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 DECEMBER 30, 2000

                                       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

    $124,400,000 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 FEBRUARY 27, 2001, BASED UPON THE CLOSING
PRICE OF THE COMMON STOCK AS REPORTED ON THE NEW YORK STOCK EXCHANGE ON SUCH
DATE, WAS APPROXIMATELY $1,634,000,000.

NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF THE CLOSE
OF BUSINESS ON FEBRUARY 27, 2001: 85,140,155.

<PAGE>
                                FORM 10-K REPORT

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I:

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

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

Item 3.    Legal Proceedings................................................  7

Item 4.    Submission of Matters to a Vote of Security Holders..............  7

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 Operations.....................................  10

Item 7a.   Quantitative and Qualitative Disclosures About Market Risk.......  19

Item 8.    Financial Statements and Supplementary Data......................  20

Item 9.    Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure..........................................  20

PART III:

Item 10.   Directors and Executive Officers of the Registrant...............  21

Item 11.   Executive Compensation...........................................  21

Item 12.   Security Ownership of Certain Beneficial Owners and Management...  23

Item 13.   Certain Relationships and Related Transactions...................  25

PART IV:

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K..  26

<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 December 30, 2000,
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, 2000, 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 annual net sales of $2.8 billion and a 26.0% 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 leading 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 the "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, without any 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's common stock in connection
with a secondary public offering. Artal and Claremont owned all of the shares
sold in the secondary offering, without any 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%. During 1999, all remaining
shares owned by both

                                       1
<PAGE>

Artal and Claremont were sold in the open market. On March 6, 2000, Keebler
acquired Austin Quality Foods, Inc. ("Austin") from R&H Trust Co. (Jersey)
Limited, as Trustee, HB Marketing & Franchising L.P., 697163 Alberta Ltd., and
William C. Burkhardt.

    On July 19, 2000, Flowers and Keebler jointly announced that their
respective boards of directors had authorized each of the companies to explore
alternatives for the maximization of shareholder value, including the potential
sale of Keebler. On October 26, 2000, Flowers announced that it reached an
agreement that will result in the sale of Keebler to Kellogg Company ("Kellogg")
for $42.00 per share. Kellogg also reached an agreement to acquire the remaining
Keebler shares held by the public for $42.00 per share.

GENERAL BUSINESS DESCRIPTION

    Keebler competes in the U.S. retail cookie and cracker industry, which in
2000 generated sales of approximately $8.2 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 81.7%
of 2000 sales in the cookie and cracker industry, with mass merchandisers (such
as Wal*Mart) and drug stores accounting for the balance. We believe that
non-supermarket channels of distribution are becoming increasingly important and
since 1998, annual three-channel (supermarkets, mass merchandisers and drug
stores) dollar sales of cookies and crackers have increased by an average of
3.4% per year. Since 1992, U.S. annual dollar supermarket sales of cookies and
crackers have increased by an average of 1.6% per year.

    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, President and Austin 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,
Branded and Specialty. 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:
AUSTIN, CARR'S, CHEEZ-IT, CHIPS DELUXE, CLUB, DROXIES, FAMOUS AMOS, FUDGE
SHOPPE, SUNSHINE KRISPY, MUNCH'EMS, MURRAY, OLDE NEW ENGLAND, READY CRUST,
SANDIES, SESAME STREET, TOWN HOUSE, VIENNA FINGERS, WHEATABLES and ZESTA. We are
also the leading manufacturer of retail branded ice cream cones in the U.S. Our
branded products are sold in supermarkets, mass merchandisers, club stores,
convenience stores and drug stores, among others.

                                       2
<PAGE>

    We distribute 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.

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

    Keebler is also the leading manufacturer of preformed retail branded pie
crusts, which are sold under the KEEBLER READY CRUST brand name. We use a
warehouse sales and distribution system to sell and distribute KEEBLER READY
CRUST pie crusts. We also import and distribute CARR'S crackers in the U.S.
under an exclusive long-term licensing and distribution agreement with United
Biscuits (Holdings) Plc ("United Biscuits"). CARR'S crackers are the
best-selling specialty crackers in the U.S. 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 WHEATABLES SNACK MIX, HARVEST BAKERY crackers,
CHEEZ-IT JUNIORS, KEEBLER PEANUT N' CARAMEL CLUSTER cookies and an expanded line
of MURRAY SUGAR FREE products. Keebler is also a licensee of Sesame Workshop for
use of the Sesame Street Muppet characters on a broad range of snack category
products. We have introduced resealable stand-up packages for CHEEZ-IT snack
mixes and FAMOUS AMOS cookies. In order to generate growth in non-supermarket
channels, we have expanded our use of snack size packaging to include more
products.

    With the acquisition of Austin in the first quarter of 2000, Keebler
realized a growth opportunity in single-serve bite-sized snacks and alternate
retail channels. Austin is a leading producer and marketer of single-serve baked
snacks, including cracker sandwiches and bite-sized crackers and cookies.

    The integration of Sunshine, President and Austin into Keebler's operations
allowed us to achieve efficiencies in administration, purchasing, production,
marketing, sales and distribution. In 2000, we expanded our distribution of
FAMOUS AMOS and MURRAY SUGAR FREE cookies through the Keebler DSD distribution
system, which not only enabled us to achieve higher utilization of existing
capacity, but also allowed us to achieve national distribution and recognition
with both of these brands. The sales and distribution of Sunshine retail branded
products have been incorporated into our DSD distribution system, which
previously 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 and
holidays 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, brownies 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

                                       3
<PAGE>

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.

    Since the acquisition of President, we have been the leading licensed
supplier of cookies for the Girl Scouts of the U.S.A ("Girl Scouts"). 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 the U.S.A. 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 eleven people is employed, in
addition to independent brokers, which market to U.S. Girl Scout Councils.

    We also manufacture a variety of custom-baked products for other marketers
of branded food products including: Kellogg POP TARTS and NUTRI-GRAIN 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.

    Keebler also 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 private
label cookies and crackers are shipped via common carrier directly to customer
warehouses.

    Net sales, net income and cash flow of the Specialty segment are higher in
the first quarter than any other fiscal quarter because the first quarter is
comprised of sixteen weeks, compared to the other quarters which are comprised
of only twelve weeks, and substantially all sales of Girl Scout cookies occur in
that quarter. We expect this pattern to continue.

COMPETITION

    The U.S. branded cookie and cracker industry is led by Keebler and Nabisco,
Inc. ("Nabisco"), which together account for 61.4% 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 26.0% share of the retail cookie and cracker market, while Nabisco has
a 35.4% 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 2000 accounted for 30.8% of our net sales. No
single customer accounted for more than 5.3% of net sales.

RAW AND PACKAGING 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 products. Raw

                                       4
<PAGE>

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, AUSTIN, CHEEZ-IT, CHIPS DELUXE, CLUB, DROXIES, FAMOUS AMOS, FUDGE
SHOPPE, HI-HO, SUNSHINE KRISPY, MUNCH'EMS, MURRAY, OLDE NEW ENGLAND, READY
CRUST, SANDIES, SOFT BATCH, SUNSHINE, TOASTEDS, TOWN HOUSE, VIENNA FINGERS,
WHEATABLES and ZESTA. We are a licensee of Sesame Workshop for use of the Sesame
Street Muppet characters on a broad range of products. Additionally, we are the
exclusive licensee of the CARR'S brand name in the U.S. These 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.

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-12 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 12,500 persons, of which approximately 6,100 are
represented by unions. We believe relations with our employees to be good.

                                       5
<PAGE>
<TABLE>
EXECUTIVE OFFICERS OF KEEBLER
<CAPTION>

         NAME              AGE                            POSITION
--------------------       ---      ---------------------------------------------------------
<S>                        <C>      <C>
Robert P. Crozer           54       Chairman of the Board and Director
Sam K. Reed                54       Chief Executive Officer, President and Director
E. Nichol McCully          46       Chief Financial Officer and Senior Vice President Finance
David B. Vermylen          50       President - Keebler Brands
Jack M. Lotker             57       President - Specialty Products
James T. Willard           60       Senior Vice President - Operations
Thomas E. O'Neill          46       Senior Vice President, Secretary and General Counsel
James T. Spear             46       Vice President Finance and Corporate Controller
</TABLE>


    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. Mr. Crozer has twenty-seven years of experience in the snack
and baking industries.

    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-seven 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.

    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 thirteen 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.

    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. He has more than twenty-five 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.

    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 more than twenty-five years, most recently at Homeland
Stores of Oklahoma from 1988 to 1995.

    JAMES T. WILLARD. Mr. Willard has been Senior Vice President - Operations of
Keebler since July 1996. Mr. Willard has more than thirty-five years experience
in the food industry. Prior to joining Keebler, Mr. Willard was Senior Vice
President at Nabisco Biscuit Co. from 1993 to 1996.

    THOMAS E. O'NEILL. Mr. O'Neill has been Senior Vice President, Secretary and
General Counsel of Keebler since February 2000 and Vice President, Secretary and
General Counsel since December 1996. Mr. O'Neill has spent more than fifteen
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.

    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.

    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.

                                       6
<PAGE>

ITEM 2.       PROPERTIES

    We operate eighteen manufacturing facilities in the U.S. of which fifteen
are owned and three are leased. The manufacturing facilities are located in
Athens, Georgia; Augusta, Georgia; Cary, North Carolina; Charlotte, North
Carolina; Chicago, Illinois; Cincinnati, Ohio; Cleveland, Tennessee; Columbus,
Georgia; Denver, Colorado; Des Plaines, Illinois; Florence, Kentucky; Owings
Mills, Maryland; Grand Rapids, Michigan; Kansas City, Kansas; Louisville,
Kentucky; Macon, Georgia and Marietta, Oklahoma. 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. As a result of capital expenditures made
over the past decade, we believe the manufacturing facilities are modern and
efficient. We also believe manufacturing capacity is sufficient to meet
foreseeable needs.

    Distribution facilities consist of eighteen shipping centers attached to the
manufacturing facilities, eight stand-alone shipping centers (two owned and six
leased; of which one is subleased and one is idle) and sixty distribution
centers (ten owned and fifty leased) throughout the U.S. Of the sixty
distribution centers, nine are subleased. We also lease ninety-four warehouses
(of which one is subleased) and twenty depots that are located throughout the
U.S. and are utilized by the sales force in the distribution of our products. We
believe there is sufficient distribution capacity to meet foreseeable needs.

    In addition to manufacturing and distribution facilities, we own two office
buildings and lease 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.


ITEM 3.       LEGAL PROCEEDINGS

    Not applicable.


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

    Not applicable.

                                       7

<PAGE>
                                     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 2000
and 1999 are as shown below:
<TABLE>
<CAPTION>
                                                  Market Price Per Share
                                  -------------------------------------------------------
                                             2000                        1999
                                  --------------------------  ---------------------------
                                         High           Low          High            Low
                                  ------------  ------------  ------------  -------------
      <S>                         <C>           <C>           <C>           <C>
      Quarter 1................       $ 30.75       $ 21.75       $ 40.50        $ 30.25
      Quarter 2................       $ 39.88       $ 28.88       $ 34.75        $ 26.75
      Quarter 3................       $ 46.19       $ 33.69       $ 31.75        $ 28.00
      Quarter 4................       $ 41.56       $ 38.19       $ 32.38        $ 25.69
</TABLE>

HOLDERS

    The approximate number of holders of record of common stock as of February
27, 2001 was 440. This number does not include beneficial owners of Keebler's
securities held in the name of nominees.

DIVIDENDS

     Dividends per share paid on Keebler's common stock in 2000 were:

                                     Dividend
                                     Payments
                                  ------------

      Quarter 1.................     $ 0.1125
      Quarter 2.................       0.1125
      Quarter 3.................       0.1125
      Quarter 4.................       0.1125
                                     --------
                                     $ 0.4500
                                     ========

    No dividends were declared on Keebler's common stock in 1999. 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
years ended December 30, 2000, January 1, 2000 and January 2, 1999, have been
derived from, and should be read in conjunction with the historical consolidated
financial statements of Keebler, including the respective notes thereto,
included elsewhere. The selected historical financial data presented below as of
and for the year ended January 3, 1998, as of and for the forty-eight weeks
ended December 28, 1996 and the four weeks ended January 26, 1996, have been
derived from the consolidated financial statements of Keebler and UBIUS, 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  Year Ended   Weeks Ended  ||       Ended
                                                December 30,  January 1,   January 2,   January 3,  December 28, || January 26,
                                                    2000 (a)        2000     1999 (b)         1998      1996 (c) ||        1996
                                                ------------ ------------ ------------ ------------ ------------ || ------------
<S>                                             <C>          <C>          <C>          <C>          <C>          || <C>
                                                             (In Millions Except Per Share Data)                 || (In Millions)
OPERATING DATA:                                                                                                  ||
Net sales...............................          $ 2,757.0    $ 2,667.8    $ 2,226.5    $ 2,065.2    $ 1,645.5  ||   $   101.7
Gross profit............................            1,637.8      1,517.2      1,287.6      1,177.2        871.3  ||        46.8
Restructuring and impairment (credit)                                                                            ||
  charge................................               (1.0)        66.3            -            -            -  ||           -
Income (loss) from continuing operations              328.5        197.6        196.1        141.4         70.1  ||       (25.5)
Income tax expense......................              108.8         73.2         73.0         45.2         14.0  ||           -
Extraordinary item:                                                                                              ||
   Loss on early extinguishment of debt,                                                                         ||
    net of tax..........................                  -            -          1.7          5.4          1.9  ||           -
Net income (loss).......................          $   175.6    $    88.2    $    94.9    $    57.0    $    15.8  ||   $    (6.5)
                                                                                                                 ||
Diluted net income per share:                                                                                    ||
   Income from continuing operations                                                                             ||
    before extraordinary item...........          $    2.00    $    1.01    $    1.10    $    0.77    $    0.23  ||
   Extraordinary item...................                  -            -         0.02         0.07         0.02  ||
                                                ------------ ------------ ------------ ------------ ------------ ||
   Net income...........................          $    2.00    $    1.01    $    1.08    $    0.70    $    0.21  ||
                                                ============ ============ ============ ============ ============ ||
                                                                                                                 ||
Weighted Average Shares Outstanding.....               87.8         87.6         87.5         80.6         76.1  ||
                                                ============ ============ ============ ============ ============ ||
                                                                                                                 ||
OTHER DATA:                                                                                                      ||
EBITDA, as adjusted (d).................          $   422.8    $   348.0    $   265.2    $   202.1    $   119.6  ||   $   (23.5)
Depreciation and amortization (excluding                                                                         ||
  items related to discontinued                                                                                  ||
  operations) ..........................               95.3         84.1         69.1         60.7         49.5  ||         2.0
Capital expenditures (excluding                                                                                  ||
  expenditures related to discontinued                                                                           ||
  operations)...........................               92.6        100.7         66.8         48.4         29.4  ||         3.2
                                                                                                                 ||
CASH FLOW DATA:                                                                                                  ||
Cash Provided from (Used by)                                                                                     ||
   Operating activities.................          $   242.8    $   207.2    $   144.5    $   219.7    $    61.3  ||   $    (0.4)
   Investing activities.................             (330.4)       (96.8)      (510.7)       (41.5)      (130.1) ||        65.2
   Financing activities.................              101.1       (113.2)       362.5       (163.0)        78.7  ||       (65.7)
                                                ------------ ------------ ------------ ------------ ------------ || ------------
Increase (decrease) in cash and cash                                                                             ||
  equivalents...........................          $    13.5    $    (2.8)   $    (3.7)   $    15.2    $     9.9  ||   $    (0.9)
                                                ============ ============ ============ ============ ============ || ============
                                                                                                                 ||
BALANCE SHEET DATA (AT PERIOD END):                                                                              ||
Cash and cash equivalents...............          $    34.2    $    20.7    $    23.5    $    27.2    $    12.0  ||
Total assets............................            1,772.9      1,528.2      1,655.8      1,042.9      1,102.1  ||
Due to affiliate........................                  -            -            -            -            -  ||
Total debt (including capital leases)...              582.6        456.4        654.5        298.8        457.9  ||
Shareholders' equity....................              562.7        409.3        329.3        222.0        165.1  ||

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

                                                                 9
</TABLE>

<PAGE>

(a)     Includes the operating results of Austin from the acquisition date of
        March 6, 2000 through December 30, 2000. 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 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.

(c)     Includes the operating results of Sunshine from the acquisition date of
        June 4, 1996 through December 28, 1996.

(d)     EBITDA, as adjusted, is defined as income (loss) from continuing
        operations before interest, taxes, depreciation, amortization, and
        restructuring and impairment (credit) charge. EBITDA, as adjusted, is
        presented as additional information because we believe it to be a useful
        indicator of a company's ability to meet debt service and capital
        expenditure requirements. It is not, however, intended as an alternative
        measure of operating results or cash flows from operations, as
        determined in accordance with generally accepted accounting principles.


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 DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2,
1999. 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 manufacturing of our products include 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 we may not be
successful in protecting our business from price increases in the future. In
addition to the foregoing factors, our cost of sales is 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.

    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 2000, 1999
and 1998 fiscal years each consisted of fifty-two weeks.

    Keebler's operating results for the year ended December 30, 2000, include
operating results of Austin from the acquisition date of March 6, 2000.

