Plan
activity:
<TABLE>
<CAPTION>
                                                                                        YEAR ENDED JANUARY 2, 1999
                                                                                  --------------------------------------
                                                                                                       WEIGHTED AVERAGE
                                                                                       OPTIONS          EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>    
Outstanding at the beginning of the period....................................                  -       $        -
Granted.......................................................................          2,737,836            25.03
Exercised.....................................................................                  -                -
Forfeited.....................................................................             22,200            27.31
Expired.......................................................................                  -                -
                                                                                  ------------------
Outstanding at the end of the period..........................................          2,715,636       $    25.01
                                                                                  ==================
Exercisable at the period end.................................................                  -                -
                                                                                  ==================

------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Exercise prices as of January 2, 1999 for options outstanding under the 1998
Omnibus Stock Incentive Plan range from $24.00 to $32.13.  The weighted  average
remaining contractual life of these options is approximately nine years.

    Under Keebler's Non-Employee Director Stock Plan, 22,500 shares of Keebler's
stock were  authorized  for future grant,  all of which have been  granted.  All
options granted have ten year terms and vest automatically upon grant.

                                      F-25
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.  STOCK OPTION PLAN (CONTINUED)

    The  following  table  summarizes  the  Non-Employee   Director  Stock  Plan
activity:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED JANUARY 2, 1999
                                                                                  --------------------------------------
                                                                                                       WEIGHTED AVERAGE
                                                                                       OPTIONS          EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>    
Outstanding at the beginning of the period....................................                  -       $        -
Granted.......................................................................             22,500            27.44
Exercised.....................................................................                  -                -
Forfeited.....................................................................                  -                -
Expired.......................................................................                  -                -
                                                                                  ------------------
Outstanding at the end of the period..........................................             22,500       $    27.44
                                                                                  ==================
Exercisable at the period end.................................................             22,500       $    27.44
                                                                                  ==================

------------------------------------------------------------------------------------------------------------------------
</TABLE>

    As of January 2, 1999, the exercise price for options  outstanding under the
Non-Employee  Director  Stock Plan was $27.44.  The weighted  average  remaining
contractual life of these options is approximately nine years.


15.  NET INCOME PER SHARE

    Basic net income per share is calculated  using the weighted  average number
of common shares outstanding during each period. Diluted net income per share is
calculated using the weighted average number of common and potentially  dilutive
common shares outstanding during each period. The common equivalent shares arise
from the 1996 Stock Option Plan,  the 1998 Omnibus  Stock  Incentive  Plan,  the
Non-Employee  Director Stock Plan and the warrant issued in connection  with the
Sunshine acquisition and are calculated using the treasury stock method.

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

<TABLE>
<CAPTION>
                                                                                                           Forty-Eight
                                                            YEAR ENDED             Year Ended              Weeks Ended
                                                          JANUARY 2, 1999        January 3, 1998        December 28, 1996
                                                        -------------------    -------------------     ------------------- 
                                                                                  (IN THOUSANDS)
<S>                                                     <C>                    <C>                     <C>    
NUMERATOR:
   Income before extraordinary item.................         $   96,577             $   62,381              $   17,677
   Extraordinary item, net of tax...................              1,706                  5,396                   1,925
                                                        -------------------    -------------------     ------------------- 
   Net income.......................................         $   94,871             $   56,985              $   15,752
                                                        ===================    ===================     =================== 
DENOMINATOR:
   Denominator for Basic Net Income Per Share
        Weighted average shares.....................             83,254                 77,604                  75,244
   Effect of Dilutive Securities:
        Stock options...............................              3,992                  2,168                     832
        Warrants....................................                240                    790                       -
                                                        -------------------    -------------------     ------------------- 
        Diluted potential common shares.............              4,232                  2,958                     832
                                                        -------------------    -------------------     ------------------- 
   Denominator for Diluted Net Income Per Share.....             87,486                 80,562                  76,076
                                                        ===================    ===================     =================== 
</TABLE>

    For the year ended January 2, 1999,  there were weighted  average options to
purchase  96,478 shares of common stock at an exercise price ranging from $28.88
to $32.13,  which 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.  There
were no  antidilutive  securities  for the year ended  January 3, 1998.  For the
forty-eight  weeks ended December 28, 1996,  there were weighted average options
to purchase  56,216  shares of common  stock at $3.23 per share and the weighted
average warrant to purchase  3,768,863 shares of common stock at $3.23 per share
which 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.

