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

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

                                    FORM 10-K

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

                    FOR THE FISCAL YEAR ENDED JANUARY 1, 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 MARCH 8, 2000, BASED UPON THE CLOSING
PRICE OF THE COMMON STOCK AS REPORTED ON THE NEW YORK STOCK EXCHANGE ON SUCH
DATE, WAS APPROXIMATELY $944,000,000.

NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE, OUTSTANDING AS OF THE CLOSE
OF BUSINESS ON MARCH 8, 2000: 83,795,717.

                      DOCUMENTS INCORPORATED BY REFERENCE:

PROXY STATEMENT TO BE FILED ON OR BEFORE APRIL 23, 2000 FOR THE ANNUAL
  MEETING TO BE HELD ON MAY 23, 2000..................................  PART III
<PAGE>


                                FORM 10-K REPORT

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I:

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

Item 2.    Properties........................................................ 6

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................ 20

Item 11.   Executive Compensation............................................ 20

Item 12.   Security Ownership of Certain Beneficial Owners and Management.... 20

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

PART IV:

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K... 21

<PAGE>
                                     PART I

ITEM 1.     BUSINESS

    Unless stated otherwise, market share data included in this Annual Report on
Form 10-K are based on supermarket, mass merchandiser and drug store sales,
measured in pounds sold, for the fifty-two week period ended January 2, 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, 1999, 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 $2.7 billion and a 25.4% 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 "predecessor company") on July 14, 1992.
Keebler was acquired from UB Investments (Netherlands) B.V. on January 26, 1996
(the "Keebler acquisition") by INFLO Holdings Corporation ("INFLO"), a
corporation which was jointly owned by Artal Luxembourg S.A. ("Artal"), a
private investment company, and Flowers Industries, Inc. ("Flowers"), a New York
Stock Exchange-listed company and one of the country's largest manufacturers and
marketers of fresh and frozen baked foods. Immediately after the Keebler
acquisition, the Company was renamed Keebler Corporation. In conjunction with
the Keebler acquisition, INFLO sold 2.5% of the outstanding shares of $0.01 par
value common stock to certain members of management. On June 4, 1996, Keebler
acquired Sunshine Biscuits, Inc. ("Sunshine" or the "Sunshine acquisition") from
G.F. Industries, Inc. ("GFI"). As part of consideration paid in the sale of
Sunshine, GFI was issued common stock and a warrant to purchase 6,135,781 shares
of common stock. On November 20, 1997, INFLO was merged into Keebler Corporation
(the "Merger") and subsequently changed its name to Keebler Foods Company. After
the Merger, the stock and warrant held by GFI were transferred to Bermore,
Limited ("Bermore"), a privately held corporation and the parent of GFI, and
reissued for the same value in the name of Keebler. On February 3, 1998, Keebler
completed an initial public offering (the "Offering") of 13,386,661 shares of
common stock. Concurrent with the Offering, Bermore exercised the warrant in
exchange for 6,135,781 shares of common stock. The exercise of the warrant
resulted in Keebler receiving $19.8 million of cash proceeds. Artal and Bermore
sold all of the shares in the Offering, with no proceeds from the Offering going
to Keebler. As part of the transaction, Flowers acquired additional shares of
common stock from Artal and Bermore, which increased its ownership from
approximately 45% to 55%. Artal, having sold shares to both Flowers and the
public, retained ownership of approximately 21%. Bermore exercised the warrant,
sold shares to both Flowers and the public and retained ownership of
approximately 6%. During 1998, Bermore, through a series of transactions,
transferred its shares held to Claremont Enterprises, Limited ("Claremont"), a
privately held Bahamian limited company. On September 28, 1998, Keebler acquired
President International, Inc. ("President") from President International Trade
and Investment Corporation, a company limited by shares under the International
Business Companies Ordinance of the British Virgin Islands. On January 21, 1999,
Keebler registered 16,200,000 shares of the Company's common stock in connection
with a secondary public offering. Artal and Claremont owned all of the shares
sold in the secondary offering, with no proceeds going to Keebler. As a result,
Artal's ownership percentage decreased from approximately 21% to 2% and
Claremont's ownership percentage was reduced from approximately 6% to 5% of the
outstanding common stock. Management's ownership remained at approximately 2%
and Flowers' ownership remained at approximately 55%. During 1999, all remaining
shares owned by both Artal and Claremont were sold in the open market.  On March
6, 2000, Keebler acquired Austin Quality Foods, Inc. ("Austin"), for

                                       1
<PAGE>

$252.4 million, in a business combination that will be accounted for as a
purchase.  Austin is a leading producer and marketer of single serve baked
snacks, including cracker sandwiches and bite-sized crackers and cookies.

GENERAL BUSINESS DESCRIPTION

    Keebler competes in the U.S. retail cookie and cracker industry, which in
1999 generated sales of approximately $8.0 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 82.9%
of 1999 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
4.3% per year. Since 1992, U.S. annual dollar supermarket sales of cookies and
crackers have increased by an average of 1.7% 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 and President have enabled us to further
develop this business strategy. The key elements of this strategy include:

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

    Keebler operates its business through the use of two reportable segments,
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:
CHEEZ-IT, CHIPS DELUXE, CLUB, DROXIES, FAMOUS AMOS, FUDGE SHOPPE, SUNSHINE
KRISPY, MUNCH'EMS, MURRAY, OLDE NEW ENGLAND, READY CRUST, SANDIES, TOWN HOUSE,
VIENNA FINGERS, WHEATABLES and ZESTA. We 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.

    Keebler distributes retail branded cookie and cracker products through our
DSD distribution system, which services substantially all supermarkets in the
U.S., as measured by IRI. We believe our national DSD distribution system
provides us with certain competitive advantages. Members of Keebler's sales
force, rather than store employees, stock and arrange our products on store
shelves and build end-aisle and free-standing product displays. Frequent
presence of our sales force employees provides us with a high level of control
over the availability and presentation of our products. We believe that this
control allows us to maintain shelf space, better execute in-store promotions
and more effectively introduce new products. In-store promotions are important
because we believe that purchases of cookies and crackers are often impulse
driven.
                                       2
<PAGE>

    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.

    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 has focused on new product introductions and line extensions within
our core product types, such as KEEBLER DOUBLE FUDGE AND CARAMEL cookies,
KEEBLER RAINBOW VANILLA WAFERS, KEEBLER WALNUT CHIPS DELUXE cookies, KEEBLER
CHIPS DELUXE SPRING RAINBOW cookies, CHIPS DELUXE RAINBOW USA cookies, KEEBLER
LEMON SUGAR WAFERS, CHEEZ-IT Grab Bag, CHEEZ-IT GET NUTTY snack mix, KEEBLER
SNAX STIX, KEEBLER WHEAT & CHEDDAR sandwich crackers and KEEBLER ELF GRAHAMS. We
have also introduced resealable stand-up packages for CHEEZ-IT snack mix and
FAMOUS AMOS cookies. In order to generate growth in non-supermarket channels, we
have also expanded our use of snack size packaging to include more products.

    The integration of Sunshine and President into Keebler's operations allowed
us to achieve efficiencies in administration, purchasing, production, marketing,
sales and distribution. In 1999, we began distributing FAMOUS AMOS and MURRAY
SUGAR FREE cookies through the Keebler DSD distribution system to areas outside
the reach of President's franchised DSD distribution system. This incremental
distribution enabled us to achieve higher utilization of existing capacity and
allowed us to achieve national distribution and recognition of 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, custom-baked products and
pie crusts for several markets. We are the number one manufacturer of crackers
for the foodservice market, as reported by IFMATRAC. Our foodservice products
are sold by a national sales force dedicated solely to the foodservice market,
with the assistance of independent brokers. These products are shipped directly
to customers' warehouses and in the foodservice market, we generally sell to
large distributors who sell our products to restaurants and institutions.

    With the acquisition of President, we are now also the leading licensed
supplier of cookies for the Girl Scouts of the U.S.A. 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.

                                       3
<PAGE>

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

    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.

    Our net sales, net income and cash flow 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 59.9% of sales volume. Smaller
competitors include numerous national, regional and local manufacturers of both
branded and private label products. Competition in our markets takes many forms
including:

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

    Nabisco is the largest manufacturer in the U.S. cookie and cracker industry.
We have a 25.4% share of the retail cookie and cracker market, while Nabisco has
a 34.5% 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 1999 accounted for 30.4% of our net sales. No
single customer accounted for more than 5.0% 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 and
packaging materials are readily available from various suppliers. There is no
significant reliance on any one supplier. We use hedging techniques to minimize
the impact of price fluctuations in raw materials and not for speculative or
trading purposes. The hedging techniques, however, may not result in a reduction
in our raw material costs or protect us from sharp increases in certain raw
material costs, which we have experienced in the past.

INTELLECTUAL PROPERTY

    We own a number of patents, licenses, trademarks and trade names. Principal
trademarks and trade names include KEEBLER, Ernie the Keebler Elf, the Hollow
Tree logo, CHEEZ-IT, CHIPS DELUXE, CLUB, DROXIES, FAMOUS AMOS, FUDGE SHOPPE,
HI-HO, HYDROX, SUNSHINE KRISPY, MUNCH'EMS, MURRAY, OLDE NEW ENGLAND, READY
CRUST,

                                       4
<PAGE>

SANDIES, SOFT BATCH, SUNSHINE, TOASTEDS, TOWN HOUSE, VIENNA FINGERS, WHEATABLES
and ZESTA. We are also the exclusive licensee of the CARR'S brand name in the
U.S. Such trademarks and trade names are considered to be of material importance
to our business since they have the effect of developing brand identification
and maintaining consumer loyalty. We are not aware of any fact that would
negatively impact the continuing use of any material patents, licenses,
trademarks or trade names.

RESEARCH AND DEVELOPMENT

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

REGULATION

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

ENVIRONMENTAL

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

EMPLOYEES

    We employ approximately 11,600 persons, of which approximately 5,400 are
represented by unions. We believe relations with our employees to be good.

EXECUTIVE OFFICERS OF KEEBLER
<TABLE>
<CAPTION>
      NAME                AGE                              POSITION
----------------          ---       -----------------------------------------------------------
<S>                       <C>       <C>
Robert P. Crozer           53       Chairman of the Board and Director
Sam K. Reed                53       Chief Executive Officer, President and Director
E. Nichol McCully          45       Chief Financial Officer and Senior Vice President - Finance
David B. Vermylen          49       President - Keebler Brands
Jack M. Lotker             56       President - Specialty Products
James T. Willard           59       Senior Vice President - Operations
Thomas E. O'Neill          45       Senior Vice President, Secretary and General Counsel
James T. Spear             45       Vice President - Finance and Corporate Controller
</TABLE>

                                       5
<PAGE>

    ROBERT P. CROZER. Mr. Crozer was elected Chairman of the Board of Directors
of Keebler in February 1998. Mr. Crozer has been a Director of Keebler since
March 1996. Mr. Crozer has served as Vice Chairman of the Board of Directors of
Flowers since 1989. Mr. Crozer has twenty-six 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-six 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 twelve 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 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 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 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 fourteen
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.


ITEM 2.     PROPERTIES

    We operate fifteen manufacturing facilities in the U.S. of which thirteen
are owned and two are leased. The manufacturing facilities are located in
Athens, Georgia; Augusta, Georgia; Charlotte, North Carolina; Chicago, Illinois;
Cincinnati, Ohio; Cleveland, Tennessee; Columbus, Georgia; Denver, Colorado; Des
Plaines, Illinois; Florence, Kentucky; 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. In addition, we own
one idle manufacturing facility located in Sayreville, New Jersey that is
currently held for sale. We also lease one manufacturing facility located in
Lake Bluff, Illinois, which is anticipated to cease operations during the first
quarter of 2000. 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.

                                       6
<PAGE>

    Distribution facilities consist of fifteen shipping centers attached to the
manufacturing facilities, nine stand-alone shipping centers (two owned and seven
leased, of which two are idle) and sixty-three distribution centers (ten owned
and fifty-three leased) throughout the U.S. Of the sixty-three distribution
centers, eleven are subleased. We also lease one hundred warehouses (of which
one is idle) and twenty depots (of which one is idle) 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 1999
and 1998 are as shown below:

<TABLE>
<CAPTION>
                                                  Market Price Per Share
                                  -------------------------------------------------------
                                             1999                        1998
                                  --------------------------  ---------------------------
                                          High           Low          High            Low
                                  ------------  ------------  ------------  -------------
      <S>                         <C>           <C>           <C>           <C>
      Quarter 1.................      $ 40.50       $ 30.25       $ 31.75        $ 25.88
      Quarter 2.................      $ 34.75       $ 26.75       $ 30.13        $ 24.69
      Quarter 3.................      $ 31.75       $ 28.00       $ 29.00        $ 23.88
      Quarter 4.................      $ 32.38       $ 25.69       $ 37.81        $ 26.19
</TABLE>

HOLDERS

    The approximate number of holders of record of common stock as of March 8,
2000 was 484. This number does not include beneficial owners of Keebler's
securities held in the name of nominees.