    Current year operating results include a $1.0 million pre-tax restructuring
credit to reduce anticipated exit costs recorded as part of the 1999
restructuring and impairment charge. Keebler's operating results for the year
ended January 1, 2000, include a $69.2 million pre-tax restructuring and
impairment charge, slightly offset by a $2.9

                                       10
<PAGE>

million credit, resulting from a decision to close our Sayreville, New Jersey,
manufacturing facility due to excess capacity within the Company's manufacturing
network. See additional disclosure regarding the current year's credit and the
prior charge under the caption RESTRUCTURING AND IMPAIRMENT (CREDIT) CHARGE on
page 14.

    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,
whereas the subsequent year ended January 1, 2000, includes the operating
results of President for the entire year.

RESULTS OF OPERATIONS

    Keebler's results of operations, expressed as a percentage of net sales, for
the last three years ended December 30, 2000, January 1, 2000 and January 2,
1999 are set forth below:

<TABLE>
<CAPTION>
                                                                                           Years Ended
                                                                     --------------------------------------------------------
                                                                     December 30, 2000    January 1, 2000    January 2, 1999
                                                                     ------------------  -----------------  -----------------
        <S>                                                          <C>                 <C>                <C>
        NET SALES....................................................           100.0%             100.0%             100.0%
        Cost of sales................................................            40.6               43.1               42.2
        Selling, marketing and administrative expenses...............            46.6               46.0               48.5
        Restructuring and impairment (credit) charge.................               -                2.5                  -
        INCOME FROM OPERATIONS.......................................            11.9                7.4                8.8
        Interest Expense, net........................................             1.6                1.4                1.2
        Loss on early extinguishment of debt, net of tax.............               -                  -                  -
        NET INCOME...................................................             6.4%               3.3%               4.3%
</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
income from operations.

    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
                           -----------------------------------------------------------------
                              December 30, 2000       January 1, 2000       January 2, 1999
                           --------------------- --------------------- ---------------------
($ IN MILLIONS)                      $        %            $        %            $        %
                           ------------ -------- ------------ -------- ------------ --------
   <S>                     <C>          <C>      <C>          <C>      <C>          <C>
   NET SALES                 $ 2,123.7             $ 2,020.5             $ 1,726.7

   PROFIT CONTRIBUTION       $   390.8    18.4%    $   350.7    17.4%    $   282.6    16.4%
</TABLE>

    Net sales in the Branded segment grew 5.1% in 2000 to $2,123.7 million
versus $2,020.5 million in 1999. The acquisition of Austin contributed $118.7
million or 5.6% to total net revenues in 2000. In addition, the sale of the
value brands business during the first quarter of 2000 also impacted year over
year comparisons. The value brands business generated $43.0 million of net sales
in 1999. Excluding the impact of both current year Austin revenues and prior
year net sales associated with the value brands business, net sales for the year
ended December 30, 2000 finished $27.5 million or 1.4% above the previous year.
Current year growth was driven by new product introductions, growth in core
Keebler cracker products and CHEEZ-IT crackers, greater distribution of FAMOUS
AMOS

                                       11
<PAGE>

and MURRAY SUGAR FREE cookies, and retail business outside supermarkets,
including mass merchandisers and convenience channels. New product growth in the
current year was led by the rollout of the SESAME STREET product line. New
products introduced under our KEEBLER and CHEEZ-IT brands in 2000 included
WHEATABLES SNACK MIX, HARVEST BAKERY crackers, CHEEZ-IT JUNIORS and KEEBLER
PEANUT N' CARAMEL CLUSTER cookies. Other new product introductions included an
expanded line of MURRAY SUGAR FREE products. Volume of core Keebler crackers
grew 7.3% due to increased sales of CLUB, TOWNHOUSE, WHEATABLES and ZESTA, and
CHEEZ-IT cracker volume increased 3.2% above 1999. Partially offsetting these
gains were volume declines of Keebler cookies, which decreased 5.1% primarily
due to the impact of product culls on certain secondary brand products. Revenue
growth for the year was also constrained by increased competitive activity.

    Net sales in 1999 increased 17.0% to $2,020.5 million as compared to
$1,726.7 million in 1998. The acquisition of President contributed $276.2
million or 13.7% to total net sales in 1999 compared to fourteen weeks totaling
$78.9 million or 4.6% of 1998 net revenues. Before considering the impact of
President, branded revenues grew 5.9% in 1999 over 1998. The primary drivers of
the increase were higher sales of products under both the KEEBLER and CHEEZ-IT
brands, combined with the national distribution of FAMOUS AMOS and MURRAY SUGAR
FREE cookies. New products introduced under our KEEBLER and CHEEZ-IT brands
during 1999 included KEEBLER DOUBLE FUDGE N' CARAMEL cookies, KEEBLER RAINBOW
VANILLA WAFERS and KEEBLER WALNUT CHIPS DELUXE cookies. Growth in the CHEEZ-IT
brand was realized through the introduction of CHEEZ-IT HOT & SPICY and CHEEZ-IT
GET NUTTY snack mixes. Multiple variations of our single serve snack size
products, both in new products and the CHEEZ-IT brand, also drove the sales
increases. Sales growth also benefited from price increases taken in the Branded
segment earlier in 1999. Partially offsetting the favorable revenue growth was a
shift in the sales mix in mass merchandisers away from frequent, low margin
promotional activities, to a more profitable, consistent distribution focus.

    The Branded segment's 2000 profit contribution of $390.8 million was $40.1
million above the prior year. The increase in profit contribution is a result of
improved gross margins achieved on core KEEBLER and CHEEZ-IT products and
incremental sales volume from the Austin acquisition. Higher gross margins were
attributable to a favorable sales mix, which included increased revenues from
higher margin core products, and productivity enhancements and cost savings at
our bakeries. Productivity and cost savings were achieved through capital
programs to improve efficiency and manufacturing network optimization as well as
favorable commodity costs. Partially offsetting these gains were volume
declines, primarily due to the loss of the value brands business, which was sold
in the first quarter of 2000. Higher marketing expenses, due to increased
support behind the SESAME STREET product line introduction, also partly offset
the increase in profit contribution. Profit contribution for the Branded segment
was $350.7 million and $282.6 million for the years ended January 1, 2000 and
January 2, 1999, respectively. The 1999 profit contribution surpassed the prior
year mainly due to a higher gross profit on Keebler core products, incremental
volume associated with a full year of sales of President products and, cost and
productivity initiatives designed to improve manufacturing efficiencies and
reduce distribution costs.

    SPECIALTY SEGMENT

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

<TABLE>
<CAPTION>
                                                     Years Ended
                           -----------------------------------------------------------------
                              December 30, 2000       January 1, 2000       January 2, 1999
                           --------------------- --------------------- ---------------------
($ IN MILLIONS)                      $        %            $        %            $        %
                           ------------ -------- ------------ -------- ------------ --------
   <S>                     <C>          <C>      <C>          <C>      <C>          <C>
   NET SALES                 $   633.2             $   647.2             $   499.8

   PROFIT CONTRIBUTION       $   128.2    20.2%    $   108.9    16.8%    $    85.9    17.2%
</TABLE>

    Net sales in the Specialty segment of $633.2 million, finished the current
year $14.0 million lower than 1999. The acquisition of Austin contributed $32.9
million in incremental sales. Before including Austin, revenues were $46.9
million or 7.2% below the comparable 1999 results. Although total net sales for
2000 were below those of the prior year, the sales mix shifted toward more
profitable sales channels. Volume declines in the lower margin

                                       12
<PAGE>

channels of custom-baked products for other marketers of branded products and
private label products, accounted for the decrease. Revenue gains in the
foodservice market and on sales to the Girl Scouts, both with higher value and
of more strategic importance, offset some of the unfavorability. Sales to
foodservice distributors increased $18.0 million or 9.8% over 1999. The increase
was achieved through volume gains of ice cream cones, Keebler and Austin branded
products, and new product line additions.

    Revenues of $647.2 million in 1999 were $147.4 million higher than 1998. The
inclusion of President for a full year contributed $147.1 million to net sales,
which was $130.9 million greater than 1998. Revenue growth of 3.4% achieved in
the core Specialty business, which excludes sales attributed to the President
acquisition, was driven by volume increases of custom-baked products for other
marketers of branded food products. Sales in the foodservice market were
favorably impacted by volume gains, which occurred principally in the last half
of the year, combined with the earlier-in-the-year benefit of prior year price
increases.

    Profit contribution in the Specialty segment increased $19.3 million in 2000
to $128.2 million. Excluding Austin, the profit contribution of 20.5%, as a
percentage of net sales, continued to experience strong growth of 3.7 percentage
points, as a percentage of net sales, above last year. A sales mix shift to
businesses and products that carry higher margins, along with benefits from
productivity and cost reduction programs and lower marketing expenses resulted
in higher profit contribution. In 1999, profit contribution of $108.9 million
increased $23.0 million over the comparable 1998 results. Excluding the impact
of President, the profit contribution of 14.8%, as a percentage of net sales,
declined $9.6 million due to a change in the sales mix, which was heavily
weighted toward custom-baked products, which carry a higher cost of sales. The
benefits from cost reduction programs were not enough to offset the effects of
increased production of lower margin products and higher marketing expenses.

    COST OF SALES

    Current year cost of sales was $1,119.1 million, or 40.6% of net sales, as
compared to $1,150.6 million and $938.9 million, or 43.1% and 42.2% of net
sales, for 1999 and 1998, respectively. Before including the sale of Austin and
President products, cost of sales, as a percentage of net sales, was 37.3%,
40.0% and 41.2% in 2000, 1999 and 1998, respectively. The improvements made in
each year were principally achieved through savings generated from productivity
and efficiency initiatives as well as cost reduction programs, including the
closure of the Sayreville, New Jersey facility. Favorable raw material prices
continued to benefit 2000 as has been experienced throughout each respective
year. In the current year, reduced sales of custom-baked, private label and
value products also contributed to lower cost of sales. In addition, cost of
sales improvements can be attributed to a favorable shift toward higher margin
businesses and products.

    SELLING, MARKETING AND ADMINISTRATIVE EXPENSES

    Selling, marketing and administrative expenses of $1,284.7 million in 2000
surpassed prior year by $57.2 million. After removing the effects of Austin,
which contributed $32.4 million, selling, marketing and administrative expenses
for the fifty-two weeks finished $24.8 million above last year. Total marketing
expenses increased $29.0 million over 1999, of which $12.0 million was due to
expenses related to Austin. The remaining $17.0 million balance was mainly due
to higher spending in trade allowances and other marketing expenses. Incremental
costs to support the launch of the SESAME STREET product line, as well as
stronger trade promotion spending for existing products caused the
unfavorability. Costs related to President package designs also contributed to
the increase in spending. Advertising expense declined as media campaigns for
both WHEATABLES and CLUB crackers, along with a FUDGE SHOPPE ad campaign, were
not repeated in 2000 serving as a partial offset to the increased marketing
expenses. Sales and distribution costs of $549.8 million for the current year
also contributed to the higher spending over last year. Excluding Austin,
distribution costs for the fifty-two weeks were $13.5 million over 1999. Volume
gains and increased fuel and building maintenance costs added to the unfavorable
spending. Sales and distribution costs of $549.8 million for the current year
were $22.9 million higher than last year due to increased volume and higher fuel
costs.

    Selling, marketing and administrative expenses of $1,227.5 million in 1999,
were $147.4 million greater than 1998, but 2.5 percentage points favorable, as a
percentage of net sales. In addition to the inclusion of President expenses for
a full year in 1999 as compared to just fourteen weeks in 1998, higher selling,
marketing and

                                       13
<PAGE>
administrative expenses were also experienced as a result of core Keebler volume
growth. After removing the expenses contributed by President, selling, marketing
and administrative expenses, as a percentage of net sales, were 49.3% in 1999,
compared to 49.4% in 1998. Total marketing expenses increased as we continued
our focus on building brand equity and incremental trade promotion programs were
instituted in support of the national distribution of FAMOUS AMOS and MURRAY
SUGAR FREE cookies. Despite higher sales levels in 1999, more efficient
marketing programs resulted in a lower rate of marketing expenses, as a
percentage of net sales. In addition, increased administrative expenses were
incurred in 1999, due principally to higher compensation costs resulting from
growth in the core Keebler business. Net increases in selling and distribution
expenses resulting from volume gains were lower-than-expected, as savings were
achieved through a more efficient selling and distribution network.

    OTHER

    Other expense was $25.7 million in 2000, compared to $25.8 million in 1999
and $11.5 million in 1998. Excluding pre-tax gains totaling $7.7 million
realized from the sale of the value brands business in January 2000, and the
sale of the Sayreville bakery in May 2000, other expense increased $7.6 million
over the prior year. The increase is principally due to greater amortization
relating to both intangibles recorded in the Austin acquisition and a licensing
agreement for the right to market cookies and crackers under the Sesame Street
name. Also contributing to the increase in other expense in both 2000 and 1999
were higher costs associated with sales of accounts receivable under the
Receivables Purchase Agreement (the "Agreement"). The increase in 1999 was
further driven by incremental amortization expense resulting from intangible
assets acquired in the September 1998 President acquisition. The higher 1999
costs were partially offset by $2.8 million of income recorded to mark-to-market
an interest rate swap that no longer served as a hedge in 1999.

    RESTRUCTURING AND IMPAIRMENT (CREDIT) CHARGE

    As part of the process of integrating the business of President into our
operations, on May 14, 1999, Keebler announced the decision to close its
manufacturing facility in Sayreville, New Jersey due to excess capacity, which
at that time, consisted of a 15-plant manufacturing network. As a result, a
pre-tax restructuring and impairment charge to operating income of $69.2 million
was recorded in the second quarter of 1999 reduced by a $2.9 million credit in
the fourth quarter of 1999. On May 2, 2000, the Sayreville, New Jersey facility
was sold, and as a result a credit of $1.0 million was recorded in the second
quarter of 2000. The adjustment was for costs related to severance and other
exit costs from the facility due to lower-than-expected severance costs and the
earlier-than-expected sale of the facility. The restructuring and impairment
charge included $19.2 million for cash costs related to severance and other exit
costs from the Sayreville facility. The remaining $46.1 million were non-cash
charges for asset impairments related to the Sayreville closing, including
write-downs of property, plant and equipment at Sayreville and equipment at
other locations, and a proportionate reduction of goodwill acquired in the
Sunshine acquisition in June 1996. The impairment charge for equipment at other
locations resulted from a combination of factors. The acquisition of President
brought a new capability to Keebler's production network. The President baking
process is principally based on shorter, more flexible ovens compared to the
larger ovens common to Keebler and Sunshine bakeries. This new capability
resulted in a comprehensive analysis of system-wide production needs. The
acquisition and resulting exit plans of Keebler, Sunshine and President, when
considered together, resulted in redundant productive equipment, which
ultimately became idle.

    Of the total $65.3 million charge, approximately $64.6 million was recorded
as plant and facility closing costs and severance. The remaining $0.7 million
was recorded as other liabilities and accruals. Approximately 650 total
employees were terminated as a result of the closing of the Sayreville facility,
of which approximately 600 employees were represented by unions. At December 30,
2000, $3.1 million remained for plant and facility closing costs and severance
accruals and $0.1 million for other liabilities and accruals. Only costs related
to the settlement of workers' compensation claims and health and welfare
payments are expected to extend beyond the year ended December 29, 2001. The
amount of suspended depreciation and amortization that would have been
recognized for the year ended December 30, 2000, if the prior year impairments
had not been recognized, was approximately $6 million.

                                       14
<PAGE>

    INTEREST EXPENSE, NET

    Net interest expense was $44.1 million in 2000, $36.2 million in 1999 and
$26.5 million in 1998. The increase in interest expense in 2000 was primarily
due to the overall higher average debt balance outstanding as a result of the
Austin acquisition on March 6, 2000. In addition, the 2000 weighted average
interest rate of 6.96% closed the fifty-two weeks 0.32 percentage points above
prior year. The 1999 interest expense increase was primarily due to the overall
higher average debt balance outstanding resulting from the September 1998
President acquisition. The debt incurred from the President acquisition, less
quarterly principal payments, was outstanding for the full year as compared to
only three months in 1998. The President acquisition also caused a reduction in
the average invested cash balance in 1999, which resulted in lower interest
income as compared to 1998. Additionally, 1999 benefited from favorable interest
rates as the weighted average interest rate was 0.54 percentage points lower
than 1998.

    INCOME TAX EXPENSE

    For the fifty-two weeks ended December 30, 2000, income taxes were provided
at an effective tax rate of 38.25% versus 45.3% in 1999 and 43% in 1998.
Increased earnings, the adoption of a change in the tax basis of the assets
acquired and liabilities assumed in the Keebler acquisition in accordance with
Internal Revenue Code Section 338, a satisfactory resolution of certain income
tax contingencies and improved tax strategies contributed to the lower effective
income tax rate. Nondeductible expenses, mainly amortization, for trademarks,
trade names and other intangibles and goodwill attributable to the inclusion of
Austin intangibles partially offset the reduction of the effective tax rate.

