FLOWERS INDUSTRIES INC /GA, 424B4, 1998-04-22

FLOWERS INDUSTRIES INC /GA
424B4, 1998-04-22
BAKERY PRODUCTS

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<PAGE> 1
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-48787

PROSPECTUS

9,000,000 SHARES
FLOWERS INDUSTRIES, INC.

COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 9,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 7,200,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,800,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." THE COMMON STOCK OF THE
COMPANY IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE
SYMBOL "FLO." ON APRIL 21, 1998, THE LAST REPORTED SALE
PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE WAS $22 5/16 PER SHARE.

CONCURRENTLY WITH THIS OFFERING OF COMMON STOCK, THE COMPANY IS OFFERING,
PURSUANT TO A SEPARATE PROSPECTUS, $200,000,000 PRINCIPAL AMOUNT OF DEBENTURES
DUE 2028. CONSUMMATION OF THE COMMON STOCK OFFERING AND THE DEBENTURES OFFERING
ARE NOT CONDITIONED UPON EACH OTHER. SEE "USE OF PROCEEDS."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------

PRICE $22 A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share.................................... $22.00 $.88 $21.12
Total(3)..................................... $198,000,000 $7,920,000 $190,080,000
</TABLE>

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $680,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,350,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $227,700,000, $9,108,000 and
$218,592,000, respectively. See "Underwriters."

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

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by King & Spalding, counsel for the Underwriters. It is expected that delivery
of the Shares will be made on or about April 27, 1998 at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y. against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER SBC WARBURG DILLON READ INC.
April 21, 1998
<PAGE> 2

[INSIDE FRONT COVER PAGE GRAPHICS: THREE PHOTOGRAPHS OF FLOWERS PRODUCTS AND
FLOWERS LOGO]

[INSIDE FRONT COVER GATEFOLD GRAPHICS: LEFT - PHOTOGRAPH OF SAN ANTONIO BAKERY
PRODUCTION LINE -- CAPTION: FLOWERS INDUSTRIES, INC. OFFERS A FULL LINE OF FRESH
AND FROZEN BAKED FOODS; RIGHT - PHOTOGRAPH COLLAGE OF FLOWERS BRANDED PRODUCTS
- -- CAPTION: FLOWERS BAKERIES' AUTOMATED PRODUCTION FACILITY IN SAN ANTONIO,
TEXAS]

<PAGE> 3

NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information by Reference........... i
Available Information....................................... ii
Summary..................................................... 1
Forward-Looking Statements.................................. 9
Risk Factors................................................ 9
Use of Proceeds............................................. 12
Price Range of Common Stock and Dividends................... 12
Capitalization.............................................. 14
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 15
Selected Consolidated Historical Financial Data............. 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 29
Management.................................................. 40
Description of Capital Stock................................ 42
Certain United States Federal Tax Considerations for
Non-U.S. Holders of Common Stock.......................... 43
Underwriters................................................ 46
Legal Matters............................................... 49
Experts..................................................... 49
Index to Consolidated Financial Statements.................. F-1
</TABLE>

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are incorporated herein by reference:

(i) The Company's Transition Report on Form 10-K for the transition
period ended January 3, 1998;

(ii) The Company's Current Report on Form 8-K dated February 18, 1998
(as amended by Form 8-K/A dated March 13, 1998); and

(iii) The description of the Company's securities set forth under the
heading "Description of the Securities to be Registered" in the Company's
Registration Statement on Form 8-B dated December 7, 1987, for the
registration of the Common Stock under the Exchange Act, and the Company's

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<PAGE> 4

Registration Statement on Form 8-A dated March 21, 1989, for the
registration of the Rights to purchase Series A Junior Participating
Preferred Stock of the Company.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Common Stock shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents.

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The information relating
to the Company contained in this Prospectus should be read together with the
information in the documents incorporated by reference.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Such documents (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference) are
available without charge to any person, including any beneficial owner, to whom
this Prospectus is delivered, upon written or oral request. Requests for such
documents should be directed to Flowers Industries, Inc., 1919 Flowers Circle,
Thomasville, Georgia 31757, Attention: G. Anthony Campbell, telephone: (912)
226-9110.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1200, New York, New York 10048, and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also may be
obtained by mail from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Additionally, the Commission maintains a Web site on the Internet that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission and that is
located at http://www.sec.gov. In addition, information concerning the Company
is available for inspection at the offices of the New York Stock Exchange
("NYSE"), 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 (including the exhibits and amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to this offering of Common Stock (the "Common Stock Offering") and
the offering of $200,000,000 principal amount of Debentures due 2028 of the
Company (the "Debentures Offering"). This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain portions of which are omitted in accordance
with the rules and regulations of the Commission and to which reference is
hereby made. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission,
reference is made to the exhibit or other filing for a more complete description
of the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Copies of the Registration Statement together with
exhibits may be inspected at the office of the Commission in Washington, D.C.,
as indicated above, without charge, and copies thereof may be obtained therefrom
upon payment of a prescribed fee.

ii
<PAGE> 5

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto included
elsewhere or incorporated by reference in this Prospectus. As used in this
Prospectus, unless the context otherwise indicates, (i) "Flowers" means Flowers
Industries, Inc., a Georgia corporation and its consolidated subsidiaries,
excluding Keebler Foods Company, a Delaware corporation, and its consolidated
subsidiaries ("Keebler"); and (ii) the "Company" means Flowers and Keebler,
collectively. Unless stated otherwise, figures provided for market share
percentages and rank in any market are based on retail sales (measured in
dollars) in 1997 as reported by Information Resources, Inc. ("IRI"), which
tracks retail sales through scanner data in United States grocery stores with
annual revenue greater than $2.0 million. The IRI data excludes sales through
other channels in which the Company operates and, therefore, may overstate or
understate the Company's share of particular product lines in the baked foods
market. See "Business -- Products." All information in this Prospectus assumes
no exercise of the U.S. Underwriters' over-allotment option described under the
caption "Underwriters." In January 1998, the Company changed its fiscal year end
from the Saturday nearest June 30 to the Saturday nearest December 31. Unless
stated otherwise, all references to (i) "fiscal year 1997" shall mean Flowers'
full fiscal year ended June 28, 1997, (ii) "fiscal year 1998" shall mean
Flowers' full fiscal year ending January 2, 1999, and (iii) "transition period
1998" shall mean Flowers' 27 week transition period from June 29, 1997 through
January 3, 1998.

THE COMPANY

The Company is the largest nationally branded producer and marketer of a
full line of baked foods in the United States, with products which include
Flowers Bakeries' fresh breads and rolls, Mrs. Smith's Bakeries' fresh and
frozen baked desserts, snacks, breads and rolls, as well as Keebler's cookies
and crackers. Since its founding in 1919 in Thomasville, Georgia, the Company
has dramatically expanded the diversity and geographic scope of its operations
and is now a leader in the market for baked foods throughout the United States.

The Company's core strategy is to be the country's leading low-cost
producer and marketer of a full line of branded fresh and frozen baked products
on a national and super-regional basis, serving all possible customers, through
all channels of distribution. This strategy is focused on responding to current
market trends for the Company's products and changing consumer preferences,
which now increasingly favor purchases of ready-made convenience food products
as opposed to traditional home-prepared foods. To assist in accomplishing this
core strategy, the Company has aggressively invested capital to modernize and
expand its plant and equipment capacity and has acquired nationally branded
businesses which complement its traditional strengths. It has also continually
improved its distribution systems and has established a presence in all
distribution channels where baked foods are sold, including restaurants,
fast-food chains, food wholesalers, institutions and vending machines, as well
as grocery stores.

In the fresh baked product line (Flowers Bakeries), the Company focuses on
the production and marketing of baked foods to customers in the super-regional
19 state area in and surrounding the southeastern United States. In this effort,
the Company has devoted significant resources to modernizing production
facilities and improving its distribution capabilities, as well as actively
marketing well-recognized brands such as Nature's Own and Cobblestone Mill
bread. Since 1980, the Company has acquired 24 local bakery operations which are
generally within or contiguous to its existing region and which can be served
with its extensive direct-to-store sales and distribution system (a "DSD
system"). The Company's strategy is to use acquisitions to better serve new and
existing customers, principally by increasing the productivity and efficiency of
newly acquired plants, establishing reciprocal baking arrangements among its
bakeries, and by extending its DSD system. Flowers Bakeries' DSD system utilizes
approximately 3,100 independent distributors who own the right to sell the
Company's fresh baked products within their respective territories.

southeastern United States with its acquisition of the bakery operations of
Winn-Dixie, Inc. In 1991, the Company undertook its first significant entry into
the national market for frozen baked dessert products with the acquisition of
Pies, Inc., a midwest-based producer of premium pies for the restaurant and
foodservice markets, and further expanded its national presence by acquiring the
Oregon Farms branded frozen carrot cake line. In May 1996, the Company obtained
a leading presence in the frozen baked dessert category with the acquisition of
the business of Mrs. Smith's Inc., which markets the leading national brand of
frozen pies sold at retail. In January 1998, the Company launched "Operation
365," a strategy aimed at significantly expanding year-round sales in the frozen
dessert baked product category through product line extensions designed to take
advantage of nationwide consumer recognition of the Mrs. Smith's brand name.
Examples of significant product line extensions that are underway include Mrs.
Smith's retail frozen fruit cobblers and Mrs. Smith's "Restaurant Classics"
retail frozen pies.

The Company entered the cookies and crackers marketplace in January 1996 by
acquiring for $62.5 million an approximate 45% stake in Keebler, the number two
producer and marketer of cookies and crackers in the United States with net
sales of approximately $2.1 billion for its fiscal year ended January 3, 1998.
In June 1996, Keebler acquired Sunshine Biscuits, Inc. ("Sunshine"), the third
largest cookie and cracker producer in the United States. By the end of 1996,
Keebler completed its planned integration of Sunshine's operations, achieving
efficiencies in administration, purchasing, production, marketing, sales and
distribution. Under the control of Flowers and its co-investors, Keebler's
results of operations have improved from a net loss of $158.3 million for its
fiscal year ended December 30, 1995, to a net income of $57.0 million for its
fiscal year ended January 3, 1998. On February 3, 1998, Keebler completed its
initial public offering in which Flowers' co-investors sold a portion of their
shares to the public. Concurrent with that offering, Flowers purchased an
additional 11% of Keebler from its co-investors for approximately $309 million,
thereby increasing its ownership to approximately 55% of the total Keebler
shares outstanding (the "Keebler Acquisition").

The Company has a leading presence in each of the major product categories
in which it competes. Flowers Bakeries' fresh baked branded bread and roll sales
rank first in ten of its 15 major metropolitan markets and second in its
remaining five such markets, and its Nature's Own brand is the number one volume
brand of wheat/variety bread in the country despite being marketed solely in the
super-regional 19 state area in and surrounding the southeastern United States.
Mrs. Smith's Bakeries is one of the leading frozen baked dessert producers and
marketers in the United States, and its Mrs. Smith's pies are the leading
national brand of frozen pies sold at retail. Keebler is the number two producer
and marketer of branded cookies and crackers, the number one producer and
marketer of private label cookies and the number one producer and marketer of
cookies and crackers for the foodservice market. The Company's major branded
products include, among others, the following:

<TABLE>
<CAPTION>
FLOWERS BAKERIES MRS. SMITH'S BAKERIES KEEBLER
FRESH BAKED PRODUCTS FRESH AND FROZEN BAKED PRODUCTS COOKIES AND CRACKERS
-------------------- ------------------------------- --------------------
<S> <C> <C>
Flowers Mrs. Smith's Keebler Brands:
Nature's Own Mrs. Smith's Restaurant Classics - Chips Deluxe
Whitewheat Mrs. Smith's Special Recipe - Pecan Sandies
Cobblestone Mill Mrs. Freshley's - Fudge Shoppe
Dandee Oregon Farms - Town House
Evangeline Maid European Bakers, Ltd. - Club
Betsy Ross Stilwell - Graham Selects
ButterKrust Our Special Touch - Wheatables
BlueBird Danish Kitchen - Zesta
Licensed Brands: Pour-A-Quiche Cheez-It
- - Sunbeam Carr's
- - Roman Meal Vienna Fingers
- - Country Hearth Hydrox
- - Bunny Sunshine Krispy
- - Holsum Hi-Ho
Ready Crust
</TABLE>

2
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The Company is committed to being the low cost producer in all of its
operations and has made significant capital investments in recent years to
modernize, automate and expand its production and distribution capabilities.
Flowers has invested approximately $377 million over the past six years, of
which approximately $227 million was used to expand and modernize existing
production facilities for Flowers Bakeries, including the addition of twelve new
highly-automated production lines in nine facilities. The remaining
approximately $150 million was used primarily to build a state-of-the-art
distribution facility, and to add 13 highly-automated production lines in nine
facilities for Mrs. Smith's Bakeries. Since Flowers' initial investment in
Keebler in January 1996, Keebler has invested approximately $78 million to
streamline and rationalize its production operations in order to better support
its national DSD system.

In order to provide prompt and responsive service to its consumers, the
Company tailors its distribution systems to the marketing and production aspects
of its major product lines. Flowers Bakeries distributes its fresh baked foods
through an extensive DSD system of approximately 3,100 independent distributors
who, as owners of their territories, are motivated to maintain and build shelf
space and to monitor product freshness, which is essential in the marketing of
short shelf life products such as fresh bread, rolls and buns. These
distributors make an aggregate of approximately 70,000 stops per day. Mrs.
Smith's Bakeries' frozen foods are distributed through its two
strategically-located frozen distribution facilities, as well as through
additional commercial frozen warehouse space throughout the United States, in
order to accommodate inventory growth in seasonal products and to provide
staging to expedite distribution throughout the year. Keebler's cookies and
crackers are distributed through a DSD system designed to maximize customer
service and Keebler's control over the availability and presentation of
products. Keebler's DSD system employees distribute products to approximately
30,000 retail locations, principally supermarkets. Keebler is one of only two
cookie and cracker companies that own and operate a national DSD system.