                                      F-26
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16.  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  disclosed in
Note 8 approximate fair value.

    Keebler uses  interest-rate  swap agreements to effectively  convert certain
fixed rate debt to a floating rate instrument and certain  floating rate debt to
a fixed rate  instrument.  The interest rate swap  agreements  result in Keebler
paying or  receiving  the  difference  between the fixed and  floating  rates at
specified intervals  calculated based on the notional amounts. The interest rate
differential  to be paid or received is accrued as interest  rates change and is
recorded  as  interest  expense.  The fair  values of the swap  agreements  were
obtained from the Bank of Nova Scotia and were estimated  using market prices at
each  respective  year-end.  The  fair  values  of the swap  agreements  are not
recognized in the financial statements as Keebler accounts for the agreements as
hedges.  In 1998,  Keebler  had  entered  into four swap  transactions  expiring
between 2001 and 2004. At January 2, 1999,  interest rate swap agreements with a
notional amount of $403.3 million were used to hedge interest rate  fluctuations
on  floating  rate debt and a swap  agreement  with a notional  amount of $124.0
million  used to hedge  interest  rate  fluctuations  on fixed  rate  debt.  The
estimated  fair  value of the  swap  agreements  at  January  2,  1999 was a net
receivable of $1.1 million.  At January 3, 1998, there were two outstanding swap
agreements,  both maturing in 2001. A swap agreement  with a notional  amount of
$170.0  million was used to hedge  interest rate  fluctuations  on floating rate
debt and another swap agreement with a notional amount of $81.3 million was used
to hedge interest rate fluctuations on fixed rate debt. The estimated fair value
of the swap agreements at January 3, 1998 was a net receivable of $1.6 million.

    Keebler  often enters into  exchange  traded  commodity  futures and options
contracts  to protect or hedge  against  adverse raw  material  price  movements
related  to  anticipated  inventory  purchases.  Realized  gains  or  losses  on
contracts  are  determined  based  on the  stated  market  value at the time the
contracts  are  liquidated  or expire and are  deferred in  inventory  until the
underlying  raw  material  is  purchased.  Gains  or  losses  realized  from the
liquidation or expiration of the contracts are recognized as part of the cost of
raw  materials.  Cost of sales was  increased  by losses on futures  and options
transactions of $7.1 million and $3.8 million in the years ended January 2, 1999
and January 3, 1998,  respectively,  and reduced by gains on futures and options
transactions of $0.8 million for the forty-eight  weeks ended December 28, 1996.
Operations for the four weeks ended January 26, 1996,  were  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. The notional amount of open futures and
options  contracts at January 2, 1999 and January 3, 1998 were $61.7 million and
$58.7  million,  respectively.  The fair values of the open  futures and options
contracts  at January 2, 1999 and  January 3, 1998,  based on the stated  market
value at those dates,  were $57.9 million and $53.8 million,  respectively.  The
open  contracts  at January 2, 1999 will expire  between  January  1999 and July
1999.


17.  SEGMENT INFORMATION

    In  1998,  Keebler  adopted  SFAS  131  "Disclosures  about  Segments  of an
Enterprise and Related  Information."  Keebler's reportable segments are Branded
and Specialty. The reportable segments were determined using Keebler's method of
internal  reporting,  which divides and analyzes the business by sales  channel.
The nature of the  customers,  products and method of  distribution  can vary by
sales channel. The reportable segments represent an aggregation of similar sales
channels.  The Branded  segment is comprised of sales channels that  principally
market brand name cookie and cracker products to retail outlets. Products in the
Branded  segment are sold by either a Keebler sales  employee or a  distributor.
The sale channels in the  Specialty  segment  primarily  sell cookie and cracker
products that are manufactured on a made-to-order  basis or that are produced in
individual  packs  to  be  used  in  various  institutions  (i.e.,  restaurants,
hospitals, etc.). Many of the products sold by the Specialty segment are done so
through the use of brokers.