    In 1999 versus 1998, 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 increase in
nondeductible expenses, mainly a full year amortization period for the President
intangibles and the goodwill impairment related to the closure of the
Sayreville, New Jersey facility, was the principal reason for the 2.3 percentage
point increase in the effective tax rate in 1999, as compared to 1998. In 1999,
the previously established valuation allowance on deferred tax assets of $84.4
million, was eliminated as part of effecting a change in the tax basis of the
assets and liabilities that resulted from the Keebler acquisition. Previously,
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 would then be available to Keebler, but were
significantly restricted under current tax law. As such, we carried a deferred
tax valuation allowance of $84.4 million at January 2, 1999 and January 3, 1998
to fully reserve all net operating loss carryforwards due to the past
uncertainty of their realization. The ability of the predecessor company to use
these net operating losses is now considered unlikely; and therefore, their
realization by Keebler was more likely than not. In addition, we sought and
successfully obtained permission from the Internal Revenue Service to value the
assets acquired and liabilities assumed in the Keebler acquisition in accordance
with Internal Revenue Code Section 338. In conjunction with filing amended tax
returns to effect the change in the tax basis of the assets acquired and
liabilities assumed, all net operating loss carryforwards were utilized.

    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 term notes. No extraordinary charges were recorded in
1999 or 2000.

    NET INCOME

    For the fifty-two weeks ended December 30, 2000, net income of $175.6
million surpassed prior year results by $87.4 million. Before the after-tax
restructuring and impairment credit of $0.6 million in 2000 and charge of $43.9
million in 1999, net income finished $42.9 million or 32.5% higher than the
comparable fifty-two weeks of last year. Strong performance in key core retail
businesses and foodservice distribution along with incremental earnings from the
Austin acquisition generated the earnings growth. Additional benefits were
generated from productivity and cost savings programs realized during the year.
Net income for 1999 was $88.2 million, or $6.7 million lower

                                       15
<PAGE>

when compared to 1998 net income. The decrease was primarily due to the
aforementioned 1999 after-tax restructuring and impairment charge. Excluding the
restructuring and impairment charge, net income of $132.1 million in 1999 was up
39.2% over 1998. The improvement in net earnings, before considering the
restructuring and impairment charge, reflects growth due to the inclusion of the
President business for a full year, growth in the Keebler core business and the
benefits of productivity and cost savings programs.

LIQUIDITY AND CAPITAL RESOURCES

    A condensed cash flow statement of Keebler follows:

<TABLE>
<CAPTION>
                                                                             Years Ended
                                                     ----------------------------------------------------------
(IN MILLIONS)                                        December 30, 2000     January 1, 2000     January 2, 1999
                                                     ------------------  ------------------  ------------------
<S>                                                  <C>                 <C>                 <C>
CASH PROVIDED FROM (USED BY)

  Operating activities...........................        $       242.8       $       207.2       $       144.5
  Investing activities...........................               (330.4)              (96.8)             (510.7)
  Financing activities...........................                101.1              (113.2)              362.5
                                                     ------------------  ------------------  ------------------
 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                                         $        13.5       $        (2.8)      $        (3.7)
                                                     ==================  ==================  ==================
</TABLE>

    CASH FLOW FOR 2000

    For the year ended December 30, 2000, operating activities provided $242.8
million of cash. Net earnings contributed $175.6 million to the growth. Changes
in deferred taxes of $27.1 million, combined with the income tax benefit related
to employee stock options exercised of $19.4 million contributed to the positive
cash flow. The changes in deferred taxes were the result of changes in plant and
facility closing costs and severance reserve balances, other post employment
benefits and long term incentives. Lower inventory levels and a decrease in
trade accounts receivable further contributed to cash flows provided from
operations. Partially offsetting these positive cash flows were decreases in
trade accounts payable and other current liabilities of $31.7 million, and a
$19.8 million decrease in plant and facility closing costs and severance. The
increase in income taxes payable of $41.9 million further reduced cash flow from
operations.

    Cash used by investing activities for the year was $330.4 million. The
largest use of cash was $253.8 million, net of cash acquired, to fund the
acquisition of Austin during the first quarter. In addition, $10.0 million was
utilized for the purchase of the Sesame Street license agreement. Capital
spending of $92.6 million was used to enhance, upgrade and automate the existing
production and distribution facilities in connection with capacity improvements
and cost reduction programs. Slightly offsetting these uses of cash were
proceeds of $26.0 million received from asset disposals, primarily related to
the sale of the value brands business and Sayreville facility.

    Financing activities in 2000 provided $101.1 million of cash. The increase
mainly resulted from proceeds from borrowings of long-term debt under the
Revolving facility in connection with the Austin acquisition. Also contributing
to the cash flow from financing activities during the year was $21.0 million of
incremental proceeds from the sale of accounts receivable under the Receivables
Purchase Agreement and $6.4 million of cash generated from the exercise of
employee stock options. Offsetting these positive cash flows were scheduled debt
repayments of $43.3 million, dividend payments of $38.0 million and common stock
purchases into treasury totaling $10.0 million.

    CASH FLOW FOR 1999 AND 1998

    For the year ended January 1, 2000, operating activities provided $207.2
million of cash, which was $62.7 million greater than in 1998. Net earnings
contributed $88.2 million to the growth in 1999. An increase in trade accounts
payable and other current liabilities of $9.8 million, along with higher income
taxes payable of $12.8 million also contributed to the positive cash flow.
Higher trade accounts payable and current liabilities were driven by increased
purchases of production related inputs, as well as from higher marketing
accruals. Income taxes payable increased principally due to the timing of income
tax payments. Additionally, the $10.0 million income tax benefit related to
stock options exercised further contributed to cash flow from operations.
Somewhat offsetting the

                                       16
<PAGE>

favorable cash flow position were higher levels of inventory. Trade accounts and
notes receivable, before accounting for the securitization of receivables,
increased primarily by a shift in the timing of sales to later in the year, as
well as reduced cash collections resulting from the timing of our year end date,
which coincided with the bank's holiday schedule. In addition, the restructuring
and impairment charge recorded in the second quarter of 1999 included $46.1
million relating to the non-cash write-down of impaired property, plant and
equipment and intangible assets, while the remaining portion of the charge
related to cash costs.

    During 1999, investing activities used a total of $96.8 million, compared to
$510.7 million in 1998. The decrease is due to the $444.8 million, net of cash
acquired, purchase of President in September of 1998. Spending on capital
projects of $100.7 million in 1999 was principally for on-going enhancement,
capacity enrichments, automation expansion and numerous cost reduction programs
at various manufacturing and distribution locations. Additional funds were also
used for the implementation of new computer equipment at the President locations
to install and support the SAP/R3 management information system, as well as year
2000 information technology compliance upgrades. Asset disposals, including the
sale of the Atlanta manufacturing facility and an idle muffin line, generated
the majority of the $3.9 million proceeds.

    Cash used by financing activities in 1999 totaled $113.2 million, compared
to $362.5 million in 1998. The decrease in 1999 was due to proceeds from
long-term borrowings received in 1998 used to fund the President acquisition.
The primary uses of cash in 1999 were long-term debt repayments to pay down
$85.0 million on the Revolving facility, repay the $75.0 million Bridge facility
and to make regularly scheduled principal payments of $38.1 million. Also, $21.4
million was used to repurchase common stock into treasury. These uses of cash
were partly offset by net cash proceeds of $103.0 million received from the sale
of accounts receivable under the Receivables Purchase Agreement. This Agreement
was entered into during the first quarter of 1999, which allows funds to be
borrowed at a lower cost to the Company. Additionally, the $3.2 million in cash
proceeds from the exercise of employee stock options in 1999 further reduced
cash used by financing activities.

    CAPITAL RESOURCES

    In 2000, our capital resources were provided by the same credit arrangement
that existed at the end of 1999. In September 1998, we entered into a 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 Purchase Agreement
on January 29, 1999. These new debt facilities replaced the previously available
$140.0 million revolving loan facility and an existing term loan which were
outstanding in 1998 until the time of the President acquisition. As of December
30, 2000, the revolving facility had an outstanding balance of $165.0 million,
with certain letters of credit totaling $27.4 million reducing the available
balance to $157.6 million. As of January 1, 2000, the revolving facility had no
outstanding balance, with certain letters of credit totaling $28.7 million
reducing the available balance to $321.3 million.

    Capital expenditures for fiscal 2001 are expected to be approximately $106
million, or $13.4 million greater than 2000. The majority of capital spending in
2001 will be used for the continued improvement in automation to obtain
additional productivity and cost savings. We anticipate that future capital
expenditures will be funded from cash provided by operations and will continue
at a level sufficient to support our strategies and operating needs.

    Dividend payments of $38.0 million were made during the year ended December
30, 2000. Prior to 2000, no dividend payments were made by the Company. 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 2000 and 1999, we
met all financial covenants in each of our financing agreements. Total debt was
$582.6 million and $456.4 million at December 30, 2000 and January 1, 2000,
respectively, of which current maturities were $55.1 million and $37.3 million,
respectively. Cash and cash equivalents on December, 30 2000 and January 1, 2000
were $34.2 million and $20.7 million, respectively. We believe that available
cash, together with cash flows from operations and amounts available under our
debt facilities will be sufficient to meet normal operating requirements for the
foreseeable future.

                                       17
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

    In November 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which states
that all amounts billed to a customer in a sale transaction related to shipping
and handling represent revenues earned for goods provided and, accordingly,
should be classified as revenue. Issue No. 00-10 also addresses disclosure of
the classification of shipping and handling costs. In addition, if shipping and
handling costs are significant and are not included as part of cost of sales,
disclosure should be made for both the amount of such costs and the line items
on the income statement that include them. The Company records all amounts
billed for shipping and handling as revenues and includes the related shipping
and handling costs as part of selling, marketing and administrative expenses on
the Consolidated Statements of Operations. Shipping and handling costs include
costs incurred to physically move finished goods from our bakeries to the
customer's designated location, as well as costs incurred to store, move and
prepare our products for shipment. For the years ended December 30, 2000,
January 1, 2000 and January 2, 1999, shipping and handling costs were $285.8
million, $262.3 million and $221.3 million, respectively.

    The EITF also reached consensus on Issue No. 00-14, "Accounting for Certain
Sales Incentives," which addresses the recognition, measurement and income
statement classification for certain sales incentives offered by vendors
(including manufacturers) that have the effect of reducing the price of a
product or service to a customer at the point of sale. For cash sales incentives
within the scope of Issue No. 00-14, costs are generally recognized at the date
on which the related revenue is recorded and is to be classified as a reduction
in revenue. Upon adoption of Issue No. 00-14, which becomes effective on June
30, 2001, the prior year financial statements will be restated for comparative
purposes (See Note 19).

    In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," an amendment of SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The statement requires
the recognition of all derivatives as either assets or liabilities on the
balance sheet and measurement of those instruments at fair value (See Note 5).

SEASONALITY

    Our net sales, net income and cash flow are affected by the timing of new
product introductions, promotional activities, price increases and seasonal
biases in the first quarter and second half of the year. The first quarter bias
results as substantially all sales of Girl Scout cookies occur in that quarter.
The bias in the second half of the year has been due to events and holidays 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 year.

SELF INSURANCE

    We purchase insurance coverage for workers' 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.

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;


                                       18
<PAGE>

    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 the Company is exposed that may
adversely affect our financial position, results of operations and cash flows
include changes in future interest rates and raw material prices. Management
seeks 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, as a matter of policy, are not entered into 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.

    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. However, during the fourth
quarter of 2000, interest rate swap agreements with a notional amount of $192.5
million were terminated. Upon termination, the marked-to-market value of the
swaps of $4.5 million was recorded as deferred income. This deferred benefit is
being amortized to income over a three month period that the underlying debt is
expected to be outstanding. The debt is expected to be retired on the closing of
the acquisition of Keebler by Kellogg, which is expected to occur in the first
quarter of 2001. In the quarter ended December 30, 2000, $1.5 million of income
was included in income from operations. An interest rate swap that no longer
served as a hedge, with a notional amount of $170.0 million, had a
marked-to-market value of $0.8 million in 2000 and $2.8 million in 1999. As a
result, $0.2 million and $2.8 million was recognized in income from operations
for the years ended December 30, 2000 and January 1, 2000, respectively. This
instrument matures in the first quarter of 2001.

    As of December 30, 2000, the Company has one remaining swap agreement with a
notional amount of $124.0 million and a maturity date of July 1, 2001. Because
of the proximity to maturity, the rate which settlement will take place has been
set, which will result in a charge to interest expense of approximately $0.4
million in the second quarter of 2001. By comparison, the notional amount of
interest rate swap agreements at January 1, 2000 was $334.0 million.

    We enter into commodity futures and options contracts to mitigate the impact
of price increases on raw material purchases that are not likely to be recovered
through higher prices on our products. We also use sensitivity analysis to
assess the potential impact on the fair value of commodity futures and options
contracts. As of December 30, 2000, there were no open commodity futures or
option contracts. The notional amount of open contracts at January 1, 2000 was
$48.7 million.

                                       19
<PAGE>

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.



                                       20
<PAGE>
                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding our Executive Officers can be found in Part I of this
Annual Report on Form 10-K on page 6.

ITEM 11.      EXECUTIVE COMPENSATION

    The following table sets forth annual and long-term compensation for our top
five executive officers in the fiscal years ended December 30, 2000, January 1,
2000 and January 2, 1999, as well as certain other compensation information for
such executive officers during the fiscal periods indicated.
<TABLE>

                                                SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                                               LONG-TERM COMPENSATION
                                                                                        -----------------------------------
                                                         ANNUAL COMPENSATION                AWARDS
                                                --------------------------------------- --------------
                                                                                           SECURITIES
                                                                                 OTHER     UNDERLYING
                                                                                ANNUAL       OPTIONS/            ALL OTHER
    NAME AND PRINCIPAL POSITIONS          YEAR   SALARY (1)       BONUS   COMPENSATION        SARS(#)         COMPENSATION
-------------------------------------- -------- ----------- ------------ -------------- -------------- --------------------
<S>                                    <C>      <C>         <C>          <C>            <C>            <C>
Sam K. Reed                               2000    $810,000   $1,296,000            (2)              -          $98,426 (3)
  President and Chief                     1999     775,000    1,309,750            (2)              -           59,436 (8)
  Executive Officer                       1998     700,000    1,183,000            (2)        249,750            4,800 (9)

David B. Vermylen                         2000     410,000      492,000            (2)              -           29,247 (4)
  President - Keebler Brands              1999     370,000      444,000            (2)              -           25,692 (8)
                                          1998     355,000      461,500            (2)        108,225            4,800 (9)

E. Nichol McCully                         2000     355,000      426,000            (2)              -           26,115 (5)
  Senior Vice President                   1999     325,000      390,000            (2)              -           22,059 (8)
  and Chief Financial Officer             1998     300,000      390,000            (2)         99,900            4,800 (9)

Jack M. Lotker                            2000     295,000      303,000            (2)              -           18,056 (6)
  President - Specialty Products          1999     280,000      252,000            (2)              -           15,567 (8)
                                          1998     270,000      216,000            (2)         83,250            4,800 (9)

James T. Willard                          2000     340,000      408,000            (2)              -           24,118 (7)
  Senior Vice President - Operations      1999     318,000      413,400            (2)              -           19,395 (8)
                                          1998     305,000      305,000            (2)         83,250            4,800 (9)

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

(1) Amounts listed for the named executive officers are annual base salaries,
    including amounts to be deferred in accordance with any deferred salary
    option plan of Keebler.

(2) Perquisites and other personal benefits, securities or property in the
    aggregate do not exceed the threshold reporting level of the lesser of
    $50,000 or 10% of total salary and bonus reported for the named executive
    officers.

(3) Represents company matching contributions of (i) $5,100 under the Keebler
    Foods Company Salaried Savings Plan and (ii) $93,326 under the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

                                       21
<PAGE>

(4) Represents company matching contributions of (i) $5,100 under the Keebler
    Foods Company Salaried Savings Plan and (ii) $24,147 under the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

(5) Represents company matching contributions of (i) $5,100 under the Keebler
    Foods Company Salaried Savings Plan and (ii) $21,015 under the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

(6) Represents company matching contributions of (i) $5,100 under the Keebler
    Foods Company Salaried Savings Plan and (ii) $12,956 under the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

(7) Represents company matching contributions of (i) $5,100 under the Keebler
    Foods Company Salaried Savings Plan and (ii) $19,018 under the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

(8) Represents company matching contributions to the named executive officers'
    accounts in the Keebler Foods Company Salaried Savings Plan and the Deferred
    Compensation Plan. Vesting occurs 20% per year over five years, based on
    years of service.

(9) Represents company matching contributions to the named executive officers'
    accounts in the Keebler Foods Company Salaried Savings Plan. Vesting occurs
    20% per year over five years, based on years of service.

OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR

         No stock options were granted to any of our named executive officers
during the fiscal year ended December 30, 2000.