INDUSTRY OVERVIEW

The United States baked foods industry is comprised of a number of distinct
product lines, including fresh baked foods (fresh breads, rolls and buns),
refrigerated and frozen baked foods (desserts, snacks, breads and doughs) and
cookies and crackers. Changes in consumer preferences have shifted food
purchases away from the traditional grocery store aisles for home preparation
and consumption, and toward home meal replacement purchases, either in
supermarkets' in-store deli/bakeries or in non-supermarket channels, such as
mass merchandisers, convenience stores, club stores, restaurants and other
convenience channels. Non-supermarket channels of distribution are becoming
increasingly important throughout the baked foods industry.

Fresh Baked Foods

In 1997, retail bread sales in the United States were approximately $5
billion, according to IRI, which tracks retail sales through scanner data in
United States grocery stores with annual revenue greater than $2.0 million. In
the last decade, retail sales of fresh breads have experienced modest growth,
with expansion occurring primarily in a variety of premium and specialty breads.

In addition to Flowers Bakeries, several large baking and diversified food
companies market fresh baked foods in the United States. Competitors in this
category include Interstate Bakeries Corporation ("Interstate"), The Earthgrains
Company ("Earthgrains"), Bestfoods, formerly CPC International Inc.
("Bestfoods") and Pepperidge Farm Inc. ("Pepperidge Farm"). There are also a
number of smaller, regional baking companies. The Company believes that the
larger companies enjoy several competitive advantages over smaller operations,
due principally to economies of scale in areas such as purchasing, production,
advertising, marketing and distribution, as well as through greater brand
awareness.

A significant trend in the fresh baked foods industry over the last several
years has been the consolidation of smaller bakeries into larger baking
businesses. Consolidation, which has reduced industry capacity, continues to be
driven by factors such as capital constraints on smaller bakeries, which limit
their ability to avoid technological obsolescence, to increase productivity or
to develop new products, generational changes at family-owned businesses, and
the need to serve super-regional grocery store chains. The Company believes

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<PAGE> 8

that the consolidation trend in the fresh baked foods industry will continue to
present opportunities for strategic acquisitions that complement its existing
businesses and that extend its regional presence.

Frozen Baked Foods

The United States frozen and refrigerated baked foods industry, including
desserts, breads, rolls and doughs, had 1997 sales of approximately $7 billion,
according to estimates compiled for the February 1998 edition of Refrigerated
and Frozen Foods, an industry trade publication. While retail sales of frozen
baked desserts have declined by approximately 9% since 1992, sales of frozen
baked foods to other distribution channels, including restaurants and other
foodservice institutions, have grown significantly over the same period,
including a cumulative 23% increase in sales of foodservice desserts and a 50%
increase in sales at in-store deli/bakeries. Primary competitors in the frozen
baked desserts category include The Pillsbury Co. ("Pillsbury"), Sara Lee Bakery
("Sara Lee"), Rich Products Corp. ("Rich Products"), Edwards Baking Co.
("Edwards") and Pepperidge Farm.

Cookies and Crackers

The United States cookie and cracker industry had 1997 retail sales of
approximately $8.3 billion. Since 1992, consumption per person of cookies and
crackers in the United States has remained stable. The cookie and cracker
industry is comprised of distinct product segments. Cookie segments include,
among others, sandwich cookies, chocolate chip cookies and fudge-covered
cookies. Cracker segments include among others, saltine crackers, graham
crackers and snack crackers.

Supermarkets accounted for approximately 78% of 1996 retail sales in the
cookie and cracker industry with mass merchandisers, convenience stores, and
drug stores accounting for most of the balance. Since 1992, United States annual
dollar supermarket sales of cookies and crackers have increased an average of
1.5% per year.

Keebler and Nabisco, Inc. ("Nabisco") are the two largest national
participants in the cookie and cracker industry. Keebler and Nabisco have a
combined market share of approximately 58%, with Keebler having approximately
24% and Nabisco having approximately 34%. Other participants in the industry
generally operate only in certain regions of the United States or only
participate in a limited number of segments of the industry.

BUSINESS STRATEGY

The Company's strategy is to be the country's leading low-cost producer and
marketer of a full-line of branded fresh and frozen baked foods products on a
national and super-regional basis serving all possible customers through all
channels of distribution. Flowers Bakeries, Mrs. Smith's Bakeries and Keebler
each develop separate strategies based on the production, distribution and
marketing requirements of its particular baked foods category. The Company
employs the following five overall strategies:

- Strong Brand Recognition. The Company intends to capitalize on the
success of its well-recognized brand names, which communicate product
consistency and high quality, through extending those brand names to
additional products and categories. Among other strategies, the Company
will continue to extend the Mrs. Smith's brand to additional frozen baked
products, expand the use of the Cheez-It brand name and develop new
products under the Keebler brand name. Many of the Company's products,
including its Nature's Own bread, Mrs. Smith's retail frozen baked pies
and Cheez-It snack crackers, are the top-selling brands in their
categories. Flowers Bakeries' fresh baked branded bread and roll sales
rank first in ten of its 15 major metropolitan markets and second in its
remaining five such markets. Keebler brand cookies rank second overall in
the United States, with eight of the 25 best-selling cookies and ten of
the 25 best-selling crackers in the United States based on dollar sales.

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<PAGE> 9

- State-of-the-Art Production and Distribution Facilities. The Company
intends to maintain a continuing level of capital improvements that will
permit it to fulfill its commitment to remain among the most modern and
efficient baked foods producers in the United States. Toward this goal,
Flowers has invested approximately $377 million in Flowers Bakeries and
Mrs. Smith's Bakeries in the six-year period ended June 28, 1997 to build
several modern and highly efficient production facilities and a
state-of-the-art distribution facility, as well as to automate and
modernize its existing facilities. Since Flowers' initial investment in
Keebler in January 1996, Keebler has spent approximately $78 million to
keep its operations modern and efficient and has lowered its operating
costs by closing plants, consolidating production and reducing overhead.

- Efficient and Customer Service-Oriented Distribution. The Company
intends to expand and refine its distribution systems to allow it to
respond quickly and efficiently to changing customer service needs,
consumer preferences and seasonal demands. In the last decade, the Company
has developed distribution systems that are tailored to the nature of each
of its three baked food product categories and are designed to provide the
highest levels of service to retail and foodservice customers. Flowers
Bakeries has developed a DSD network of approximately 3,100 independent
distributors for its fresh baked products, who make an aggregate of
approximately 70,000 stops per day. Mrs. Smith's Bakeries operates a
network of strategically located storage and distribution facilities for
its frozen baked products and a centralized distribution facility for its
fresh baked snack products. Keebler operates its own national DSD system
for its cookie and cracker products, enabling it to provide frequent
service to over 30,000 retail customers.

- Broad Range of Products and Sales Channels. In recognition that
consumers are increasingly seeking home meal replacements and other
convenience food products, the Company intends to continue to emphasize
expansion of its product lines and sales channels to meet those
preferences. The Company's product lines now include virtually every
category of baked foods, including fresh and frozen bread, buns, rolls,
pies, cakes, and other baked snacks and desserts, as well as cookies and
crackers. The Company's products generally can be found in all baked food
distribution channels, including traditional supermarkets and their
in-store deli/bakeries, convenience stores, mass merchandisers, club
stores, wholesalers, restaurants, fast food outlets, schools, hospitals
and vending machines. The Company intends to continue to increase its
focus on non-supermarket channels, such as restaurants, mass merchandisers
and convenience stores.

- Strategic Acquisitions. The Company intends to continue to pursue growth
through strategic acquisitions and investments that will complement and
expand its existing markets, product lines and product categories. The
Company has consistently pursued growth in sales, geographic markets and
products through strategic acquisitions and has completed over 75
acquisitions in 30 years. Most recently, Flowers continued its regional
expansion in fresh baked foods with its January 1998 acquisition of
Franklin Baking Company, a regional bakery based in North Carolina. The
Company expanded its frozen baked foods product line with the 1996
acquisition of Mrs. Smith's, Inc. and the well-recognized Mrs. Smith's
national brand. In February 1998, the Company obtained a controlling
interest in Keebler, the second largest cookie and cracker producer and
marketer in the United States.

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<PAGE> 10

THE OFFERING

Common Stock offered hereby........... 9,000,000 shares

Common Stock to be outstanding
after the Offering.................. 99,809,232 shares(1)

Use of proceeds....................... Repayment of a portion of the
Company's outstanding indebtedness
and for general corporate purposes

New York Stock Exchange Symbol........ FLO

Concurrent Debentures Offering........ Concurrently with the Common Stock
Offering, the Company intends to
issue $200 million aggregate
principal amount of Debentures due
2028. The Company intends to use the
net proceeds of the Debentures
Offering to repay indebtedness and
for general corporate purposes. See
"Use of Proceeds." Consummation of
the Common Stock and the Debentures
Offerings are not conditioned upon
each other.
- ---------------

(1) Based upon 90,809,232 shares outstanding on April 21, 1998. Does not include
12,350,000 shares of Common Stock reserved for issuance under the Company's
stock incentive plans, of which awards for 5,262,788 shares of Common Stock
have been granted and were outstanding as of April 21, 1998.

6
<PAGE> 11

SUMMARY CONSOLIDATED HISTORICAL AND
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following summary consolidated historical financial information (the
"Historical Financial Information") at and for the 27 week transition period
ended January 3, 1998, and fiscal years ended June 28, 1997, June 29, 1996, and
July 1, 1995, has been derived from audited financial statements of Flowers
filed with the Commission. The Historical Financial Information at and for the
27 weeks ended January 4, 1997 and the 52 weeks ended January 3, 1998 has been
derived from the unaudited financial statements of Flowers. The results of
operations below are not necessarily indicative of results to be expected for
any future period. The Historical Financial Information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto incorporated by reference or included elsewhere in this
Prospectus. See "Available Information" and "Incorporation of Certain
Information by Reference."

The following summary unaudited pro forma consolidated financial
information (the "Pro Forma Financial Information") for the 52 weeks ended
January 3, 1998 is based on the historical financial statements of Flowers and
Keebler during such period. The Pro Forma Financial Information gives effect to
certain pro forma adjustments related to (i) the Keebler Acquisition, (ii) the
Common Stock Offering, and (iii) the Debentures Offering, as if such
transactions had occurred on January 5, 1997. The adjustments are described in
the accompanying notes and are based upon available information and certain
assumptions that management of the Company believes are reasonable. The Pro
Forma Financial Information does not purport to represent what the Company's
results of operations would actually have been had the Keebler Acquisition, the
Common Stock Offering and the Debentures Offering in fact occurred on such date
or to project the Company's results of operations for any future period. The Pro
Forma Financial Information should be read in conjunction with the consolidated
financial statements and related notes thereto incorporated by reference or
included elsewhere in this Prospectus. See "Available Information" and
"Incorporation of Certain Information by Reference."

SUMMARY CONSOLIDATED HISTORICAL AND SUMMARY UNAUDITED PRO FORMA FINANCIAL
INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

52 WEEKS ENDED 27 WEEKS ENDED
-------------------------------------------- ---------------------------------
JULY 1, 1995 JUNE 29, 1996 JUNE 28, 1997 JANUARY 4, 1997 JANUARY 3, 1998
------------ ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Sales.................. $1,129,203 $1,238,564 $1,437,713 $774,767 $784,097
Gross profit(1)........ 529,787 563,802 649,914 334,618 365,171
Income before income
taxes................ 68,015 48,340 87,794 50,335 25,019
Income (loss) from
investment in
unconsolidated
affiliate............ 0 613 7,721 (195) 18,061
Income before
cumulative effect of
changes in accounting
principles and
minority interest.... 42,301 30,768 62,324 31,113 33,448
Minority interest...... 0 0 0 0 0
Net income............. 42,301 30,768 62,324 31,113 33,448(3)
OTHER DATA:
EBITDA(4).............. 111,705 102,192 158,873 86,813 63,745
EARNINGS PER COMMON
SHARE:
BASIC:
Net income per common
share................ .49 .35 .71 .35 .38(5)
Weighted average shares
outstanding.......... 86,229 86,933 88,000 87,892 88,368
DILUTED:
Net income per common
share................ .49 .35 .71 .35 .38(5)
Weighted average shares
outstanding.......... 86,438 87,211 88,401 88,285 88,773

<CAPTION>
52 WEEKS ENDED
JANUARY 3, 1998
-------------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Sales.................. $1,442,481 $3,507,665
Gross profit(1)........ 647,273 1,824,426
Income before income
taxes................ 62,478 153,408
Income (loss) from
investment in
unconsolidated
affiliate............ 24,813 0
Income before
cumulative effect of
changes in accounting
principles and
minority interest.... 63,495 88,020
Minority interest...... 0 (28,071)(2)
Net income............. 63,495(3) 59,949(6)
OTHER DATA:
EBITDA(4).............. 134,653 336,758
EARNINGS PER COMMON
SHARE:
BASIC:
Net income per common
share................ .72(5) .62(6)
Weighted average shares
outstanding.......... 88,263 97,263
DILUTED:
Net income per common
share................ .72(5) .61(6)
Weighted average shares
outstanding.......... 88,696 97,696
</TABLE>

7
<PAGE> 12

<TABLE>
<CAPTION>
AS OF
AS OF JANUARY 3, 1998
-------------------------------------------- ---------------------
JULY 1, 1995 JUNE 29, 1996 JUNE 28, 1997 ACTUAL PRO FORMA
------------ ------------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $ 655,921 $ 849,443 $ 898,187 $899,381 $2,136,999
Long-term notes payable................................... 99,251 254,355 259,884 259,249 659,133
</TABLE>

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

(1) Gross profit is defined as sales less materials, supplies, labor and other
production costs.
(2) Adjusted to reflect the 45% interest in Keebler held other than by Flowers.
(3) Represents net income before cumulative effect of changes in accounting
principles of $9.9 million, or $.11 per share.
(4) EBITDA is defined as income before interest, taxes, depreciation and
amortization, income from investment in unconsolidated affiliate and
cumulative effect of changes in accounting principles. EBITDA is presented
because the Company believes 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).
(5) Before cumulative effect of changes in accounting principles of $9.9
million, or $.11 per share, for the 27 weeks and the 52 weeks ended January
3, 1998.
(6) Before cumulative effect of changes in accounting principles of $9.9
million, or $.10 per share.