                                      F-27
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


17.  SEGMENT INFORMATION (CONTINUED)

    Keebler  evaluates the performance of the reportable  segments and allocates
resources based on the segment's profit contribution, defined as earnings before
certain functional support costs,  amortization,  interest and income taxes. The
accounting  policies for each reportable segment are the same as those described
in Note 4  "Summary  of  Significant  Accounting  Policies."  The cost of sales,
however,  used to determine a segment's profit  contribution is calculated using
standard costs for each product, while actual cost of sales is used to determine
consolidated operating income (loss).

    There are no  intersegment  transactions  that  result in  revenue or profit
(loss).  Asset  information by reportable  segment is not presented,  as Keebler
does not report or generate such information internally.  However,  depreciation
expense included in the  determination  of a segment's  profit  contribution has
been presented.  The depreciation  expense for each reportable  segment reflects
the  amount  absorbed  in the  standard  cost  of  products  sold as well as the
depreciation that relates to assets used entirely by the respective segment. The
following table presents certain information included in the profit contribution
of each segment for the year ended  January 2, 1999,  the year ended  January 3,
1998,  the  forty-eight  weeks ended  December 28, 1996 and the four weeks ended
January 26, 1996.

<TABLE>
<CAPTION>
                                                  Branded          Specialty
                                                  Segment           Segment           Other (1)             Total
                                              ---------------    --------------    ---------------     ---------------
                                                                            (IN THOUSANDS)
<S>                                           <C>                <C>               <C>                 <C>   
YEAR ENDED JANUARY 2, 1999:
NET SALES TO EXTERNAL CUSTOMERS..............  $   1,726,668      $    499,812      $           -       $   2,226,480
DEPRECIATION EXPENSE.........................         31,087             7,934             20,382              59,403
PROFIT CONTRIBUTION..........................        282,639            85,898                  -             368,537 

YEAR ENDED JANUARY 3, 1998:
Net sales to external customers..............  $   1,566,702      $    498,482      $           -       $   2,065,184
Depreciation expense.........................         19,650             6,750             27,331              53,731
Profit contribution..........................        226,911            80,321                  -             307,232

FORTY-EIGHT WEEKS ENDED DECEMBER 28, 1996:
Net sales to external customers..............  $   1,178,023      $    467,509      $           -       $   1,645,532
Depreciation expense.........................         15,919             6,174             22,251              44,344
Profit contribution..........................        145,311            53,908                  -             199,219
==========================================================================================================================

FOUR WEEKS ENDED JANUARY 26, 1996:
Net sales to external customers..............  $      69,842      $     31,814      $           -       $     101,656
Depreciation expense.........................          1,121               502                223               1,846
Profit contribution..........................          8,660             4,295                  -              12,955

(1) Represents expenses incurred by the functional support departments that are not allocated to the reportable segments.

</TABLE>

    The net sales to external  customers from the reportable  segments equal the
consolidated  net  sales  of  Keebler.   A  reconciliation   of  segment  profit
contribution  to total  consolidated  income from continuing  operations  before
income tax expense  (benefit) for the year ended January 2, 1999, the year ended
January 3, 1998,  the  forty-eight  weeks ended  December  28, 1996 and the four
weeks ended January 26, 1996 is as follows:


                                      F-28

<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


17.  SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          Forty-Eight   ||   Four Weeks
                                                    YEAR ENDED          Year Ended        Weeks Ended   ||     Ended 
                                                    JANUARY 2,          January 3,        December 28,  ||   January 26,
                                                       1999               1998                1996      ||      1996 
                                                  ---------------    ---------------    --------------- || --------------- 
                                                                               (IN THOUSANDS)
<S>                                               <C>                <C>                <C>             || <C>   
INCOME (LOSS) FROM CONTINUING OPERATIONS                                                                || 
  BEFORE INCOME TAX EXPENSE (BENEFIT):                                                                  ||
Reportable segments profit contribution.........     $   368,537        $   307,232        $   199,219  ||    $    12,955
Unallocated functional support costs (1)........         172,498            165,835            129,069  ||         38,453
Interest expense (income), net..................          26,500             33,847             38,471  ||           (116)
                                                  ---------------    ---------------    --------------- || --------------- 
   Income (Loss) from Continuing Operations                                                             || 
    before Income Tax Expense (Benefit).........     $   169,539        $   107,550        $    31,679  ||    $   (25,382)
                                                  ===============    ===============    =============== || =============== 

(1) Includes support costs such as distribution,  research and development,  corporate  administration  and other (income)
    expense, which are not allocated internally to reportable segments.