         The following table indicates the value of stock options exercised
during the fiscal year ended December 30, 2000 and the value of unexercised
stock options held as of December 30, 2000 by each of the named executive
officers.
<TABLE>
                                           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                                  AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
                                                         NUMBER OF SECURITIES
                                                       UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                        NUMBER OF                                  OPTIONS AT          IN-THE-MONEY OPTIONS
                           SHARES                           DECEMBER 30, 2000      AT DECEMBER 30, 2000 (1)
                         ACQUIRED         VALUE  ----------------------------- -----------------------------
        NAME          ON EXERCISE      REALIZED   EXERCISABLE / UNEXERCISABLE   EXERCISABLE / UNEXERCISABLE
--------------------- ------------ ------------- ----------------------------- -----------------------------
<S>                   <C>          <C>           <C>                           <C>
Sam K. Reed                     -    $        -           1,261,175 / 278,388      $46,399,420 / $9,161,796

David B. Vermylen         100,000    $3,452,529              227,240 / 81,941       $7,431,441 / $2,433,957

E. Nichol McCully         115,000    $3,859,240              206,746 / 79,110       $6,740,126 / $2,384,584

Jack M. Lotker            150,000    $4,689,000              160,757 / 73,449       $5,158,978 / $2,285,856

James T. Willard          100,000    $2,427,277              210,757 / 73,449       $7,143,978 / $2,285,856

------------------------------------------------------------------------------------------------------------
(1) Based on the year end closing market price of Keebler's common stock ($41.44 per share).

</TABLE>

PENSION PLAN AND BENEFITS

         Our principal non-contributory defined benefit plan covers qualifying
salaried and certain hourly-paid employees who have completed twelve months of
service. Our top five executive officers participate in this plan on the same
basis as do approximately 7,300 other eligible participants. Benefit amounts are
based on years of service and average monthly compensation for the five highest
consecutive years out of the last fifteen years of employment for salaried
employees and some hourly employees. Certain hourly groups can have different
benefit schedules than salaried participants. The following table illustrates
the estimated annual benefits to be paid upon normal retirement at age 65 to
individuals in specified compensation and years of service classifications. The
table does not reflect benefit limitations contained in the Internal Revenue
Code. Pursuant to a separate plan, supplemental payments in excess of those
limitations will be made to participants in order to maintain benefits upon
retirement at the levels provided under the defined benefit plan's formula. In
addition to the plans noted above, Keebler also maintains an

                                       22
<PAGE>

unfunded supplemental retirement plan for certain former executives. No current
named executive officers are covered by the supplemental plan.
<TABLE>

                                                            PENSION TABLE
<CAPTION>
                                                  ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS
                          ------------------------------------------------------------------------------------------------
                                                    YEARS OF SERVICE AT NORMAL RETIREMENT (1)

      COMPENSATION (2)             5          10          15           20          25          30          35           40
      ------------------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------
      <S>                 <C>         <C>         <C>         <C>          <C>         <C>         <C>         <C>
      $  600,000.........  $  44,000   $  88,000   $ 132,000   $  175,000   $ 219,000   $ 263,000   $ 307,000   $  351,000
         800,000.........     59,000     118,000     177,000      235,000     294,000     353,000     412,000      471,000
       1,000,000.........     74,000     148,000     222,000      295,000     369,000     443,000     517,000      591,000
       1,200,000.........     89,000     178,000     267,000      355,000     444,000     533,000     622,000      711,000
       1,400,000.........    104,000     208,000     312,000      415,000     519,000     623,000     727,000      831,000
       1,600,000.........    119,000     238,000     357,000      475,000     594,000     713,000     832,000      951,000
       1,800,000.........    134,000     268,000     402,000      535,000     669,000     803,000     937,000    1,071,000
       2,000,000.........    149,000     298,000     447,000      595,000     744,000     893,000   1,042,000    1,191,000
       2,200,000.........    164,000     328,000     492,000      655,000     819,000     983,000   1,147,000    1,311,000
</TABLE>

(1)    Years of service as of December 30, 2000 for the named executive officers
       were as follows: Mr. Reed, Mr. Vermylen, Mr. McCully and Mr. Lotker,
       approximately 5.0 years, and Mr. Willard, approximately 4.5 years. In
       addition, a separate agreement between Mr. Willard and Keebler provides a
       minimum level of benefit to Mr. Willard based on what he could have been
       entitled to under his previous employment.

(2)    Compensation includes all amounts shown under the columns entitled
       "Annual Compensation" in the Summary Compensation Table.

    At age 65, it is estimated that under the plans Mr. Reed will have 16 years
of service, Mr. Vermylen will have 19.75 years of service, Mr. McCully will have
23.5 years of service, Mr. Lotker will have 13 years of service and Mr. Willard
will have 9 years of service.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 27, 2001 (except as indicated
below) by:

    o  all persons known by us to own beneficially 5% or more of our common
       stock;
    o  each of our directors;
    o  the Chief Executive Officer and certain other executive officers; and
    o  all directors and executive officers as a group.

                                       23
<PAGE>

    Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares of common stock
beneficially owned by such stockholder.
<TABLE>
<CAPTION>
                                                         NUMBER OF SHARES
                                                          OF COMMON STOCK            PERCENTAGE OF
                                                   OWNED BENEFICIALLY (1)         COMMON STOCK (1)
                                                   -----------------------  -----------------------
<S>                                                <C>                      <C>
Flowers Industries,  Inc. (2)                                  46,197,466                    50.7%
 1919 Flowers Circle
 Thomasville, Georgia  31757
Gabelli Asset Management Inc. (3)                               5,168,733                     5.7%
 One Corporate Center
 Rye, New York  10580-1434
Sam K. Reed (4)                                                 1,965,523                     2.2%
David B. Vermylen (5)                                             322,702                       *
E. Nichol McCully (6)                                             282,208                       *
Jack M. Lotker (7)                                                205,901                       *
James T. Willard (8)                                              255,901                       *
Robert P. Crozer (9)                                               10,000                       *
Johnston C. Adams, Jr. (10) (11)                                    9,950                       *
Franklin L. Burke (10) (12)                                        10,550                       *
Wayne H. Pace (10)                                                  9,550                       *
Dr. Melvin T. Stith (10)                                            8,550                       *
G. Anthony Campbell (9)                                             2,004                       *
Amos R. McMullian (9)                                               2,000                       *
C. Martin Wood, III (13) (15)                                       3,050                       *
Jimmy M. Woodward (14)                                              2,000                       *
All directors and executive officers as a group
(consisting of 18 persons) (16)                                 3,642,908                     4.0%

----------------------------------------------------------------------------------------------------------------
*        Less than 1%
</TABLE>

(1)      Shares beneficially owned and percentage of ownership are based on
         91,149,127 shares of outstanding common stock and exercisable stock
         options as of February 27, 2001.
(2)      We have been informed by Flowers Industries, Inc. in a report on
         Schedule 13G filed February 1999, that of the shares reported as
         beneficially owned, they exercise (a) sole power to vote 46,197,466
         shares, (b) shared power to vote 0 shares, (c) sole power to dispose of
         46,197,466 shares and (d) shared power to dispose of 0 shares. Flowers
         Industries, Inc. is currently subject to the periodic reporting and
         other information requirements of the Securities and Exchange Act of
         1934. Flowers Industries' common stock is listed on the New York Stock
         Exchange.
(3)      We have been informed by Gabelli Asset Management Inc. in a report on
         Schedule 13D filed February 2001, that of the shares reported as
         beneficially owned by Gabelli Asset Management Inc., they exercise (a)
         sole power to vote 5,090,733 shares, (b) shared power to vote 0 shares,
         (c) sole power to dispose of 5,168,733 shares and (d) shared power to
         dispose of 0 shares.
(4)      Of the total shares and options held by Mr. Reed, 1,953,753 shares and
         options are held by The Sam K. Reed and Victoria P. Reed January 19,
         1995 Inter Vivos Trust of which Mr. Reed and his wife are trustees,
         34,310 shares are held by the Reed Family Trust of which Thomas E.
         O'Neill and Mr. Reed's wife are trustees, and 62,375 shares are held by
         the Sam and Victoria Reed Charitable Remainder Unitrust of which Mr.
         Reed and The Northern Trust Company are trustees. Includes 1,454,648
         shares subject to stock options that are currently exercisable;
         excludes 84,915 shares subject to stock options that are not
         exercisable within 60 days.
(5)      Mr. Vermylen's shares and options are held by the David B. Vermylen
         Declaration of Trust dated August 22, 1997 of which Mr. Vermylen is
         trustee. Includes 272,384 shares subject to stock options that are
         currently exercisable; excludes 36,797 shares subject to stock options
         that are not exercisable within 60 days.

                                       24
<PAGE>

(6)      Includes 251,890 shares subject to stock options that are currently
         exercisable; excludes 33,966 shares subject to stock options that are
         not exercisable within 60 days.
(7)      Includes 205,901 shares subject to stock options that are currently
         exercisable; excludes 28,305 shares subject to stock options that are
         not exercisable within 60 days.
(8)      Mr. Willard's shares and options are held by the James T. Willard
         Living Trust dated October 14, 1998 of which Mr. Willard and his wife
         are co-trustees. Includes 255,901 shares subject to stock options that
         are currently exercisable; excludes 28,305 shares subject to stock
         options that are not exercisable within 60 days.
(9)      A director and executive officer of Flowers Industries, Inc.
(10)     Includes 8,550 shares subject to stock options that are currently
         exercisable.
(11)     Of the total shares held by Mr. Adams, 300 are held by the Palmer Scott
         Adams Trust, 300 are held by the Alexandra Power Adams Trust and 300
         are held by the Tucker Kirk Adams Trust.
(12)     A director of Flowers  Industries,  Inc. Of the total shares held by
         Mr. Burke, 1,000 are held by Mr. Burke's wife and 1,000 shares are
         held by the Franklin L. Burke IRA.
(13)     Includes 1,050 shares subject to stock options that are currently
         exercisable.
(14)     An executive officer of Flowers Industries, Inc.
(15)     A director of Flowers Industries, Inc.
(16)     Includes 2,972,007 shares subject to stock options that are currently
         exercisable; excludes 272,129 shares subject to stock options that are
         not exercisable within 60 days.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Keebler maintains certain arms-length relationships with Flowers Bakeries,
Inc. and Mrs. Smith's Bakeries, Inc., other subsidiaries of our majority-owned
shareholder, Flowers Industries, Inc., who have purchased product from Keebler
for use in their own manufacturing processes totaling approximately $3.0 million
and $1.7 million for the respective years ended December 30, 2000 and January 1,
2000.


                                       25
<PAGE>

                                     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-33.

        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)     Exhibits

        See Exhibit Index at page i to iii.

(c)     Financial Statement Schedule

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


                                       26

<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 9, 2001


     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 9, 2001.

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


/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/  DR. MELVIN T. STITH
-----------------------------------------------------------      ---------------------------------------------------------
Johnston C. Adams, Jr.                                           Dr. Melvin T. Stith
(Director)                                                       (Director)


/s/  FRANKLIN L. BURKE                                           /s/  C. MARTIN WOOD III
-----------------------------------------------------------      ---------------------------------------------------------
Franklin L. Burke                                                C. Martin Wood III
(Director)                                                       (Director)


/s/  G. ANTHONY CAMPBELL                                         /s/  JIMMY M. WOODWARD
-----------------------------------------------------------      ---------------------------------------------------------
G. Anthony Campbell                                              Jimmy M. Woodward
(Director)                                                       (Director)


                                                                 27

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                                               Keebler Foods Company and Subsidiaries

<S>                                                                                                              <C>
FINANCIAL STATEMENTS:                                                                                            PAGE
                                                                                                                 ----

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

  Consolidated Balance Sheets at December 30, 2000 and January 1, 2000....................................        F-3

  Consolidated Statements of Operations for the years ended December 30, 2000, January 1, 2000 and
    January 2, 1999.......................................................................................        F-5

  Consolidated Statements of Shareholders' Equity for the years ended December 30, 2000, January 1,
    2000 and January 2, 1999..............................................................................        F-6

  Consolidated Statements of Cash Flows for the years ended December 30, 2000, January 1, 2000 and
    January 2, 1999.......................................................................................        F-7

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

FINANCIAL STATEMENT SCHEDULE:

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

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




                                                                 F-1
</TABLE>
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF KEEBLER FOODS COMPANY:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  shareholders'  equity  and cash flows
present  fairly,  in all material  respects,  the financial  position of Keebler
Foods Company and Subsidiaries at December 30, 2000 and January 1, 2000, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 30, 2000, in conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.





PricewaterhouseCoopers LLP



Chicago, Illinois
January 31, 2001






                                       F-2
<PAGE>
<TABLE>
                                                        KEEBLER FOODS COMPANY

                                                     CONSOLIDATED BALANCE SHEETS

                                          (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<CAPTION>

                                                                                 DECEMBER 30, 2000    January 1, 2000
                                                                                 ------------------ ------------------
<S>                                                                              <C>                <C>
ASSETS

CURRENT ASSETS:

     Cash and cash equivalents                                                         $    34,172        $    20,717
     Trade accounts and notes receivable, net                                               43,545             65,052
     Inventories, net:
         Raw materials                                                                      20,751             34,243
         Package materials                                                                  17,104             13,907
         Finished goods                                                                    124,955            126,954
         Other                                                                               2,001              1,176
                                                                                 ------------------ ------------------
                                                                                           164,811            176,280

     Income taxes receivable                                                                19,388                  -
     Deferred income taxes                                                                  36,470             46,252
     Other                                                                                  30,433             27,278
                                                                                 ------------------ ------------------
         Total current assets                                                              328,819            335,579

PROPERTY, PLANT AND EQUIPMENT, NET                                                         629,548            553,031

GOODWILL, NET                                                                              523,606            370,188

TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET                                         237,332            211,790

PREPAID PENSION                                                                             37,846             33,240

ASSETS HELD FOR SALE                                                                         1,159              6,662

OTHER ASSETS                                                                                14,578             17,693
                                                                                 ------------------ ------------------

         Total assets                                                                  $ 1,772,888        $ 1,528,183
                                                                                 ================== ==================


                       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>

                                                                                 DECEMBER 30, 2000    January 1, 2000
                                                                                 ------------------ ------------------
<S>                                                                              <C>                <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

     Current maturities of long-term debt                                              $    55,058        $    37,283
     Trade accounts payable                                                                145,125            147,862
     Other liabilities and accruals                                                        222,676            237,447
     Income taxes payable                                                                        -             23,603
     Plant and facility closing costs and severance                                          8,624             11,290
                                                                                 ------------------ ------------------
         Total current liabilities                                                         431,483            457,485

LONG-TERM DEBT                                                                             527,587            419,160

OTHER LIABILITIES:
     Deferred income taxes                                                                 134,575            124,389
     Postretirement/postemployment obligations                                              62,497             64,383
     Plant and facility closing costs and severance                                          8,628             12,062
     Deferred compensation                                                                  25,796             24,581
     Other                                                                                  19,648             16,808
                                                                                 ------------------ ------------------
         Total other liabilities                                                           251,144            242,223

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
         86,390,807 and 84,655,874 shares issued, respectively)                                863                846
     Additional paid-in capital                                                            208,461            182,686
     Retained earnings                                                                     393,362            255,813
     Treasury stock                                                                        (40,012)           (30,030)
                                                                                 ------------------ ------------------
         Total shareholders' equity                                                        562,674            409,315
                                                                                 ------------------ ------------------

         Total liabilities and shareholders' equity                                    $ 1,772,888        $ 1,528,183
                                                                                 ================== ==================


                       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>
                                                                                          Years Ended
                                                               ----------------------------------------------------------------
                                                                 DECEMBER 30, 2000       January 1, 2000       January 2, 1999
                                                               --------------------  --------------------  --------------------
<S>                                                            <C>                   <C>                   <C>
NET SALES                                                              $ 2,756,950           $ 2,667,771           $ 2,226,480

COSTS AND EXPENSES:
    Cost of sales                                                        1,119,117             1,150,553               938,896
    Selling, marketing and administrative expenses                       1,284,651             1,227,481             1,080,044
    Other                                                                   25,707                25,834                11,501
    Restructuring and impairment (credit) charge                              (996)               66,349                     -
                                                               --------------------  --------------------  --------------------
INCOME FROM OPERATIONS                                                     328,471               197,554               196,039

    Interest (income)                                                       (4,731)               (1,700)               (3,763)
    Interest expense                                                        48,842                37,874                30,263
                                                               --------------------  --------------------  --------------------
INTEREST EXPENSE, NET                                                       44,111                36,174                26,500
                                                               --------------------  --------------------  --------------------

INCOME BEFORE INCOME TAX EXPENSE                                           284,360               161,380               169,539
    Income tax expense                                                     108,768                73,175                72,962
                                                               --------------------  --------------------  --------------------

INCOME BEFORE EXTRAORDINARY ITEM                                           175,592                88,205                96,577

EXTRAORDINARY ITEM:

    Loss on early extinguishment of debt, net of tax                             -                     -                 1,706
                                                               --------------------  --------------------  --------------------

NET INCOME                                                             $   175,592           $    88,205           $    94,871
                                                               ====================  ====================  ====================

BASIC NET INCOME PER SHARE:

    Income before extraordinary item                                   $      2.07           $      1.05           $      1.16
    Extraordinary item                                                           -                     -                  0.02
                                                               --------------------  --------------------  --------------------
    Net income                                                         $      2.07           $      1.05           $      1.14
                                                               ====================  ====================  ====================
WEIGHTED AVERAGE SHARES OUTSTANDING                                         84,517                83,759                83,254
                                                               ====================  ====================  ====================

DILUTED NET INCOME PER SHARE:

