Keebler Foods Company (NYSE: KBL) yesterday reported record net sales and net income for the third quarter ended October 7, 2000. Strong sales, increased margins and new products helped Keebler report another positive quarter of growth.

Third quarter net income was up 27.5% to $41.0 million from $32.1 million in the prior year. Diluted earnings per share were up 24.3% to $0.46 compared to $0.37 in last year’s third quarter and basic earnings per share were up 26.3% to $0.48 compared to $0.38 in last year’s third quarter. Keebler’s effective tax rate of 37.6% for the current quarter was lower than the effective tax of 41% provided in the first half of the year and increased diluted earnings per share by $0.02.

Net sales for the third quarter increased 4.3% to $642.2 million from $615.8 million in the same quarter last year. The acquisition of Austin Quality Foods (“Austin”), completed in March 2000, contributed $46.2 million in sales for the third quarter of this year. The value brands business, which Keebler sold to Consolidated Biscuit Company in January 2000, had contributed $8.1 million to revenues during the third quarter last year.

Keebler’s net income for the year-to-date period ended October 7, 2000 was $121.9 million, exceeding 1999 net income of $43.4 million by 180.7%. The year ago period included a pre-tax restructuring and impairment charge of $69.2 million in the second quarter of 1999 versus a credit of $1.0 million in the current nine-month period. Diluted earnings per share for the forty-week period were $1.39, up 178% from 1999, and basic earnings per share for the forty-week period increased 177% to $1.44 for 2000, including the restructuring and impairment charges and credits. For the forty weeks ended October 7, 2000, sales grew 2.7%, reaching $2.11 billion from $2.06 billion for the same period of last year.

“Keebler’s strong performance in the third quarter was driven by margin improvements and record sales despite the continued competitive environment of the cookie and cracker industry,” said Keebler CEO Sam K. Reed. “Increased cracker volume and the successful launch of our new Sesame Street brand contributed to the increased sales gains. Sesame Street has achieved 86% ACV distribution and has captured 53 miles of incremental shelf space in grocery stores served by our direct store door distribution system. A favorable mix shift to crackers and higher value businesses along with operational improvements generated the year-over-year margin expansion,” continued Reed.

Branded Segment

Keebler’s Branded Segment includes sales of cookies, crackers and brownies for retail distribution. Third quarter sales for Keebler brands were $512.4 million, up $32.8 million, a 6.8% increase compared to the same period last year. Keebler crackers continued to display solid overall results and experienced strong volumes across several product lines including Town House, Wheatables, Club and Toasteds. Strong performers for Keebler cookies were Vienna Fingers, Sandies and Murray Sugar Free. Year-to-date sales in the Branded Segment increased 4.2% or $64.0 million over the same period a year ago.

Specialty Segment

Keebler’s Specialty Segment encompasses Foodservice sales, private label biscuits, products custom-baked for other manufacturers and cookies manufactured for the Girl Scouts of America. Third quarter sales for Keebler Specialty Segment were $129.8 million, down from $136.2 million the prior year, a 4.7% decrease. Strong growth in Foodservice, where sales increased 18.9% over the year-earlier quarter, were offset by declines in Custom Products and private label businesses. Growth in Foodservice sales accelerated across all major customers principally on the strength of cracker and ice cream cone orders. Sales for the forty weeks ended October 7, 2000 finished at $514.1 million, down 1.6% over the year ago period.

Keebler, founded in 1853, is the third-largest cookie and cracker marketer and manufacturer in the United States with the last trailing twelve-month net sales of $2.7 billion. Keebler markets its products under well-recognized brands such as Keebler, Cheez-It, Carr’s, Ready Crust, Famous Amos, Murray, Plantation and Austin. Keebler is also a leading manufacturer for both the private label and foodservice markets. Through its Little Brownie Bakers subsidiary, Keebler is a leading licensed supplier of Girl Scout Cookies. Keebler is also the licensed supplier with the Sesame Workshop featuring Sesame Street Muppet characters and educational games on a broad range of snack category products. Keebler Foods Company is headquartered in Elmhurst, Illinois. For additional information, please visit the Keebler Web site at www.keebler.com.

Statements contained in this press release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the company’s prospects in general are described in the company’s filings with the Securities and Exchange Commission.

KEEBLER FOODS COMPANY
Consolidated Condensed Balance Sheet
(Dollars in Thousands)

October 7, 2000 January 1, 2000
————— —————
ASSETS:

Current Assets $ 330,730 $ 335,579
Property, Plant and Equipment, net 610,337 553,031
Intangible Assets, net 766,788 581,978
Other Assets 49,213 57,595
———– ———–
Total Assets $ 1,757,068 $ 1,528,183
=========== ===========

LIABILITIES AND SHAREHOLDERS’ EQUITY:

Current Liabilities $ 448,186 $ 457,485
Long-Term Debt 546,104 419,160
Deferred Income Taxes 127,544 124,389
Deferred Compensation 26,312 24,581
Other Liabilities 91,341 93,253
Shareholders’ Equity 517,581 409,315
———– ———-
Total Liabilities
and Shareholders’ Equity $ 1,757,068 $ 1,528,183
=========== ==========

KEEBLER FOODS COMPANY
Consolidated Condensed Statements of Income
(Dollars in Thousands, Except Per Share Data)

Twelve Twelve
Weeks Ended Weeks Ended
October 7, 2000 October 9, 1999
————— —————
Net Sales $ 642,203 $ 615,844
Cost of Sales 254,237 261,244
Gross Margin 387,966 354,600
Selling, Marketing
and Administrative Expenses 301,752 284,375
Other 10,569 7,265
Restructuring and Impairment Charge – –
Operating Income 75,645 62,960
Interest Expense, Net 10,051 7,097
Income before Income Tax Expense 65,594 55,863
Income Tax Expense 24,644 23,742
Net Income $ 40,950 $ 32,121

Memo: Total Depreciation $ 17,084 $ 15,004
Memo: Total Amortization $ 6,031 $ 4,476

Basic Net Income Per Share $ 0.48 $ 0.38
Weighted Average Shares Outstanding 84,994 83,708

Diluted Net Income Per Share $ 0.46 $ 0.37
Weighted Average Shares Outstanding 88,240 87,423

Forty Forty
Weeks Ended Weeks Ended
October 7, 2000 October 9, 1999
————— —————
Net Sales $ 2,111,635 $ 2,055,724
Cost of Sales 870,967 899,296
Gross Margin 1,240,668 1,156,428
Selling, Marketing
and Administrative Expenses 983,999 952,066
Other 20,797 22,025
Restructuring and Impairment Charge (996) 69,208
Operating Income 236,868 113,129
Interest Expense, Net 34,187 28,497
Income before Income Tax Expense 202,681 84,632
Income Tax Expense 80,767 41,204
Net Income $ 121,914 $ 43,428

Memo: Total Depreciation $ 54,153 $ 47,589
Memo: Total Amortization $ 18,394 $ 15,062

Basic Net Income Per Share $ 1.44 $ 0.52
Weighted Average Shares Outstanding 84,365 83,785

Diluted Net Income Per Share $ 1.39 $ 0.50
Weighted Average Shares Outstanding 87,728 87,741

Before Restructuring and Impairment Charge
——————————————

Forty Forty
Weeks Ended Weeks Ended
October 7, 2000 October 9, 1999
————— —————
Income from Operations $ 235,872 $ 182,337
Income before Income Tax Expense 201,685 153,840
Income tax expense 80,386 65,385
Net Income $ 121,299 $ 88,455

Basic Net Income Per Share $ 1.44 $ 1.05
Diluted Net Income Per Share $ 1.38 $ 1.01