DIVIDENDS

    No dividends were declared on Keebler's common stock in 1999 or 1998.
Historically, we have not paid dividends on our common stock; however, an
initial quarterly dividend of $0.1125 per common share was declared on February
23, 2000, payable on March 22, 2000, to stockholders of record on March 8, 2000.
Additionally, the existing $700.0 million Senior Credit Facility Agreement
("Credit Facility") and the Senior Subordinated Notes ("Notes") place
limitations on our ability to pay dividends or make other distributions on our
common stock. The most limiting dividend restriction exists under the Notes,
which limits dividend payments to the sum of: (i) 50% of consolidated cumulative
net income, (ii) net cash proceeds received from the issuance of capital stock,
(iii) net cash proceeds received from the exercise of stock options and
warrants, (iv) net cash proceeds received from the conversion of indebtedness
into capital stock and (v) the net reduction in investments made by Keebler. Any
future determination as to the payment of dividends will be subject to such
limitations, will be at the discretion of the Board of Directors and will depend
on our results of operations, financial condition, capital requirements and
other factors deemed relevant by the Board of Directors.

                                       8
<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA

    The selected historical financial data presented below as of and for the
years ended January 1, 2000, January 2, 1999 and January 3, 1998, 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 forty-eight weeks ended December 28, 1996, the four weeks ended
January 26, 1996 and the fiscal year ended December 30, 1995, 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  Weeks Ended||       Ended   Year Ended
                                              January 1,   January 2,   January 3, December 28,|| January 26, December 30,
                                                    2000     1999 (a)         1998     1996 (b)||        1996         1995
                                            ------------ ------------ ------------ ------------||------------ ------------
<S>                                         <C>          <C>          <C>          <C>         ||<C>          <C>
                                                    (In Millions Except Per Share Data)        ||     (In Millions)
OPERATING DATA:                                                                                ||
Net sales...............................      $ 2,667.8    $ 2,226.5    $ 2,065.2    $ 1,645.5 ||  $   101.7    $ 1,578.6
Gross profit............................        1,517.2      1,287.6      1,177.2        871.3 ||       46.8        831.8
Restructuring and impairment charge.....           66.3            -            -            - ||          -            -
Loss on impairment of Salty Snacks                                                             ||
  business..............................              -            -            -            - ||          -         86.5
Income (loss) from continuing operations          197.6        196.1        141.4         70.1 ||      (25.5)      (137.9)
Income tax expense (benefit)............           73.2         73.0         45.2         14.0 ||          -         (0.5)
Extraordinary item:                                                                            ||
  Loss on early extinguishment of debt,                                                        ||
    net of tax..........................              -          1.7          5.4          1.9 ||          -            -
Net income (loss).......................      $    88.2    $    94.9    $    57.0    $    15.8 ||  $    (6.5)   $  (158.3)
                                                                                               ||
Diluted net income per share:                                                                  ||
  Income from continuing operations                                                            ||
    before extraordinary item...........      $    1.01    $    1.10    $    0.77    $    0.23 ||
  Extraordinary item....................              -         0.02         0.07         0.02 ||
                                            ------------ ------------ ------------ ------------||
  Net income............................      $    1.01    $    1.08    $    0.70    $    0.21 ||
                                            ============ ============ ============ ============||
                                                                                               ||
Weighted Average Shares Outstanding.....           87.6         87.5         80.6         76.1 ||
                                            ============ ============ ============ ============||
                                                                                               ||
OTHER DATA:                                                                                    ||
EBITDA, as adjusted (c).................      $   348.0    $   265.2    $   202.1    $   119.6 ||  $   (23.5)   $   (93.3)
Depreciation and amortization (excluding                                                       ||
  items related to discontinued                    84.1         69.1         60.7         49.5 ||        2.0         44.6
  operations)...........................                                                       ||
Capital expenditures (excluding                                                                ||
  expenditures related to discontinued            100.7         66.8         48.4         29.4 ||        3.2         54.2
  operations)...........................                                                       ||
                                                                                               ||
CASH FLOW DATA:                                                                                ||
Cash Provided from (Used by)                                                                   ||
   Operating activities.................      $   197.2    $   144.5    $   219.7    $    61.3 ||  $    (0.4)   $   (61.4)
   Investing activities.................          (96.8)      (510.7)       (41.5)      (130.1)||       65.2        (52.6)
   Financing activities.................         (103.2)       362.5       (163.0)        78.7 ||      (65.7)       104.4
                                            ------------ ------------ ------------ ------------||------------ ------------
(Decrease) increase in cash and cash          $    (2.8)   $    (3.7)   $    15.2    $     9.9 ||  $    (0.9)   $    (9.6)
   equivalents..........................    ============ ============ ============ ============||============ ============

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

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

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

(c)  EBITDA, as adjusted, is defined as income (loss) from continuing operations before interest, taxes, depreciation, amortization
     and restructuring and impairment charges.  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 flow from operations, as determined in accordance with
     generally accepted accounting principles.
</TABLE>

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                           Keebler Foods Company               ||          UBIUS
                                            ---------------------------------------------------||-------------------------
                                                                   As of                       ||          As of
                                            ---------------------------------------------------||-------------------------
                                              January 1,   January 2,   January 3, December 28,|| January 26, December 30,
                                                    2000         1999         1998         1996||        1996         1995
                                            ------------ ------------ ------------ ------------||------------ ------------
<S>                                         <C>          <C>          <C>          <C>         ||<C>          <C>
                                                               (In Millions)                   ||      (In Millions)
BALANCE SHEET DATA:                                                                            ||
Cash and cash equivalents...............      $    20.7    $    23.5    $    27.2    $    12.0 ||  $    2.1     $     3.0
Total assets............................        1,528.2      1,655.8      1,042.9      1,102.1 ||     849.1         926.9
Due to affiliate........................              -            -            -            - ||     105.0         108.0
Total debt (including capital leases)...          456.4        654.5        298.8        457.9 ||     371.4         437.6
Shareholders' equity....................          409.3        329.3        222.0        165.1 ||      45.3          51.8

</TABLE>

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

SET FORTH BELOW IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3,
1998. THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS AND LIQUIDITY AND
CAPITAL RESOURCES SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS OF KEEBLER FOODS COMPANY AND THE RELATED NOTES THERETO APPEARING
ELSEWHERE.

OVERVIEW

    GENERAL

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

    The principal elements comprising our cost of sales are raw and packaging
materials, labor and manufacturing overhead. The major raw materials that we use
in the manufacture of our products are flour, sugar, chocolate, shortening and
milk. We also use paper products, such as corrugated cardboard, as well as films
and plastics to package our products. The prices of these raw materials have
been subject to significant volatility. We have mitigated the effect of such
volatility in the past through our hedging programs, but 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 1999 and
1998 fiscal years consisted of fifty-two weeks and the 1997 fiscal year
consisted of fifty-three weeks.

    Keebler's operating results for the year ended January 1, 2000, include a
$66.3 million pre-tax restructuring and impairment charge 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 this charge under the caption RESTRUCTURING AND IMPAIRMENT
CHARGE in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

                                       10
<PAGE>

    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 January 1, 2000, January 2, 1999 and January 3, 1998
are set forth below:
<TABLE>
<CAPTION>
                                                                         Years Ended
                                                   -------------------------------------------------------
                                                     January 1, 2000    January 2, 1999    January 3, 1998
                                                   -----------------  -----------------  -----------------
<S>                                                <C>                <C>                <C>
NET SALES.........................................           100.0%             100.0%             100.0%
Cost of sales.....................................            43.1               42.2               43.0
Selling, marketing and administrative expenses....            46.0               48.5               49.7
Restructuring and impairment charge...............             2.5                  -                  -
INCOME FROM OPERATIONS............................             7.4                8.8                6.8
Interest Expense, Net.............................             1.4                1.2                1.6
Loss on early extinguishment of debt, net of tax..               -                  -                0.3
NET INCOME........................................             3.3%               4.3%               2.7%

</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, as well as to private label retailers.

<TABLE>
<CAPTION>
                                                            Years Ended
                           -----------------------------------------------------------------------------
                                January 1, 2000           January 2, 1999           January 3, 1998
                           ------------------------- ------------------------- -------------------------
($ IN MILLIONS)                          $         %               $         %               $         %
                           --------------- --------- --------------- --------- --------------- ---------
<S>                        <C>             <C>       <C>             <C>       <C>             <C>
NET SALES                      $  2,099.3                $  1,798.3                $  1,646.6

PROFIT CONTRIBUTION            $    339.8     16.2%      $    277.8     15.4%      $    223.4     13.6%
</TABLE>

    Net sales in the Branded segment grew 16.7% in 1999 to $2,099.3 million
versus $1,798.3 million in 1998. The acquisition of President contributed $276.2
million or 13.2% to total net revenues in 1999, compared to fourteen weeks
totaling just 4.4% of overall net sales in 1998. Volume gains of 6.0% in the
Keebler core business, which exclude sales attributed to the President
acquisition, together with the national distribution of FAMOUS AMOS and MURRAY
SUGAR FREE cookies, significantly contributed to the top-line growth. New
products introduced under our KEEBLER and CHEEZ-IT brands during 1999 included
KEEBLER DOUBLE FUDGE AND 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
mix. 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-the-
year. 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. Net sales in 1998 increased
9.2% to $1,798.3 million as compared to $1,646.6 million in 1997, with the
acquisition of President contributing $78.9 million in incremental revenue.
Adjusting to an equal number of selling days in 1997 and before including the
acquisition growth in 1998,

                                       11
<PAGE>

branded revenues grew 6.0% over the prior year. The primary drivers of the
increase were higher sales of products under both the KEEBLER and CHEEZ-IT
brands. The KEEBLER brand name was used to leverage new product introductions
through line extensions such as the KEEBLER PEANUT BUTTER FUDGE STICKS. The
growth in CHEEZ-IT sales was partly attributed to new products such as CHEEZ-IT
HEADS AND TAILS, CHEEZ-IT sandwich crackers and CHEEZ-IT snack mix.
Additionally, we redirected marketing support into brand-building advertising
and consumer promotions. A favorable sales mix of KEEBLER branded products,
combined with selected price increases, also generated higher revenues. Further
contributing to the improvement was continued revenue growth outside
supermarkets, such as in mass merchandisers, convenience and club stores.

    Profit contribution for the Branded segment was $339.8 million and $277.8
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 several cost reduction programs designed
to improve efficiencies and reduce distribution costs. The gross profit on
Keebler core products increased 1.2 percentage points in 1999, achieving 60.0%,
as a percentage of net sales. The Branded segment's 1998 profit contribution was
$54.4 million above the prior year. After removing the impact of President,
profit contribution was 15.8% of net sales, which represented a 2.2 percentage
point increase over 1997. A higher gross profit and lower distribution expenses
drove the improvement. The benefit noted in gross profit was attributed to
improved sales mix, selected price increases and continued productivity gains in
our bakeries. Lower distribution expenses were due to more fully utilizing
available trailer capacity and productivity and cost savings programs designed
to minimize inventory losses.

    SPECIALTY SEGMENT

    The Specialty segment produces cookies and crackers for the foodservice
market, custom-baked products for other marketers of branded food products,
including sales of cookies to the Girl Scouts of the U.S.A., and preformed pie
crusts. This segment also imports and distributes CARR'S crackers in the U.S.
under an exclusive long-term licensing and distribution agreement with United
Biscuits.

<TABLE>
<CAPTION>
                                                            Years Ended
                           -----------------------------------------------------------------------------
                                January 1, 2000           January 2, 1999           January 3, 1998
                           ------------------------- ------------------------- -------------------------
($ IN MILLIONS)                          $         %               $         %               $         %
                           --------------- --------- --------------- --------- --------------- ---------
<S>                        <C>             <C>       <C>             <C>       <C>             <C>
NET SALES                      $    568.5                $    428.1                $    418.6

PROFIT CONTRIBUTION            $    119.7     21.1%      $     90.7     21.2%      $     83.8     20.0%
</TABLE>

    The Specialty segment recorded revenues of $568.5 million in 1999, $140.4
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 2.3% 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.
Additionally, 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. These higher
sales were partially offset by reduced sales of preformed pie crusts, due to a
soft pie crust market. Before including the $16.2 million of sales attributed to
President in 1998, and after adjusting 1997 to an equal number of selling days,
1998 revenues finished $1.8 million below 1997. The decrease in net sales was
principally associated with lower margin products that were either subsequently
discontinued or re-positioned at higher price levels.