    Income before extraordinary item                                   $      2.00           $      1.01           $      1.10
    Extraordinary item                                                           -                     -                  0.02
                                                               --------------------  --------------------  --------------------
    Net income                                                         $      2.00           $      1.01           $      1.08
                                                               ====================  ====================  ====================
WEIGHTED AVERAGE SHARES OUTSTANDING                                         87,840                87,645                87,486
                                                               ====================  ====================  ====================


                       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

                                                           (IN THOUSANDS)
<CAPTION>

                                                 COMMON STOCK       ADDITIONAL                  TREASURY STOCK
                                            -----------------------    PAID-IN    RETAINED  -----------------------
                                                SHARES      AMOUNT     CAPITAL    EARNINGS      SHARES      AMOUNT       TOTAL
                                            ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>         <C>
BALANCE AT JANUARY 3, 1998                      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                      84,125         841     169,532     167,608        (335)     (8,680)    329,301

    Purchase of treasury shares                      -           -           -           -        (646)    (21,350)    (21,350)

    Exercise of employee stock options             531           5      13,154           -           -           -      13,159

    Net income                                       -           -           -      88,205           -           -      88,205
                                            ----------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE AT JANUARY 1, 2000                      84,656         846     182,686     255,813        (981)    (30,030)    409,315

    Purchase of treasury shares                      -           -           -           -        (353)     (9,982)     (9,982)

    Exercise of employee stock options           1,735          17      25,775           -           -           -      25,792

    Dividends paid                                   -           -           -     (38,043)          -           -     (38,043)

    Net income                                       -           -           -     175,592           -           -     175,592
                                            ----------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE AT DECEMBER 30, 2000                    86,391   $     863   $ 208,461   $ 393,362      (1,334)  $ (40,012)  $ 562,674
                                            =========== =========== =========== =========== =========== =========== ===========


                  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>
                                                                                              Years Ended
                                                                     -------------------------------------------------------------
                                                                      DECEMBER 30, 2000      January 1, 2000      January 2, 1999
                                                                     -------------------  -------------------  -------------------
<S>                                                                  <C>                  <C>                  <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
    Net income                                                                $ 175,592            $  88,205            $  94,871
    Adjustments to reconcile net income to cash from
      operating activities:
        Depreciation and amortization                                            95,280               84,125               69,125
        Deferred income taxes                                                    27,074              (11,248)              10,075
        Loss on early extinguishment of debt, net of tax                              -                    -                1,706
        (Gain) loss on sale of property, plant and equipment                     (1,435)               1,799                  424
        Gain on sale of value brands business                                    (5,700)                   -                    -
        Restructuring and impairment (credit) charge                               (615)              46,071                    -
        Income tax benefit related to stock options exercised                    19,366                9,956                    -
        Other                                                                         -                    -                1,460
    Changes in assets and liabilities:
        Trade accounts and notes receivable, net                                 11,712              (26,975)              (5,082)
        Inventories, net                                                         19,536               (9,903)             (13,830)
        Income taxes payable                                                    (41,855)              12,824               (4,556)
        Other current assets                                                     (2,052)                (642)              (2,845)
        Trade accounts payable and other current liabilities                    (31,722)               9,840                  869
        Plant and facility closing costs and severance                          (19,764)              (3,641)              (5,373)
    Other, net                                                                   (2,604)               6,771               (2,319)
                                                                     -------------------  -------------------  -------------------
          Cash provided from operating activities                               242,813              207,182              144,525

CASH FLOWS USED BY INVESTING ACTIVITIES
    Capital expenditures                                                        (92,598)            (100,685)             (66,798)
    Proceeds from property disposals                                              8,953                3,904                  917
    Purchase of Sesame Street license                                           (10,000)                   -                    -
    Proceeds from sale of value brands business                                  17,000                    -                    -
    Purchase of Austin Quality Foods, Inc., net of cash acquired               (253,797)                   -                    -
    Purchase of President International, Inc., net of cash acquired                   -                    -             (444,818)
                                                                     -------------------  -------------------  -------------------
          Cash used by investing activities                                    (330,442)             (96,781)            (510,699)

CASH FLOWS PROVIDED FROM (USED BY) FINANCING ACTIVITIES
    Purchase of treasury stock                                                   (9,982)             (21,350)              (8,605)
    Exercise of employee stock options and warrant                                6,426                3,203               20,577
    Proceeds from receivables securitization                                     21,000              103,000                    -
    Deferred debt issue costs                                                         -                    -               (1,845)
    Long-term debt borrowings                                                         -                    -              425,000
    Long-term debt repayments                                                   (43,317)            (113,052)            (157,626)
    Revolving facility, net                                                     165,000              (85,000)              85,000
    Dividends paid                                                              (38,043)                   -                    -
                                                                     -------------------  -------------------  -------------------
          Cash provided from (used by) financing activities                     101,084             (113,199)             362,501
                                                                     -------------------  -------------------  -------------------
          Increase (decrease) in cash and cash equivalents                       13,455               (2,798)              (3,673)
          Cash and cash equivalents at beginning of period                       20,717               23,515               27,188
                                                                     -------------------  -------------------  -------------------
          Cash and cash equivalents at end of period                          $  34,172            $  20,717            $  23,515
                                                                     ===================  ===================  ===================


                       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

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

1.  BASIS OF PRESENTATION

BUSINESS AND OWNERSHIP


    Keebler Foods  Company (the  "Company" or  "Keebler"),  a  manufacturer  and
distributor  of food  products,  was  acquired  by  INFLO  Holdings  Corporation
("INFLO")  on  January  26,  1996.  INFLO  was owned by Artal  Luxembourg  S. A.
("Artal"), a private investment company, Flowers Industries, Inc. ("Flowers"), a
New  York  Stock  Exchange-listed  company,  Bermore,  Limited  ("Bermore"),   a
privately held corporation and the parent of G.F.  Industries,  Inc. ("GFI") and
certain members of 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. 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%. 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 acquisition of Sunshine Biscuits,  Inc.  ("Sunshine").  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,  without any
of the proceeds going to Keebler. 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. 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, without any 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%. During
1999,  all remaining  shares owned by both Artal and Claremont  were sold in the
open  market.  Keebler is  comprised of  primarily  the  following  wholly-owned
subsidiaries: Keebler Company, Bake-Line Products, Inc. ("Bake-Line"), Sunshine,
President  International,  Inc.  ("President"),  Keebler Leasing Corp.,  Keebler
Funding  Corporation  and Johnston's  Ready Crust  Company.  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.  Additional  operating  subsidiaries of Keebler
Company  include Elfin Equity  Company,  L.L.C.,  Hollow Tree  Company,  L.L.C.,
Hollow Tree Financial Company,  L.L.C. and Godfrey  Transport,  Inc. On March 6,
2000, Keebler Foods Company acquired Austin Quality Foods, Inc.  ("Austin") from
R&H Trust Co. (Jersey)  Limited,  as Trustee,  HB Marketing & Franchising  L.P.,
697163 Alberta Ltd., and William C. Burkhardt.

    On July 19, 2000,  Flowers  Industries  and Keebler  Foods  Company  jointly
announced that their  respective  boards of directors had authorized each of the
companies to explore  alternatives  for the  maximization of shareholder  value,
including the potential sale of Keebler. On October 26, 2000, Flowers Industries
announced  that it reached an agreement  that will result in the sale of Keebler
Foods Company to Kellogg Company ("Kellogg") for $42.00 per share.  Kellogg also
reached an agreement to acquire the remaining  Keebler shares held by the public
for $42.00 per share.

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 2000, 1999
and 1998 fiscal years each consisted of fifty-two weeks.

PRINCIPLES OF CONSOLIDATION

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

                                      F-8
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.  BASIS OF PRESENTATION (CONTINUED)

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.

RECLASSIFICATIONS

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


2.  SALE OF THE COMPANY

    On October 26, 2000,  Kellogg  Company  announced it reached an agreement to
acquire  Keebler Foods  Company in a  transaction  entered into with Keebler and
with Flowers Industries,  Inc., the majority shareholder of Keebler.  Completion
of the  merger  is  subject  to  customary  closing  conditions  and  regulatory
approvals.  There can be no assurance that such approvals will be obtained.  The
transaction is expected to close during the first quarter of 2001.

    Immediately prior to the effective time of the merger,  Keebler will declare
a special cash dividend in the aggregate  amount of $16 million,  which is to be
paid pro rata to all  Keebler  stockholders,  including  Flowers.  This  special
dividend  will be in  addition  to any regular  dividends  declared  and paid as
permitted under the merger agreement.


3.  ACQUISITIONS

ACQUISITION OF AUSTIN QUALITY FOODS, INC.

    On March 6, 2000, Keebler acquired Austin Quality Foods, Inc. from R&H Trust
Co.  (Jersey)  Limited,  as Trustee,  HB Marketing &  Franchising  L.P.,  697163
Alberta  Ltd.,  and  William C.  Burkhardt,  for a purchase  price,  net of cash
acquired,  of  $253.8  million,  excluding  related  fees and  expenses  paid of
approximately  $3.0 million.  The  acquisition of Austin was a cash  transaction
funded  with  approximately  $235.0  million  from  borrowings  under the $700.0
million  Senior Credit  Facility  Agreement  dated  September 28, 1998,  and the
remainder from cash received on additional  sales of accounts  receivable  under
Keebler's Receivables Purchase Agreement.

    The  acquisition  of Austin 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 Austin based on  respective
fair values.  The  acquisition  has resulted in an unallocated  excess  purchase
price over fair value of net assets acquired of $167.7  million,  which is being
amortized on a straight-line basis over a forty year period.

    Results of  operations  for Austin from March 6, 2000 to  December  30, 2000
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 1999.  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  Austin
acquisition been effected on the assumed date.

                                      F-9
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  ACQUISITIONS (CONTINUED)

                                                        Unaudited
(IN MILLIONS EXCEPT PER SHARE DATA)                For the Years Ended
                                        ----------------------------------------
                                         December 30, 2000      January 1, 2000
                                        -------------------  -------------------

Net sales.............................          $ 2,784.4            $ 2,862.7
Net income............................          $   172.0            $    86.4
Diluted net income per share..........          $    1.97            $    0.99

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 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
(IN MILLIONS EXCEPT PER SHARE DATA)               For the Years Ended
                                         -------------------------------------
                                           January 2, 1999    January 3, 1998
                                          -----------------  -----------------
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


4.  RESTRUCTURING AND IMPAIRMENT (CREDIT) CHARGE

    In May of 1999, Keebler closed its manufacturing facility in Sayreville, New
Jersey, and recorded a pre-tax  restructuring and impairment charge, in 1999, to
operating  income of $66.3  million,  which  consisted of an original  charge of
$69.2 million,  slightly offset by a $2.9 million credit.  In the second quarter
of 2000, the charge was reduced by an adjustment of $1.0 million. The adjustment
related to  severance  and other exit costs  from the  facility  closure  due to
lower-than-expected  severance costs and the  earlier-than-expected  sale of the
facility.  The  restructuring  and impairment  charge included $19.2 million for
cash costs  related  to  severance  and other  exit  costs  from the  Sayreville
facility.   The  remaining  $46.1  million  were  non-cash   charges  for  asset
impairments  related  to  the  Sayreville  closing,   including  write-downs  of
property,  plant and equipment at Sayreville  and equipment at other  locations,
and a  proportionate  reduction of goodwill  acquired in the Sunshine  Biscuits,
Inc. acquisition in June 1996. Approximately 650 total employees were terminated
as a result of the closing of the Sayreville  facility,  of which  approximately
600 employees were represented by unions.

                                      F-10
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.  RESTRUCTURING AND IMPAIRMENT CHARGE (CONTINUED)

    The  following  table sets  forth the  activity  related to the  liabilities
accrued in conjunction with the restructuring and impairment charge:
<TABLE>
<CAPTION>

                                    January 2,                                              January 1,
(IN THOUSANDS)                            1999     Provision      Spending    Adjustment          2000
                                   ------------  ------------  ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>           <C>
   Severance...............          $             $  15,564     $ (12,442)   $   (1,085)    $   2,037
   Facility closure........                  -         4,570          (438)       (1,565)        2,567
   Fixed asset impairment..                  -        37,824       (37,824)            -             -
   Goodwill impairment.....                  -         7,600        (7,600)            -             -
   Other...................                  -         3,650        (1,724)         (209)        1,717
                                   ------------  ------------  ------------  ------------  ------------
       Total...............          $       -     $  69,208     $ (60,028)    $  (2,859)    $   6,321
                                   ============  ============  ============  ============  ============
</TABLE>
<TABLE>
<CAPTION>
                                    January 1,                                             DECEMBER 30,
(IN THOUSANDS)                            2000     Provision      Spending    Adjustment           2000
                                   ------------  ------------  ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>           <C>
   Severance...............          $   2,037     $       -     $  (1,312)   $     (140)    $     585
   Facility closure........              2,567             -          (873)       (1,556)          138
   Other...................              1,717             -            45           700         2,462
                                   ------------  ------------  ------------  ------------  ------------
       Total...............          $   6,321     $       -     $  (2,140)    $    (996)    $   3,185
                                   ============  ============  ============  ============  ============
</TABLE>

    At December 30, 2000, $3.1 million  remained for plant and facility  closing
costs  and  severance  accruals  and $0.1  million  for  other  liabilities  and
accruals.  Only costs related to the settlement of worker's  compensation claims
(included  in other  above),  and health and welfare  payments  are  expected to
extend beyond the year ended December 29, 2001.


5.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

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

TRADE ACCOUNTS RECEIVABLE

    Substantially  all of 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 $7.3  million as of December  30, 2000 and $8.6 million as of
January 1, 2000.

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 both
December  30,  2000 and January 1, 2000.  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  December  30, 2000 and January 1, 2000 to state the
inventory on a LIFO basis.

    At December  30, 2000 and January 1, 2000,  inventories  are shown net of an
allowance for  slow-moving  and aged inventory of $8.2 million and $6.7 million,
respectively.

                                      F-11
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    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 $7.3 million,  $9.2 million and $7.1 million in the years ended
December 30, 2000, January 1, 2000 and January 2, 1999, respectively. There were
no open futures or options  contracts at December 30, 2000. The notional  amount
of open futures and options contracts at January 1, 2000 was $48.7 million.  The
fair  values of the open  futures  and  options  contracts,  based on the stated
market value, was $44.1 million at January 1, 2000.

PROPERTY, PLANT AND EQUIPMENT

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

TRADEMARKS, 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
$26.8  million  and $18.9  million at  December  30,  2000 and  January 1, 2000,
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 $27.8 million and $14.7 million at December 30, 2000 and January
1, 2000, respectively.

REVENUE RECOGNITION

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

SHIPPING AND HANDLING FEES AND COSTS

    The Company records all amounts billed for shipping and handling as revenues
and  includes  the  related  shipping  and  handling  costs as part of  selling,
marketing  and  administrative   expenses  on  the  Consolidated  Statements  of
Operations.  Shipping and handling  costs include  costs  incurred to physically
move finished goods from our bakeries to the customer's  designated location, as
well as costs incurred to store, move and prepare our products for shipment. For
the years ended December 30, 2000, January 1, 2000 and January 2, 1999, shipping
and  handling  costs were $285.8  million,  $262.3  million and $221.3  million,
respectively.

RESEARCH AND DEVELOPMENT

    Activities  related to new product  development  and major  improvements  to
existing products and processes are expensed as incurred and were $14.2 million,
$13.1 million and $10.2 million for the years ended  December 30, 2000,  January
1, 2000 and January 2, 1999, respectively.

                                      F-12
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $81.2 million,  $87.3 million and
$87.2 million for the years ended December 30, 2000, January 1, 2000 and January
2, 1999, respectively.  There were no deferred advertising costs at December 30,
2000 and January 1, 2000.

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.

    In June 2000, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS") No. 138,  "Accounting  for Certain  Derivative  Instruments and Certain
Hedging  Activities," an amendment of SFAS No. 133. SFAS No. 133 "Accounting for
Derivative  Instruments  and Hedging  Activities,"  establishes  accounting  and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded  in  other  contracts,  and for  hedging  activities.  The
statement  requires  the  recognition  of all  derivatives  as either  assets or
liabilities on the balance sheet and  measurement  of those  instruments at fair
value. SFAS No. 138 addresses a limited number of issues causing  implementation
difficulties for numerous entities applying SFAS No. 133.

    The Company will adopt SFAS No. 133 for its fiscal year  beginning  December
31, 2000. The Company,  through normal operating and financing activities,  uses
interest rate swap  agreements and commodity  futures and option  contracts that
are  subject to SFAS No.  133.  Management  expects  the  adoption  will have an
insignificant impact on the Company's financial results.

INCOME TAXES

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

IMPAIRMENT OF LONG-LIVED AND INTANGIBLE 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.

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.

                                      F-13
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  PROPERTY, PLANT AND EQUIPMENT

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

(IN THOUSANDS)                         DECEMBER 30, 2000      January 1, 2000
                                      -------------------  -------------------

Land.................................     $       19,736        $      16,290
Buildings............................            166,787              138,288
Machinery and equipment..............            534,976              437,032
Office furniture and fixtures........             98,794               90,266
Delivery equipment...................              7,296                6,689
Construction in progress.............             71,324               68,156
                                      -------------------  -------------------
                                                 898,913              756,721
Accumulated depreciation.............           (269,365)            (203,690)
                                      -------------------  -------------------
     Total...........................     $      629,548        $     553,031
                                      ===================  ===================

    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.