</TABLE>

    Net sales to external customers consist of cookies, crackers and other baked
goods for all periods  presented.  All long-lived  assets at January 2, 1999 and
January  3,  1998 are  located  in the  United  States.  Net  sales to  external
customers made outside the United States, as well as to any single customer, are
not material to  consolidated  net sales for the year ended January 2, 1999, the
year ended January 3, 1998,  the  forty-eight  weeks ended December 28, 1996 and
the four weeks ended January 26, 1996.


18.  UNAUDITED QUARTERLY FINANCIAL DATA

    Results of  operations  for each of the four  quarters  of the fiscal  years
ended  January 2, 1999 and January 3, 1998  follow.  Each  quarter  represents a
period of twelve weeks except the first quarter which includes sixteen weeks.

<TABLE>
<CAPTION>
                                               Quarter 1           Quarter 2           Quarter 3           Quarter 4
                                           ------------------- ------------------- ------------------- -------------------
                                              1998      1997      1998      1997      1998      1997     1998*     1997**
                                           --------- --------- --------- --------- --------- --------- --------- --------- 
                                                               (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net sales.............................       $636.8    $597.0    $490.0    $459.8    $499.9    $485.3    $599.8    $523.1
Gross profit..........................        372.7     337.0     281.3     259.7     294.4     277.0     339.2     303.5
Income before extraordinary item......         14.1       7.6      19.4      13.0      29.0      18.5      34.1      23.3
Extraordinary item....................            -       2.7         -         -       1.7         -         -       2.7
Net income............................         14.1       4.9      19.4      13.0      27.3      18.5      34.1      20.6

Basic net income per share:
   Income before extraordinary item...        $0.17     $0.10     $0.23     $0.16     $0.35     $0.24     $0.41     $0.30
   Extraordinary item.................            -      0.04         -         -      0.02         -         -      0.03
                                           --------- --------- --------- --------- --------- --------- --------- --------- 
   Net income.........................        $0.17     $0.06     $0.23     $0.16     $0.33     $0.24     $0.41     $0.27
                                           ========= ========= ========= ========= ========= ========= ========= ========= 

Diluted net income per share:
   Income before extraordinary item...        $0.16     $0.10     $0.22     $0.16     $0.33     $0.23     $0.39     $0.28
   Extraordinary item.................            -      0.04         -         -      0.02         -         -      0.03
                                           --------- --------- --------- --------- --------- --------- --------- --------- 
   Net income.........................        $0.16     $0.06     $0.22     $0.16     $0.31     $0.23     $0.39     $0.25
                                           ========= ========= ========= ========= ========= ========= ========= ========= 
----------

*    Quarter 4, 1998  includes the  operating  results of President  from the  acquisition  date of September  28, 1998
     through January 2, 1999.
**   Quarter 4, 1997 includes thirteen weeks as fiscal 1997 was a fifty-three week year.

</TABLE>

                                      F-29
<PAGE>

                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


19.  SUBSEQUENT EVENTS

    On January 29, 1999 Keebler  entered into a Receivables  Purchase  Agreement
("Agreement")  to replace the Bridge Facility  existing at January 2, 1999. This
Agreement  allows  funds to be  borrowed  at a lower cost to the  Company and is
collateralized by the accounts receivable of Keebler.

    On January 21, 1999,  Keebler made a secondary public offering of 16,200,000
shares of common  stock.  Artal and  Claremont  sold all of the shares,  with no
proceeds going to Keebler. As a result,  Artal's ownership  percentage decreased
from  approximately 21% to 2% and Claremont's  ownership  percentage was reduced
from  approximately  6% to 5% of  the  outstanding  common  stock.  Management's
ownership  remained  at  approximately  2% and  Flowers'  ownership  remained at
approximately 55%.