    Profit contribution in the Specialty segment increased $29.0 million to
$119.7 million in 1999. Excluding the impact of President, the profit
contribution of 20.1%, as a percentage of net sales, declined $4.1 million due
to a change in the sales mix, which was heavily weighted toward custom-baked
products, that 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. Excluding President, profit
contribution was 21.5% of net sales in 1998, compared to 20.0% in 1997. The
improvement in profit contribution was primarily achieved by a

                                       12
<PAGE>

more profitable sales mix, selected price increases and productivity gains
received through bakery automation projects and supply chain initiatives in
distribution and inventory management.

    COST OF SALES

    Cost of sales was $1,150.6 million, or 43.1% of net sales in 1999, compared
to $938.9 million, or 42.2% of net sales in 1998. The increase, both in dollars
and as a percentage of net sales, was primarily caused by the inclusion of
President for a full year compared to only fourteen weeks in 1998. Excluding the
impact of President, cost of sales as a percentage of net sales, was 40.0%,
41.2% and 43.0% in 1999, 1998 and 1997, respectively. The improvement in
year-over-year comparisons resulted from the benefits received on productivity
and cost savings programs designed to improve efficiency at our manufacturing
facilities, as well as from other cost reduction initiatives. Cost of sales was
also favorably impacted by lower raw and packaging material costs in each
respective year. In 1999, the benefits generated by these lower costs were
partially offset by a change in the production mix to include more products
sourced outside of the Keebler manufacturing network, which generally carry a
higher cost than internally produced products.

    SELLING, MARKETING AND ADMINISTRATIVE EXPENSES

    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 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.
In 1998, selling, marketing and administrative expenses were $53.8 million
higher than 1997, however, 1.2 percentage points better as a percentage of net
sales. After removing $27.2 million of expenses attributable to President,
selling, marketing and administrative expenses were $26.6 million above the
prior year. Higher marketing expenses related to our continued focus on building
brand equity through advertising and consumer promotions was the primary driver
of the increased spending. Partially offsetting these higher marketing expenses
were savings achieved in distribution costs due to improved inventory handling
and deployment.

    OTHER

    Other expense was $25.8 million in 1999, compared to $11.5 million in 1998
and $9.5 million in 1997. The increases for both 1999 and 1998 were driven by
incremental amortization expense resulting from the addition of over $400
million of intangible assets from the President acquisition in the fourth
quarter of 1998. Also contributing to the higher current year spending, were
various fees and costs of $5.3 million associated with the selling of accounts
receivable under the Receivables Purchase Agreement ("Agreement"). These higher
1999 costs were partially offset by $2.8 million of income recorded to recognize
the mark-to-market of an interest rate swap that no longer served as a hedge in
1999.

    RESTRUCTURING AND IMPAIRMENT CHARGE

    As part of the continuing 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
within the Company's 15-plant manufacturing network. As a result, a pre-tax
restructuring and impairment charge to operating income of $66.3 million was
recorded in 1999. The restructuring and impairment charge included $20.2 million
for cash costs related to severance and other exit costs from the Sayreville
facility. The remaining $46.1 million was non-cash charges for asset impairments
related to the Sayreville closing, including write-downs

                                       13
<PAGE>

of property, plant and equipment at Sayreville and equipment at other locations,
and a proportionate reduction of goodwill acquired in the acquisition of
Sunshine 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.

    The original $69.2 million charge recorded in the second quarter of 1999
was reduced by a fourth quarter adjustment of $2.9 million. The adjustment was
for costs related to severance and other exit costs from the facility due to
lower-than-expected severance costs and an earlier-than-expected disposal of the
facility. Of the total $66.3 million charge, approximately $65.6 million was
recorded as plant and facility closing costs and severance, with the remaining
$0.7 million recorded as other liabilities and accruals. Approximately 650
employees were expected to be terminated as a result of the closing of the
Sayreville facility, of which approximately 600 employees were represented by
unions. At January 1, 2000, approximately 595 employees under union contract and
approximately 45 employees not under union contract have been terminated. At
January 1, 2000, $6.0 million remained for plant and facility closing costs and
severance accruals and $0.3 million for other liabilities and accruals.
Substantially all of the remaining severance liability is expected to be spent
in 2000, as nearly all employees have been terminated. Production at the
Sayreville, New Jersey manufacturing facility ceased on September 3, 1999.
Spending for exit costs associated with the closure of the facility will
continue into the year 2000 as the facility is prepared for sale. Spending for
exit costs related to the facility closure is expected to continue for eighteen
months or until the facility is disposed of, whichever occurs earlier. The
amount of suspended depreciation and amortization that would have been
recognized for the year ended January 1, 2000, if the impairments had not been
recognized, was approximately $3.7 million, with $5.6 million of annualized
savings anticipated in 2000.

    INTEREST EXPENSE, NET

    Net interest expense was $36.2 million in 1999, $26.5 million in 1998 and
$33.8 million in 1997. The increase in interest expense in 1999 was primarily
due to the overall higher average debt balance outstanding as a result of the
President acquisition late in 1998. 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. Interest expense declined in 1998
from 1997, despite the $530.0 million of additional debt incurred from the
acquisition of President, due to lower interest rates, fees and favorable terms.
In conjunction with the President acquisition, the $145.0 million outstanding
balance on the term note was extinguished, also contributing to the reduction in
interest expense. Additionally, each year has benefited from favorable interest
rates. The 1999 weighted average interest rate was 0.54 percentage points lower
than the previous year and the 1998 weighted average interest rate was 0.62
percentage points lower than 1997.

    INCOME TAX EXPENSE

    Income taxes were provided at an effective tax rate of 45.3% in 1999, 43% in
1998 and 42% in 1997. In each year, the effective tax rate exceeded the
statutory rate due to nondeductible expenses, principally amortization of
intangibles, including trademarks, trade names, other intangibles and goodwill.
The 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. The 1.0 percentage point increase in the effective tax rate from 1997 to
1998 was due primarily to the increase in nondeductible expenses, principally
the amortization of intangibles, resulting from the President acquisition. 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

                                       14
<PAGE>

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 the term note. Similarly, in 1997 we also recorded an
extraordinary charge of $5.4 million, net of income taxes, with $3.8 million of
the charge related to the write-off of debt issuance costs associated with the
early retirement of term loans. The additional $1.6 million after-tax
extraordinary charge was recorded due to a loss on the early extinguishment of
the seller note, which was entered into at the time of the Keebler acquisition.
There were no extraordinary charges recorded in 1999.

    NET INCOME

    Net income for 1999 was $88.2 million, which when compared to 1998 net
income was $6.7 million lower. The decrease was primarily due to a $43.9 million
after-tax restructuring and impairment charge that was recorded in 1999.
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. In 1998,
net income of $94.9 million was 66.5% higher than the prior year of $57.0
million. The substantial growth in net earnings in year-over-year comparisons
was achieved through revenue gains combined with lower operating expenses
resulting from productivity and cost savings programs.

LIQUIDITY AND CAPITAL RESOURCES

    A condensed cash flow statement of Keebler follows:

<TABLE>
<CAPTION>
                                                                        Years Ended
                                                     -------------------------------------------------
(IN MILLIONS)                                        January 1, 2000  January 2, 1999  January 3, 1998
                                                     ---------------  ---------------  ---------------
<S>                                                  <C>              <C>              <C>
CASH PROVIDED FROM (USED BY)
  Operating activities.............................    $      197.2     $      144.5     $      219.7
  Investing activities.............................           (96.8)          (510.7)           (41.5)
  Financing activities.............................          (103.2)           362.5           (163.0)
                                                     ---------------  ---------------  ---------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...    $       (2.8)    $       (3.7)    $       15.2
                                                     ===============  ===============  ===============
</TABLE>

    CASH FLOW FOR 1999

    For the year ended January 1, 2000, operating activities provided $197.2
million of cash. Net earnings contributed $88.2 million to the growth. 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. Somewhat offsetting the
favorable cash flow position were higher levels of inventory. In addition, trade
accounts and notes receivable, before accounting for the securitization of
receivables, increased primarily from 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. Included in
operating activities was the restructuring and impairment charge recorded in the
second quarter of 1999, which 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.

                                       15
<PAGE>

    During 1999, investing activities used a total of $96.8 million. Spending on
capital projects of $100.7 million 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 R/3 management information system, as well as
year 2000 information technology compliance upgrades. Asset disposals, including
the sale of the Atlanta, Georgia manufacturing facility and an idle muffin line,
generated the majority of the $3.9 million proceeds.

    Cash used by financing activities in 1999 totaled $103.2 million. The
primary uses of cash in the year were for 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 partially offset by net cash proceeds of $103.0 million received from the
sale of accounts receivable under the Receivables Purchase Agreement. This
Agreement, which was initially entered into during the first quarter of the
year, allowed funds to be borrowed at a lower cost to the Company. Additionally,
the $10.0 million income tax benefit related to stock options exercised further
reduced the total financing uses of cash, as did the $3.2 million in cash
proceeds from the exercise of employee stock options during the year.

    CASH FLOW FOR 1998 AND 1997

    Operating activities provided $144.5 million of cash during 1998, a $75.2
million decrease from 1997. Net earnings of $94.9 million, together with a
deferral of additional income taxes, were the primary drivers of the positive
cash flow, while additional investments in accounts receivable and inventories
utilized a portion of the cash flow generated from operations. The addition of
President's trade accounts receivable subsequent to the acquisition was the
principal contributor to the higher trade accounts receivable balance. A build
in finished goods drove the additional investment in inventories in anticipation
of the upcoming Girl Scout cookie-selling season. Additionally, higher income
tax payments attributable to a $62.0 million increase in pre-tax income over
1997 also used incremental operating cash. Spending on plant and facility
closing costs and severance related to exit costs associated with recent
acquisitions, while continuing to decline from prior years, accounted for $5.4
million of cash used by operations. Exit cost spending associated with these
acquisitions includes noncancelable lease obligations, which are expected to
continue through 2006.

    Cash used by investing activities was $510.7 million in 1998 compared to
$41.5 million in 1997. The increase in cash used by investing activities in 1998
was primarily attributable to the $444.8 million, net of cash acquired,
acquisition of President in September of that year. Capital spending increased
$18.4 million over 1997 to $66.8 million. New product modifications, updates and
enhancements of production facilities and progress towards the achievement of
near-term cost savings and efficiencies in the manufacturing, sales and
distribution process drove the increase in capital spending. At year end 1998,
Keebler held the idle Atlanta, Georgia manufacturing facility, a distribution
center in Kensington, Connecticut and a warehouse in Houston, Texas for sale,
and disposition of these facilities was expected to be completed before the end
of 1999.

    In 1998, financing activities generated $362.5 million, which was $525.5
million greater than in 1997. The increase in 1998 mainly resulted from proceeds
of long-term debt borrowings under $825.0 million of available new debt
financing used to fund the acquisition of President. These cash sources were
partially offset by the pre-payment of the outstanding term note balance and a
$20.0 million repayment on the revolving facility. In 1997, however, financing
activities resulted in a net use of $163.0 million. We entered into an amendment
and restatement of our prior senior credit agreement, proceeds from which were
used to extinguish existing term loans of $153.6 million. The extinguishment was
funded primarily by a draw down on the revolving loan facility and $109.8
million under the new term loan. During 1997, the draw down on the revolving
loan facility was completely repaid. Additionally, in the fourth quarter of
1997, we extinguished $29.0 million of debt related to the seller note and made
$70.0 million in principal pre-payments on the term loan using existing cash
resources. The increase in cash provided from financing activities in 1998 was
also due to the receipt of $19.8 million of cash proceeds resulting from Bermore
exercising a warrant in exchange for 6,135,781 shares of common stock at the
time of our initial public offering. Employee stock options were also exercised
during the year providing another $0.8 million, while cash totaling $8.6 million
was used to repurchase common stock into treasury under the stock repurchase
program.

                                       16
<PAGE>

    CAPITAL RESOURCES

    In 1999, our capital resources were provided by the $700.0 million Credit
Facility that existed at the end of 1998. In September 1998, a change in our
credit agreements was needed to accommodate the additional cash required for the
acquisition of President. In order to consummate the acquisition, we entered
into the $700.0 million 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. Available borrowings under the revolving facility were
$350.0 million and $265.0 million in 1999 and 1998, respectively. Borrowings
under the $350.0 million revolving facility in 1999 were $85.0 million, which
were all repaid as of January 1, 2000, and in 1998 borrowings were $105.0
million with $20.0 million repaid as of January 2, 1999. There were no
borrowings under the $140.0 million revolving loan facility in 1998.

    Capital expenditures for fiscal 2000 are expected to be approximately $85
million, down $15.7 million from 1999. The majority of capital spending in 2000
will be used for the continued improvement in automation to generate additional
productivity and cost savings. We anticipate that future capital expenditures
will be funded by cash provided from operations and will continue at a level
sufficient to support our strategies and operating needs.