7.  ASSETS HELD FOR SALE

    On May 2, 2000, the Sayreville, New Jersey manufacturing facility, which had
been  held for sale  after  its  closure,  was sold for $7.5  million.  The sale
resulted in a pre-tax gain of approximately $2.0 million,  which was recorded in
other income during the second quarter of the year.

    Disposition  of all  remaining  assets  held for sale is  expected  to occur
within the next thirty-six months without a significant gain or loss.


8.  OTHER CURRENT LIABILITIES AND ACCRUALS

    Other  current  liabilities  and  accruals  consisted  of the  following  at
December 30, 2000 and January 1, 2000:

(IN THOUSANDS)                         DECEMBER 30, 2000      January 1, 2000
                                      -------------------  -------------------

Self insurance reserves.............      $       52,607       $       52,266
Employee compensation...............              83,053               72,527
Marketing and consumer promotions...              48,306               60,954
Other...............................              38,710               51,700
                                      -------------------  -------------------
     Total..........................      $      222,676       $      237,447
                                      ===================  ===================

    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
December  30,  2000 and  January 1, 2000 was $52.6  million  and $52.3  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
$18.5 million.

                                      F-14
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  DEBT AND LEASE COMMITMENTS

DEBT

    Long-term  debt  consisted of the following at December 30, 2000 and January
1, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)                    Interest Rate         Final Maturity     DECEMBER 30, 2000      January 1, 2000
                                 ---------------  ---------------------  --------------------  -------------------
<S>                              <C>              <C>                    <C>                   <C>
Revolving Facility.............          6.915%     September 28, 2004           $   165,000           $        -
Term Facility..................          6.880%     September 28, 2004               278,000              314,000
Senior Subordinated Notes......         10.750%           July 1, 2006               124,400              124,400
Other Senior Debt..............         Various              2001-2005                 8,840               10,455
Capital Lease Obligations......         Various              2002-2042                 6,405                7,588
                                                                          -------------------  -------------------
                                                                                     582,645              456,443
Less: Current maturities.......                                                       55,058               37,283
                                                                          -------------------  -------------------
     Total.....................                                                  $   527,587          $   419,160
                                                                          ===================  ===================
</TABLE>

    At December 30, 2000 and January 1, 2000, Keebler's primary credit financing
was provided by a $700.0 million Credit  Facility,  consisting of $350.0 million
under the Revolving Facility and $350.0 million under the Term Facility.

    The current  outstanding  balance on the Term  Facility at December 30, 2000
was $278.0 million,  with quarterly  scheduled  principal  payments  through the
final maturity of September  2004. The Revolving  Facility,  with an outstanding
balance of $165.0  million at December  30, 2000,  also has a final  maturity of
September  2004, but with no scheduled  principal  payments.  Certain letters of
credit  totaling  $27.4 million  reduce the  available  balance on the Revolving
Facility to $157.6 million.  Any unused borrowings under the Revolving  Facility
are subject to a commitment fee. The current commitment fee may vary from 0.125%
to 0.30% based on the relationship of debt to adjusted earnings. At December 30,
2000, the commitment fee was 0.125%.

    At January 1, 2000, the outstanding  balance on the Term Facility was $314.0
million and the Revolving Facility had no outstanding  balance.  Certain letters
of credit totaling $28.7 million reduced the available  balance on the Revolving
Facility  to $321.3  million  and any  unused  borrowings  under  the  Revolving
Facility were subject to a commitment  fee. At January 1, 2000,  the  commitment
fee was 0.125%.

    Interest  on the Credit  Facility  is  calculated  based on a 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.  Keebler
satisfied all financial covenants required for the years ended December 30, 2000
and January 1, 2000.

    In January  1999,  Keebler  entered into a  Receivables  Purchase  Agreement
("Agreement")  allowing funds to be borrowed at a lower cost to the Company. The
accounting  for this  Agreement  is  governed  by SFAS No. 125  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Under the  guidelines  of SFAS No. 125, a  special-purpose  entity was  created,
Keebler  Funding  Corporation,  as a subsidiary  of Keebler Foods  Company.  All
transactions under this Agreement occur through Keebler Funding  Corporation and
are treated as a sale of accounts  receivable and not as a debt  instrument.  At
December 30, 2000, a net $124.0 million of accounts  receivable had been sold at
fair value,  which is below the maximum  amount  currently  available  under the
Agreement.  At January 1, 2000, a net $103.0 million of accounts  receivable had
been sold at fair value.

    In conjunction with the President acquisition in September 1998, Term Loan A
was  extinguished  by using $145.0  million of  borrowings  under the new Credit
Facility.  Keebler  recorded  a pre-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.

                                      F-15
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  DEBT AND LEASE COMMITMENTS (CONTINUED)

    Interest of $46.2 million,  $37.5 million and $24.0 million was paid on debt
for the years  ended  December  30,  2000,  January 1, 2000 and January 2, 1999,
respectively.

    Aggregate  scheduled annual  maturities of long-term debt as of December 30,
2000 are as follows:

(IN THOUSANDS)
2001............................        $    55,058
2002............................             72,667
2003............................             87,788
2004............................            240,477
2005............................              2,255
2006 and thereafter.............            124,400
                                    ----------------
     Total......................        $   582,645
                                    ================

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 value of cash and cash equivalents and short-term debt
approximates  fair value because of the short-term  maturity of the instruments.
The fair value of  long-term  debt was  $526.9  million  and  $417.2  million at
December 30, 2000 and January 1, 2000, respectively,  which was based on current
rates available to Keebler for debt instruments  with similar terms,  degrees of
risk and remaining maturities.

    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. There were no new swap transactions entered into during 1999 or 2000.

    On July 1, 1998, Keebler entered into a swap agreement 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  agreement  had the
effect of  converting  the fixed rate of 10.75% on $124.0  million of the Senior
Subordinated Notes to a rate of 11.772% for the year ended December 30, 2000. In
addition,  on September 30, 1998 and October 5, 1998,  Keebler  entered into two
swap  agreements  with the Bank of Nova Scotia both  maturing on  September  30,
2004.  Each swap  transaction  converts  the base rate on $96.3  million  of the
Credit Facility to fixed rate debt of 5.084% and 4.89%, respectively. During the
fourth quarter of 2000, the swap agreements  maturing on September 30, 2004 were
terminated.  Upon termination,  the marked-to-market  value of the swaps of $4.5
million  was  recorded  as  deferred  income.  This  deferred  benefit  is being
amortized  to income  over a three  month  period  that the  underlying  debt is
expected to be outstanding. The debt is expected to be retired on the closing of
the  acquisition of Keebler by Kellogg,  which is expected to occur in the first
quarter of 2001. In the quarter ended December 30, 2000,  $1.5 million of income
was included in income from  operations.  The estimated fair value of the hedged
swap agreements was a net payable of $1.4 million at December 30, 2000 and a net
receivable of $7.9 million at January 1, 2000.

                                      F-16
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  DEBT AND LEASE COMMITMENTS (CONTINUED)

    In 2000, Keebler also maintained an interest rate swap that no longer served
as a hedge with the Bank of Nova Scotia,  which has a notional  amount of $170.0
million and a fixed rate obligation of 5.0185% through February 1, 2001. For the
years  ended  December  30,  2000 and  January 1, 2000,  $0.2  million  and $2.8
million,  respectively,  were  recognized in income from  operations in order to
mark-to-market  the interest rate swap. As of December 30, 2000,  the balance of
the  receivable  recorded  resulting  from this  transaction  was a $0.8 million
current receivable in other current assets in the consolidated balance sheet.

LEASE COMMITMENTS

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

(IN THOUSANDS)                      DECEMBER 30, 2000    January 1, 2000
                                   -------------------  -----------------

Land.........................         $           980       $        980
Buildings....................                     848              2,894
Machinery and equipment......                   2,049              2,842
Other leased assets..........                       1                  1
                                  --------------------  -----------------
                                                3,878              6,717
Accumulated depreciation.....                  (1,346)              (417)
                                  --------------------  -----------------
     Total...................         $         2,532       $      6,300
                                  ====================  =================

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

                                                   Capital       Operating
(IN THOUSANDS)                                      Leases          Leases
                                             --------------  --------------

2001.......................................      $     867       $  35,194
2002.......................................          1,248          28,220
2003.......................................            310          25,460
2004.......................................          4,708          16,780
2005.......................................            202          14,895
2006 and thereafter........................              -          25,494
                                             --------------  --------------
Total minimum payments.....................      $   7,335       $ 146,043
Amount representing interest...............           (930)  ==============
                                             --------------
Obligations under capital lease............          6,405
Obligations due within one year............           (540)
                                             --------------
Long-term obligations under capital leases.      $   5,865
                                             ==============

    Rent expense for all operating  leases was $57.8 million,  $50.1 million and
$38.7 million for the years ended December 30, 2000, January 1, 2000 and January
2, 1999, respectively.


10. PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

    In conjunction  with the March 6, 2000  acquisition  of Austin,  Keebler has
recognized  estimated costs pursuant to a plan to exit certain activities of the
acquired  company.  These  exit  costs,  for which  there is no future  economic
benefit,  were provided for in the purchase  price  allocation and were equal to
$14.3 million.  Spending equal to $9.7 million has occurred through December 30,
2000. Staff  reductions of approximately 80 non-union  employees are expected as
part of the  exit  plan.  Approximately  75  employees  had been  terminated  at
December 30, 2000; the remaining terminations are expected to occur in the first
quarter of 2001.  The remaining  spending  under the exit plan is expected to be
substantially  complete  in the next  fiscal  year,  with only  costs  primarily
related to health and welfare payments expected to extend beyond 2001.

                                      F-17
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

    During 1998, 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. 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. As of December 30, 2000,  substantially  all  terminations  have
been made,  representing  approximately  150 employees  under union contract and
approximately  80  employees  not under  union  contract.  During the year ended
January  1,  2000,  Keebler  adjusted  accruals  previously  established  in the
accounting  for  the  President  acquisition  by  reducing  goodwill  and  other
intangibles  by $4.5 million to recognize exit costs that are now expected to be
less than initially anticipated.  As of December 30, 2000, $4.1 million remained
in  reserves.   The  remaining  spending  under  the  plan  is  expected  to  be
substantially  complete  before the end of 2001, with only  noncancelable  lease
obligations to be paid over the next six years concluding in 2006.

    During 1996, 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.   Severance,
outplacement  and other  related costs  associated  with staff  reductions  were
initially  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. Approximately 1,420 employees were terminated as a result of this plan.
An additional  $6.8 million was  anticipated  for lease costs related to exiting
legacy  information  systems.  During  the year ended  January 1, 2000,  Keebler
adjusted  accruals  previously  established  in the  accounting  for the Keebler
acquisition  by reducing  goodwill  and other  intangibles  by $0.5  million and
reversing $1.3 million into income from  operations to recognize exit costs that
are now expected to be less than initially  anticipated.  During the years ended
December 30, 2000 and January 2, 1999, Keebler also adjusted accruals previously
established  in the  accounting  for the Keebler and  Sunshine  acquisitions  by
reducing  goodwill  and other  intangibles  by $1.6  million  and $3.7  million,
respectively,  to  recognize  exit  costs  that  are  expected  to be less  than
initially  anticipated.  As of  December  30,  2000,  only  noncancelable  lease
obligations  are  anticipated  to extend beyond the next fiscal year, to be paid
over the next six years concluding in 2006.

    In  addition,  during the years  ended  January 1, 2000 and January 2, 1999,
Keebler  expensed an  additional  $0.8 million and $2.8  million,  respectively.
These charges were  principally for costs related to the closure of distribution
facilities  not included in the  original  plan  adopted by  management  for the
acquisition of Keebler  Company.  There was no such additional  expense incurred
during the year ended December 30, 2000.

    The following  table sets forth the activity in Keebler's plant and facility
closing costs and severance  liabilities  exclusive of the liabilities resulting
from the restructuring and impairment charge recorded in 1999:
<TABLE>
<CAPTION>
(IN THOUSANDS)                  January 3, 1998       Provision        Spending      Adjustment   January 2, 1999
                               -----------------  --------------  --------------  --------------  ----------------
<S>                            <C>                <C>             <C>             <C>             <C>
KEEBLER COMPANY
   Severance............             $      231        $    139       $    (293)      $     (28)      $        49
   Facility closure.....                 12,505           2,662          (3,265)           (418)           11,484
   Other................                  1,895               -          (1,689)           (182)               24
                               -----------------   -------------  --------------  --------------  ----------------
       Subtotal.........                 14,631           2,801          (5,247)           (628)           11,557
                               -----------------   -------------  --------------  --------------  ----------------

SUNSHINE BISCUITS, INC.
   Severance............             $      112        $      -       $     (26)      $       -       $        86
   Facility closure.....                  7,735               -          (2,388)         (3,120)            2,227
                               -----------------   -------------  --------------  --------------  ----------------
       Subtotal.........                  7,847               -          (2,414)         (3,120)            2,313
                               -----------------   -------------  --------------  --------------  ----------------

PRESIDENT INTERNATIONAL, INC.
   Severance............             $        -       $   6,653       $     (59)      $       -       $     6,594
   Facility closure.....                      -           5,670               -               -             5,670
   Other................                      -             447               -               -               447
                               -----------------  --------------  --------------  --------------  ----------------
       Subtotal.........                      -          12,770             (59)              -            12,711
                               -----------------  --------------  --------------  --------------  ----------------

         TOTAL..........             $   22,478       $  15,571       $  (7,720)      $  (3,748)      $    26,581
                               =================  ==============  ==============  ==============  ================
</TABLE>
                                      F-18
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                  January 2, 1999       Provision        Spending      Adjustment   January 1, 2000
                               -----------------  --------------  --------------  --------------  ----------------
<S>                            <C>                <C>             <C>             <C>             <C>
KEEBLER COMPANY
   Severance............             $       49        $     25       $     (50)      $       -       $        24
   Facility closure.....                 11,484             751          (2,646)         (1,760)            7,829
   Other................                     24               -             (14)            (10)                -
                               -----------------   -------------  --------------  --------------  ----------------
       Subtotal.........                 11,557             776          (2,710)         (1,770)            7,853
                               -----------------   -------------  --------------  --------------  ----------------

SUNSHINE BISCUITS, INC.
   Severance............             $       86        $      -       $     (23)      $       -       $        63
   Facility closure.....                  2,227               -            (265)              -             1,962
                               -----------------   -------------  --------------  --------------  ----------------
       Subtotal.........                  2,313               -            (288)              -             2,025
                               -----------------   -------------  --------------  --------------  ----------------

PRESIDENT INTERNATIONAL, INC.
   Severance............             $    6,594       $       -       $    (576)      $  (3,189)      $     2,829
   Facility closure.....                  5,670               -             (83)           (991)            4,596
   Other................                    447               -            (118)           (319)               10
                               -----------------  --------------  --------------  --------------  ----------------
       Subtotal.........                 12,711               -            (777)         (4,499)            7,435
                               -----------------  --------------  --------------  --------------  ----------------

         TOTAL..........             $   26,581       $     776       $  (3,775)      $  (6,269)      $    17,313
                               =================  ==============  ==============  ==============  ================
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)                  January 1, 2000       Provision        Spending      Adjustment   DECEMBER 30, 2000
                               -----------------  --------------  --------------  --------------  -----------------
<S>                            <C>                <C>             <C>             <C>             <C>
KEEBLER COMPANY
   Severance............             $       24        $      -       $      (4)      $       -       $         20
   Facility closure.....                  7,829               -          (1,999)           (500)             5,330
                               -----------------   -------------  --------------  --------------  -----------------
       Subtotal.........                  7,853               -          (2,003)           (500)             5,350
                               -----------------   -------------  --------------  --------------  -----------------

SUNSHINE BISCUITS, INC.
   Severance............             $       63        $      -       $     (24)      $       -       $         39
   Facility closure.....                  1,962               -            (700)         (1,116)               146
                               -----------------   -------------  --------------  --------------  -----------------
       Subtotal.........                  2,025               -            (724)         (1,116)               185
                               -----------------   -------------  --------------  --------------  -----------------

PRESIDENT INTERNATIONAL, INC.
   Severance............             $    2,829       $       -       $  (2,271)      $       -       $        558
   Facility closure.....                  4,596               -          (1,069)              -              3,527
   Other................                     10               -             (10)              -                  -
                               -----------------  --------------  --------------  --------------  -----------------
       Subtotal.........                  7,435               -          (3,350)              -              4,085
                               -----------------  --------------  --------------  --------------  -----------------

AUSTIN QUALITY FOODS, INC.
   Severance............             $        -       $  13,774      $  (9,293)       $       -       $      4,481
   Facility closure.....                      -             479           (408)               -                 71
   Other................                      -              28             (7)               -                 21
                               -----------------  --------------  --------------  --------------  -----------------
       Subtotal.........                      -          14,281         (9,708)               -              4,573
                               -----------------  --------------  --------------  --------------  -----------------

         TOTAL..........             $   17,313       $  14,281      $ (15,785)       $  (1,616)      $     14,193
                               =================  ==============  ==============  ==============  =================

                                                                F-19
</TABLE>
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EMPLOYEE BENEFIT PLANS

    The  Retirement  Plan for  Salaried  and Certain  Hourly-Paid  Employees  of
Keebler  Company (the "pension plan") is a trusteed,  noncontributory,  defined-
benefit  pension plan. The pension plan covers certain  salaried and hourly-paid
employees.  Assets held by the pension plan consist  primarily of common stocks,
government  securities,  bonds,  mortgages  and  money  market  funds.  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.  The
pension  plan  of  Austin  was  merged  with  Keebler's  pension  plan as of the
acquisition date of March 6, 2000.  Additionally,  effective  December 31, 1998,
the pension plans of President were merged with Keebler's pension plan.