8
<PAGE> 13

FORWARD-LOOKING STATEMENTS

Certain statements incorporated by reference or made in this Prospectus
under the captions "Summary," "Risk Factors," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor provisions of that Act. Such forward-looking statements include,
without limitation, the future availability and prices of raw materials, the
availability of capital on acceptable terms, the competitive conditions in the
baked foods industry, potential regulatory obligations, the Company's strategies
and other statements contained herein that are not historical facts. 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, changes in general economic and business conditions (including
in the baked foods markets), the Company's ability to recover its raw material
costs in the pricing of its products, the availability of capital on acceptable
terms, actions of competitors, the extent to which the Company is able to
develop new products and markets for its products, the time required for such
development, the level of demand for such products, changes in the Company's
business strategies and other factors discussed under "Risk Factors" and
elsewhere in this Prospectus.

RISK FACTORS

ABILITY OF THE COMPANY TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE BAKED
FOODS INDUSTRY

The baked foods industry is highly competitive. The Company faces
competition in all of its markets from large, national bakeries and smaller,
regional operators, as well as from supermarket chains with their own bakeries
or private label products and grocery stores with their own in-store bakeries.
Some of the Company's competitors, including other diversified food companies,
are larger and may have greater financial resources than the Company. The
Company from time to time experiences price pressure in certain of its markets
as a result of competitors' promotional pricing practices as well as market
conditions generally. Competition is based on product quality, brand loyalty,
price, effective promotional activities and the ability to identify and satisfy
emerging consumer preferences. Customer service, including frequency of
deliveries and maintenance of fully stocked shelves, is also an important
competitive factor and is central to the competition for retail shelf space
among baked foods distributors. See "Business -- Competition."

RISK OF PRICE INCREASES AND SHORTAGES OF RAW MATERIALS

The principal baking ingredients used by the Company are flour, sugar,
shortening and fruit, all of which are subject to price fluctuations. Any
substantial increase in the prices of raw materials would, if not offset by
product price increases or effectively placed commodities hedging, have an
adverse impact on the profitability of the Company. Historically, the Company
has been able to recover the majority of its commodity cost increases through
increasing prices, switching to a higher-margin revenue mix and obtaining
additional operating efficiencies. There can be no assurance, however, that the
Company will continue to be able to offset raw material price increases to the
same extent in the future. From time to time the Company enters into contracts,
generally not longer than one year in duration, for the purchase of baking
ingredients at fixed prices, which are designed to protect the Company against
raw material price increases during their term. These contracts could result in
the Company paying higher prices for its raw materials than would otherwise be
available in the spot markets. The Company also uses paper products, such as
corrugated cardboard, aluminum products, such as pie plates, and films and
plastics to package its baked foods. In addition, the Company is also dependent
upon natural gas and propane as a fuel for firing ovens. Substantial future
increases in prices or shortages of packaging materials or fuels could have a
material adverse effect on the Company. See "Business -- Raw Materials."

9
<PAGE> 14

LIMITED ACCESS TO KEEBLER CASH FLOW

The Company owns a majority of the outstanding capital stock of Keebler. As
a result, Keebler's operations will be reported on a consolidated basis with the
Company and its other subsidiaries; however, the Company is limited in its
ability to gain access to Keebler's cash flows due to restrictions on the
payment of dividends in Keebler's existing credit facilities. In addition, the
Company's partial ownership of Keebler creates an economic disincentive to
effect any such distribution since those distributions must be shared ratably
with Keebler's other stockholders.

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

The Company believes that its trademarks and other proprietary rights are
important to its success and its competitive position. Accordingly, the Company
devotes substantial resources to the establishment and protection of its
trademarks and proprietary rights. However, the actions taken by the Company to
establish and protect its trademarks and other proprietary rights may be
inadequate to prevent imitation of its products by others or to prevent others
from claiming violations of their trademarks and proprietary rights by the
Company. In addition, others may assert rights in the Company's trademarks and
other proprietary rights. See "Business -- Intellectual Property."

DEPENDENCE ON KEY CUSTOMERS

During transition period 1998, the largest purchaser of Flowers' products,
Winn-Dixie, Inc., ("Winn-Dixie") accounted for approximately 10.7% of its sales.
The Company expects that sales to Winn-Dixie will continue to constitute a
significant percentage of its revenues. The loss of Winn-Dixie as an outlet for
the Company's products could have a material adverse effect on the financial
condition or results of operations of the Company. See "Business -- Customers."

AVAILABILITY AND INTEGRATION OF FUTURE ACQUISITIONS

Historically, the Company's growth has depended, in large part, on its
ability to acquire and, thereafter, integrate and operate additional baked foods
businesses. The Company's strategy includes pursuing acquisition candidates that
complement its existing product lines, its geographic presence, or both, and
leverage its purchasing power, brand management capabilities and operating
efficiencies. The Company presently has no material acquisitions under active
consideration. Potential competitors for acquisition opportunities include
larger companies which may have greater financial resources. Competition for
acquisition of baked foods businesses may result in acquisitions on terms that
prove to be less advantageous to the Company than have been attainable in the
past or may increase acquisition prices to levels unacceptable to the Company.
In addition, there can be no assurance that the Company will find attractive
acquisition candidates in the future. There also can be no assurance that the
Company will be successful in integrating future acquisitions into its existing
operations or succeed in reducing the costs and increasing the profitability of
any businesses acquired in the future. See "Business -- Strategy."

LACK OF MANAGEMENT EMPLOYMENT AGREEMENTS AND DEPENDENCE ON KEY PERSONNEL

The business of Flowers requires managerial, financial and operational
expertise. Flowers does not have employment agreements with any members of its
current management. Flowers has no reason to believe that any of its key
management personnel will not continue to be active in Flowers' business, but
there can be no assurance that Flowers will be able to continue to retain and
attract key management personnel in the future. See "Management."

IMPACT OF GOVERNMENTAL REGULATION ON THE COMPANY'S OPERATIONS

The Company's operations are subject to regulation by various federal,
state and local government entities and agencies. As a producer of baked foods
for human consumption, the Company's operations are subject to stringent
production, packaging, quality, labeling and distribution standards, including
the Federal Food and Drug Act. The operations of the Company's production and
distribution facilities are subject to
10
<PAGE> 15

various federal, state and local environmental laws and workplace regulations,
including the Occupational Safety and Health Act, the Fair Labor Standards Act,
the Clean Air Act and the Clean Water Act. Although the Company believes that
its current legal and environmental compliance programs adequately address such
concerns and that it is in substantial compliance with such applicable laws and
regulations, there can be no assurance that future regulation by various
federal, state and local governmental entities and agencies would not have a
material adverse effect on the Company's results of operations. See
"Business -- Regulation."

PRODUCT LIABILITY; PRODUCT RECALLS

The Company may be liable if the consumption of any of its products cause
injury, illness or death. The Company also may be required to recall certain of
its products that become contaminated or are damaged. The Company's current
management is not aware of any material product liability judgment against the
Company or product recall by the Company. However, a product liability judgment
against the Company or a product recall could have a material adverse effect on
the Company's business or financial results.

DIVIDENDS

In transition period 1998 and fiscal year 1997, the Company paid cash
dividends on its Common Stock of $.2225 and $.4125 per share, respectively.
Although the Company presently intends to continue to pay quarterly cash
dividends on its Common Stock, the payment of such dividends will depend on its
financial condition, results of operations and such other factors as the Board
of Directors of the Company may, in its discretion, consider relevant, and no
assurance can be given that the Company will pay any dividends in the future or
that the amount of such dividends will not be reduced from prior periods. See
"Price Range of Common Stock and Dividends."

DIFFICULTY IN EFFECTING CHANGES IN CONTROL DUE TO ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Second Restated Articles of
Incorporation (the "Articles") and Bylaws, Georgia corporate law and actions
taken by the Board of Directors of the Company could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. The Company's Articles require the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of its outstanding shares of stock to
approve, among other matters: (i) any plan of merger, share exchange or
consolidation of the Company with another corporation; (ii) any sale, lease,
transfer, exchange or other disposition of all or substantially all of the
property and assets of the Company; or (iii) any dissolution of the Company,
unless recommended by a majority of the Continuing Directors (as therein
defined), in which event, the vote required would be the affirmative vote of a
majority of the outstanding shares of stock. The Company's Articles provide for
a classified board of directors with staggered three-year terms, a provision
that increases the difficulty of removing all of the incumbent directors at one
time which, in turn, could discourage a proxy contest. The authorized but
unissued shares of Common Stock and Preferred Stock of the Company are generally
available for future issuance without stockholder approval. The existence of
authorized but unissued Common Stock and Preferred Stock may enable the Board of
Directors of the Company to issue shares to persons friendly to current
management, which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the Company's incumbent management. In addition,
in 1989, the Company adopted a Shareholder Rights Plan, which would make
substantially more expensive any takeover attempt not approved by the Company's
Board of Directors. The Company has also adopted a Bylaw electing to be covered
by the Fair Price Requirements of the Georgia Business Corporation Code, which
is designed to protect shareholders against two-tier, front-end loaded
transactions. See "Description of Capital Stock."

YEAR 2000 CONVERSION

Significant uncertainty exists concerning the potential effects associated with
such compliance. There can be no assurance that the Company's software contains
or will contain all necessary date code changes. The Company, its customers and
its suppliers may be affected by Year 2000 issues. The Company may also incur
certain unexpected expenditures in connection with Year 2000 compliance. Any of
the foregoing could result in a material adverse effect on the Company's
business, financial condition and results of operations.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 9,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $189
million (approximately $218 million if the U.S. Underwriters' over-allotment
option is exercised in full). The net proceeds to the Company from the
Debentures Offering are estimated to be approximately $198 million. The Company
intends to apply the aggregate net proceeds of the Common Stock Offering and the
Debentures Offering to repay indebtedness, principally incurred in connection
with the Keebler Acquisition, under the Amended and Restated Credit Agreement
dated as of January 30, 1998 among the Company, Wachovia Bank, N.A., as Agent,
The Bank of Nova Scotia, as Documentation Agent, NationsBank, N.A., as
Syndications Agent, and the banks (the "Banks") named therein (the "Revolving
Credit Facility"), to repay other miscellaneous indebtedness (the "Miscellaneous
Indebtedness") and for general corporate purposes. The Revolving Credit Facility
permits the Company to borrow from time to time up to $500 million and
terminates on January 29, 2003, unless extended by the Banks in their sole
discretion. Amounts drawn as of April 21, 1998, under the Revolving Credit
Facility aggregated approximately $422 million in principal amount and bore
interest at an annual rate of 6.1%. As of April 21, 1998, the aggregate
principal amount of the Miscellaneous Indebtedness was approximately $13 million
with a weighted average annual interest rate of 7.41%. Pending such uses, the
Company will invest the proceeds in marketable, investment grade debt
instruments of the United States Government.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Common Stock is listed on the NYSE and is traded under the symbol
"FLO." The table below presents, for each of the quarterly calendar periods
indicated, the high and low sales prices for the Common Stock, as reported on
the NYSE, and cash dividends paid.

<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
----- ----- ---------
<S> <C> <C> <C>
Calendar 1996
First Quarter.......................................... $ 10 $ 8 1/4 $.0967
Second Quarter......................................... 12 8 1/2 .0983
Third Quarter.......................................... 13 1/4 10 5/8 .1000
Fourth Quarter......................................... 15 7/8 12 5/8 .1017
Calendar 1997
First Quarter.......................................... $ 16 1/8 $ 13 1/4 $.1033
Second Quarter......................................... 18 15 .1075
Third Quarter.......................................... 20 11/16 16 1/2 .1100
Fourth Quarter......................................... 21 1/2 16 5/8 .1125
Calendar 1998
First Quarter.......................................... $ 26 5/16 $ 20 1/8 $.1150
Second Quarter (through April 21, 1998)................ 24 9/16 22 5/16 --
</TABLE>

12
<PAGE> 17

On April 21, 1998, the last reported sale price of the Common Stock on the
NYSE was $22 5/16 per share. On April 21, 1998, the Common Stock was held by
approximately 8,000 holders of record.

The declaration of dividends is at the discretion of the Board of Directors
of the Company. While the Company intends to continue to pay quarterly cash
dividends on its Common Stock, the declaration and payment of future dividends
and the amount thereof will be dependent upon the Company's financial condition,
results of operations, cash requirements for its business, future prospects and
other factors deemed relevant by the Board of Directors. In addition, the
existing debt agreements of Keebler contain covenants which limit Keebler's
ability to, among other things, pay dividends.

13
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company at January
3, 1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
Keebler Acquisition, (iii) on a pro forma basis as further adjusted to give
effect to the Common Stock Offering and the Debentures Offering and the
application of the estimated aggregate net proceeds therefrom, and (iv) on a pro
forma basis as adjusted to give effect to the Common Stock Offering and the
Debentures Offering and reflecting Keebler on a deconsolidated basis. This table
should be read in conjunction with and is qualified by reference to the
consolidated financial statements and related notes thereto incorporated by
reference or included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JANUARY 3, 1998
--------------------------------------------------------------
PRO FORMA
FOR THE PRO FORMA PRO FORMA
ACTUAL KEEBLER ACQUISITION AS ADJUSTED(1) AS ADJUSTED(2)
------ ------------------- -------------- --------------
(DOLLARS IN MILLIONS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C>
Current portion of long-term debt......... $ 4.3 $ 30.7 $ 26.4 $ 0.0
------ -------- -------- --------
Commercial paper.......................... 53.5 53.5 53.5 53.5
------ -------- -------- --------
Long-term debt, excluding current portion:
Flowers' long-term debt................. 276.2 590.8 407.9 407.9
Keebler's long-term debt................ -- 272.4 272.4 --
------ -------- -------- --------
Total long-term debt(3)......... 276.2 863.2 680.3 407.9
------ -------- -------- --------
Minority Interest......................... -- 99.9 99.9 --
------ -------- -------- --------
Stockholders' Equity:
Preferred Stock, par value $100 per
share, 10,467 shares authorized; none
issued and outstanding...............
Preferred Stock, par value $100 per
share, 249,533 shares authorized,
none issued and outstanding..........
Common Stock, par value $.625 per share,
350,000,000 shares authorized,
88,636,089 shares issued and
97,636,089 shares issued as
adjusted(4).......................... 55.4 55.4 61.0 61.0
Capital in excess of par................ 45.2 45.2 229.0 229.0
Retained earnings....................... 266.7 266.7 266.7 266.7
Less:
Common stock in treasury............. (2.4) (2.4) (2.4) (2.4)
Restricted Stock Award and Equity
Incentive Award.................... (16.3) (16.3) (16.3) (16.3)
------ -------- -------- --------
348.6 348.6 538.0 538.0
------ -------- -------- --------
Total Capitalization............ $682.6 $1,395.9 $1,398.1 $ 999.4
====== ======== ======== ========
OTHER DATA:
Long-term debt/Total capitalization....... 40.5% 61.8% 48.7% 40.8%
Total debt(5)/Total capitalization........ 48.9% 67.9% 54.4% 46.2%
</TABLE>

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

(1) Gives effect to the Keebler Acquisition, the Common Stock Offering and the
Debentures Offering.
(2) Gives effect to the Keebler Acquisition, the Common Stock Offering and the
Debentures Offering, and reflecting Keebler on a deconsolidated basis.
(3) Long-term debt includes long-term notes payable, obligations under capital
leases and Industrial Revenue Bonds.
(4) Does not include 12,350,000 shares of Common Stock reserved for issuance
under the Company's stock incentive plans, of which awards for 5,262,788
shares of Common Stock have been granted and were outstanding as of April
21, 1998.
(5) Includes current portion of long-term debt, commercial paper, and total
long-term debt.