    Historically, we have not paid dividends. However, in the first quarter of
2000, Keebler's Board of Directors declared an initial quarterly dividend of
$0.1125 per common share. 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 1999 and 1998, we met all financial covenants in
each of our financing agreements. Total debt was $456.4 million and $654.5
million at January 1, 2000 and January 2, 1999, respectively. Current maturities
on the total debt outstanding were $37.3 million and $112.7 million at such
respective dates. Cash and cash equivalents on January 1, 2000 and January 2,
1999 were $20.7 million and $23.5 million, respectively. We believe that
available cash, as well as amounts available under our debt facilities, will be
sufficient to meet normal operating requirements for the foreseeable future.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The new statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position and that the
instruments be measured at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. However, in June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment to FASB Statement No.
133." Citing concerns about companies' ability to both modify their information
systems for year 2000 readiness and become educated with the new derivatives and
hedging standard, the FASB has delayed the effective date on SFAS No. 133 for
one year, to fiscal years beginning after June 15, 2000. We have not yet
determined the impact SFAS No. 133 may have on the consolidated financial
statements.

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 because 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 calendar year.

                                       17
<PAGE>

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.

YEAR 2000 ISSUE

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

    We performed a comprehensive review of our computer systems and
non-information systems to identify potential Y2K issues because we utilize
software and related technologies that were anticipated to be impacted by the
date change in the year 2000. Our SAP R/3 Enterprise Wide Information Systems
("SAP") and Manugistics software were developed/purchased as Y2K compliant.
Additionally, a complete simulation of the SAP production environment was
conducted in the second quarter of 1999 and the overall success revealed that
the risk factors for potential issues in the year 2000 were minimal for the SAP
environment. Our secondary information systems, which are not material to our
ability to forecast, manufacture or deliver product, were also corrected or
upgraded where needed. We completed our plan to test all business critical
systems before the end of the third quarter of 1999 and this testing did not
indicate any Y2K issues. Additionally, the results of a comprehensive
questionnaire sent to our significant vendors and suppliers indicated that they
all intended to be Y2K compliant prior to the end of 1999. We also developed a
contingency plan to address potential critical Y2K issues caused internally or
by a third party; however, this contingency plan was not needed.

    We incurred costs of $2.9 million in 1999 for becoming Y2K compliant, which
were entirely funded by cash provided from operations and expensed as incurred.
This spending was exclusive of Y2K issues regarding the President acquisition.
Many of the Y2K risks at President were mitigated through our implementation of
the SAP and Manugistics software at President facilities in 1999; however,
additional spending of $0.1 million was incurred to correct and upgrade
President's secondary information systems in order to make them Y2K compliant.

    As of the date of this filing, we have not experienced any Y2K failures with
our internal systems or equipment, nor have we detected any Y2K problems
affecting any third parties. We will continue to monitor our information
systems, facilities, equipment and relationships with third parties regarding
the Y2K issue. Although we believe our efforts to address Y2K issues have been
adequate, there can be no certainty that failures or problems related to Y2K may
not develop in the future. Also, we cannot guarantee that we will not experience
unanticipated consequences by undetected errors or defects in the technology
used in our internal systems or those of significant third parties. However, we
believe no such failure or problem is reasonably likely to materially disrupt
our business.

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

FORWARD-LOOKING STATEMENTS

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

                                       18
<PAGE>

    o  the competitiveness of the cookie and cracker industry;
    o  the future availability and prices of raw and packaging materials;
    o  potential regulatory obligations;
    o  our strategies;
    o  other statements that are not historical facts and
    o  Year 2000 issues.

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

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


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

    Our exposure to market risk for changes in interest rates relates primarily
to long-term debt obligations. Our current debt structure consists of both fixed
and floating rate debt. Interest rate swap agreements are used to effectively
manage changes in interest rates related to the majority of our borrowings with
the objective of reducing overall interest costs. Sensitivity analysis was used
to assess the impact that changes in market prices have on the fair value of
interest rate swap agreements. Assuming a ten percent increase in market price,
the fair value of the interest rate swap agreements at January 1, 2000, with a
notional amount of $334.0 million, would increase the net receivable to $9.7
million, while the impact of a ten percent decrease in market price would reduce
the net receivable to $6.0 million. The fair value of the interest rate swap
agreements at January 2, 1999, with an assumed ten percent increase in market
price and the notional amount of $527.3 million, would increase the net
receivable to $3.1 million, while the impact of a ten percent decrease in market
price would result in a net payable of $4.4 million. During 1999, an interest
rate swap that no longer served as a hedge, with a notional amount of $170.0
million, was recognized in income from operations with a marked-to-market fair
value of $2.8 million.

    We enter into commodity futures and options contracts to neutralize the
impact of price increases on raw material purchases that are not likely to be
recovered through higher prices on our products. We also used sensitivity
analysis to assess the potential impact on the fair value of commodity futures
and options contracts. Assuming a ten percent increase or decrease in market
price, the fair value of open contracts with a notional amount of $48.7 million
at January 1, 2000 would be impacted by $4.4 million. Assuming a ten percent
increase or decrease in market price, the fair value of open contracts with a
notional amount of $61.7 million at January 2, 1999 would be impacted by $5.8
million.

                                       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.


                                    PART III


ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Information regarding our Directors is incorporated by reference to
Keebler's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with our 2000 annual meeting.

    Information regarding our Executive Officers can be found in Part I of this
Annual Report on Form 10-K on pages 5 and 6.


ITEM 11.     EXECUTIVE COMPENSATION

    Incorporated by reference to Keebler's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2000 annual meeting.


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Incorporated by reference to Keebler's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2000 annual meeting.


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Incorporated by reference to Keebler's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with our 2000 annual meeting.

                                       20
<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-31.

     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.

(c)  Financial Statement Schedule

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


                                       21
<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 20, 2000


     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 20, 2000.

<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)

</TABLE>
                                       22
<PAGE>

         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                     Keebler Foods Company and Subsidiaries



FINANCIAL STATEMENTS:                                                      PAGE
                                                                           ----

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

  Consolidated Balance Sheets at January 1, 2000 and January 2, 1999......  F-3

  Consolidated Statements of Operations for the years ended
    January 1, 2000, January 2, 1999 and January 3, 1998..................  F-5

  Consolidated Statements of Shareholders' Equity for the years ended
    January 1, 2000, January 2, 1999 and January 3, 1998..................  F-6

  Consolidated Statements of Cash Flows for the years ended
    January 1, 2000, January 2, 1999 and January 3, 1998..................  F-7

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

FINANCIAL STATEMENT SCHEDULE:

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

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






                                       F-1
<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 January 1, 2000 and January 2, 1999, and the
results of their  operations and their cash flows for each of the three years in
the period ended  January 1, 2000,  in  conformity  with  accounting  principles
generally  accepted in the United  States.  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,  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
February 1, 2000, except note 18, as to
  which the date is March 6, 2000






                                       F-2

<PAGE>
<TABLE>
                                                        KEEBLER FOODS COMPANY

                                                     CONSOLIDATED BALANCE SHEETS

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


                                                                                JANUARY 1, 2000  January 2, 1999
                                                                                ---------------  ---------------
<S>                                                                             <C>              <C>
ASSETS

CURRENT ASSETS:

     Cash and cash equivalents                                                     $    20,717      $    23,515
     Trade accounts and notes receivable, net                                           65,052          141,077
     Inventories, net:
         Raw materials                                                                  34,243           31,722
         Package materials                                                              13,907           13,081
         Finished goods                                                                126,954          120,550
         Other                                                                           1,176            1,024
                                                                                ---------------  ---------------
                                                                                       176,280          166,377

     Deferred income taxes                                                              46,252           57,713
     Other                                                                              27,278           26,636
                                                                                ---------------  ---------------
         Total current assets                                                          335,579          415,318

PROPERTY, PLANT AND EQUIPMENT, NET                                                     553,031          564,524

GOODWILL, NET                                                                          370,188          391,449

TRADEMARKS, TRADE NAMES AND OTHER INTANGIBLES, NET                                     211,790          226,084

PREPAID PENSION                                                                         33,240           38,205

ASSETS HELD FOR SALE                                                                     6,662            2,972

OTHER ASSETS                                                                            17,693           17,228
                                                                                ---------------  ---------------

         Total assets                                                              $ 1,528,183      $ 1,655,780
                                                                                ===============  ===============

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

                                                                F-3
</TABLE>

<PAGE>
<TABLE>
                                                        KEEBLER FOODS COMPANY

                                                     CONSOLIDATED BALANCE SHEETS

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

                                                                                JANUARY 1, 2000  January 2, 1999
                                                                                ---------------  ---------------
<S>                                                                             <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

     Current maturities of long-term debt                                          $    37,283      $   112,730
     Trade accounts payable                                                            147,862          143,572
     Other liabilities and accruals                                                    237,447          232,087
     Income taxes payable                                                               23,603           10,779
     Plant and facility closing costs and severance                                     11,290           11,018
                                                                                ---------------  ---------------
         Total current liabilities                                                     457,485          510,186

LONG-TERM DEBT                                                                         419,160          541,765

OTHER LIABILITIES:
     Deferred income taxes                                                             124,389          147,098
     Postretirement/postemployment obligations                                          64,383           63,754
     Plant and facility closing costs and severance                                     12,062           15,563
     Deferred compensation                                                              24,581           19,368
     Other                                                                              16,808           28,745
                                                                                ---------------  ---------------
         Total other liabilities                                                       242,223          274,528

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
     Preferred stock ($.01 par value; 100,000,000 shares authorized and
         none issued)                                                                        -                -
     Common stock ($.01 par value; 500,000,000 shares authorized and
         84,655,874 and 84,125,164 shares issued, respectively)                            846              841
     Additional paid-in capital                                                        182,686          169,532
     Retained earnings                                                                 255,813          167,608
     Treasury stock                                                                    (30,030)          (8,680)
                                                                                ---------------  ---------------
         Total shareholders' equity                                                    409,315          329,301
                                                                                ---------------  ---------------

         Total liabilities and shareholders' equity                                $ 1,528,183      $ 1,655,780
                                                                                ===============  ===============

                       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
                                                               ----------------------------------------------------------------
                                                                    JANUARY 1, 2000       January 2, 1999       January 3, 1998
                                                               --------------------  --------------------  --------------------
<S>                                                            <C>                   <C>                   <C>
NET SALES                                                              $ 2,667,771           $ 2,226,480           $ 2,065,184

COSTS AND EXPENSES:
    Cost of sales                                                        1,150,553               938,896               888,031
    Selling, marketing and administrative expenses                       1,227,481             1,080,044             1,026,245
    Other                                                                   25,834                11,501                 9,511
    Restructuring and impairment charge                                     66,349                     -                     -
                                                               --------------------  --------------------  --------------------
INCOME FROM OPERATIONS                                                     197,554               196,039               141,397

    Interest (income)                                                       (1,700)               (3,763)               (1,191)
    Interest expense                                                        37,874                30,263                35,038
                                                               --------------------  --------------------  --------------------
INTEREST EXPENSE, NET                                                       36,174                26,500                33,847
                                                               --------------------  --------------------  --------------------
INCOME BEFORE INCOME TAX EXPENSE                                           161,380               169,539               107,550
    Income tax expense                                                      73,175                72,962                45,169
                                                               --------------------  --------------------  --------------------
INCOME BEFORE EXTRAORDINARY ITEM                                            88,205                96,577                62,381

EXTRAORDINARY ITEM:
    Loss on early extinguishment of debt, net of tax                             -                 1,706                 5,396
                                                               --------------------  --------------------  --------------------
NET INCOME                                                             $    88,205           $    94,871           $    56,985
                                                               ====================  ====================  ====================

BASIC NET INCOME PER SHARE:
    Income before extraordinary item                                   $      1.05           $      1.16           $     0.80
    Extraordinary item                                                           -                  0.02                 0.07
                                                               --------------------  -------------------- --------------------
    Net income                                                         $      1.05           $      1.14           $     0.73
                                                               ====================  ==================== ====================
WEIGHTED AVERAGE SHARES OUTSTANDING                                         83,759                83,254               77,604
                                                               ====================  ==================== ====================

DILUTED NET INCOME PER SHARE:
    Income before extraordinary item                                   $      1.01           $      1.10           $     0.77
    Extraordinary item                                                           -                  0.02                 0.07
                                                               --------------------  -------------------- --------------------
    Net income                                                         $      1.01           $      1.08           $     0.70
                                                               ====================  ==================== ====================
WEIGHTED AVERAGE SHARES OUTSTANDING                                         87,645                87,486               80,562
                                                               ====================  ==================== ====================