    Pension expense included the following components:
<TABLE>
<CAPTION>
                                                                                Years Ended
                                                          -------------------------------------------------------
(IN THOUSANDS)                                            DECEMBER 30, 2000   January 1, 2000    January 2, 1999
                                                          -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>
Service cost..........................................        $     11,077       $     13,364       $      9,040
Interest cost.........................................              35,161             32,841             31,080
Expected return on plan assets........................             (50,077)           (41,887)           (39,352)
Amortization of prior service cost....................                 747                689                689
Amortization of net loss..............................                   -                 43                  -
                                                          -----------------  -----------------  -----------------
Pension (benefit) expense.............................        $     (3,092)      $      5,050       $      1,457
                                                          =================  =================  =================
</TABLE>

    The expected  long-term  rate of return on plan assets was 9.5% for the year
ended  December 30, 2000,  8.7% for the year ended  January 1, 2000 and 9.0% for
the year ended January 2, 1999, respectively.

                                      F-20
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. 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>

(IN THOUSANDS)                                                                  DECEMBER 30, 2000        January 1, 2000
                                                                               -------------------    -------------------
<S>                                                                            <C>                    <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................              $    (475,350)         $    (520,312)
  Service cost........................................................                    (11,077)               (13,364)
  Interest cost.......................................................                    (35,161)               (32,841)
  Amendments..........................................................                     (2,106)                     -
  Actuarial gain......................................................                     26,596                 60,261
  Acquisition.........................................................                     (8,291)                     -
  Benefits and expenses paid..........................................                     32,766                 30,009
  Curtailment gain....................................................                          -                    897
                                                                               -------------------    -------------------
  Benefit obligation at year end......................................                   (472,623)              (475,350)
                                                                               -------------------    -------------------

Change in plan assets:
  Fair value of plan assets at beginning of year......................                    538,069                565,710
  Actual return on plan assets........................................                     43,802                  2,253
  Employer contributions..............................................                        161                    115
  Acquisition.........................................................                      9,642                      -
  Benefits and expenses paid..........................................                    (32,766)               (30,009)
                                                                               -------------------    -------------------
  Fair value of plan assets at year end...............................                    558,908                538,069
                                                                               -------------------    -------------------

  Funded status.......................................................                     86,286                 62,719
  Unrecognized actuarial gain.........................................                    (57,529)               (37,209)
  Unrecognized prior service cost.....................................                      9,089                  7,730
  Contributions subsequent to measurement date........................                          -                      -
                                                                               -------------------    -------------------
  Prepaid pension.....................................................              $      37,846          $      33,240
                                                                               ===================    ===================
</TABLE>

    The pension plan uses the  September 30 preceding the fiscal year end as the
measurement date. Assumptions used in accounting for the pension plan at each of
the respective year ends are as follows:
<TABLE>
<CAPTION>
                                                                               Years Ended
                                                        ----------------------------------------------------------
                                                         DECEMBER 30, 2000    January 1, 2000     January 2, 1999
                                                        -------------------  -----------------  ------------------
<S>                                                     <C>                  <C>                <C>
Discount rate.........................................                8.0%               7.5%                6.5%
Rate of compensation level increases..................                4.5                4.5                 4.0
</TABLE>

    As a result of the  closure  of the  Sayreville,  New  Jersey  manufacturing
facility in 1999,  the plan  recognized a net  curtailment  gain of $0.1 million
resulting  from a liability  gain of $0.9 million  offset by the  recognition of
$0.8 million of unrecognized prior service cost.

    The plan assets as of December  30, 2000 and January 1, 2000 both  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
and  an  unfunded  plan  for  certain  highly  compensated  current  and  former
executives ("the excess retirement plan").  Benefits provided are based on years
of service.

                                      F-21
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.  EMPLOYEE BENEFIT PLANS (CONTINUED)

    The supplemental retirement plan expense includes the following components:
<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                         ----------------------------------------------------------
(IN THOUSANDS)                                            DECEMBER 30, 2000    January 1, 2000     January 2, 1999
                                                         -------------------  -----------------  ------------------
<S>                                                      <C>                  <C>                <C>
Interest cost........................................        $          733        $       698        $        722
                                                         -------------------  -----------------  ------------------
Plan expense.........................................        $          733        $       698        $        722
                                                         ===================  =================  ==================
</TABLE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                  DECEMBER 30, 2000       January 1, 2000
                                                                              --------------------  --------------------
<S>                                                                           <C>                   <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................             $      (10,233)       $      (11,119)
  Interest cost.......................................................                       (733)                 (698)
  Actuarial gain......................................................                        720                   944
  Benefits and expenses paid..........................................                        765                   640
                                                                              --------------------  --------------------
  Benefit obligation at year end......................................                     (9,481)              (10,233)
  Fair value of plan assets...........................................                          -                     -
                                                                              --------------------  --------------------
  Funded status.......................................................                     (9,481)              (10,233)
  Unrecognized actuarial gain.........................................                     (1,279)                 (558)
  Benefit payments subsequent to measurement date.....................                        176                   168
                                                                              --------------------  --------------------
  Accrued obligation..................................................             $      (10,584)       $      (10,623)
                                                                              ====================  ====================
</TABLE>

    The excess retirement plan expense includes the following components:
<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                             ---------------------------------------------------------
(IN THOUSANDS)                                                DECEMBER 30, 2000    January 1, 2000    January 2, 1999
                                                             -------------------  -----------------  -----------------
<S>                                                          <C>                  <C>                <C>
Service cost..........................................            $         472        $       431        $       173
Interest cost.........................................                      233                155                 78
Amortization of net loss (gain).......................                       14                  8                (47)
                                                             -------------------  -----------------  -----------------
Pension expense.......................................            $         719        $       594        $       204
                                                             ===================  =================  =================
</TABLE>

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

<TABLE>
<CAPTION>

(IN THOUSANDS)                                                                  DECEMBER 30, 2000       January 1, 2000
                                                                               -------------------  --------------------
<S>                                                                            <C>                  <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................              $      (3,108)       $       (2,395)
  Service cost........................................................                       (472)                 (431)
  Interest cost.......................................................                       (233)                 (155)
  Actuarial loss......................................................                       (203)                 (158)
  Benefits and expenses paid..........................................                        181                    31
                                                                               -------------------  --------------------
  Benefit obligation at year end......................................                     (3,835)               (3,108)
  Fair value of plan assets...........................................                          -                     -
                                                                               -------------------  --------------------
  Funded status.......................................................                     (3,835)               (3,108)
  Unrecognized actuarial loss.........................................                        690                   501
  Benefit payments subsequent to measurement date.....................                         82                    17
                                                                               -------------------  --------------------
  Accrued obligation..................................................              $      (3,063)       $       (2,590)
                                                                               ===================  ====================

                                                                F-22
</TABLE>
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)

    The supplemental and excess  retirement plans use the September 30 preceding
the fiscal year end as the measurement date.  Assumptions used in accounting for
the  supplemental  and excess  retirement  plans for each of the respective year
ends are as follows:

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                              ---------------------------------------------------------
                                                               DECEMBER 30, 2000    January 1, 2000    January 2, 1999
                                                              -------------------  -----------------  -----------------
<S>                                                           <C>                  <C>                <C>
Discount rate.........................................                      8.0%               7.5%               6.5%
Rate of compensation level increase...................                      4.5                4.5                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 years ended
December  30,  2000,  January  1, 2000 and  January 2,  1999,  Keebler  expensed
contributions of $2.8 million, $2.5 million and $2.3 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 $9.6 million,  $6.8 million and $8.9
million for the years ended  December 30,  2000,  January 1, 2000 and January 2,
1999, respectively.

12. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

    Keebler  provides  certain medical and life insurance  benefits for eligible
retired  employees.  The medical plan,  which covers  nonunion and certain union
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>

(IN THOUSANDS)                                                                    Years Ended
                                                         ------------------------------------------------------------
                                                           DECEMBER 30, 2000     January 1, 2000     January 2, 1999
                                                         --------------------  ------------------  ------------------
<S>                                                      <C>                   <C>                 <C>
Service cost.....................................             $        1,650        $      2,178        $      2,045
Interest cost....................................                      3,436               3,424               3,961
Amortization of prior service cost...............                     (1,391)               (115)               (115)
Amortization of net gain.........................                       (318)               (375)                  -
                                                         --------------------  ------------------  ------------------
Net periodic postretirement benefit cost.........             $        3,377        $      5,112        $      5,891
                                                         ====================  ==================  ==================
</TABLE>
                                      F-23
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12.  POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)

    The unfunded status of the plan reconciled to the postretirement  obligation
in Keebler's consolidated balance sheets is as follows:
<TABLE>
<CAPTION>

(IN THOUSANDS)                                                                  DECEMBER 30, 2000       January 1, 2000
                                                                               -------------------  --------------------
<S>                                                                            <C>                  <C>
Change in accumulated postretirement benefit obligation:
  Benefit obligation at beginning of year.............................              $     (48,104)      $       (56,269)
  Service cost........................................................                     (1,650)               (2,178)
  Interest cost.......................................................                     (3,436)               (3,424)
  Amendments..........................................................                          -                 8,531
  Actuarial gain......................................................                      1,724                   717
  Curtailment gain....................................................                          -                   108
  Benefits and expenses paid..........................................                      4,990                 4,411
                                                                               -------------------  --------------------
  Benefit obligation at year end......................................                    (46,476)              (48,104)
  Fair value of plan assets...........................................                          -                     -
                                                                               -------------------  --------------------
  Funded status.......................................................                    (46,476)              (48,104)
  Unrecognized actuarial gain.........................................                     (9,593)               (8,187)
  Unrecognized prior service cost.....................................                     (7,506)               (8,897)
  Benefit payments subsequent to measurement date.....................                      1,567                   880
                                                                               -------------------  --------------------
  Postretirement obligation...........................................              $     (62,008)      $       (64,308)
                                                                               ===================  ====================
</TABLE>

    The plan was  amended  in 1999 for a change in the  calculation  of  retiree
contribution  rates that  resulted in an $8.5  million  reduction to the benefit
obligation and a corresponding  decrease in unrecognized  prior service cost. In
addition, as a result of the closure of the Sayreville, New Jersey manufacturing
facility  in 1999,  the plan  also  recognized  a net  curtailment  gain of $0.2
million resulting in a liability  reduction of $0.1 million plus the recognition
of $0.1 million of unrecognized prior service credit.

    The accumulated  postretirement  benefit  obligation was determined  using a
weighted average discount rate of 7.5% for the years ended December 30, 2000 and
January 1, 2000 and 6.5% for the year ended  January 2, 1999.  The plan uses the
September 30 preceding the fiscal year end as the measurement date.

    The weighted  average annual assumed rate of increase in the cost of covered
benefits was 7.0% for 2000  declining to an ultimate trend rate of 5.0% in 2002.
A 1% increase in the trend rate for health care costs would have  increased  the
accumulated  benefit  obligation  for the year ended  December  30, 2000 by $1.8
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 $1.8  million and $0.3  million,
respectively, for the year ended December 30, 2000.

    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 December  30, 2000 and January 1, 2000 was $5.6
million and $5.5 million, respectively.

                                      F-24
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. INCOME TAXES

    The components of income tax expense were as shown below:
<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                         ----------------------------------------------------------
(IN THOUSANDS)                                             DECEMBER 30, 2000    January 1, 2000    January 2, 1999
                                                         --------------------  -----------------  -----------------
<S>                                                      <C>                   <C>                <C>
Current:
  Federal...........................................           $      76,242        $    71,794        $    58,269
  State.............................................                   5,452              6,739              4,618
                                                         --------------------  -----------------  -----------------
Current provision for income taxes..................                  81,694             78,533             62,887
Deferred:
  Federal...........................................                  24,292             (4,837)             8,494
  State.............................................                   2,782               (521)             1,581
                                                         --------------------  -----------------  -----------------
Deferred provision for income taxes.................                  27,074             (5,358)            10,075
                                                         --------------------  -----------------  -----------------
                                                               $     108,768        $    73,175        $    72,962
                                                         ====================  =================  =================
</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>
                                                                                 Years Ended
                                                         ----------------------------------------------------------
(IN THOUSANDS)                                            DECEMBER 30, 2000    January 1, 2000     January 2, 1999
                                                         -------------------  -----------------  ------------------
<S>                                                      <C>                  <C>                <C>
U.S. federal statutory rate........................           $      99,526        $    56,483        $     59,339
State income taxes (net of federal benefit)........                   9,547              5,849               5,813
Intangible amortization............................                   4,602              6,306               3,160
All others.........................................                  (4,907)             4,537               4,650
                                                         -------------------  -----------------  ------------------
                                                              $     108,768        $    73,175        $     72,962
                                                         ===================  =================  ==================
</TABLE>

    Included in the $4.9 million credit to the  consolidated  income tax expense
for the year ended December 30, 2000, were a research and development credit and
the recognition of satisfactory resolution of certain income tax contingencies.

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

(IN THOUSANDS)                                                             DECEMBER 30, 2000       January 1, 2000
                                                                         --------------------  --------------------
<S>                                                                      <C>                   <C>
Depreciation.......................................................           $      (76,115)       $      (57,604)
Trademarks, trade names and intangibles............................                  (67,591)              (64,887)
Prepaid pension....................................................                  (15,028)              (13,327)
Inventory valuation................................................                   (2,135)                 (559)
Other..............................................................                     (399)              (10,503)
                                                                         --------------------  --------------------
                                                                                    (161,268)             (146,880)
                                                                         --------------------  --------------------
Postretirement/postemployment benefits.............................                   25,860                26,778
Plant and facility closing costs and severance.....................                    8,330                17,469
Workers' compensation..............................................                    6,711                 5,695
Incentives and deferred compensation...............................                   10,594                 7,801
Employee benefits..................................................                   11,668                11,000
                                                                         --------------------  --------------------
                                                                                      63,163                68,743
                                                                         --------------------  --------------------
                                                                              $      (98,105)       $      (78,137)
                                                                         ====================  ====================
</TABLE>

    Income taxes paid, net of refunds, were approximately $103.9 million,  $49.6
million and $67.1 million for the years ended December 30, 2000, January 1, 2000
and January 2, 1999, respectively.

                                      F-25
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SHAREHOLDERS' EQUITY

COMMON STOCK

    Cash dividends of $38.0 million were paid during the year ended December 30,
2000 while no cash  dividends  were declared for the years ended January 1, 2000
or January 2, 1999.  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.

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.  Keebler  purchased the  authorized  shares during 1998 and 1999,
which  fulfilled  the treasury  stock plan.  In the first quarter of the current
year,  353,625  shares  were  purchased  back into  treasury  at a cost of $10.0
million  resulting  in  1,334,382  treasury  shares held at April 22,  2000.  No
additional  treasury stock activity occurred  subsequent to the first quarter of
2000. 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.


15. 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 following table summarizes the pro forma disclosures  regarding net
income and earnings per share for the years ended December 30, 2000,  January 1,
2000 and January 2, 1999:
<TABLE>
<CAPTION>

(IN THOUSANDS EXCEPT PER SHARE DATA)                                              Years Ended
                                                         -----------------------------------------------------------
                                                           DECEMBER 30, 2000     January 1, 2000    January 2, 1999
                                                         --------------------  ------------------  -----------------
<S>                                                      <C>                   <C>                 <C>
Net income:
   As reported.....................................           $      175,592       $      88,205       $     94,871
   Pro forma.......................................           $      172,869       $      86,890       $     91,032
Basic net income per share:
   As reported.....................................           $         2.07       $        1.05       $       1.14
   Pro forma.......................................           $         2.05       $        1.04       $       1.09
Diluted net income per share:
   As reported.....................................           $         2.00       $        1.01       $       1.08
   Pro forma.......................................           $         1.96       $        0.99       $       1.04
Weighted  average  grant  date fair  value of options
   granted during the year.........................           $        10.17       $       11.88       $       8.53


</TABLE>
                                      F-26
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. 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 2000,  1999 and 1998,  the fair value of each option grant was
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 options granted, the following weighted average assumptions were used to
determine the fair value:

<TABLE>
<CAPTION>
                                                                             Years Ended
                                                   -----------------------------------------------------------
                                                     DECEMBER 30, 2000     January 1, 2000    January 2, 1999
                                                   --------------------  ------------------  -----------------
<S>                                                <C>                   <C>                 <C>
Dividend yield............................                        1.1%                0.0%               0.0%
Expected volatility.......................                       31.6%               24.8%              27.2%
Risk-free interest rate...................                       5.84%               5.76%              5.04%
Expected option life (years)..............                          5                   5                  5
</TABLE>

    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>
                                                                                        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>
<TABLE>
<CAPTION>
                                                                                        Year Ended January 1, 2000
                                                                                  --------------------------------------
                                                                                                               Weighted
                                                                                                                Average
                                                                                            Options      Exercise Price
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................            6,456,280         $     1.99
Granted.......................................................................                    -                  -
Exercised.....................................................................              491,570               2.23
Forfeited.....................................................................               45,081               1.93
Expired.......................................................................                    -                  -
                                                                                  ------------------
Outstanding at the end of the period..........................................            5,919,629         $     1.97
                                                                                  ==================
Exercisable at the period end.................................................            4,493,801         $     1.96
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-27
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.  STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 30, 2000
                                                                                  --------------------------------------
                                                                                                               WEIGHTED
                                                                                                                AVERAGE
                                                                                            OPTIONS      EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................            5,919,629         $     1.97
Granted.......................................................................                    -                  -
Exercised.....................................................................            1,608,846               1.98
Forfeited.....................................................................                    -                  -
Expired.......................................................................                    -                  -
                                                                                  ------------------
Outstanding at the end of the period..........................................            4,310,783         $     1.97
                                                                                  ==================
Exercisable at the period end.................................................            3,366,458         $     1.96
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Exercise prices as of December 30, 2000, for options  outstanding  under the
1996  Stock  Option  Plan  ranged  from  $1.74 to $5.23.  The  weighted  average
remaining  contractual life of these options is approximately  five and one-half
years.