14
<PAGE> 19

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The Unaudited Pro Forma Condensed Consolidated Financial Statements are
based on the historical presentation of the consolidated financial statements of
Flowers. The Unaudited Pro Forma Condensed Consolidated Statements of Income for
the 27 weeks ended January 3, 1998, the 52 weeks ended June 28, 1997, and the 52
weeks ended January 3, 1998 gives effect to certain pro forma adjustments
related to (i) the Keebler Acquisition, (ii) the Common Stock Offering, and
(iii) the Debentures Offering, as if such transactions had occurred as of June
30, 1996. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
January 3, 1998 gives effect to these pro forma adjustments as if the
transactions occurred on January 3, 1998.

The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to be indicative of the results that actually would have been obtained
if the combined operations had been conducted during the periods presented and
they are not necessarily indicative of operating results to be expected in
future periods. The Unaudited Pro Forma Condensed Consolidated Financial
Statements and notes thereto should be read in conjunction with the consolidated
financial statements and the related notes thereto of Flowers and Keebler
incorporated by reference or included elsewhere in this Prospectus.

15
<PAGE> 20

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)

<TABLE>
<CAPTION>
HISTORICAL
------------------------
FLOWERS KEEBLER
JANUARY 3, JANUARY 3, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 3,866 $ 27,188 $ $ 31,054
Accounts receivable...................... 118,147 98,963 217,110
Inventories.............................. 105,431 112,462 217,893
Prepaid expenses and other............... 9,421 20,303 29,724
Deferred income taxes.................... 16,024 42,730 58,754
-------- ---------- ----------
252,889 301,646 554,535
-------- ---------- ----------
Net Property, Plant and Equipment.......... 438,321 478,121 916,442
-------- ---------- ----------
Other Assets and Deferred Charges:
Investment in unconsolidated affiliate... 100,663 -- (100,663)(1) --
Other long-term assets................... 32,620 61,879 2,270(2) 96,769
-------- ---------- --------- ----------
133,283 61,879 (98,393) 96,769
-------- ---------- --------- ----------
Cost in Excess of Net Tangible Assets...... 74,888 201,205 293,160(3) 569,253
-------- ---------- --------- ----------
$899,381 $1,042,851 $ 194,767 $2,136,999
======== ========== ========= ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Commercial paper......................... $ 53,506 $ -- $ $ 53,506
Current portion of long-term debt........ 1,581 26,365 27,946
Obligations under capital leases......... 2,651 -- 2,651
Accounts payable......................... 72,311 126,213 198,524
Accrued taxes other than income taxes.... 5,230 -- 5,230
Income taxes............................. -- 13,784 13,784
Other accrued liabilities................ 97,333 201,823 299,156
-------- ---------- ----------
232,612 368,185 600,797
-------- ---------- ----------
200,000(2)
Long-Term Debt............................. 276,211 272,390 (72,506)(2) 676,095
-------- ---------- --------- ----------
Deferred Taxes............................. 39,686 69,417 109,103
-------- ---------- ----------
Postretirement/Postemployment
obligations.............................. -- 60,605 60,605
-------- ---------- ----------
Other...................................... 2,305 50,203 52,508
-------- ---------- ----------
Minority Interest.......................... -- -- 99,924(4) 99,924
-------- ---------- --------- ----------
Stockholders' Equity:
Common stock............................. 55,398 776 (776)(5)
5,625(6) 61,023
Capital in excess of par value........... 45,200 148,538 (148,538)(5)
183,775(6) 228,975
Retained earnings........................ 266,734 72,737 (72,737)(5) 266,734
Less: Treasury stock..................... (2,452) -- (2,452)
Restricted Stock Award and Equity
Incentive Award.................... (16,313) -- (16,313)
-------- ---------- --------- ----------
348,567 222,051 (32,651) 537,967
-------- ---------- --------- ----------
$899,381 $1,042,851 $ 194,767 $2,136,999
======== ========== ========= ==========
</TABLE>

16
<PAGE> 21

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
FLOWERS KEEBLER
52 WEEKS ENDED 52 WEEKS ENDED PRO FORMA PRO FORMA
JANUARY 3, 1998(7) JANUARY 3, 1998 ADJUSTMENTS CONSOLIDATED
------------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales......................... $1,442,481 $2,065,184 $ $3,507,665
Other income.................. 8,613 -- 8,613
---------- ---------- ----------
1,451,094 2,065,184 3,516,278
---------- ---------- ----------
Materials, supplies, labor and
other production costs...... 795,208 888,031 1,683,239
Selling, delivery and
administrative expenses..... 570,439 1,035,756 7,329(8) 1,613,524
Interest...................... 22,969 33,847 9,291(9) 66,107
---------- ---------- -------- ----------
1,388,616 1,957,634 16,620 3,362,870
---------- ---------- -------- ----------
Income before income taxes.... 62,478 107,550 (16,620) 153,408
Federal and state income tax
expense (benefit)........... 23,796 45,169 (3,577)(10) 65,388
Income from investment in
unconsolidated affiliate.... 24,813 -- (24,813)(11) --
---------- ---------- -------- ----------
Income before minority
interest.................... 63,495 62,381 (37,856) 88,020
Minority interest............. -- -- (28,071)(4) (28,071)
---------- ---------- -------- ----------
Net income.................... $ 63,495(12) $ 62,381 $(65,927) $ 59,949(13)
========== ========== ======== ==========
Net income per common share:
Basic....................... $ .72(12) $ .62(13)
========== ==========
Weighted average shares
outstanding.............. 88,263 97,263
========== ==========
Diluted..................... $ .72(12) $ .61(13)
========== ==========
Weighted average shares
outstanding.............. 88,696 97,696
========== ==========
</TABLE>

17
<PAGE> 22

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
FLOWERS KEEBLER
27 WEEKS ENDED 24 WEEKS ENDED PRO FORMA PRO FORMA
JANUARY 3, 1998 JANUARY 3, 1998(14) ADJUSTMENTS CONSOLIDATED
--------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales............................... $784,097 $1,008,322 $ $1,792,419
Other income........................ 2,442 -- 2,442
-------- ---------- ----------
786,539 1,008,322 1,794,861
-------- ---------- ----------
Materials, supplies, labor and other
production costs.................. 435,286 427,930 863,216
Selling, delivery and administrative
expenses.......................... 314,438 495,543 3,805(8) 813,786
Interest............................ 11,796 14,440 4,824(9) 31,060
-------- ---------- -------- ----------
761,520 937,913 8,629 1,708,062
-------- ---------- -------- ----------
Income before income taxes.......... 25,019 70,409 (8,629) 86,799
Federal and state income tax expense
(benefit)......................... 9,632 29,570 (1,857)(10) 37,345
Income from investment in
unconsolidated affiliate.......... 18,061 -- (18,061)(11) --
-------- ---------- -------- ----------
Income before minority interest..... 33,448 40,839 (24,833) 49,454
Minority interest................... -- -- (18,378)(4) (18,378)
-------- ---------- -------- ----------
Net income.......................... $ 33,448(12) $ 40,839 $(43,211) $ 31,076(13)
======== ========== ======== ==========
Net income per common share:
Basic............................. $ .38(12) $ .32(13)
======== ==========
Weighted average shares
outstanding.................... 88,368 97,368
======== ==========
Diluted........................... $ .38(12) $ .32(13)
======== ==========
Weighted average shares
outstanding.................... 88,773 97,773
======== ==========
</TABLE>

18
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
FLOWERS
52 WEEKS KEEBLER
ENDED 52 WEEKS ENDED PRO FORMA PRO FORMA
JUNE 28, 1997 JULY 12, 1997(15) ADJUSTMENTS CONSOLIDATED
------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales.................................. $1,437,713 $1,983,369 $ $3,421,082
Gain on sale of distributor notes
receivable........................... 43,244 43,244
Other income........................... 3,540 3,540
---------- ---------- ----------
1,484,497 1,983,369 3,467,866
---------- ---------- ----------
Materials, supplies, labor and other
production costs..................... 815,864 890,928 1,706,792
Selling, delivery and administrative
expenses............................. 555,730 987,762 7,329(8) 1,550,821
Interest............................... 25,109 39,073 9,291(9) 73,473
---------- ---------- -------- ----------
1,396,703 1,917,763 16,620 3,331,086
---------- ---------- -------- ----------
Income before income taxes............. 87,794 65,606 (16,620) 136,780
Federal and state income tax expense
(benefit)............................ 33,191 27,475 (3,577)(10) 57,089
Income from investment in
unconsolidated affiliate............. 7,721 -- (7,721)(11) --
---------- ---------- -------- ----------
Income before minority interest........ 62,324 38,131 (20,764) 79,691
Minority interest...................... -- -- (17,159)(4) (17,159)
---------- ---------- -------- ----------
Net income............................. $ 62,324 $ 38,131 $(37,923) $ 62,532
========== ========== ======== ==========
Net income per common share:
Basic................................ $ .71 $ .64
========== ==========
Weighted average shares
outstanding....................... 88,000 97,000
========== ==========
Diluted.............................. $ .71 $ .64
========== ==========
Weighted average shares
outstanding....................... 88,401 97,401
========== ==========
</TABLE>

19
<PAGE> 24

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS
OF INCOME

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. Represents the elimination of Flowers' investment in Keebler.

2. Represents the change in debt and equity as follows:

<TABLE>
<S> <C>
Proceeds from Common Stock Offering, net of fees and
expenses of $8,600........................................ $ 189,400
Proceeds from Debentures Offering, net of fees and expenses
of $2,270................................................. 197,730
---------
Total proceeds.................................... 387,130
Less purchase price of Keebler Acquisition and related
costs..................................................... (314,624)(a)
---------
Proceeds applied to repayment of existing debt.............. (72,506)
Increase in debt attributable to Debentures Offering........ 200,000
---------
Net increase in debt.............................. $ 127,494
=========
</TABLE>

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

(a) The purchase price for the Keebler Acquisition was determined as
follows:

<TABLE>
<S> <C>
Purchase price............................................ $308,624
Transaction costs......................................... 6,000
--------
$314,624
========
</TABLE>

3. Represents the portion of the purchase price that has been ascribed to
Cost in Excess of Net Tangible Assets. For pro forma purposes, Flowers estimates
that Keebler's historical net assets approximate fair value, based on the fact
that Keebler's assets and liabilities were adjusted to fair value in 1996 as
part of the acquisition of Keebler by the entity formed by Flowers and its
co-investors.

4. Represents the 45% interest in Keebler held other than by Flowers.

5. Represents the elimination of Keebler's historical equity.

6. Represents the allocation of $189,400 between common stock ($5,625) and
capital in excess of par ($183,775).

7. Derived from the unaudited financial information of Flowers.

8. Represents the amortization of the Cost in Excess of Net Tangible Assets
of $293,160 over 40 years.

9. Represents interest on net increase of approximately $128,000 in debt at
an assumed rate of 7.2% plus amortization of deferred loan costs of $2,270
relating to the Debentures.

10. To record the tax benefit for the increased interest expense, at an
estimated effective income tax rate of 38.5%.

11. To eliminate Flowers' historical equity in income from investment in
Keebler.

12. Represents net income before cumulative effect of changes in accounting
principles of $9,900, or $.11 per share.

13. Before cumulative effect of changes in accounting principles of $9,900,
or $.10 per share.

14. Derived from unaudited financial statements of Keebler for the third
and fourth quarters ended October 4, 1997 and January 3, 1998, respectively.

15. Derived from unaudited financial information of Keebler.

20
<PAGE> 25

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The selected consolidated historical financial data presented below as of
and for the fiscal years 1993, 1994, 1995, 1996 and 1997, and for transition
period 1998, have been derived from the consolidated financial statements of
Flowers which have been audited by Price Waterhouse LLP, independent
accountants. The selected consolidated historical financial data for the 27
weeks ended January 4, 1997 have been derived from the unaudited financial
statements of Flowers. 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 related notes thereto incorporated by
reference or included elsewhere in this Prospectus. See "Available Information"
and "Incorporation of Certain Information by Reference."