                   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    RETAINED       TREASURY STOCK
                                            -----------------------     PAID-IN    EARNINGS   -----------------------
                                                 SHARES      AMOUNT     CAPITAL   (DEFICIT)      SHARES      AMOUNT       TOTAL
                                            ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>         <C>
BALANCE AT DECEMBER 28, 1996                    77,638   $     776   $ 148,613   $  15,752           -   $       -   $ 165,141

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

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

BALANCE AT JANUARY 3, 1998                      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
                                            =========== =========== =========== =========== =========== =========== ===========





                  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
                                                                       --------------------------------------------------------
                                                                        JANUARY 1, 2000     January 2, 1999     January 3, 1998
                                                                       ----------------    ----------------    ----------------
<S>                                                                    <C>                 <C>                 <C>
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
    Net income                                                              $   88,205          $   94,871          $   56,985
    Adjustments to reconcile net income to cash from
      operating activities:
        Depreciation and amortization                                           84,125              69,125              60,708
        Deferred income taxes                                                  (11,248)             10,075              18,548
        Accretion on Seller Note                                                     -                   -               2,376
        Loss on early extinguishment of debt, net of tax                             -               1,706               3,761
        Loss (gain) on sale of property, plant and equipment                     1,799                 424                (358)
        Restructuring and impairment charge                                     46,071                   -                   -
        Other                                                                        -               1,460                   -
    Changes in assets and liabilities:
        Trade accounts and notes receivable, net                               (26,975)             (5,082)             38,187
        Inventories, net                                                        (9,903)            (13,830)                203
        Income taxes payable                                                    12,824              (4,556)             16,113
        Other current assets                                                      (642)             (2,845)               (966)
        Trade accounts payable and other current liabilities                     9,840                 869              36,806
        Plant and facility closing costs and severance                          (3,641)             (5,373)            (13,715)
    Other, net                                                                   6,771              (2,319)              1,044
                                                                       ----------------    ----------------    ----------------
           Cash provided from operating activities                             197,226             144,525             219,692

CASH FLOWS USED BY INVESTING ACTIVITIES
    Capital expenditures                                                      (100,685)            (66,798)            (48,429)
    Proceeds from property disposals                                             3,904                 917               6,950
    Purchase of President International, Inc., net of cash acquired                  -            (444,818)                  -
                                                                       ----------------    ----------------    ----------------
           Cash used by investing activities                                   (96,781)           (510,699)            (41,479)

CASH FLOWS (USED BY) PROVIDED FROM FINANCING ACTIVITIES
    Purchase of treasury stock                                                 (21,350)             (8,605)                (75)
    Exercise of options and warrant                                              3,203              20,577                   -
    Proceeds from receivables securitization                                   103,000                   -                   -
    Deferred debt issue costs                                                        -              (1,845)             (1,344)
    Long-term debt borrowings                                                        -             425,000             109,750
    Long-term debt repayments                                                 (113,052)           (157,626)           (271,310)
    Revolving facility, net                                                    (85,000)             85,000                   -
    Income tax benefit related to stock options exercised                        9,956                   -                   -
                                                                       ----------------    ----------------    ----------------
           Cash (used by) provided from financing activities                  (103,243)            362,501            (162,979)
                                                                       ----------------    ----------------    ----------------
           (Decrease) increase in cash and cash equivalents                     (2,798)             (3,673)             15,234
           Cash and cash equivalents at beginning of period                     23,515              27,188              11,954
                                                                       ----------------    ----------------    ----------------
           Cash and cash equivalents at end of period                       $   20,717          $   23,515          $   27,188
                                                                       ================    ================    ================

                    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, with none 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,  with no proceeds  going to
Keebler. As a result,  Artal's ownership percentage decreased from approximately
21% to 2% and Claremont's ownership percentage was reduced from approximately 6%
to 5% of the  outstanding  common  stock.  Management's  ownership  remained  at
approximately 2% and Flowers'  ownership  remained at approximately  55%. 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.

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 1999 and
1998  fiscal  years  consisted  of  fifty-two  weeks  and the 1997  fiscal  year
consisted of fifty-three 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.

GUARANTEES OF NOTES

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

                                      F-8
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1.  BASIS OF PRESENTATION (CONTINUED)

RECLASSIFICATIONS

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


2.  ACQUISITION OF PRESIDENT INTERNATIONAL, INC.

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

    The  acquisition  of  President  by  Keebler  has  been  accounted  for as a
purchase.  The total purchase  price and the fair value of  liabilities  assumed
have been allocated to the tangible and intangible  assets of President based on
respective fair values.  The  acquisition has resulted in an unallocated  excess
purchase price over fair value of net assets acquired of $329.2  million,  which
is being amortized on a straight-line basis over a forty year period.

    Results of operations  for  President  from  September  28, 1998,  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 THOUSANDS, 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


3.  RESTRUCTURING AND IMPAIRMENT CHARGE

    As part of the continuing  process of integrating  the business of President
into the Company's  operations,  on May 14, 1999, Keebler announced the decision
to close its  manufacturing  facility  in  Sayreville,  New Jersey due to excess
capacity within the Company's  15-plant  manufacturing  network.  As a result, a
pre-tax restructuring and impairment charge to operating income of $66.3 million
was recorded in 1999. The  restructuring  and impairment  charge  included $20.2
million  for cash  costs  related  to  severance  and other  exit costs from the
Sayreville facility.  The remaining $46.1 million was 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  acquisition  of
Sunshine 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.

                                      F-9
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  RESTRUCTURING AND IMPAIRMENT CHARGE (CONTINUED)

    The original  $69.2 million  charge  recorded in the second  quarter of 1999
was reduced by a fourth quarter  adjustment of $2.9 million.  The adjustment was
for costs  related to  severance  and other exit costs from the  facility due to
lower-than-expected severance costs and an earlier-than-expected disposal of the
facility.  Of the total $66.3 million  charge,  approximately  $65.6 million was
recorded as plant and facility  closing costs and severance,  with the remaining
$0.7 million  recorded as other  liabilities  and  accruals.  Approximately  650
employees  were  expected  to be  terminated  as a result of the  closing of the
Sayreville  facility,  of which  approximately 600 employees were represented by
unions. At January 1, 2000, approximately 595 employees under union contract and
approximately 45 employees not under union contract had been terminated.

    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>

    At January 1, 2000,  $6.0 million  remained  for plant and facility  closing
costs  and  severance  accruals  and $0.3  million  for  other  liabilities  and
accruals.  Substantially all of the remaining severance liability is expected to
be spent in 2000, as nearly all employees  have been  terminated.  Production at
the Sayreville,  New Jersey manufacturing  facility ceased on September 3, 1999.
Spending  for exit  costs  associated  with the  closure  of the  facility  will
continue  into the year 2000 as the facility is prepared for sale.  Spending for
exit costs related to the facility  closure is expected to continue for eighteen
months or until the  facility is disposed  of,  whichever  occurs  earlier.  The
majority of the remaining reserves are cash costs.


4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

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

TRADE ACCOUNTS RECEIVABLE

    Substantially  all of Keebler's  trade accounts  receivable are  from retail
dealers and wholesale distributors. Keebler performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
Trade accounts receivable, as shown on the consolidated balance sheets, were net
of  allowances  of $8.6  million as of  January  1, 2000 and $7.8  million as of
January 2, 1999.

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 January
1, 2000 and at January 2, 1999.  Because Keebler has adopted a natural  business
unit single pool approach to determining LIFO inventory cost,  classification of
the LIFO reserve by inventory  component  is  impractical.  There was no reserve
required at January 1, 2000 or January 2, 1999 to state the  inventory on a LIFO
basis.

                                      F-10
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    At January 1, 2000 and  January  2,  1999,  inventories  are shown net of an
allowance for  slow-moving  and aged inventory of $6.7 million and $9.6 million,
respectively.

    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 $9.2 million,  $7.1 million and $3.8 million in the years ended
January 1, 2000, January 2, 1999 and January 3, 1998, respectively. The notional
amount of open  futures and options  contracts at January 1, 2000 and January 2,
1999 was $48.7 million and $61.7 million,  respectively.  The fair values of the
open futures and options contracts at January 1, 2000 and January 2, 1999, based
on the stated market value at those dates, were $44.1 million and $57.9 million,
respectively.  The open contracts at January 1, 2000,  will expire between March
2000 and December 2000.

PROPERTY, PLANT AND EQUIPMENT

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

TRADEMARKS, 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
$18.9  million  and $11.8  million  at  January  1, 2000 and  January  2,  1999,
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 $14.7 million and $4.9 million at January 1, 2000 and January 2,
1999, respectively.

REVENUE RECOGNITION

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

RESEARCH AND DEVELOPMENT

    Activities  related to new product  development  and major  improvements  to
existing  products and processes are expensed as incurred and were $13.1 million
for the year ended  January  1,  2000,  and $10.2  million  for the years  ended
January 2, 1999 and January 3, 1998, respectively.

ADVERTISING AND CONSUMER PROMOTION

    Advertising  and  consumer  promotion  costs  are  generally  expensed  when
incurred  or no later than when the  advertisement  appears or the event is run.
Advertising and consumer promotion expense was $87.3 million,  $87.2 million and
$67.6 million for the years ended  January 1, 2000,  January 2, 1999 and January
3, 1998,  respectively.  There were no deferred  advertising costs at January 1,
2000 or January 2, 1999.

                                      F-11
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE FINANCIAL INSTRUMENTS

    Keebler uses derivative financial instruments as part of an overall strategy
to manage  market  risk.  Keebler  uses  forward  commodity  futures and options
contracts to hedge existing or future exposures to changes in commodity  prices.
Interest  rate swap  agreements  are used to reduce  the  impact of  changes  in
interest  rates.   Keebler  does  not  enter  into  these  derivative  financial
instruments for trading or speculative purposes (See Note 8).

INCOME TAXES

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

IMPAIRMENT OF LONG-LIVED 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.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The new statement establishes  accounting and reporting standards for derivative
instruments  and  hedging  activities  and  requires  that  all  derivatives  be
recognized  as either  assets  or  liabilities  in the  statement  of  financial
position and that the instruments be measured at fair value.  The accounting for
changes in the fair value of a  derivative  depends on the  intended  use of the
derivative and the resulting designation. However, in June 1999, the FASB issued
SFAS No. 137,  "Accounting for Derivative  Instruments and Hedging  Activities -
Deferral of the Effective  Date of FASB Statement No. 133 - an amendment to FASB
Statement  No. 133." Citing  concerns  about  companies'  ability to both modify
their  information  systems for year 2000 readiness and become educated with the
new derivatives and hedging standard, the FASB has delayed the effective date on
SFAS No. 133 for one year,  to fiscal years  beginning  after June 15, 2000.  We
have not yet  determined  the impact  SFAS No. 133 may have on the  consolidated
financial statements.

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-12
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.  PROPERTY, PLANT AND EQUIPMENT

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

(IN THOUSANDS)                             JANUARY 1, 2000    January 2, 1999
                                         -----------------  -----------------
Land................................         $     16,290       $     18,374
Buildings...........................              138,288            140,907
Machinery and equipment.............              437,032            424,574
Office furniture and fixtures.......               90,266             76,447
Delivery equipment..................                6,689              7,208
Construction in progress............               68,156             51,717
                                         -----------------  -----------------
                                                  756,721            719,227
Accumulated depreciation............             (203,690)          (154,703)
                                         -----------------  -----------------
     Total..........................         $    553,031       $    564,524
                                         =================  =================

    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.


6.  ASSETS HELD FOR SALE

    On May 14, 1999,  management  announced the closure of the  Sayreville,  New
Jersey  manufacturing  facility in order to  eliminate  excess  capacity  within
Keebler's  manufacturing  network.  As  part  of  the  total  restructuring  and
impairment  charge,  the  Sayreville  facility was placed for sale together with
other  idle  machinery  and  equipment  held  at  various  Keebler   facilities.
Disposition  of the  remaining  assets held for sale is expected to occur within
the next eighteen months without a significant gain or loss.

    Also in  1999,  land in Fort  Worth,  Texas,  which  had  been  acquired  in
conjunction  with the President  acquisition in 1998, was placed for sale.  This
land,  along with a warehouse  in Houston,  Texas and a  distribution  center in
Kensington,  Connecticut,  which had both been held for sale during  1998,  were
disposed  of  in  the  current  year  without  a   significant   gain  or  loss.
Additionally,  in June 1999, the Atlanta,  Georgia manufacturing facility, which
had been  held for  sale,  was sold for $1.2  million  with a  realized  loss of
approximately  $0.6 million.  During 1998,  Keebler had recognized an impairment
charge of $0.9  million in order to reflect the Atlanta,  Georgia  manufacturing
facility at fair value.