    Under  Keebler's  1998 Omnibus Stock  Incentive  Plan,  6,500,000  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>
<TABLE>
<CAPTION>

                                                                                       Year Ended January 1, 2000
                                                                                  --------------------------------------
                                                                                                               Weighted
                                                                                                                Average
                                                                                            Options      Exercise Price
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................            2,715,636         $    25.01
Granted.......................................................................              270,234              34.98
Exercised.....................................................................               39,140              24.82
Forfeited.....................................................................              123,634              25.27
Expired.......................................................................                5,494              27.31
                                                                                  ------------------
Outstanding at the end of the period..........................................            2,817,602         $    25.96
                                                                                  ==================
Exercisable at the period end.................................................              899,699         $    25.74
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                F-28
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15.  STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 30, 2000
                                                                                  --------------------------------------
                                                                                                               WEIGHTED
                                                                                                                AVERAGE
                                                                                            OPTIONS      EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................            2,817,602         $    25.96
Granted.......................................................................               89,362              29.59
Exercised.....................................................................              126,087              26.01
Forfeited.....................................................................               83,753              28.54
Expired.......................................................................                6,814              29.63
                                                                                  ------------------
Outstanding at the end of the period..........................................            2,690,310         $    25.98
                                                                                  ==================
Exercisable at the period end.................................................            1,746,676         $    25.98
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Exercise prices as of December 30, 2000, for options  outstanding  under the
1998 Omnibus  Stock  Incentive  Plan ranged from $24.00 to $42.41.  The weighted
average remaining contractual life of these options is approximately four years.

    Under  Keebler's   Non-Employee  Director  Stock  Plan,  300,000  shares  of
Keebler's stock were  authorized for future grant.  All options granted have ten
year terms and vest automatically upon grant.

    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>
<TABLE>
<CAPTION>
                                                                                        Year Ended January 1, 2000
                                                                                  --------------------------------------
                                                                                                               Weighted
                                                                                                                Average
                                                                                            Options      Exercise Price
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................               22,500         $    27.44
Granted.......................................................................                7,500              30.75
Exercised.....................................................................                    -                 -
Forfeited.....................................................................                    -                 -
Expired.......................................................................                    -                 -
                                                                                  ------------------
Outstanding at the end of the period..........................................               30,000         $    28.27
                                                                                  ==================
Exercisable at the period end.................................................               30,000         $    28.27
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-29
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 30, 2000
                                                                                  --------------------------------------
                                                                                                               WEIGHTED
                                                                                                                AVERAGE
                                                                                            OPTIONS      EXERCISE PRICE
                                                                                  ------------------  ------------------
<S>                                                                               <C>                 <C>
Outstanding at the beginning of the period....................................               30,000        $     28.27
Granted.......................................................................                5,250              25.75
Exercised.....................................................................                    -                 -
Forfeited.....................................................................                    -                 -
Expired.......................................................................                    -                 -
                                                                                  ------------------
Outstanding at the end of the period..........................................               35,250        $     27.89
                                                                                  ==================
Exercisable at the period end.................................................               35,250        $     27.89
                                                                                  ==================
------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Exercise  prices as of December 30, 2000 for options  outstanding  under the
Non-Employee  Director  Stock Plan ranged from  $25.75 to $30.75.  The  weighted
average remaining  contractual life of these options is approximately  seven and
one-half years.


16. 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>
                                                                                     Years Ended
                                                           -----------------------------------------------------------
(IN THOUSANDS)                                               DECEMBER 30, 2000     January 1, 2000    January 2, 1999
                                                           --------------------  ------------------  -----------------
<S>                                                        <C>                   <C>                 <C>
NUMERATOR:
   Income before extraordinary item.................                 $ 175,592           $  88,205          $  96,577
   Extraordinary item, net of tax...................                         -                   -              1,706
                                                           --------------------  ------------------  -----------------
   Net income.......................................                 $ 175,592           $  88,205          $  94,871
                                                           ====================  ==================  =================
DENOMINATOR:
   Denominator for Basic Net Income Per Share
        Weighted Average Shares.....................                    84,517              83,759             83,254
   Effect of Dilutive Securities:
        Stock options...............................                     3,323               3,886              3,992
        Warrants....................................                         -                   -                240
                                                           --------------------  ------------------  -----------------
        Diluted potential common shares.............                     3,323               3,886              4,232
                                                           --------------------  ------------------  -----------------
   Denominator for Diluted Net Income Per Share.....                    87,840              87,645             87,486
                                                           ====================  ==================  =================
</TABLE>

    For the year ended December 30, 2000, there were weighted average options to
purchase 148,990 shares of common stock at an exercise price ranging from $36.19
to $42.41,  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.  For the
year ended  January 1, 2000,  there were  weighted  average  options to purchase
143,122  shares of common  stock at an  exercise  price  ranging  from $32.13 to
$39.25, 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.  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.

                                      F-30
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. SEGMENT INFORMATION

    In 1998,  Keebler  adopted SFAS No. 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.  Either a
Keebler sales employee or a distributor  sells products in the Branded  segment.
The sales channels in the Specialty segment primarily sell cookies, crackers and
brownie  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.), as well as cookies  manufactured  for the Girls
Scouts of the U.S.A. Many of the products sold by the Specialty segment are done
so through the use of brokers.

    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
for the total company 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,  whereas actual cost of sales
is used to determine consolidated income from operations.

    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 years ended  December  30,  2000,  January 1, 2000 and
January 2, 1999.  Prior year  numbers have been  restated for  reclassifications
between reportable segments.
<TABLE>
<CAPTION>
                                                       Branded      Specialty
(IN THOUSANDS)                                         Segment        Segment      Other (1)          Total
                                                  -------------  -------------  -------------  -------------
<S>                                               <C>            <C>            <C>            <C>
YEAR ENDED DECEMBER 30, 2000:

NET SALES TO EXTERNAL CUSTOMERS...........         $ 2,123,723    $   633,227    $         -    $ 2,756,950
DEPRECIATION EXPENSE......................              25,334         11,413         34,379         71,126
PROFIT CONTRIBUTION.......................             390,848        128,243              -        519,091

YEAR ENDED JANUARY 1, 2000:

Net sales to external customers...........         $ 2,020,528    $   647,243    $         -    $ 2,667,771
Depreciation expense......................              21,210          8,307         35,017         64,534
Profit contribution.......................             350,657        108,895              -        459,552

YEAR ENDED JANUARY 2, 1999:

Net sales to external customers...........         $ 1,726,668    $   499,812    $         -    $ 2,226,480
Depreciation expense......................              23,690          7,846         27,867         59,403
Profit contribution.......................             282,639         85,898              -        368,537

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

(1) Represents expenses incurred by the functional support departments that are not allocated to the reportable segments.
</TABLE>
                                      F-31
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. SEGMENT INFORMATION (CONTINUED)

    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 for the years ended  December 30,  2000,  January 1, 2000 and
January 2, 1999 is as follows:
<TABLE>
<CAPTION>
                                                                                  Years Ended
                                                          ---------------------------------------------------------
(IN THOUSANDS)                                             DECEMBER 30, 2000    January 1, 2000    January 2, 1999
                                                          -------------------  -----------------  -----------------
<S>                                                       <C>                  <C>                <C>
INCOME BEFORE INCOME TAX EXPENSE:
Reportable segments' profit contribution............           $     519,091        $   459,552        $   368,537
Unallocated functional support costs (2)............                 191,616            195,649            172,498
Restructuring and impairment (credit) charge........                    (996)            66,349                  -
Interest expense, net...............................                  44,111             36,174             26,500
                                                          -------------------  -----------------  -----------------
   Income before Income Tax Expense.................           $     284,360        $   161,380        $   169,539
                                                          ===================  =================  =================
</TABLE>

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

    Net sales to external customers consist of cookies, crackers and other baked
goods for all periods  presented.  All  long-lived  assets at December 30, 2000,
January 1, 2000 and January 2, 1999 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  years  ended
December 30, 2000, January 1, 2000 and January 2, 1999.


18. UNAUDITED QUARTERLY FINANCIAL DATA

    Results of  operations  for each of the four  quarters  of the fiscal  years
ended  December 30, 2000 and January 1, 2000 follow.  Each quarter  represents a
period of twelve weeks except the first quarter which consists of sixteen weeks.

<TABLE>
<CAPTION>

                                                         Quarter 1         Quarter 2           Quarter 3         Quarter 4
                                                    -----------------  -----------------  -----------------  -----------------
(IN MILLIONS EXCEPT PER SHARE DATA)                   2000*      1999     2000     1999      2000     1999      2000     1999
                                                    -------- --------  -------- --------  -------- --------  -------- --------
<S>                                                 <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
Net sales......................................      $855.9   $852.0    $613.6   $587.9    $642.2   $615.8    $645.3   $612.1
Gross profit...................................       492.5    471.3     360.2    330.5     388.0    354.6     397.2    360.8
Restructuring and impairment (credit) charge...           -        -      (1.0)    69.2         -        -         -     (2.9)
Net income (loss)..............................       $47.5    $32.7     $33.4   $(21.4)    $41.0    $32.1     $53.7    $44.8

Basic net income per share:
   Net income (loss)...........................       $0.57    $0.39     $0.39   $(0.25)    $0.48    $0.38     $0.63    $0.53
                                                    ======== ========  ======== ========  ======== ========  ======== ========
Diluted net income per share:
   Net income (loss)...........................       $0.55    $0.37     $0.38   $(0.24)    $0.46    $0.37     $0.61    $0.51
                                                    ======== ========  ======== ========  ======== ========  ======== ========

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

* Quarter 1, 2000 includes the operating results of Austin from the acquisition date of March 6, 2000 through April 22, 2000.
</TABLE>

                                      F-32
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SALES INCENTIVES

    In  November  2000,  the  EITF  reached  a  consensus  on Issue  No.  00-14,
"Accounting  for Certain Sales  Incentives,"  which  addresses the  recognition,
measurement and income  statement  classification  for certain sales  incentives
offered by vendors  (including  manufacturers)  that have the effect of reducing
the price of a product or service to a customer  at the point of sale.  For cash
sales  incentives  within  the scope of Issue  No.  00-14,  costs are  generally
recognized  at the date on which the related  revenue is  recorded  and is to be
classified as a reduction in revenue.  Upon  adoption of Issue No. 00-14,  which
becomes  effective on June 30, 2001,  prior year  financial  statements  will be
restated for comparative purposes.

     The Company records coupon redemption expense within selling, marketing and
administrative  expenses on the  Consolidated  Statements of  Operations.  These
sales incentives offered by the Company have the effect of reducing the price of
a product to a customer  at the point of sale.  Coupon  redemption  expense  was
$22.7 million,  $20.1 million and $21.7 million for the years ended December 30,
2000, January 1, 2000 and January 2, 1999, respectively.



                                    * * * * *




                                      F-33
<PAGE>
<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  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,
presents fairly,  in all  material  respects,  the  information  required  to be
included therein.





PricewaterhouseCoopers LLP





Chicago, Illinois
January 31, 2001










                                      S-1
<PAGE>
<TABLE>
<CAPTION>

ITEM 14 (D).    FINANCIAL STATEMENT SCHEDULE                                                                    SCHEDULE II

                                                        KEEBLER FOODS COMPANY
                                               SCHEDULE II -- VALUATION AND QUALIFYING
                                       ACCOUNTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY
                                                     1, 2000 AND JANUARY 2, 1999

                                                           (IN THOUSANDS)

---------------------------------------------------------------------------------------------------------------------------
                     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 DECEMBER 30, 2000
         For discounts and doubtful accounts        $  8,568        $ 21,858      $  1,525 (5)    $(24,612)(2)   $   7,339
                                                   ==========      ==========    ==========      ==========     ===========

         For inventory reserves                     $  6,675        $  8,693      $    767 (5)    $ (7,929)(3)   $   8,206
                                                   ==========      ==========    ==========      ==========     ===========

YEAR ENDED JANUARY 1, 2000
         For discounts and doubtful accounts        $  7,782        $ 22,474      $      -        $(21,688)(2)   $   8,568
                                                   ==========      ==========    ==========      ==========     ===========

         For deferred taxes                         $ 84,350        $      -      $(84,350)(4)    $      -       $       -
                                                   ==========      ==========    ==========      ==========     ===========

         For inventory reserves                     $  9,614        $  4,026      $      -        $ (6,965)(3)   $   6,675
                                                   ==========      ==========    ==========      ==========     ===========

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


  (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 eliminated due to the resolution of a pre-acquisition contingency.
  (5)    Amount acquired in the acquisition of Austin Quality Foods, Inc.



                                                                 S-2

</TABLE>
<PAGE>
                                EXHIBIT INDEX

  EXHIBIT
   NUMBER                          DESCRIPTION

   2.1        Agreement and Plan of Merger dated as of October 26, 2000 by and
              among Keebler Foods Company ("Keebler"), Kellogg Company
              ("Kellogg") and FK Acquisition Corp. (incorporated herein by
              reference to Exhibit 2.1 of Keebler's Current Report on Form 8-K
              previously filed with the Securities and Exchange Commission (the
              "Commission") on November 7, 2000 (Commission File No. 001-13705))

   2.2        Voting Agreement dated as of October 26, 2000 by and between
              Flowers Industries, Inc. and Kellogg (incorporated herein by
              reference to Exhibit 99.1 of Keebler's Current Report on Form 8-K
              previously filed with the Commission on November 7, 2000
              (Commission File No. 001-13705))

   2.3        Stock Purchase Agreement dated as of January 19, 2000 by and among
              R & H Trust Co (Jersey) Limited, as Trustee, as a Seller, HB
              Marketing & Franchising L.P., as a Seller, 697163 Alberta Ltd, as
              a Seller, William C. Burkhardt, as a Seller, Austin Quality Foods,
              Inc., and Keebler, as Purchaser (incorporated herein by reference
              to Exhibit 2.3 of Keebler's Current Report on Form 8-K previously
              filed with the Commission on March 16, 2000 (Commission File No.
              001-13705))

   2.4        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 Keebler's
              Registration Statement on Form S-1 previously filed with the
              Commission (Commission File No. 333-42075) (the "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 Holdings
              Corporation ("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)

                                       i
<PAGE>

  EXHIBIT
   NUMBER                          DESCRIPTION

   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)

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

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

   10.8       1998 Omnibus Stock Incentive Plan of Keebler (incorporated herein
              by reference to Exhibit 10.26 of the 1998 Registration
              Statement)

   10.8(a)    1998 Non-Qualified Stock Option Agreement for certain key
              employees (incorporated herein by reference to Exhibit 10.12(a) of
              Keebler's 1998 Annual Report on Form 10-K previously filed with
              the Commission on March 22, 1999 (Commission File No. 001-13705)
              (the "1998 Form 10-K"))

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

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

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

   10.12      $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)

   10.13      Keebler Company Deferred Compensation Plan for certain officers of
              Keebler dated January 1, 1999 (incorporated herein by reference to
              Exhibit 10.18 of the 1998 Form 10-K)

   10.14      Keebler Foods Company Deferred Compensation Plan for Non-Affiliate
              Directors dated March 10, 1999 (incorporated herein by reference
              to Exhibit 10.19 of the 1998 Form 10-K)

   10.15      Receivables Purchase Agreement dated as of January 29, 1999 among
              Keebler Funding Corporation, Keebler, Liberty Street Funding Corp.
              and the Bank (incorporated herein by reference to Exhibit 10.20
              of the 1998 From 10-K)

                                       ii
<PAGE>

   EXHIBIT
    NUMBER                         DESCRIPTION

   10.16      On January 23, 2001, an information statement was filed in
              connection with the proposed acquisition of Keebler by Kellogg
              (incorporated herein by reference to Exhibit 10.16 of the 2000
              Form 10-K). The acquisition will be effected by the merger of a
              wholly-owned subsidiary of Kellogg with Keebler pursuant to an
              Agreement and Plan of Merger dated as of October 26, 2000 among
              Keebler, Kellogg and the merger subsidiary.

   21         Subsidiaries of Keebler

   27         Financial Data Schedule


                                      iii