<TABLE>
<CAPTION>
52 WEEKS ENDED 27 WEEKS ENDED
---------------------------------------------------------- ------------------------
JULY 3, JULY 2, JULY 1, JUNE 29, JUNE 28, JANUARY 4, JANUARY 3,
1993 1994 1995 1996 1997 1997 1998
-------- -------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales..................................... $962,132 $989,782 $1,129,203 $1,238,564 $1,437,713 $774,767 $784,097
Other income.............................. 4,395 4,690 10,751 12,020 46,784 41,347 2,442
Materials, supplies, labor and other
production costs........................ 493,997 525,731 599,416 674,762 787,799 440,149 418,926
Selling, delivery and administrative
expenses................................ 375,360 383,073 428,833 468,695 537,825 289,152 303,868
Depreciation and amortization............. 33,137 34,110 36,604 40,848 45,970 22,542 26,930
Interest.................................. 4,001 4,318 7,086 13,004 25,109 13,936 11,796
Accrual for litigation settlement......... -- -- -- 4,935 -- -- --
Income before income taxes................ 60,032 47,240 68,015 48,340 87,794 50,335 25,019
Federal and state income taxes............ 20,871 17,744 25,714 18,185 33,191 19,027 9,632
Income (loss) from investment in
unconsolidated affiliate................ -- -- -- 613 7,721 (195) 18,061
Income before cumulative effect of changes
in accounting principles................ 39,161 29,496 42,301 30,768 62,324 31,113 33,448
Cumulative effect of changes in accounting
principles, net of tax benefit.......... -- -- -- -- -- -- (9,888)
Net income................................ 39,161 29,496 42,301 30,768 62,324 31,113 23,560
EARNINGS PER COMMON SHARE -- BASIC:
Income before cumulative effect of
changes in accounting principles...... $ .47 $ .35 $ .49 $ .35 $ .71 $ .35 $ .38
Cumulative effect of changes in
accounting principles................. -- -- -- -- -- -- (.11)
Net income per common share............. .47 .35 .49 .35 .71 .35 .27
Weighted average shares outstanding..... 83,222 84,521 86,229 86,933 88,000 87,892 88,368
EARNINGS PER COMMON SHARE -- DILUTED:
Income before cumulative effect of
changes in accounting principles...... $ .47 $ .35 $ .49 $ .35 $ .71 $ .35 $ .38
Cumulative effect of changes in
accounting principles................. -- -- -- -- -- -- (.11)
Net income per common share............. .47 .35 .49 .35 .71 .35 .27
Weighted average shares outstanding 83,648 84,784 86,438 87,211 88,401 88,285 88,773
OTHER DATA:
EBITDA(1)............................... 97,170 85,668 111,705 102,192 158,873 86,813 63,745
Ratio of earnings to fixed charges(2)... 6.23 5.10 6.08 3.59 3.65 3.50 2.45
Cash dividends paid per common share.... $ .327 $ .344 $ .362 $ .383 $ .413 $ .2017 $ .223
</TABLE>

<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------------------
JULY 3, JULY 2, JULY 1, JUNE 29, JUNE 28, JANUARY 3,
1993 1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $490,948 $559,682 $ 655,921 $ 849,443 $ 898,187 $899,381
Long-term notes payable.................... 22,307 77,422 99,251 254,355 259,884 259,249
Stockholders' equity....................... 280,154 275,731 303,981 305,324 340,012 348,567
</TABLE>

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

(1) EBITDA is defined as income before interest, taxes, depreciation and
amortization, income from investment in unconsolidated affiliate and
cumulative effect of changes in accounting principles. EBITDA is presented
because the Company believes 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).
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes and income
from investment in unconsolidated affiliate plus fixed charges. Fixed
charges consist of interest expense and interest portion of rent expense.

21
<PAGE> 26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Selected
Consolidated Historical Financial Data" included herein and the consolidated
financial statements and the related notes thereto of the Company incorporated
by reference or included elsewhere in this Prospectus. The following information
contains forward-looking statements which involve certain risks and
uncertainties. See "Forward-Looking Statements."

OVERVIEW

General

The Company produces and markets fresh baked breads, rolls and snack foods,
frozen baked breads, desserts and snack foods, and cookies and crackers. Sales
are principally affected by pricing, quality, brand recognition, new product
introductions and product line extensions, marketing and service. The Company
manages these factors to achieve a sales mix favoring its higher margin branded
products while using high volume products to control costs and maximize use of
capacity.

The principal elements comprising the Company's production costs are
ingredients, packaging materials, labor and overhead. The major ingredients used
in the production of the Company's products are flour, sugar, shortening and
fruit. The Company also uses paper products, such as corrugated cardboard,
aluminum products, such as pie plates, and plastic to package its products. The
prices of these materials are subject to significant volatility. The Company has
mitigated the effects of such price volatility in the past through its hedging
programs, but may not be successful in protecting itself from fluctuations in
the future. In addition to the foregoing factors, production costs are affected
by the efficiency of production methods and capacity utilization.

The Company's selling, delivery and administrative expenses are comprised
mainly of distribution, logistics and advertising expenses. Distribution and
logistics costs represent the largest component of the Company's cost structure,
other than production costs, and are principally influenced by changes in sales
volume.

Depreciation and amortization expenses for the Company is comprised of
depreciation of property, plant and equipment and amortization of costs in
excess of net tangible assets associated with acquisitions. The Company's
interest expenses are primarily associated with the Company's Revolving Credit
Facility, senior notes outstanding in the aggregate principal amount of $125
million and the Company's commercial paper program. See "-- Liquidity and
Capital Resources."

Matters Affecting Analysis

The Keebler Acquisition closed on February 3, 1998. Accordingly, the
results of operations of Flowers are not consolidated with those of Keebler for
the transition period 1998 or for any prior fiscal year. From January 26, 1996,
the date of the Company's initial investment in Keebler, through February 3,
1998, the Company accounted for its investment in Keebler using the equity
method of accounting. For reporting periods ending after February 3, 1998, the
Company will consolidate Keebler for financial reporting purposes.

As a result of the Company's change in fiscal year end, the Company's
quarterly reporting periods for fiscal year 1998 shall be as follows: first
quarter ending April 25, 1998, second quarter ending July 18, 1998, third
quarter ending October 10, 1998, and fourth quarter and fiscal year ending
January 2, 1999 (the Saturday nearest December 31).

22
<PAGE> 27

The Company's results of operations, expressed as a percentage of sales,
for the 52 week periods ended July 1, 1995, June 29, 1996 and June 28, 1997, and
for the 27 week period ended January 4, 1997, and for the 27 week transition
period ended January 3, 1998, are set forth below:

<TABLE>
<CAPTION>
52 WEEKS ENDED 27 WEEKS ENDED
----------------------------- -----------------------
JULY 1, JUNE 29, JUNE 28, JANUARY 4, JANUARY 3,
1995 1996 1997 1997 1998
------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales..................................... 100.00% 100.00% 100.00% 100.00% 100.00%
Other income.............................. .95 .97 3.26 5.34 .31
------ ------ ------ ------ ------
100.95 100.97 103.26 105.34 100.31
------ ------ ------ ------ ------
Materials, supplies, labor and other
production costs........................ 53.08 54.48 54.80 56.81 53.43
Selling, delivery and administrative
expenses................................ 37.98 38.24 37.41 37.32 38.75
Depreciation and amortization............. 3.24 3.30 3.20 2.91 3.43
Interest.................................. .63 1.05 1.75 1.80 1.50
------ ------ ------ ------ ------
Income before income taxes................ 6.02 3.90 6.10 6.50 3.20
Federal and state income taxes............ 2.28 1.47 2.31 2.46 1.23
Income (loss) from investment in
unconsolidated affiliate................ -- .05 .54 (.03) 2.30
Income before cumulative effect of changes
in accounting principles................ 3.74 2.48 4.33 4.01 4.27
Cumulative effect of changes in accounting
principles, net of tax benefit.......... -- -- -- -- (1.26)
------ ------ ------ ------ ------
Net income................................ 3.74% 2.48% 4.33% 4.01% 3.01%
====== ====== ====== ====== ======
</TABLE>

TWENTY-SEVEN WEEKS ENDED JANUARY 3, 1998 COMPARED TO TWENTY-SEVEN WEEKS ENDED
JANUARY 4, 1997

Sales. For the 27 weeks ended January 3, 1998, sales were $784.1 million,
or 1% higher than sales for the comparable period in the prior year, which were
$774.8 million. Sales from businesses acquired in 1997 contributed most of the
increase, and were offset somewhat by lost sales attributable to businesses
divested by Flowers Bakeries in 1997. The Company's sales for the current period
also were favorably impacted by a change in promotional practices at Mrs.
Smith's Bakeries implemented in 1997.

Other Income. For the 27 weeks ended January 4, 1997, the Company
recognized approximately $43 million in income attributable to the gain on the
sale of the Company's distributor notes receivable, which occurred in September
1996. The sale of these notes was necessitated by the Company's decision to
settle claims by the United States Internal Revenue Service ("IRS") that the
notes constituted current rather than deferred income. Other income for the more
recent period was offset by approximately $5 million attributable to the
write-down of certain idle facilities.

Materials, Supplies, Labor and Other Production Costs. The Company's
production costs for the 27 weeks ended January 3, 1998, were $418.9 million, or
5% lower than its costs of $440.1 million for the prior year's period. The
improvement is attributable to decreased ingredient costs, primarily flour, and
continued emphasis on cost controls and operating efficiencies.

Selling, Delivery and Administrative Expenses. Selling, delivery and
administrative expenses were $303.9 million, or 5% higher for the 27 weeks ended
January 3, 1998, compared to $289.2 million for the same period in the prior
year. For the 27 weeks ended January 3, 1998, the Company experienced higher
advertising and promotional expenses to support new product introductions,
primarily for Mrs. Smith's Bakeries, than in the prior year, as well as
increased logistics expenses at Mrs. Smith's Bakeries to service increased sales
volume. In addition, the Company accrued administrative and other expenses
associated with the change in its fiscal year.

Depreciation and Amortization. Depreciation and amortization expense was
$26.9 million, or 20% higher for the 27 weeks ended January 3, 1998, than for
the comparable period in the prior year, which was

23
<PAGE> 28

$22.5 million. The increase was due primarily to the effect of depreciation
attributable to capital improvements implemented in 1997.

Interest. Interest expense for the 27 weeks ended January 3, 1998 was
$11.8 million, or 15% lower than interest expense of $13.9 million for the same
period in 1997, due primarily to interest of $2.5 million paid pursuant to the
IRS settlement discussed above during the 27 weeks ended January 4, 1997.

Income Before Income Taxes. Income before income taxes for the 27 weeks
ended January 3, 1998 was $25.0 million. The decrease from the prior year's
corresponding period is primarily attributable to the one-time gain in the prior
period that was generated by the sale of the Company's distributor notes
receivable, discussed above.

Federal and State Income Taxes. Income taxes for the 27 weeks ended
January 3, 1998 were $9.6 million, a decrease from the corresponding period in
the prior year, due primarily to the difference in pre-tax income for such
periods.

Net Income from Keebler Investment. In the 27 weeks ended January 3, 1998,
the Company recorded net income from its investment in Keebler of $18.1 million,
compared to a net loss of $.2 million for the comparable period for the prior
year. The increase in net income from Keebler is primarily attributable to sales
volume increases associated with certain of Keebler's branded cookie and cracker
products, the inclusion of the business of Sunshine following its acquisition in
June 1996 by Keebler, improved gross margins and a more efficient fixed cost
structure at Keebler.

Net Income. Net income of $23.6 million for the 27 weeks ended January 3,
1998 was 24% lower than the $31.1 million net income for the comparable prior
year's period. In addition to the factors described above, the difference in net
earnings was primarily attributable to the effect of one-time charges of $9.9
million for the cumulative effect (net of tax benefit) of changes in accounting
principles taken in the more recent period and expenses accrued by the Company
for administrative and other costs associated with the change in its fiscal
year, as compared to the impact in 1996 of the Company's recognition of the gain
on the sale of its distributor notes receivable.

FISCAL YEAR ENDED JUNE 28, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 29, 1996

Sales. Sales for fiscal year 1997 were $1.438 billion, or 16% higher than
sales of $1.239 billion for fiscal year 1996. The increase in sales was
primarily attributable to sales from businesses acquired during the fourth
quarter of fiscal year 1996 and in fiscal year 1997. The Company also
experienced increased sales volume in the Company's existing businesses,
primarily in Mrs. Smith's Bakeries.

Other Income. In fiscal year 1997, the Company recognized a gain of
approximately $43.2 million on the sale of the Company's distributor notes, as
discussed above.

Materials, Supplies, Labor and Other Production Costs. The Company's
production costs for fiscal year 1997 were $787.8 million, or 17% higher than
costs of $674.8 million for fiscal year 1996. The increase in such costs was due
primarily to increased sales volume, and was offset by decreased ingredient and
packaging costs during the fourth quarter of fiscal 1997.

Selling, Delivery and Administrative Expenses. Selling, delivery and
administrative expenses increased by 15% to $537.8 million for fiscal year 1997
from $468.7 million for fiscal year 1996. The increase was due primarily to
increased sales volume and increased advertising and promotional expenditures,
particularly for Mrs. Smith's Bakeries. Selling, delivery and administrative
expenses as a percentage of sales remained relatively constant with the prior
fiscal year as a result of increased volume and a more efficient cost structure,
particularly in selling and distribution at Flowers Bakeries.

Depreciation and Amortization. Depreciation and amortization expense
increased by 13% to $46.0 million for fiscal year 1997 from $40.8 million for
fiscal year 1996, due primarily to increased capital spending and the
amortization of the Mrs. Smith's trademarks and costs in excess of net tangible
assets.

Interest. Interest expense for fiscal year 1997 increased by 93% to $25.1
million from $13.0 million for fiscal year 1996. The increase was attributable
to higher overall borrowings to partially fund fiscal year 1997 capital
spending, to finance frozen inventory at Mrs. Smith's Bakeries, and to finance
the Company's initial

24
<PAGE> 29

investment in Keebler. Interest expense for fiscal year 1997 also reflects the
payment of $2.5 million on the IRS settlement as described above and a higher
average interest rate as compared to the prior year.

Income Before Income Taxes. Fiscal year 1997 income before income taxes
increased by 82% to $87.8 million from $48.3 million for fiscal year 1996, due
primarily to the gain on the sale of the Company's distributor notes receivable.

Federal and State Income Taxes. Federal and state income taxes for fiscal
year 1997 increased to $33.2 million from $18.2 million for fiscal year 1996 due
to increased pre-tax income for fiscal year 1997. The effective income tax rate
for the Company was 37.8% in fiscal year 1997 and 37.6% for fiscal year 1996.

Net Income from Keebler Investment. For fiscal year 1997, the Company
reported net income from its investment in Keebler of $7.7 million, as compared
to $.6 million for fiscal 1996. The increase was due primarily to the Company's
investment in Keebler extending over the full fiscal year 1997, as opposed to
fiscal year 1996, when the Company made its initial investment in Keebler in its
third fiscal quarter. In addition, Keebler's net income for the time period
covered in the Company's fiscal year 1997 increased substantially due to volume
increases, the inclusion of the Sunshine business and improved cost controls at
Keebler.