    On  January  4,  1999,  Keebler  engaged  in a  series  of  corporate-entity
transactions  that resulted in Sunshine and President  being merged into Keebler
Company.  Consequently,  these former  subsidiaries of Keebler Foods Company are
currently wholly-owned subsidiaries of Keebler Company.




           
                                      F-30
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY

Our report on the consolidated financial statements of Keebler Foods Company and
Subsidiaries and UB Investments US Inc. and Subsidiaries is included on page F-2
of the Form 10-K. In connection with our audits of such financial statements, we
have also audited the related financial  statement  schedule listed in the index
on page F-1 of the Form 10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.



                                                 PRICEWATERHOUSECOOPERS LLP




Chicago, Illinois
February 2, 1999















                                       S-1
<PAGE>
<TABLE>

ITEM 14 (D).    FINANCIAL STATEMENT SCHEDULE                                                                    SCHEDULE II


                                                        KEEBLER FOODS COMPANY
                                      SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (NOTE 1)
                                 FOR THE YEAR ENDED JANUARY 2, 1999, THE YEAR ENDED JANUARY 3, 1998,
                       THE FORTY-EIGHT WEEKS ENDED DECEMBER 28, 1996 AND THE FOUR WEEKS ENDED JANUARY 26, 1996

                                                           (IN THOUSANDS)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                     COL. A                         COL. B                 COL. C                COL. D        COL. E
------------------------------------------------------------------------------------------------------------------------

                                                                          ADDITIONS
                                                                  -------------------------
                                                   BALANCE AT     CHARGED TO    CHARGED TO                    BALANCE AT
                                                   BEGINNING        COSTS/        OTHER                          END
                  DESCRIPTION                      OF PERIOD       EXPENSES      ACCOUNTS      DEDUCTIONS     OF PERIOD
-------------------------------------------------  ----------     ----------    ----------     ----------     ----------
<S>                                                <C>            <C>           <C>            <C>            <C>     
Those valuation and qualifying accounts which are
    deducted in the balance sheet from the assets
    to which they apply:

YEAR ENDED JANUARY 2, 1999
        For discounts and doubtful accounts        $   4,965      $  20,148     $   2,879 (1)  $ (20,210)(2)  $   7,782       
                                                   ==========     ==========    ==========     ==========     ==========
        For deferred taxes                         $  84,350      $       -     $       -      $       -      $  84,350    
                                                   ==========     ==========    ==========     ==========     ==========
        For inventory reserves                     $   6,782      $   7,484     $   1,807 (1)  $  (6,459)(3)  $   9,614          
                                                   ==========     ==========    ==========     ==========     ==========

YEAR ENDED JANUARY 3, 1998
        For discounts and doubtful accounts        $   5,390      $  18,970     $       -      $ (19,395)(2)  $   4,965     
                                                   ==========     ==========    ==========     ==========     ==========
        For deferred taxes                         $  84,350      $       -     $       -      $       -      $  84,350    
                                                   ==========     ==========    ==========     ==========     ==========
        For inventory reserves                     $   5,508      $   9,716     $       -      $  (8,442)(3)  $   6,782          
                                                   ==========     ==========    ==========     ==========     ==========

FORTY-EIGHT WEEKS ENDED DECEMBER 28, 1996
        For discounts and doubtful accounts        $   4,181      $  14,399     $     907 (4)  $ (14,097)(2)  $   5,390         
                                                   ==========     ==========    ==========     ==========     ==========
        For deferred taxes                         $ 109,484      $       -     $       -      $ (25,134)(5)  $  84,350         
                                                   ==========     ==========    ==========     ==========     ==========
        For inventory reserves                     $   9,578 (6)  $   3,370     $       -      $  (7,440)(7)  $   5,508         
                                                   ==========     ==========    ==========     ==========     ==========

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

FOUR WEEKS ENDED JANUARY 26, 1996
        For discounts and doubtful accounts        $   3,558      $   1,577     $       -      $    (954)(2)  $   4,181       
                                                   ==========     ==========    ==========     ==========     ==========
        For deferred taxes                         $ 116,817      $  (7,333)    $       -      $       -      $ 109,484         
                                                   ==========     ==========    ==========     ==========     ==========
        For inventory reserves                     $     637      $     378     $       -      $       -      $   1,015         
                                                   ==========     ==========    ==========     ==========     ==========


Note 1: Schedule II - Valuation and Qualifying Accounts includes certain financial data of Keebler Foods Company
        ("Keebler") for the year ended January 2, 1999, the year ended January 3, 1998 and the forty-eight weeks ended
        December 28, 1996, as well as certain financial data of UB Investments US Inc. ("UBIUS"), the predecessor
        company, for the four weeks ended January 26, 1996, the date on which UBIUS was acquired by INFLO Holdings
        Company ("INFLO"). The distinction between Keebler's and the predecessor company's financial data has been made
        by inserting a double line.