7.  OTHER CURRENT LIABILITIES AND ACCRUALS

    Other current liabilities and accruals consisted of the following at January
1, 2000 and January 2, 1999:

(IN THOUSANDS)                             JANUARY 1, 2000    January 2, 1999
                                         -----------------  -----------------

Self insurance reserves.............         $     52,266       $     52,202
Employee compensation...............               72,527             73,017
Marketing and consumer promotions...               60,954             53,027
Other...............................               51,700             53,841
                                         -----------------  -----------------
     Total..........................         $    237,447       $    232,087
                                         =================  =================

                                      F-13
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7.  OTHER CURRENT LIABILITIES AND ACCRUALS (CONTINUED)

    Keebler obtains insurance to manage potential losses and liabilities related
to workers'  compensation,  health and welfare  claims and general,  product and
vehicle  liability.  Keebler has elected to retain a significant  portion of the
expected  losses  through  the use of  deductibles  and  stop-loss  limitations.
Provisions  for losses  expected  under these  programs  are  recorded  based on
Keebler's estimates of aggregate liability for claims incurred.  These estimates
utilize  Keebler's prior  experience and actuarial  assumptions  provided by the
Company's  insurance carrier.  The total estimated liability for these losses at
January  1,  2000 and  January  2,  1999 was $52.3  million  and $52.2  million,
respectively, and is included in other current liabilities and accruals. Keebler
has collateralized its liability for potential  self-insurance losses in several
states by obtaining  standby letters of credit which aggregate to  approximately
$18.6 million.


8.  DEBT AND LEASE COMMITMENTS

DEBT

    Long-term  debt consisted of the following at January 1, 2000 and January 2,
1999:

<TABLE>
<CAPTION>
(IN THOUSANDS)                       Interest Rate       Final Maturity    JANUARY 1, 2000    January 2, 1999
                                   ---------------  -------------------  -----------------  -----------------
<S>                                <C>              <C>                  <C>                <C>
Bridge Facility................             6.263%   September 26, 1999     $           -      $      75,000
Revolving Facility.............             5.843%   September 28, 2004                 -             85,000
Term Facility..................             5.814%   September 28, 2004           314,000            350,000
Senior Subordinated Notes......            10.750%         July 1, 2006           124,400            124,400
Other Senior Debt..............            Various            2001-2005            10,455             11,805
Capital Lease Obligations......            Various            2002-2042             7,588              8,290
                                                                         -----------------  -----------------
                                                                                  456,443            654,495
Less: Current maturities.......                                                    37,283            112,730
                                                                         -----------------  -----------------
     Total.....................                                             $     419,160      $     541,765
                                                                         =================  =================
</TABLE>

    At January 1, 2000 and January 2, 1999,  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.  At
January 2, 1999,  financing  was also  provided  under a $125.0  million  Bridge
Facility.

    The current outstanding balance on the Term Facility at January 1, 2000, was
$314.0 million,  with quarterly  scheduled  principal payments through the final
maturity of September 2004. The Revolving Facility,  with no outstanding balance
and an available  balance of $350.0 million at January 1, 2000, also has a final
maturity of September 2004, but with no scheduled  principal  payments.  Certain
letters of credit  totaling  $28.7 million  reduce the available  balance on the
Revolving  Facility.  Any unused  borrowings  under the  Revolving  Facility are
subject to a commitment fee. The current  commitment fee will vary from 0.125% -
0.30%  based on the  relationship  of debt to adjusted  earnings.  At January 1,
2000, the commitment fee was 0.125%.

    At January 2, 1999, the outstanding  balance on the Term Facility was $350.0
million and the Revolving  Facility had an outstanding  balance of $85.0 million
and an available  balance of $265.0 million.  Certain letters of credit totaling
$42.2 million  reduced the available  balance on the Revolving  Facility and any
unused borrowings under the Revolving Facility were subject to a commitment fee.
The commitment fee varied from 0.125% - 0.30% based on the  relationship of debt
to adjusted  earnings with a minimum  commitment fee of 0.20%  required  through
March 28, 1999.  The  outstanding  balance on the Bridge  Facility at January 2,
1999,  was  $75.0  million,  with  an  additional  $50.0  million  in  available
borrowings.

    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.  Interest on
the Bridge Facility was calculated in the same manner as the Credit Facility and
also  was  restricted  by the  same  financial  covenants.

                                      F-14
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.  DEBT AND LEASE COMMITMENTS (CONTINUED)

    The $75.0 million Bridge Facility outstanding at January 2, 1999, that had a
final maturity of September  1999,  with no scheduled  principal  payments,  was
refinanced  on January 29, 1999.  Keebler  entered into a  Receivables  Purchase
Agreement  ("Agreement")  to  replace  the $75.0  million of debt held under the
Bridge  Facility,  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
January 1, 2000, a net $103.0  million of accounts  receivable  had been sold at
fair value,  which is below the maximum  amount  currently  available  under the
Agreement.

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

    At January 3, 1998,  Keebler's  primary  credit  financing was provided by a
$380.0 million Second Amended and Restated Credit Agreement ("Credit Agreement")
consisting of a $140.0 million Revolving Loan facility and a $240.0 million Term
Loan of which the outstanding balance at January 3, 1998 was $156.0 million. The
amendment to the Credit  Agreement  was entered into on April 8, 1997, to obtain
more favorable terms, fees and interest rates. The interest  expense,  including
commitment fee, on the Credit Agreement was calculated in substantially the same
manner as is done under the current Credit Facility.

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

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

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

    Interest of $37.5 million,  $24.0 million and $39.0 million was paid on debt
for the years  ended  January  1,  2000,  January  2, 1999 and  January 3, 1998,
respectively.

    Aggregate  scheduled  annual  maturities of long-term  debt as of January 1,
2000 are as follows:

(IN THOUSANDS)

2000.......................................        $    37,283
2001.......................................             42,162
2002.......................................             68,647
2003.......................................            105,596
2004.......................................             75,769
2005 and thereafter........................            126,986
                                            -------------------
     Total.................................        $   456,443
                                            ===================

                                      F-15
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.  DEBT AND LEASE COMMITMENTS (CONTINUED)

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  $417.2  million  and  $536.6  million at
January 1, 2000 and  January 2, 1999,  respectively,  which was based on current
rates offered to Keebler for similar debt with the same 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 typically
not  recognized  in  the  financial  statements  as  Keebler  accounts  for  the
agreements as hedges.  In 1998,  Keebler had entered into four swap transactions
expiring between 2001 and 2004. There were no new swap transactions entered into
during 1999.

    On July 1, 1998,  Keebler entered into a swap  transaction  with the Bank of
Nova Scotia, who also serves as the  administrative  agent for the lenders under
the Credit Facility, which matures on July 1, 2001. The swap transaction had the
effect of converting  the fixed rate of 10.75% on $124.0 million of the Notes to
a rate of 11.33%  through July 3, 2000.  In addition,  on September 30, 1998 and
October 5, 1998,  Keebler  entered into two swap  transactions  with the Bank of
Nova Scotia both maturing on September 30, 2004. Each swap transaction  converts
the base rate on $105.0  million  of the Credit  Facility  to fixed rate debt of
5.084% and 4.89%,  respectively.  The  estimated  fair values of the hedged swap
agreements at January 1, 2000 and January 2, 1999, were a net receivable of $7.9
million and $1.1 million, respectively.

    In 1999, 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.  During
the year,  $2.8 million was  recognized  in income from  operations  in order to
mark-to-market  the  interest  rate swap.  The  receivable  resulting  from this
transaction was recorded as a $0.5 million  current  receivable in other current
assets  and  a  $2.3  million  long-term  receivable  in  other  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)                     JANUARY 1, 2000      January 2, 1999
                               -------------------  -------------------

Land..........................      $         980        $         980
Buildings.....................              2,894                2,894
Machinery and equipment.......              2,842                2,853
Other leased assets...........                  1                    1
                               -------------------  -------------------
                                            6,717                6,728
Accumulated depreciation......               (417)                (242)
                               -------------------  -------------------
     Total....................      $       6,300        $       6,486
                               ===================  ===================

                                      F-16
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.  DEBT AND LEASE COMMITMENTS (CONTINUED)

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

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

2000..........................................   $     1,046        $    32,230
2001..........................................         1,063             26,690
2002..........................................         1,390             21,375
2003..........................................           449             18,725
2004..........................................         4,827             11,152
2005 and thereafter...........................         1,324             24,312
                                               --------------     --------------
Total minimum payments........................        10,099        $   134,484
                                                                  ==============
Amount representing interest..................        (2,511)
                                               --------------
Obligations under capital lease...............         7,588
Obligations due within one year...............          (670)
                                               --------------
Long-term obligations under capital leases....   $     6,918
                                               ==============

    Rent expense for all operating  leases was $50.1 million,  $38.7 million and
$36.1 million for the years ended  January 1, 2000,  January 2, 1999 and January
3, 1998, respectively.


9.  PLANT AND FACILITY CLOSING COSTS AND SEVERANCE

    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.  Initially,  it was  estimated  that 410  employees  were to be
terminated as a result of this plan, of which  approximately  175 employees were
represented by a union. At January 1, 2000, approximately 40 employees not under
union  contract had been  terminated.  In addition,  during the year  management
reviewed its exit plan and made a determination that approximately 110 employees
not under union contract, would not be terminated. 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.  The  remainder  of  management's  exit  plan  is  expected  to  be
substantially  complete  before the end of 2000, 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.  The $1.3 million was
credited to operating  income as it had  originally  been charged to income from
operations  in the year ended  January  3,  1998,  January 2, 1999 or January 1,
2000.  During the year ended  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 $3.7  million to
recognize   exit  costs  that  are  now  expected  to  be  less  than  initially
anticipated.  Only  noncancelable  lease  obligations  are anticipated to extend
beyond 2000, to be paid over the next six years concluding in 2006.

                                      F-17
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

    In  addition,  during the years ended  January 1, 2000,  January 2, 1999 and
January 3, 1998,  Keebler expensed an additional $0.8 million,  $2.8 million and
$2.7 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.

    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)                  December 28, 1996       Provision        Spending      Adjustment    January 3, 1998
                              -------------------  --------------  --------------  --------------  -----------------
<S>                           <C>                  <C>             <C>             <C>             <C>
KEEBLER COMPANY
---------------
   Severance............           $       3,293       $      85        $ (3,147)      $       -       $        231
   Facility closure.....                  13,933           2,482          (3,910)              -             12,505
   Other................                   3,771             100          (1,976)              -              1,895
                              -------------------  --------------  --------------  --------------  -----------------
       Subtotal.........                  20,997           2,667          (9,033)              -             14,631
                              -------------------  --------------  --------------  --------------  -----------------

SUNSHINE BISCUITS, INC.
-----------------------
   Severance............           $       3,114       $       -       $  (3,002)      $       -       $        112
   Facility closure.....                  11,873               -          (4,138)              -              7,735
   Other................                       -               -               -               -                  -
                              -------------------  --------------  --------------  --------------  -----------------
       Subtotal.........                  14,987               -          (7,140)              -              7,847
                              -------------------  --------------  --------------  --------------  -----------------

         TOTAL..........           $      35,984       $   2,667       $ (16,173)      $       -       $     22,478
                              ===================  ==============  ==============  ==============  =================

(IN THOUSANDS)                    January 3, 1998       Provision        Spending      Adjustment    January 2, 1999
                              -------------------  --------------  --------------  --------------  -----------------
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
   Other................                       -               -               -               -                  -
                              -------------------  --------------  --------------  --------------  -----------------
       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)

9.  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
   Other................                       -               -               -               -                  -
                              -------------------  --------------  --------------  --------------  -----------------
       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>


10. EMPLOYEE BENEFIT PLANS

    The  Retirement  Plan for  Salaried  and Certain  Hourly-Paid  Employees  of
Keebler   Company  (the   "pension   plan")  is  a  trusteed,   noncontributory,
defined-benefit,  pension  plan.  The pension plan covers  certain  salaried and
hourly-paid  employees.  Assets held by the pension  plan  consist  primarily of
common stocks,  government securities,  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.
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)                                              JANUARY 1, 2000    January 2, 1999    January 3, 1998
                                                          -----------------  -----------------  -----------------
<S>                                                       <C>                <C>                <C>
Service cost..........................................         $    13,364        $     9,040        $     8,560
Interest cost.........................................              32,841             31,080             29,673
Expected return on plan assets........................             (41,887)           (39,352)           (37,935)
Amortization of prior service cost....................                 689                689                  -
Amortization of net loss..............................                  43                  -                  -
                                                          -----------------  -----------------  -----------------
Pension expense.......................................         $     5,050        $     1,457        $       298
                                                          =================  =================  =================
</TABLE>

    The expected  long-term  rate of return on plan assets was 8.7% for the year
ended  January 1, 2000 and 9.0% for the years ended  January 2, 1999 and January
3, 1998,  respectively.