Net Income. For fiscal year 1997, the Company's net income increased by
102% to $62.3 million from $30.8 million for fiscal year 1996. The increase in
net income was due primarily to the inclusion of the Company's after-tax income
from its investment in Keebler, as well as the gain on the sale of the
distributor notes receivable and the other factors described above.

FISCAL YEAR ENDED JUNE 29, 1996 COMPARED TO FISCAL YEAR ENDED JULY 1, 1995

Sales. Sales for fiscal year 1996 were $1.239 billion, or 10% higher than
sales of $1.129 billion for fiscal year 1996. Approximately one-half of the
increase in sales was attributable to sales from businesses acquired during
fiscal year 1995 and early in fiscal year 1996. The Company also experienced
increased sales volume in the Company's existing businesses, as well as
increased selling prices and the addition of 160 new DSD routes at Flowers
Bakeries.

Other Income. The Company experienced an increase of 12% in other income
for fiscal year 1996 compared to fiscal year 1995, due in part to a gain on the
issuance of additional Keebler stock in connection with Keebler's acquisition of
Sunshine in fiscal year 1996 which was offset by gains attributable to the sale
of certain fixed assets in fiscal year 1995.

Materials, Supplies, Labor and Other Production Costs. The Company's
production costs for fiscal year 1996 were $674.8 million, or 13% higher than
costs of $599.4 million for fiscal year 1995. The increase in such costs was due
primarily to increased ingredient costs, particularly flour, which was at a 21
year high during the year.

Selling, Delivery and Administrative Expenses. Selling, delivery and
administrative expenses increased by 9% to $468.7 million for fiscal year 1996
from $428.8 million for fiscal year 1995. The increase was due primarily to
increased sales volume, as well as start-up costs associated with the addition
of 160 new DSD routes at Flowers Bakeries. Additionally, winter weather in the
eastern United States negatively impacted sales and distribution costs.

Depreciation and Amortization. Depreciation and amortization expense
increased by 12% to $40.8 million for fiscal year 1996 from $36.6 million for
fiscal year 1995, due primarily to increased capital spending.

Interest. Interest expense for fiscal year 1996 increased by 84% to $13.0
million from $7.1 million for fiscal year 1995. The increase was attributable to
higher overall borrowings to finance the Company's initial investment in
Keebler.

Income Before Income Taxes. Fiscal year 1996 income before income taxes
decreased by 29% to $48.3 million from $68.0 million for fiscal year 1995, due
primarily to the factors described above, as well as the impact of a reserve of
$4.9 million recorded to reflect the estimated costs of a final settlement of
litigation involving subsidiary operations in Texas. Income was favorably
impacted by the recognition of a gain of $4.1

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million on the sale of Keebler stock to certain former shareholders of Sunshine
in connection with Keebler's acquisition of Sunshine.

Federal and State Income Taxes. Federal and state income taxes for fiscal
year 1996 decreased to $18.2 million from $25.7 million for fiscal year 1995 due
to decreased pre-tax income for fiscal year 1996. The effective income tax rate
for the Company was 37.6% in fiscal year 1996 and 37.8% for fiscal year 1995.

Net Income from Keebler Investment. For fiscal year 1996, the Company
reported net income from its investment in Keebler of $.6 million. The Company
made its initial investment in Keebler in fiscal year 1996.

Net Income. For fiscal year 1996, the Company's net income decreased by
27% to $30.8 million from $42.3 million for fiscal year 1995 due to the factors
described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of cash to fund its liquidity needs is net
cash provided by operating activities and availability under its Revolving
Credit Facility.

During the transition period 1998, the Company's working capital decreased
$8.8 million to $20.3 million, with cash and cash equivalents decreasing to $3.9
million from $31.1 million at the end of fiscal year 1997. The working capital
decrease and the decrease in cash and cash equivalents in the 27 weeks ended
January 3, 1998 were primarily due to cash expended for capital improvements
throughout the Company.

Cash and cash equivalents increased during fiscal year 1997 from $25.0
million to $31.1 million, and working capital decreased during that fiscal year
from $48.5 million to $29.1 million. The decrease in working capital is
primarily due to the recording of purchase accounting reserves of $35.5 million
relating to acquisitions consummated during fiscal years 1996 and 1997. Cash
flows from operating activities increased in fiscal year 1997 to $79.5 million
from $59.4 million. This increase was the net result of increased profits and
decreased working capital.

During fiscal year 1997 and the 27 weeks ended January 3, 1998, the Company
spent approximately $78 million and $33 million, respectively, for capital
expenditures to expand production facilities and increase efficiencies in both
production and distribution. Since 1992, expenditures have totaled approximately
$377 million with an additional $46 million of expenditures attributable to
acquisitions during that period. Capital expenditures for fiscal year 1998 are
expected to be approximately $40 million for Flowers Bakeries and Mrs. Smith's
Bakeries combined and to be approximately $50 million for Keebler. These
expenditures are targeted to further improve the efficiency of the Company's
production and distribution capabilities.

At January 3, 1998, the Company had borrowed a total of $122 million under
a five year $300 million syndicated loan facility. On January 30, 1998, the
Company entered into the Revolving Credit Facility, which, among other changes,
amended the loan facility to increase available funds to $500 million. In
connection with the Keebler Acquisition, the Company borrowed an additional $309
million and the Company separately repaid $10 million, so that amounts
outstanding under the Revolving Credit Facility as of April 20, 1998 aggregated
$422 million. Also currently outstanding are $125 million of long-term senior
notes issued through a private placement completed during fiscal year 1996. The
Company has in place a $75 million commercial paper program to finance
inventory. Borrowings outstanding under this program at January 3, 1998 were
$53.5 million. The Company also has a $50 million ten-year master lease
agreement to finance the automated production lines at certain of its
facilities. At January 3, 1998, $38.7 million had been used under this
agreement. Certain of the Company's credit facilities contain covenants and
restrictions on actions by the Company and its subsidiaries, other than Keebler,
requirements that the Company comply with a minimum cash flow test, a maximum
leverage ratio, a fixed charges coverage ratio and a minimum consolidated net
worth test. As of January 3, 1998, the Company was in compliance with respect to
all covenants under its credit facilities.

Cash dividends have grown at a compound annual rate of approximately 6%
since 1992, increasing from an annual payout of $.318 in calendar 1992 to $.433
in calendar 1997.

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The Company owns a majority of the outstanding stock of Keebler and,
commencing with all reporting periods ending subsequent to February 3, 1998, the
Company will consolidate Keebler for financial reporting purposes. The Company
is limited in its ability to access the cash flows of Keebler to support the
Company's other operations due to the fact that Keebler is not wholly-owned by
the Company and due to restrictions on the payment of dividends in Keebler's
existing credit facilities.

The Company believes that cash flow from operations, and funds available
under the Company's existing credit facilities, will be sufficient to fund its
operating expenses, working capital, capital expenditures and debt service
requirements through fiscal year 1998.

The Company from time to time reviews and will continue to review
acquisition and joint venture opportunities as well as changes in the capital
markets. If the Company were to consummate a significant acquisition or elect to
take advantage of favorable opportunities in the capital markets, the Company
may supplement availability or revise the terms under its credit facilities or
complete public or private offerings of equity or debt securities.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for the
Company's fiscal year 1998. This new statement revises standards for public
companies to report information about segments of their business and also
requires disclosure of selected segment information in quarterly financial
reports. The statement also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company has not
yet determined the impact this new statement may have on disclosures in the
consolidated financial statements.

The FASB also issued certain other disclosure-related accounting
pronouncements during 1997. While these new statements are effective for future
reporting periods, the Company does not anticipate they will have any
significant impact on the consolidated financial statements.

SEASONALITY

The Company's sales, net income and cash flows are affected by the timing
of new product introductions, promotional activities, price increases, and a
seasonal sales bias toward the second half of the calendar year due to events
such as back-to-school, and the Thanksgiving and Christmas holidays. Sales for
Mrs. Smith's Bakeries are highly seasonal since, historically, pie sales have
been concentrated in the year-end holiday season. In January 1998, the Company
commenced a program entitled Operation 365 to promote increased pie consumption
during the remainder of the year.

YEAR 2000 CONVERSION

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists concerning the
potential effects associated with such compliance. The Company is currently
analyzing the Year 2000 computer systems issue and has completed the conversion
of certain of its computerized operations. There can be no assurance that the
Company's software contains or will contain all necessary date code changes. The
Company, its customers and its suppliers may be affected by Year 2000 issues.
The Company has plans to communicate with significant customers, vendors and
other third parties with whom it does significant business to determine their
Year 2000 compliance readiness. However, there can be no guarantee that the
systems of other entities will be timely converted, or that their failure to
convert, or a conversion that is incompatible with the Company's system, will
not have an adverse effect on the Company's business, financial condition and
results of operations.

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On November 20, 1997, the Emerging Issues Task Force ("EITF"), a
subcommittee of FASB, issued EITF 97-13, which requires the cost of business
process reengineering activities that are part of an information systems
development project, including Year 2000 compliance, be expensed as those costs
are incurred. Any unamortized costs that were previously capitalized are
required to be written off as a cumulative adjustment in the quarter that
included November 20, 1997. During the twenty-seven week period ended January 3,
1998, the Company recorded a cumulative after-tax charge of $8.8 million, or
$.10 per share, as a result of its adoption of this pronouncement. These costs
were attributable to a state-of-the-art management information system, which is
being implemented at Mrs. Smith's Bakeries.

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BUSINESS

The following information contains forward-looking statements which involve
certain risks and uncertainties. See "Forward-Looking Statements."

THE COMPANY

In the fresh baked product line (Flowers Bakeries), the Company focuses on
the production and marketing of baked foods to customers in the super-regional
19 state area in and surrounding the southeastern United States. In this effort,
the Company has devoted significant resources to modernizing production
facilities and improving its distribution capabilities, as well as actively
marketing well-recognized brands such as Nature's Own and Cobblestone Mill
bread. Since 1980, the Company has acquired 24 local bakery operations which are
generally within or contiguous to its existing region and which can be served
with its extensive DSD system. The Company's strategy is to use acquisitions to
better serve new and existing customers, principally by increasing the
productivity and efficiency of newly acquired plants, establishing reciprocal
baking arrangements among its bakeries, and by extending its DSD system. Flowers
Bakeries' DSD system utilizes approximately 3,100 independent distributors who
own the right to sell the Company's fresh baked products within their respective
territories.

The Company's frozen baked foods operations (Mrs. Smith's Bakeries) began
in the mid-1970s with the acquisition of the Stilwell business, with frozen
products initially marketed to customers in the southeastern and southwestern
United States. In 1989, the Company entered the frozen bread and dough market in
the southeastern United States with its acquisition of the bakery operations of
Winn-Dixie, Inc. In 1991, the Company undertook its first significant entry into
the national market for frozen baked dessert products with the acquisition of
Pies, Inc., a midwest-based producer of premium pies for the restaurant and
foodservice markets, and further expanded its national presence by acquiring the
Oregon Farms branded frozen carrot cake line. In May 1996, the Company obtained
a leading presence in the frozen baked dessert category with the acquisition of
the business of Mrs. Smith's Inc., which markets the leading national brand of
frozen pies sold at retail. In January 1998, the Company launched "Operation
365," a strategy aimed at significantly expanding year-round sales in the frozen
dessert baked product category through product line extensions designed to take
advantage of nationwide consumer recognition of the Mrs. Smith's brand name.
Examples of significant product line extensions that are underway include Mrs.
Smith's retail frozen fruit cobblers and Mrs. Smith's "Restaurant Classics"
retail frozen pies.

States. By the end of 1996, Keebler completed its planned integration of
Sunshine's operations, achieving efficiencies in administration, purchasing,
production, marketing, sales and distribution. Under the control of Flowers and
its co-investors, Keebler's results of operations have improved from a net loss
of $159.3 million for its fiscal year ended December 30, 1995, to a net income
of $57.0 million for its fiscal year ended January 3, 1998. On February 3, 1998,
Keebler completed its initial public offering in which Flowers' co-investors
sold a portion of their shares to the public. Concurrently with that offering,
Flowers purchased an additional 11% of Keebler from its co-investors for
approximately $309 million in cash, thereby increasing its ownership to
approximately 55% of the total Keebler shares outstanding.

In order to provide prompt and responsive service to consumers, the Company
tailors its distribution systems to the marketing and production aspects of its
major product lines. Flowers Bakeries distributes its fresh baked foods through
an extensive DSD system of approximately 3,100 independent distributors who, as
owners of their territories, are motivated to maintain and build shelf space and
to monitor product freshness, which is essential in the marketing of short shelf
life products such as fresh bread, rolls and buns. These distributors make an
aggregate of approximately 70,000 stops per day. Mrs. Smith's Bakeries' frozen
foods are

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distributed through its two strategically-located frozen distribution
facilities, as well as through additional commercial frozen warehouse space
throughout the United States, in order to accommodate inventory growth in
seasonal products and to provide staging to expedite distribution throughout the
year. Keebler's cookies and crackers are distributed through a DSD system
designed to maximize customer service and Keebler's control over the
availability and presentation of products. Keebler's DSD system employees
distribute products to approximately 30,000 retail locations, principally
supermarkets. Keebler is one of only two cookie and cracker companies that own
and operate a national DSD system.

INDUSTRY OVERVIEW

Fresh Baked Foods

In 1997, retail bread sales in the United States were approximately $5
billion, according to IRI, which tracks retail sales through scanner data in
United States grocery stores with annual revenue greater than $2.0 million. In
the last decade, retail sales of fresh breads have experienced modest growth,
with expansion within the category occurring primarily in a variety of premium
and specialty breads.

In addition to Flowers Bakeries, several large baking and diversified food
companies market fresh baked food products in the United States. Competitors in
this category include Interstate, Earthgrains, Bestfoods and Pepperidge Farm.
There are also a number of smaller, regional baking companies. The Company
believes that the larger companies enjoy several competitive advantages over
smaller operations due principally to economies of scale in areas such as
purchasing, production, advertising, marketing and distribution, as well as
through greater brand awareness.

Frozen Baked Foods

The United States frozen and refrigerated baked foods industry, including
desserts, breads, rolls and doughs, had 1997 sales of approximately $7 billion,
according to estimates compiled for the February 1998 edition of Refrigerated
and Frozen Foods, an industry trade publication. While retail sales of frozen
baked desserts have declined by approximately 9% since 1992, sales of frozen
baked foods to other distribution channels, including restaurants and other
foodservice institutions, have grown significantly over the same period,
including a cumulative 23% increase in sales of foodservice desserts and a 50%
increase in sales at in-store deli/bakeries. Primary competitors in the frozen
baked desserts category include Pillsbury, Sara Lee, Rich Products, Edwards and
Pepperidge Farm.