  (1)   Amount acquired in the acquisition of President International, Inc. 
  (2)   Primarily charges against reserves, net of recoveries.
  (3)   Inventory write-offs, net.
  (4)   Amount acquired in the acquisition of Sunshine Biscuits, Inc.
  (5)   Adjustment to reduce the valuation allowance as a result of the acquisition of Keebler.
  (6)   Includes inventory reserves established in the acquisition of Keebler.
  (7)   Adjustment to reduce reserve.


                                                                S-2
</TABLE>

<PAGE>


                                  EXHIBIT INDEX
 EXHIBIT
 NUMBER                            DESCRIPTION
---------     ------------------------------------------------------------------

   2.1        Plan and Agreement of Merger dated November 20, 1997 between
              Keebler Foods Company ("Keebler") and INFLO Holdings Corporation
              ("INFLO") (incorporated herein by reference to Exhibit 2.1 of
              Keebler's Registration Statement on Form S-1 previously filed with
              the Securities and Exchange Commission (the "Commission") (File
              No. 333-42075) (the "1998 Registration Statement"))

   2.2        Stock Purchase Agreement dated as of August 24, 1998 between
              Keebler and President International, Inc. (incorporated herein by
              reference to Exhibit 2.2 of Keebler's Current Report on Form 8-K
              previously filed with the Commission on October 9, 1998
              (Commission File No. 001-13705) (the "October Report"))

   3.1        Amended and Restated Certificate of Incorporation of Keebler
              (incorporated herein by reference to Exhibit 3.1 of 1998
              Registration Statement)

   3.2        Amended and Restated By-Laws of Keebler (incorporated herein by
              reference to Exhibit 3.2 of the 1998 Registration Statement)

   4.1        Indenture dated as of June 15, 1996 among Keebler, the guarantors
              named therein and The U.S. Trust Company of New York ("Trustee")
              (incorporated herein by reference to Exhibit 4.1 of Keebler's
              Registration Statement on Form S-4 previously filed with the
              Commission (File No. 333-8379) (the "1996 Registration
              Statement"))

   4.2        The 10 3/4% Senior Subordinated Note due 2006 (included in Exhibit
              4.1) (incorporated herein by reference to Exhibit 4.2 of the 1996
              Registration Statement)

   10.1       Distribution Agreement dated as of January 26, 1996 between United
              Biscuits (UK) Limited ("UBL") and Shaffer, Clarke & Co., Inc.
              ("Shaffer") (incorporated herein by reference to Exhibit 10.5 of
              the 1996 Registration Statement)

   10.2       Trademark License Agreement dated as of January 26, 1996 between
              UBL and Shaffer (incorporated herein by reference to Exhibit 10.6
              of the 1996 Registration Statement)

   10.3       Management Stockholder's Agreement between INFLO and Key Employees
              of INFLO (incorporated herein by reference to Exhibit 10.8 of the
              1996 Registration Statement)

   10.3(a)    Amendment No. 1 to Management Stockholder's Agreement
              (Non-Executives) (incorporated herein by reference to Exhibit
              10.31.1 of the 1998 Registration Statement)

   10.3(b)    Amendment No. 1 to Management Stockholder's Agreement (Executives
              other than O'Neill, Walsh and Spear) (incorporated herein by
              reference to Exhibit 10.31.2 of the 1998 Registration Statement)

   10.3(c)    Amendment No. 1 to Management Stockholder's Agreement (O'Neill,
              Walsh and Spear) (incorporated herein by reference to Exhibit
              10.31.3 of the 1998 Registration Statement)