                                      F-19
<PAGE>
                             KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                  JANUARY 1, 2000        January 2, 1999
                                                                            -------------------    -------------------
<S>                                                                         <C>                    <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................        $       (520,312)      $       (437,334)
  Service cost........................................................                 (13,364)                (9,040)
  Interest cost.......................................................                 (32,841)               (31,080)
  Amendments..........................................................                       -                 (4,874)
  Actuarial gain (loss)...............................................                  60,261                (45,871)
  Acquisition.........................................................                       -                (22,805)
  Benefits and expenses paid..........................................                  30,009                 30,692
  Curtailment gain....................................................                     897                      -
                                                                            -------------------    -------------------
  Benefit obligation at year end......................................                (475,350)              (520,312)
                                                                            -------------------    -------------------

Change in plan assets:
  Fair value of plan assets at beginning of year......................                 565,710                499,379
  Actual return on plan assets........................................                   2,253                 77,731
  Employer contributions..............................................                     115                      -
  Acquisition.........................................................                       -                 19,292
  Benefits and expenses paid..........................................                 (30,009)               (30,692)
                                                                            -------------------    -------------------
  Fair value of plan assets at year end...............................                 538,069                565,710
                                                                            -------------------    -------------------
  Funded status.......................................................                  62,719                 45,398
  Unrecognized actuarial gain.........................................                 (37,209)               (16,538)
  Unrecognized prior service cost.....................................                   7,730                  9,230
  Contributions subsequent to measurement date........................                       -                    115
                                                                            -------------------    -------------------
  Prepaid pension.....................................................        $         33,240       $         38,205
                                                                            ===================    ===================
</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
                                                              ------------------------------------------------------
                                                               JANUARY 1, 2000    January 2, 1999    January 3, 1998
                                                              ----------------  -----------------  -----------------
<S>                                                           <C>               <C>                <C>
Discount rate.........................................                    7.5%               6.5%               7.3%
Rate of compensation level increases..................                    4.5                4.0                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 January 1, 2000 and January 2, 1999,  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-20
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

    The supplemental retirement plan expense includes the following components:

<TABLE>
<CAPTION>
                                                                                   Years Ended
                                                          ----------------------------------------------------------
(IN THOUSANDS)                                               JANUARY 1, 2000     January 2, 1999     January 3, 1998
                                                          ------------------  ------------------  ------------------
<S>                                                       <C>                 <C>                 <C>
Interest cost........................................       $           698     $           722     $           732
                                                          ------------------  ------------------  ------------------
Plan expense.........................................       $           698     $           722     $           732
                                                          ==================  ==================  ==================
</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)                                                                  JANUARY 1, 2000          January 2, 1999
                                                                            -------------------     --------------------
<S>                                                                         <C>                     <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................        $        (11,119)       $         (10,303)
  Interest cost.......................................................                    (698)                    (722)
  Actuarial gain (loss)...............................................                     944                     (844)
  Benefits and expenses paid..........................................                     640                      750
                                                                            -------------------     --------------------
  Benefit obligation at year end......................................                 (10,233)                 (11,119)
  Fair value of plan assets...........................................                       -                        -
                                                                            -------------------     --------------------
  Funded status.......................................................                 (10,233)                 (11,119)
  Unrecognized actuarial loss (gain)..................................                    (558)                     387
  Benefit payments subsequent to measurement date.....................                     168                      109
                                                                            -------------------     --------------------
  Accrued obligation..................................................        $        (10,623)       $         (10,623)
                                                                            ===================     ====================
</TABLE>

    The excess retirement plan expense includes the following components:
<TABLE>
<CAPTION>
                                                                                  Years Ended
                                                          ----------------------------------------------------------
(IN THOUSANDS)                                               JANUARY 1, 2000     January 2, 1999     January 3, 1998
                                                          ------------------  ------------------  ------------------
<S>                                                       <C>                 <C>                 <C>
Service cost..........................................      $           431     $           173     $           306
Interest cost.........................................                  155                  78                  43
Amortization of net loss (gain).......................                    8                 (47)                (84)
                                                          ------------------  ------------------  ------------------
Pension expense.......................................      $           594     $           204     $           265
                                                          ==================  ==================  ==================
</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)                                                                  JANUARY 1, 2000          January 2, 1999
                                                                            -------------------     --------------------
<S>                                                                         <C>                     <C>
Change in projected benefit obligation:
  Benefit obligation at beginning of year.............................        $         (2,395)       $          (1,085)
  Service cost........................................................                    (431)                    (173)
  Interest cost.......................................................                    (155)                     (78)
  Actuarial loss......................................................                    (158)                  (1,076)
  Benefits and expenses paid..........................................                      31                       17
                                                                            -------------------     --------------------
  Benefit obligation at year end......................................                  (3,108)                  (2,395)
  Fair value of plan assets...........................................                       -                        -
                                                                            -------------------     --------------------
  Funded status.......................................................                  (3,108)                  (2,395)
  Unrecognized actuarial loss.........................................                     501                      351
  Benefit payments subsequent to measurement date.....................                      17                        -
                                                                            -------------------     --------------------
  Accrued obligation..................................................        $         (2,590)       $          (2,044)
                                                                            ===================     ====================
</TABLE>
                                      F-21
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10. 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
                                                             -----------------------------------------------------------
                                                               JANUARY 1, 2000      January 2, 1999      January 3, 1998
                                                             -----------------    -----------------    -----------------
<S>                                                          <C>                  <C>                  <C>
Discount rate.........................................                   7.5%                 6.5%                 7.3%
Rate of compensation level increase...................                   4.5                  4.0                  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
January  1,  2000,  January  2,  1999 and  January  3,  1998,  Keebler  expensed
contributions of $2.5 million, $2.3 million and $2.6 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 $6.8 million, $8.9 million and $10.5
million  for the years  ended  January 1, 2000,  January 2, 1999 and  January 3,
1998, respectively.


11. 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
                                                             -----------------------------------------------------------
                                                               JANUARY 1, 2000      January 2, 1999      January 3, 1998
                                                             -----------------    -----------------    -----------------
<S>                                                          <C>                  <C>                  <C>
Service cost..........................................         $        2,178       $        2,045       $        2,242
Interest cost.........................................                  3,424                3,961                3,888
Amortization of prior service cost....................                   (115)                (115)                   -
Amortization of net gain..............................                   (375)                   -                    -
                                                             -----------------    -----------------    -----------------
Net periodic postretirement benefit cost..............         $        5,112       $        5,891       $        6,130
                                                             =================    =================    =================
</TABLE>

                                      F-22
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. 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)                                                                  JANUARY 1, 2000          January 2, 1999
                                                                            -------------------     --------------------
<S>                                                                         <C>                     <C>
Change in accumulated postretirement benefit obligation:
  Benefit obligation at beginning of year.............................        $        (56,269)       $         (56,690)
  Service cost........................................................                  (2,178)                  (2,045)
  Interest cost.......................................................                  (3,424)                  (3,961)
  Amendments..........................................................                   8,531                        -
  Actuarial gain......................................................                     717                    3,641
  Acquisition.........................................................                       -                   (1,598)
  Curtailment gain....................................................                     108                        -
  Benefits and expenses paid..........................................                   4,411                    4,384
                                                                            -------------------     --------------------
  Benefit obligation at year end......................................                 (48,104)                 (56,269)
  Fair value of plan assets...........................................                       -                        -
                                                                            -------------------     --------------------
  Funded status.......................................................                 (48,104)                 (56,269)
  Unrecognized actuarial gain.........................................                  (8,187)                  (7,856)
  Unrecognized prior service cost.....................................                  (8,897)                    (574)
  Benefit payments subsequent to measurement date.....................                     880                      978
                                                                            -------------------     --------------------
  Postretirement obligation...........................................        $        (64,308)       $         (63,721)
                                                                            ===================     ====================
</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%,  6.5% and  7.3% for the  years  ended
January 1, 2000,  January 2, 1999 and  January 3, 1998,  respectively.  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 8.0% for 1999  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  January  1,  2000 by $1.9
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 January 1, 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  January  1, 2000 and  January 2, 1999 was $5.5
million and $4.7 million, respectively.

                                      F-23
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES

    The components of income tax expense were as shown below:

<TABLE>
<CAPTION>
                                                                                    Years Ended
                                                          -------------------------------------------------------------
(IN THOUSANDS)                                                JANUARY 1, 2000      January 2, 1999      January 3, 1998
                                                          -------------------    -----------------    -----------------
<S>                                                       <C>                    <C>                  <C>
Current:
  Federal.............................................       $        71,794        $      58,269        $      22,172
  State...............................................                 6,739                4,618                3,840
                                                          -------------------    -----------------    -----------------
Current provision for income taxes....................                78,533               62,887               26,012
Deferred:
  Federal.............................................                (4,837)               8,494               17,203
  State...............................................                  (521)               1,581                1,954
                                                          -------------------    -----------------    -----------------
Deferred provision for income taxes...................                (5,358)              10,075               19,157
                                                          -------------------    -----------------    -----------------
                                                             $        73,175        $      72,962        $      45,169
                                                          ===================    =================    =================
</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)                                                JANUARY 1, 2000      January 2, 1999      January 3, 1998
                                                          -------------------    -----------------    -----------------
<S>                                                       <C>                    <C>                  <C>
U.S. federal statutory rate...........................       $        56,483        $      59,339        $      37,643
State income taxes (net of federal benefit)...........                 5,849                5,813                3,766
Intangible amortization...............................                 6,306                3,160                1,836
All others............................................                 4,537                4,650                1,924
                                                          -------------------    -----------------    -----------------
                                                             $        73,175        $      72,962        $      45,169
                                                          ===================    =================    =================
</TABLE>

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

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                   JANUARY 1, 2000        January 2, 1999
                                                                             -------------------    -------------------
<S>                                                                          <C>                    <C>
Depreciation.......................................................             $       (57,604)       $      (108,866)
Trademarks, trade names and intangibles............................                     (64,887)               (49,348)
Prepaid pension....................................................                     (13,327)               (14,283)
Inventory valuation................................................                        (559)                (6,779)
Other..............................................................                     (10,503)                     -
                                                                             -------------------    -------------------
                                                                                       (146,880)              (179,276)
                                                                             -------------------    -------------------
Net operating loss carryforwards...................................                           -                 80,195
Postretirement/postemployment benefits.............................                      26,778                 26,171
Plant and facility closing costs and severance.....................                      17,469                 23,728
Workers' compensation..............................................                       5,695                 14,769
Incentives and deferred compensation...............................                       7,801                 12,063
Employee benefits..................................................                      11,000                 10,879
Other..............................................................                           -                  6,436
                                                                             -------------------    -------------------
                                                                                         68,743                174,241
Valuation allowance................................................                           -                (84,350)
                                                                             -------------------    -------------------
                                                                                $       (78,137)       $       (89,385)
                                                                             ===================    ===================
</TABLE>

                                      F-24
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)

    In 1998, net operating loss carryforwards were approximately $207.1 million.
All net operating loss  carryforwards were used in 1999 to offset gains incurred
through the Section 338 income tax election, which adjusted the tax basis of all
assets  and  liabilities  that  resulted  from  the  Keebler  acquisition.   The
intangible asset related to the Keebler acquisition was reduced by $11.8 million
as a result of  resolving  the  preacquistion  tax basis of acquired  assets and
liabilities. In 1999, the previously established valuation allowance on deferred
tax  assets  of  $84.4  million  was  eliminated  due to the  resolution  of the
uncertainty regarding the availability of preacquisition net operating losses.

    Income taxes paid, net of refunds,  were approximately $49.6 million,  $67.1
million and $9.9  million for the years ended  January 1, 2000,  January 2, 1999
and January 3, 1998, respectively.


13. SHAREHOLDERS' EQUITY

COMMON STOCK

    There were no cash  dividends  declared for the years ended January 1, 2000,
January 2, 1999 or January 3, 1998.  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 repurchased the remaining authorized shares in 1999, which
fulfilled the treasury  stock plan. The share  repurchase  program was primarily
instituted  to offset  dilution,  which may result from the exercise and sale of
shares related  to employee stock  options. The  repurchases of shares of common
stock are  recorded  as  treasury  stock  using the cost  method and result in a
reduction  of  shareholders'  equity. Should the  treasury  shares  be reissued,
Keebler intends to use a first-in, first-out method of reissuance.