Cookies and Crackers

and cracker industry is comprised of distinct product segments. Cookie segments
include, among others, sandwich cookies, chocolate chip cookies and
fudge-covered cookies. Cracker segments include among others, saltine crackers,
graham crackers and snack crackers.

Keebler and Nabisco are the two largest national participants in the cookie
and cracker industry. Keebler and Nabisco have a combined market share of
approximately 58%, with Keebler having approximately 24% and Nabisco having
approximately 34%. Other participants in the industry generally operate only in
certain regions of the United States or only participate in a limited number of
segments of the industry.

STRATEGY

- State-of-the-Art Production and Distribution Facilities. The Company
intends to maintain a continuing level of capital improvements that, while
lower than its level of capital improvements in recent years, will permit
the Company to fulfill its commitment to remaining among the most modern
and efficient baked foods producers in the United States. Toward this
goal, Flowers has invested approximately $377 million in Flowers Bakeries
and Mrs. Smith's Bakeries in the six-year period ended June 28, 1997 to
build several modern and highly efficient production facilities and a
state-of-the-art distribution facility, as well as to automate and
modernize its existing facilities. Since Flowers' initial investment in
Keebler in January 1996, Keebler has spent approximately $78 million to
keep its production operations modern and efficient and has lowered its
operating costs by closing plants, consolidating production and reducing
overhead.

- Efficient and Customer Service-Oriented Distribution. The Company
intends to expand and refine its distribution systems to allow it to
respond quickly and efficiently to changing customer service needs,
consumer preferences and seasonal demands. In the last decade, the Company
has developed distribution systems that are tailored to the nature of each
of its three baked food product categories and are designed to provide the
highest levels of service to the Company's retail and foodservice outlets.
Flowers Bakeries has developed a DSD network of approximately 3,100
independent distributors for its fresh baked products, who make an
aggregate of approximately 70,000 stops per day. Mrs. Smith's Bakeries
operates a network of strategically located storage and distribution
facilities for its frozen baked products and a centralized distribution
facility for its fresh baked snack products. Keebler operates its own
national DSD system for its cookie and cracker products, enabling it to
provide frequent service to over 30,000 retail outlets.

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- Broad Range of Products and Sales Channels. In recognition that
consumers are increasingly seeking home meal replacements and other
convenience food products, the Company intends to continue to emphasize
expansion of its product lines and sales channels to meet those
preferences. The Company's product lines now include virtually every
category of breads, buns, rolls and baked foods, including fresh bread,
buns, rolls, cakes and other baked snacks and frozen desserts, as well as
cookies and crackers. These products generally can be found anywhere baked
foods are sold, including traditional supermarkets and their in-store
deli/bakeries, convenience stores, mass merchandisers, club stores,
wholesalers, restaurants, fast food outlets, schools, hospitals and
vending machines. The Company intends to continue to increase its focus on
non-supermarket channels, such as restaurants, mass merchandisers and
convenience stores.

PRODUCTS

The Company produces baked foods in three product lines: fresh baked foods,
frozen baked foods and cookies and crackers.

Fresh Baked Foods -- Flowers Bakeries

In 1997, Flowers Bakeries was the leading producer of fresh baked foods in
ten of its major markets and second in five of its major markets and was
developing its presence in the other markets it has recently entered. The
Company's fresh baked foods market includes 19 states in the eastern,
southeastern and south central United States.

The Company markets its fresh soft variety and white breads under numerous
brand names, including Flowers, Nature's Own, Whitewheat, Cobblestone Mill,
Dandee, Evangeline Maid, Betsy Ross, ButterKrust and Purity, among others.
Within licensed geographic territories, the Company also markets fresh bread
under the Sunbeam, Roman Meal, Country Hearth, Bunny and Holsum trademarks.
Nature's Own is the best selling brand by volume of soft variety bread in the
United States, despite being marketed solely in the 19 state super-region in and
surrounding the southeastern United States. Rolls and buns are marketed under
the Cobblestone Mill, European Bakers, Ltd., Breads International and other
brand names. Flowers Bakeries has used its strong brand recognition to expand to
new product lines, such as the successful introduction of Cobblestone Mill
Breakfast Breads. Fresh baked snack cakes, doughnuts, pastries and other sweet
snacks are sold primarily under the BlueBird brand, as well as ButterKrust,
Sunbeam, and Holsum.

In addition to its branded products, Flowers Bakeries also packages baked
foods under private labels for such retailers as Winn-Dixie. While private label
products carry lower margins than its branded products, Flowers Bakeries is able
to use its private label offerings to expand its total shelf space and to
effectively maximize capacity utilization.

The Company also supplies numerous restaurants, institutions and
foodservice companies with fresh bread products, including Burger King, Krystal,
Arby's, Outback Steakhouse, Olive Garden, Dairy Queen and Chili's. In May 1995,
the Company became a preferred supplier to Burger King and currently supplies
baked products to approximately 1,700 Burger King restaurants in the Southeast.
The Company also sells fresh baked products to wholesale distributors for
ultimate sale to a wide variety of food outlets.

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Frozen Baked Foods -- Mrs. Smith's Bakeries

Mrs. Smith's Bakeries and Sara Lee each have an approximate 25% market
share of the frozen baked dessert market, representing the two largest shares of
that market. Mrs. Smith's frozen baked pies were the number one retail frozen
brand pies in the U.S. for 1997 with an approximate 53% market share, according
to IRI. The Company's frozen baked foods are marketed throughout the United
States, and, based on consumer surveys commissioned by the Company, Mrs. Smith's
enjoys a 94% brand awareness in United States households.

The Company's frozen pies, cakes, cobblers and other baked desserts are
sold under the Mrs. Smith's, Mrs. Smith's Restaurant Classics, Mrs. Smith's
Special Recipe, Oregon Farms and Stilwell brand names in the frozen foods
sections of supermarkets, as are the Company's frozen pie shells, mixed fruits
and quiche fillings. The Company has also introduced a line of frozen baked
desserts and cobblers that feature low fat crusts and no-sugar-added fruit
fillings. The Company's frozen baked products also include specialty baked and
parbaked (partially baked) breads, buns, and rolls marketed under the European
Bakers, Ltd. and Our Special Touch brands, which are sold at retail. The Company
also co-packs these and other fresh bakery snack food products on behalf of
other industry participants who sell these products under their own proprietary
brand names.

The Company produces frozen pies, cakes and desserts as well as bread,
rolls and buns for sale to foodservice customers and wholesalers, such as Sysco,
and markets fresh and frozen hearth-baked specialty bread, breadsticks and rolls
to chain restaurants such as Outback Steakhouse and Olive Garden.

Traditionally, frozen pie sales are heavily concentrated throughout the
year-end holiday season. The Company has recently launched "Operation 365," a
strategy aimed at significantly expanding non-seasonal sales in the frozen baked
product line by introducing new products under the Mrs. Smith's brand, thereby
extending the well-recognized Mrs. Smith's brand name to existing and related
products. The Company's newest introduction is Mrs. Smith's Restaurant Classics,
which are frozen premium, restaurant-quality cream pies sold at retail.

Mrs. Smith's Bakeries also produces fresh baked snack products under the
Mrs. Freshley's brand, such as donuts, honeybuns, cream horns, pecan spins,
jelly rolls and cinnamon buns for sale as single packs in vending machines and
in multi-packs marketed through grocery stores and mass merchandisers as center
aisle promotions. In addition, Mrs. Smith's Bakeries sells these same products
to Flowers, which distributes them under its BlueBird brand. Mrs. Smith's
Bakeries produces fresh baked snack foods at some of its production facilities
in order to maximize the use of capacity.

Cookies and Crackers -- Keebler

Keebler is the second largest cookie and cracker producer in the United
States with annual net sales of approximately $2.1 billion and an approximate
24% share of the United States cookie and cracker market. In the United States,
Keebler is the number two producer and marketer of branded cookies and crackers,
the number one producer of private label cookies and the number one producer of
cookies and crackers for the foodservice market. Keebler produces eight of the
25 best-selling cookies and ten of the 25 best-selling crackers in the United
States based on dollar sales. Keebler's branded cookie and cracker products
include, among others, Chips Deluxe cookies, Pecan Sandies cookies, Fudge Shoppe
cookies, Town House crackers, Club crackers, Graham Selects crackers, Wheatables
crackers, Zesta crackers, Cheez-It crackers, Cheez-It party mix, Nacho Cheez-It
crackers, Carr's biscuits, Vienna Fingers cookies, Hydrox cookies, Sunshine
Krispy crackers and Hi-Ho crackers. In addition, Keebler is the number one
producer and marketer of retail branded ice cream cones in the United States,
and a major producer of retail branded pie crusts. Keebler also produces
custom-baked products, such as Nutri-Grain breakfast bars, for other marketers
of branded food products, and private label cookies and crackers to be sold by
retailers under their own brands.

MANUFACTURING AND DISTRIBUTION

The Company designs its production facilities and distribution systems to
meet the marketing and production demands of its major product lines. Through a
significant program of capital improvements and

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careful planning of plant locations, which, among other things, allows the
Company to establish reciprocal baking arrangements among its bakeries, the
Company seeks to remain the country's leading low cost producer and marketer of
branded fresh and frozen baked products on a national and super-regional basis
and to provide the highest quality customer service. In addition to the
independent distributor system for its fresh baked products and the DSD system
used for Keebler, the Company also uses both owned and public warehouses and
distribution centers in central locations for the distribution of certain of its
frozen and other shelf stable products.

Fresh Baked Foods -- Flowers Bakeries

Flowers owns and operates 27 fresh bread and bun bakeries in 10 states.
Flowers has invested approximately $227 million over the past six years,
primarily to build new state-of-the-art baking facilities and to significantly
upgrade existing facilities. During this period, Flowers has added twelve new
highly-automated production lines in nine of its facilities. The Company
believes that these investments, undertaken at a time when many competitors were
minimizing capital improvements due to leverage or earnings pressure, have made
Flowers the most efficient major producer of fresh baked foods in the United
States. Flowers believes that its capital investment yields long-term benefits
in the form of more consistent product quality, highly sanitary processes, and
greater production volume at a lower cost per unit. While its major capital
improvement program is largely complete, Flowers intends to continue to invest
in its plant and equipment to maintain the highest levels of efficiency.

Distribution of fresh baked foods involves determining appropriate order
levels, delivering the product from the plant to the customer, stocking the
product on the shelves, visiting the customer one to three times daily to ensure
that inventory levels remain adequate, and removing stale goods. In 1986,
Flowers Bakeries began converting its bakery sales routes from employees
operating company-owned vehicles to a DSD system of exclusive independent
distributors. The Company effected this change by selling its sales routes
primarily to its sales employees. The Company initially financed these purchases
over ten years, which obligations were sold to a financial institution in 1996.
Currently, all distributor purchase arrangements are made directly with a
financial institution, and, pursuant to an agreement, the Company manages and
services these arrangements.

The distributors lease hand-held computers from the Company, which contain
software proprietary to the Company. The software permits distributors to track
and communicate inventory data to the production facilities and to calculate
recommended order levels based on historical sales data and recent trends. These
orders are electronically transmitted to the appropriate production facility on
a nightly basis. This system, which management believes is more sophisticated
than comparable tracking programs currently used in the industry, is designed to
ensure that adequate product, and the right mix of products, are available to
meet the retail and foodservice customer's immediate needs. Management believes
the system minimizes returns of unsold goods. In addition to the hand-held
distributor units, the Company's main computer system permits tracking of sales,
product returns and profitability by customer location, plant, day and other
bases. Managers receive sales and profitability reports on a weekly basis,
allowing prompt operational adjustments when appropriate.

Management believes that the Company's independent distributor system is
unique in the industry as to its size, with approximately 3,100 distributors,
and with respect to its super-regional scope. In Flowers Bakeries' DSD system,
an aggregate of over 70,000 stops are made each day. The program is designed to
provide the Company's retailers with superior service because distributors,
highly motivated by route ownership, strive to increase sales by maximizing
service. In turn, distributors have the opportunity to benefit directly from the
enhanced value of their routes resulting from higher sales volume.

Frozen Baked Foods -- Mrs. Smith's Bakeries

Mrs. Smith's Bakeries operates 13 production facilities with 67 production
lines for its pies, cakes, breads, rolls and snack foods. The Company maintains
maximum operating efficiency by producing high volume fresh snack products on
long runs to complement its branded frozen baked products, sales of which are
seasonal in nature. In the past six years, the Company has invested
approximately $150 million to upgrade its frozen

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baked foods production and distribution facilities, primarily by adding 13
highly-automated production lines in nine facilities and to construct its
225,000 square foot highly-automated frozen distribution facility in Suwanee,
Georgia. In addition, Mrs. Smith's Bakeries is nearing completion of
installation of the SAP/R3 operating system, which the Company believes will
provide it with competitive advantages in inventory tracking and distribution.
The Company plans to invest approximately $40 million over fiscal 1998 and 1999
in renovations to improve efficiencies at several of its frozen food bakeries.

Mrs. Smith's Bakeries' distribution facilities are strategically located
near its production facilities to simplify distribution logistics and shorten
delivery times. The plant in Stilwell, Oklahoma is an efficient facility which
serves as a principal point of distribution for the Company's products
throughout the central, southwestern and western United States. The
state-of-the-art Suwanee distribution facility is located on a major interstate
corridor near four of Mrs. Smith's Bakeries' frozen dessert production
facilities. This facility opened in 1995 and contains such innovations as five
78-foot tall, laser-guided cranes specifically designed for the facility, a six
million cubic foot freezer, and computer-controlled bar-coding and inventorying.
The automation of this facility enables Mrs. Smith's Bakeries to move extremely
large volumes of product without a significant labor component and enables the
facility to operate with extremely cold temperatures that preserve high product
quality. In addition to cost efficiencies, these features allow the Suwanee
facility to better serve customers by processing customer orders much more
quickly than conventional freezer facilities. This facility's frozen storage
capacity will be expanded in 1998 and production capacity is intended to be
added on-site to expand Mrs. Smith's Bakeries' production capacity and to
enhance operating efficiencies by having contiguous production and frozen
storage.