   10.4       Non-Qualified Stock Option Agreement between INFLO and Key
              Employees of INFLO (incorporated herein by reference to Exhibit
              10.9 of the 1996 Registration Statement)

   10.4(a)    Amendments to the 1996 Non-Qualified Option Agreements
              (incorporated herein by reference to Exhibit 10.28 of the 1998
              Registration Statement)

   10.5       1996 Stock Purchase and Option Plan for Key Employees of INFLO
              (incorporated herein by reference to Exhibit 10.10 of the 1996
              Registration Statement)


                                       i
<PAGE>

 EXHIBIT
 NUMBER                            DESCRIPTION
---------     ------------------------------------------------------------------

   10.6       Sale Participation Agreement among Artal, Flowers, and Key
              Employees of INFLO (incorporated herein by reference to Exhibit
              10.11 of the 1996 Registration Statement)

   10.7       Stock Appreciation Rights Plan of Keebler for Certain Management
              Employees dated March 4, 1997 (incorporated herein by reference to
              Exhibit 10.16 of the Quarterly Report)

   10.8       Artal Stock Purchase Agreement among Artal, Flowers and Keebler
              (incorporated herein by reference to Exhibit 10.22 of the 1998
              Registration Statement)

   10.8(a)    First Amendment to the Stock Purchase Agreement dated March 31,
              1998 among Artal, Flowers and Keebler (incorporated herein by
              reference to Exhibit 10.22(a) of Keebler's Quarterly Report on
              Form 10-Q previously filed with the Commission on May 26, 1998
              (Commission File No. 001-13705))

   10.9       Bermore Stock Purchase Agreement among Artal, Flowers, Bermore and
              Keebler (incorporated herein by reference to Exhibit 10.23 of the
              1998 Registration Statement)

   10.10      Employment and Severance Agreement between Keebler and Sam K. Reed
              (incorporated herein by reference to Exhibit 10.24 of the 1998
              Registration Statement)

   10.11      Employment and Severance Agreement between Keebler and certain
              executive officers (incorporated herein by reference to Exhibit
              10.25 of the 1998 Registration Statement)

   10.12      1998 Omnibus Stock Incentive Plan of Keebler (incorporated herein
              by reference to Exhibit 10.26 of the 1998 Registration Statement)

   10.12(a)   1998 Non-Qualified Stock Option Agreement for certain key
              employees

   10.13      Non-Employee Director Stock Plan of Keebler (incorporated herein
              by reference to Exhibit 10.27 of the 1998 Registration Statement)

   10.14      Supplement to Subsidiary Guaranty (Hollow Tree) (incorporated
              herein by reference to Exhibit 10.29 of the 1998 Registration
              Statement)

   10.15      Supplement to Subsidiary Guaranty (Elfin Equity) (incorporated
              herein by reference to Exhibit 10.30 of the 1998 Registration
              Statement)

   10.16      $700,000,000 Senior Credit Facility dated as of September 28, 1998
              among Keebler, various financial institutions and the Bank, as
              Lead Arranger and Administrative Agent, The First National Bank of
              Chicago, as the Syndication Agent and the Bank of Montreal, as the
              Managing Agent (incorporated herein by reference to Exhibit 10.33
              of the October Report)

   10.17      $125,000,000 Bridge Facility Credit Agreement dated as of
              September 28, 1998 among Keebler, various financial institutions
              and the Bank as the Arranger and the Administrative Agent
              (incorporated herein by reference to Exhibit 10.34 of Keebler's
              Quarterly Report on Form 10-Q previously filed with the Commission
              on November 16, 1998 (Commission File No. 001-13705))

   10.18      Keebler Company Deferred Compensation Plan for certain officers of
              Keebler dated January 1, 1999

   10.19      Keebler Foods Company Deferred Compensation Plan for Non-Affiliate
              Directors dated March 10, 1999


                                       ii
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 EXHIBIT
 NUMBER                            DESCRIPTION
---------     ------------------------------------------------------------------

   10.20      Receivables Purchase Agreement dated as of January 29, 1999 among
              Keebler Funding Corporation, Keebler, Liberty Street Funding Corp.
              and the Bank 

   21         Subsidiaries of Keebler

   27         Financial Data Schedule


                                      iii

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