14. STOCK OPTION PLAN

    Keebler has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting   for  Stock   Issued  to   Employees"   ("APB   25")  and   related
Interpretations  in  accounting  for employee  stock  options.  Under APB 25, no
compensation expense is recognized when the exercise price of options equals the
fair value (market value) of the underlying  stock options at the date of grant.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation," and has been determined
as if Keebler had accounted for its employee  stock options under the fair value
method of that Statement.  For purposes of pro forma disclosures,  the estimated
fair value of the options is  amortized  to expense  over the  options'  vesting
period.  The following table summarizes the pro forma disclosures  regarding net
income and  earnings per share for the years ended  January 1, 2000,  January 2,
1999 and January 3, 1998:

                                      F-25
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTION PLAN (CONTINUED)
<TABLE>
<CAPTION>

(IN THOUSANDS EXCEPT PER SHARE DATA)                                                Years Ended
                                                           -------------------------------------------------------------
                                                             JANUARY 1, 2000       January 2, 1999       January 3, 1998
                                                           -----------------     -----------------     -----------------
<S>                                                        <C>                   <C>                   <C>
Net income:
   As reported........................................        $      88,205         $      94,871         $      56,985
   Pro forma..........................................        $      86,890         $      91,032         $      55,032
Basic net income per share:
   As reported........................................        $        1.05         $        1.14         $        0.73
   Pro forma..........................................        $        1.04         $        1.09         $        0.71
Diluted net income per share:
   As reported........................................        $        1.01         $        1.08         $        0.70
   Pro forma..........................................        $        0.99         $        1.04         $        0.68
Weighted average grant date fair value of options
   granted during the year............................        $       11.88         $        8.53         $        8.09
</TABLE>

    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 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 purposes of the pro
forma  disclosures for 1997, the fair value for the options was estimated at the
date of  grant  using a  present  value  approach  as  Keebler  was not a public
company.

    For options granted, the following weighted average assumptions were used to
determine the fair value:
<TABLE>
<CAPTION>
                                                                                    Years Ended
                                                           -------------------------------------------------------------
                                                             JANUARY 1, 2000       January 2, 1999       January 3, 1998
                                                           -----------------     -----------------     -----------------
<S>                                                        <C>                   <C>                   <C>
Dividend yield........................................                  0.0%                  0.0%                  0.0%
Expected volatility...................................                 24.8%                 27.2%                  0.0%
Risk-free interest rate...............................                 5.76%                 5.04%                 6.00%
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 3, 1998
                                                          --------------------------------------
                                                                                        Weighted
                                                                                         Average
                                                                     Options      Exercise Price
                                                          ------------------  ------------------
<S>                                                       <C>                 <C>
Outstanding at the beginning of the period............            6,802,471          $     1.98
Granted...............................................               49,873                5.23
Exercised.............................................                    -                   -
Forfeited.............................................                    -                   -
Expired...............................................                    -                   -
                                                          ------------------
Outstanding at the end of the period..................            6,852,344          $     2.01
                                                          ==================
Exercisable at the period end.........................            1,587,243          $     1.98
                                                          ==================
------------------------------------------------------------------------------------------------
</TABLE>
                                      F-26
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTION PLAN (CONTINUED)

<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>
                                                                YEAR ENDED JANUARY 1, 2000
<CAPTION>                                                 --------------------------------------
                                                                                        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>

    Exercise  prices as of January 1, 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  six 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>
                                      F-27
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTION PLAN (CONTINUED)
<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>
    Exercise  prices as of January 1, 2000,  for options  outstanding  under the
1998 Omnibus  Stock  Incentive  Plan ranged from $24.00 to $39.25.  The weighted
average remaining contractual life of these options is approximately five 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>
    Exercise  prices as of January  1, 2000 for  options  outstanding  under the
Non-Employee  Director  Stock Plan ranged from  $27.44 to $30.75.  The  weighted
average remaining  contractual life of these options is approximately  eight and
one-half years.
                                      F-28
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. NET INCOME PER SHARE

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

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

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                           --------------------------------------------------------------
(IN THOUSANDS)                                                JANUARY 1, 2000       January 2, 1999       January 3, 1998
                                                           ------------------    ------------------    ------------------
<S>                                                        <C>                   <C>                   <C>
NUMERATOR:
   Income before extraordinary item.................          $       88,205        $       96,577        $       62,381
   Extraordinary item, net of tax...................                       -                 1,706                 5,396
                                                           ------------------    ------------------    ------------------
   Net income.......................................          $       88,205        $       94,871        $       56,985
                                                           ==================    ==================    ==================
DENOMINATOR:
   Denominator for Basic Net Income Per Share
        Weighted Average Shares.....................                  83,759                83,254                77,604
   Effect of Dilutive Securities:
        Stock options...............................                   3,886                 3,992                 2,168
        Warrants....................................                       -                   240                   790
                                                           ------------------    ------------------    ------------------
        Diluted potential common shares.............                   3,886                 4,232                 2,958
                                                           ------------------    ------------------    ------------------
   Denominator for Diluted Net Income Per Share.....                  87,645                87,486                80,562
                                                           ==================    ==================    ==================
</TABLE>

    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.  There were no
antidilutive securities for the year ended January 3, 1998.


16. SEGMENT INFORMATION

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

                                      F-29
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SEGMENT INFORMATION (CONTINUED)

    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 January 1, 2000, January 2, 1999 and January
3, 1998.  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 JANUARY 1, 2000:
---------------------------
NET SALES TO EXTERNAL CUSTOMERS...........         $ 2,099,257        $   568,514        $         -        $ 2,667,771
DEPRECIATION EXPENSE......................              22,820              6,700             35,014             64,534
PROFIT CONTRIBUTION.......................             339,847            119,705                  -            459,552

Year Ended January 2, 1999:
---------------------------
Net sales to external customers...........         $ 1,798,347        $   428,133        $         -        $ 2,226,480
Depreciation expense......................              24,457              6,563             28,383             59,403
Profit contribution.......................             277,791             90,746                  -            368,537

Year Ended January 3, 1998:
---------------------------
Net sales to external customers...........         $ 1,646,627        $   418,557        $         -        $ 2,065,184
Depreciation expense......................              20,798              5,602             27,331             53,731
Profit contribution.......................             223,437             83,795                  -            307,232
</TABLE>

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

    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  January 1, 2000,  January 2, 1999 and
January 3, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                           --------------------------------------------------------------
(IN THOUSANDS)                                                JANUARY 1, 2000       January 2, 1999       January 3, 1998
                                                           ------------------     -----------------     -----------------
<S>                                                        <C>                    <C>                   <C>
INCOME BEFORE INCOME TAX EXPENSE:

Reportable segment's profit contribution............          $      459,552         $     368,537         $     307,232
Unallocated functional support costs (1)............                 195,649               172,498               165,835
Restructuring and impairment charge.................                  66,349                     -                     -
Interest expense, net...............................                  36,174                26,500                33,847
                                                           ------------------     -----------------     -----------------
   Income before Income Tax Expense.................          $      161,380         $     169,539         $     107,550
                                                           ==================     =================     =================
</TABLE>

(1)  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 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  January 1, 2000,
January 2, 1999 and January 3, 1998.

                                      F-30
<PAGE>
                              KEEBLER FOODS COMPANY

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. UNAUDITED QUARTERLY FINANCIAL DATA

    Results of  operations  for each of the four  quarters  of the fiscal  years
ended  January 1, 2000 and January 2, 1999  follow.  Each  quarter  represents a
period of twelve weeks except the first quarter which includes sixteen weeks.

<TABLE>
<CAPTION>
                                                  Quarter 1          Quarter 2          Quarter 3         Quarter 4
                                             ------------------ ------------------ ------------------ ------------------
(IN MILLIONS EXCEPT PER SHARE DATA)              1999      1998     1999      1998     1999      1998     1999     1998*
                                             --------  -------- --------  -------- --------  -------- --------  --------
<S>                                          <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Net sales...............................      $852.0    $636.8   $587.9    $490.0   $615.8    $499.9   $612.1    $599.8
Gross profit............................       471.3     372.7    330.5     281.3    354.6     294.4    360.8     339.2
Restructuring and impairment charge.....           -         -     69.2         -        -         -     (2.9)        -
Income before extraordinary item........        32.7      14.1    (21.4)     19.4     32.1      29.0     44.8      34.1
Extraordinary item......................           -         -        -         -        -       1.7        -         -
Net income (loss).......................        32.7      14.1    (21.4)     19.4     32.1      27.3     44.8      34.1

Basic net income per share:
   Income before extraordinary item.....       $0.39     $0.17   $(0.25)    $0.23    $0.38     $0.35    $0.53     $0.41
   Extraordinary item...................           -         -        -         -        -      0.02        -         -
                                             --------  -------- --------  -------- --------  -------- --------  --------
   Net income (loss)....................       $0.39     $0.17   $(0.25)    $0.23    $0.38     $0.33    $0.53     $0.41
                                             ========  ======== ========  ======== ========  ======== ========  ========

Diluted net income per share:
   Income before extraordinary item.....       $0.37     $0.16   $(0.24)    $0.22    $0.37     $0.33    $0.51     $0.39
   Extraordinary item...................           -         -        -         -        -      0.02        -         -
                                             --------  -------- --------  -------- --------  -------- --------  --------
   Net income (loss)....................       $0.37     $0.16   $(0.24)    $0.22    $0.37     $0.31    $0.51     $0.39
                                             ========  ======== ========  ======== ========  ======== ========  ========
----------

*  Quarter 4, 1998 includes the operating results of President from the acquisition date of September 28, 1998 through
   January 2, 1999.
</TABLE>


18.  SUBSEQUENT EVENTS

     On March 6, 2000,  Keebler acquired Austin Quality Foods, Inc.  ("Austin"),
for $252.4 million,  in a business  combination  that will be accounted for as a
purchase.  Austin is a leading  producer  and  marketer  of single  serve  baked
snacks,  including  cracker  sandwiches  and  bite-sized  crackers  and cookies.
Keebler will finance the acquisition  with borrowings  under its existing credit
facilities.

     On February 23, 2000, the Board of Directors  declared an initial quarterly
cash  dividend  of  $0.1125  per common  share  payable  on March 22,  2000,  to
stockholders of record on March 8, 2000.

     On  February  2,  2000,   Keebler's  Board  of  Directors   authorized  the
repurchase,  at management's discretion, of up to an additional $30.0 million in
shares of Keebler  common stock.  Purchases will be made through the open market
or through  private  transactions.  The share  repurchase  program was  approved
primarily to offset future dilution, which may result from the exercise and sale
of shares related to employee stock options.

     On January 4, 2000,  Keebler sold its Birmingham,  Alabama and North Little
Rock,  Arkansas bakeries and the SUNNY and GREGS brands to Consolidated  Biscuit
Company  ("Consolidated").  Keebler  received  $17.0 million from  Consolidated,
which is estimated to result in an after-tax gain of approximately  $3.5 million
that will be  included  in income from  operations  during the first  quarter of
fiscal 2000.

                                      F-31
<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,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.





PricewaterhouseCoopers LLP





Chicago, Illinois
February 1, 2000










                                      S-1
<PAGE>
<TABLE>

ITEM 14 (D).    FINANCIAL STATEMENT SCHEDULE                                                                    SCHEDULE II

                                                        KEEBLER FOODS COMPANY
                                          SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                              FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998

                                                           (IN THOUSANDS)
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                     COL. A                         COL. B               COL. C               COL. D        COL. E
---------------------------------------------------------------------------------------------------------------------
                                                                        ADDITIONS
                                                                 ------------------------
                                                   BALANCE AT    CHARGED TO    CHARGED TO                  BALANCE AT
                                                   BEGINNING       COSTS/        OTHER                         END
                   DESCRIPTION                     OF PERIOD      EXPENSES      ACCOUNTS     DEDUCTIONS    OF PERIOD
-------------------------------------------------- ----------    ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>           <C>
Those valuation and qualifying accounts
       which are deducted in the balance sheet
       from the assets to which they apply:

YEAR ENDED JANUARY 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
                                                   ==========    ==========    ==========    ==========    ==========

YEAR ENDED JANUARY 3, 1998

       For discounts and doubtful accounts          $  5,390      $ 18,970      $      -      $(19,395)(2)  $  4,965
                                                   ==========    ==========    ==========    ==========    ==========

       For deferred taxes                           $ 84,350      $      -      $      -      $      -      $ 84,350
                                                   ==========    ==========    ==========    ==========    ==========

       For inventory reserves                       $  5,508      $  9,716      $      -      $ (8,442)(3)  $  6,782
                                                   ==========    ==========    ==========    ==========    ==========



  (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.

                                                                S-2
</TABLE>
<PAGE>
                                   EXHIBIT INDEX

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

   2.1        Stock Purchase Agreement dated as of August 24, 1998 between
              Keebler Foods Company ("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 Securities
              and Exchange Commission (the "Commission") on October 9, 1998
              (Commission File No. 001-13705) (the "October Report"))

   2.2        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))

   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)

   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)

                                       i
<PAGE>
 EXHIBIT
  NUMBER                                 DESCRIPTION
---------     ------------------------------------------------------------------

   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 (herein incorporated 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 (herein incorporated 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 (herein incorporated by reference to Exhibit 10.20 of
              the 1998 From 10-K)

   21         Subsidiaries of Keebler

   27         Financial Data Schedule


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