In addition to Mrs. Smith's Bakeries' two strategically-located freezer and
distribution facilities in Suwanee and Stilwell, the Company leases additional
freezer and distribution facilities on the West Coast to facilitate distribution
of its products nationwide. These owned and leased facilities allow the Company
to build and store necessary inventory in seasonal products, and to expedite the
national distribution of both its seasonal and non-seasonal products.

Mrs. Smith's Bakeries distributes its fresh baked snack products from a
centralized distribution facility located near Knoxville, Tennessee. Centralized
distribution allows the Company to achieve both production and distributing
efficiencies. The production facilities are able to operate longer, more
efficient production runs of a single product, which are then shipped to the
centralized distribution facility. Products coming from different production
facilities are then cross-docked and shipped directly to customer warehouses.

Cookies and Crackers -- Keebler

Keebler attempts to meet the changing demands of its customers by planning
appropriate stock levels and optimal delivery times. To achieve these
objectives, Keebler has developed a network of modern and efficient production
facilities with contiguous or strategically located shipping centers and
distribution warehouses. Keebler owns and operates eleven production facilities
located throughout the United States. Keebler also owns and operates a dairy in
Fremont, Ohio that produces cheese under a proprietary formula which is used as
an ingredient in Cheez-It crackers. Keebler's distribution facilities consist of
eleven shipping centers attached to the production facilities, nine separate
shipping centers (two owned and seven leased) and 67 distribution centers
(twelve owned and 55 leased, 14 of which are idle or subleased) throughout the
United States. Keebler also leases 30 warehouses and 17 depots that are located
throughout the United States and are utilized by the sales force in the
distribution of Keebler's products.

Keebler directly services approximately 30,000 retail customers through its
DSD distribution system, which system employs more than 3,200 persons. Keebler's
DSD distribution system distributes its retail branded cookie and cracker
products directly to the retail location, where these products are then
merchandised by Keebler's own sales force. Members of Keebler's sales force
visit retail outlets an average of 2.8 times per week per store, meeting
directly with and taking orders from store managers and arranging for extra in-
store display space. Keebler's trucks then deliver the orders directly to such
retail outlets, where members of Keebler's sales force, rather than store
employees, stock and arrange its products on the retailers' shelves and build
end-aisle and free standing displays within the stores. While strengthening
relationships with retailers,

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the frequent store presence of Keebler's sales force also allows it to oversee
and execute Keebler's in-store promotional programs. In addition, it provides
Keebler with the ability to monitor competitors' in-store product promotions.

Keebler uses its DSD distribution system exclusively to serve supermarkets
and mass merchandisers. In the case of club stores and foodservice distributors,
Keebler uses a dedicated sales force and ships its products directly to the
customers' warehouses. Convenience stores and vending distributors are served
using a network of independent distributors.

CUSTOMERS

Fresh Baked Foods -- Flowers Bakeries

The Company's fresh baked foods have a highly diversified customer base,
which includes grocery retailers, restaurants, fast-food chains, food
wholesalers, institutions, and vending companies. Flowers Bakeries also sells
returned and surplus product through a system of independently operated thrift
outlets.

The Company also supplies numerous restaurants, institutions and
foodservice companies with fresh bread products, including buns for fast-food
outlets such as Burger King, Krystal, Arby's, Outback Steakhouse, Olive Garden,
Dairy Queen and Chili's. In May 1995, the Company became a preferred supplier to
Burger King and currently supplies baked products to approximately 1,700 Burger
King restaurants in the Southeast. The Company also sells fresh baked products
to wholesale distributors such as Sysco for ultimate sale to a wide variety of
food outlets. Winn-Dixie is Flowers Bakeries' largest customer for fresh baked
foods.

Frozen Baked Foods -- Mrs. Smith's Bakeries

The Company's frozen baked foods are marketed to traditional retail
outlets, such as grocery stores, as well as non-traditional outlets, ranging
from club stores and mass merchandisers to wholesalers, foodservice distributors
and restaurants. Mrs. Smith's Bakeries' branded frozen baked desserts are sold
primarily through grocery retailers. Its non-branded frozen baked desserts and
specialty breads and rolls are sold to foodservice distributors, such as Sysco,
institutions, retail in-store bakeries and restaurants, including Olive Garden
and Outback Steakhouse. Its fresh baked snack products under the Mrs. Freshley's
brand are sold primarily through vending outlets. Mrs. Smith's Bakeries is in
the second year of a long-term exclusive contract with a major food wholesaler
to supply non-branded frozen premium pies.

To fully utilize capacity in its facilities, Mrs. Smith's Bakeries produces
fresh baked snack products for its own distribution under the Mrs. Freshley's
brand and for Flowers Bakeries, which markets these products under its BlueBird
brand. The Company, in certain circumstances, enters into co-packing
arrangements with some of its competitors. Through co-packing, the Company
produces and packages baked foods for popular brands such as Weight Watchers,
Stouffer, Lance, Pepperidge Farm and Little Debbie.

Cookies and Crackers -- Keebler

Keebler sells its retail branded cookies and crackers through supermarkets,
mass merchandisers, convenience stores, drug stores and club stores to over
30,000 retail customers and manufactures private label products to be sold by
retailers under their own brands. In addition, Keebler supplies cookies and
crackers and ice cream cones for foodservice markets and produces ice cream
cones for various restaurants and ice cream retailers, such as McDonald's and
TCBY. Keebler also produces a variety of custom-baked products for other
marketers of branded food products, such as Kellogg, Oscar Mayer, Starkist,
Kraft, Gerber and McDonald's. No single customer accounted for more than 5% of
Keebler's net sales.

COMPETITION

Fresh Baked Foods -- Flowers Bakeries

The United States fresh baked foods segment is intensely competitive and is
comprised of large food companies, large independent bakeries with national
distribution, and smaller regional and local bakeries. Primary national
competitors include Interstate, Earthgrains, Bestfoods and Pepperidge Farm.
Competition is
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based on product quality, brand loyalty, price effective promotions and the
ability to target changing consumer preferences. Customer service, including
frequent delivery and well-stocked shelves, is an increasingly important
competitive factor. While the Company experiences price pressure from time to
time, primarily as a result of competitors' promotional efforts, the Company
believes that its status as the low cost producer and consumer brand loyalty, as
well as the Company's diversity within its region in terms of geographic
markets, products, and sales channels, limit the effects of such competition.
Recent consolidation in the baked foods industry has reduced prior excess
capacity and has further enhanced the ability of the larger firms to compete
with small regional bakeries. The Company believes that it enjoys significant
competitive advantages over smaller regional bakeries due to economies of scale
in areas such as purchasing, production, advertising, marketing and
distribution, and its lower production costs.

Frozen Baked Foods -- Mrs. Smith's Bakeries

According to Refrigerated and Frozen Foods, an industry trade publication,
the frozen baked foods industry is led by Pillsbury, Sara Lee, and Mrs. Smith's
Bakeries, which together account for approximately 46% of sales volume in the
broad category. Other significant competitors in the frozen baked dessert
category include Rich Products, Edwards and Pepperidge Farm. According to IRI,
Mrs. Smith's Bakeries had an approximate 53% market share, the number one
position, for retail branded frozen pies in 1997. Competitors for the Mrs.
Freshley's brand products produced by Mrs. Smith's Bakeries include Interstate
(Hostess) and McKee (Little Debbie). Mrs. Freshley's is the country's number
three fresh pastry brand sold through vending machines.

Competition for branded frozen baked products depends primarily on brand
recognition and loyalty, perceived product quality, effective promotions and, to
a lesser extent, price. Based on consumer surveys obtained by the Company, Mrs.
Smith's has an approximate 94% brand awareness in United States households. For
the nonbranded products manufactured by Mrs. Smith's Bakeries, competition is
based upon high-quality products requested by foodservice customers, excellent
service and price.

Cookies and Crackers -- Keebler

The United States branded cookie and cracker industry is led by Keebler and
Nabisco, which together account for approximately 58% of total sales volume.
Keebler has an approximate 24% share of the retail cookie and cracker market,
while Nabisco, the largest manufacturer in the United States cookie and cracker
industry, has an approximate 34% share. The remaining industry participants
primarily target certain segments of the industry or focus on certain regions of
the United States. Smaller competitors include numerous national, regional and
local manufacturers of both branded and private label products. Competition in
Keebler's markets takes many forms including establishing favorable brand
recognition, developing products sought by consumers, implementing appropriate
pricing, providing strong marketing support and obtaining access to retail
outlets and sufficient shelf space.

INTELLECTUAL PROPERTY

The Company owns a number of trademarks and trade names, as well as certain
patents and licenses. Flowers Bakeries' principal brand names include Flowers,
Nature's Own, Whitewheat, Cobblestone Mill, Dandee, Evangeline Maid, Betsy Ross,
ButterKrust, Purity, and BlueBird, among others, and its licensed trademarks
include Sunbeam, Roman Meal, Country Hearth, Bunny and Holsum. Mrs. Smith's
Bakeries' principal brand names are Mrs. Smith's, Mrs. Smith's Restaurant
Classics, Mrs. Smith's Special Recipe, Stilwell, Oregon Farms, European Bakers,
Ltd., Our Special Touch, Mrs. Freshley's, Danish Kitchen and Pour-a-Quiche.
Keebler's principal trademarks and trade names include Keebler, Ernie the
Keebler Elf, the Hollow Tree logo, Cheez-It, Chips Deluxe, Club, Fudge Shoppe,
Graham Selects, Hi-Ho, Hydrox, Sunshine Krispy, Munch'ems, Ready Crust, Pecan
Sandies, Soft Batch, Sunshine, Toasteds, Town House, Vienna Fingers, Wheatables,
and Zesta. Keebler is the exclusive licensee of the Carr's crackers brand name
in the United States. Such trademarks and trade names are considered to be
important to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty.

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Management is not aware of any fact that would negatively impact the continuing
use of any of its trademarks, trade names, patents or licenses.

RAW MATERIALS

The Company's primary baking ingredients are flour, sugar, shortening and
fruit. The Company also uses paper products, such as corrugated cardboard,
aluminum products, such as pie plates, and films and plastics to package its
baked foods. In addition, the Company is also dependent upon natural gas and
propane as a fuel for firing ovens. On average, baking ingredients constitute
approximately 10% to 15%, and packaging represents approximately 1% to 5%, of
the wholesale selling price of the Company's baked foods. The Company maintains
diversified sources for all of its baking ingredients and packaging products.

Commodities, such as the Company's baking ingredients, periodically
experience price fluctuations and, for that reason, the market for these
commodities is continuously monitored. From time to time, the Company enters
into forward purchase agreements and derivative financial instruments to reduce
the impact of volatility in raw materials prices.

REGULATION

As a producer and marketer of food items, the Company's operations are
subject to regulation by various federal governmental 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, with respect to 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 the Company's businesses is subject to
regulation by the FTC, and the Company is subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act.

The operations of the Company, like those of similar businesses, are
subject to various Federal, state, and local laws and regulations with respect
to environmental matters, including air and water quality, underground fuel
storage tanks, and other regulations intended to protect public health and the
environment. The operations and the products of the Company's businesses also
are subject to state and local regulation through such measures as licensing of
plants, enforcement by state health agencies of various state standards and
inspection of the facilities. The Company believes that it is currently in
material compliance with applicable laws and regulations.

EMPLOYEES

Flowers employs approximately 7,200 persons, approximately 1,000 of whom
are covered by collective bargaining agreements. Keebler employs approximately
9,700 persons, of whom approximately 5,300 are covered by collective bargaining
agreements. The Company believes that it has good relations with its employees.

EXECUTIVE OFFICES

The address and telephone number of the principal executive offices of the
Company are 1919 Flowers Circle, Thomasville, Georgia 31757, (912) 226-9110.

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MANAGEMENT

The following individuals are the Directors and Executive Officers of the
Company:

<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Amos R. McMullian.................................... Chairman of the Board and Chief
Executive Officer
Robert P. Crozer..................................... Vice Chairman of the Board
C. Martin Wood III................................... Senior Vice President, Chief Financial
Officer and Director
G. Anthony Campbell.................................. Secretary, General Counsel and
Director
Edward L. Baker...................................... Director
Joe E. Beverly....................................... Director
Franklin L. Burke.................................... Director
Langdon S. Flowers................................... Director
Joseph L. Lanier, Jr................................. Director
J.V. Shields, Jr..................................... Director
Heeth Varnedoe III................................... Director
George E. Deese...................................... President and Chief Operating Officer,
Flowers Bakeries, Inc.
Gary L. Harrison..................................... President and Chief Operating Officer,
Mrs. Smith's Bakeries, Inc.
Jimmy M. Woodward.................................... Treasurer and Chief Accounting Officer
Marta Jones Turner................................... Vice President of Public Affairs
</TABLE>

Amos R. McMullian, age 60, has served as Chairman of the Board of Directors
of the Company since January 1985, Chairman of the Executive Committee since
January 1984, and Chief Executive Officer of the Company since April 1981. He
served as Vice Chairman of the Board of Directors of the Company from 1984 to
1985 and Co-Chairman of the Executive Committee from 1983 to 1984. Mr. McMullian
served as President and Chief Operating Officer of the Company from 1976 to
1984. Mr. McMullian has been a Director of the Company since 1975. He joined the
Company's predecessor corporation in 1963. Mr. McMullian has served as a
director of Keebler since January 1996.

Robert P. Crozer, age 51, has served as Vice Chairman of the Board of
Directors of the Company since 1989. Mr. Crozer served as Vice
President -- Marketing from 1985 to 1989, as President and Chief Operating
Officer, Convenience Products Group from 1979 to 1989 and as Corporate Director
of Marketing Planning from 1979 to 1985. Mr. Crozer has been a Director of the
Company since 1979. He joined the Company in 1973. Mr. Crozer has served as a
director of Keebler since January 1996 and has served as Chairman of the Board
of Directors of Keebler since February 1998.

C. Martin Wood III, age 54, has served as Senior Vice President and Chief
Financial Officer of the Company since September 1978. Mr. Wood served as Vice
President -- Finance of the Company from 1976 to 1978. Mr. Wood has been a
Director of the Company since 1975. He joined the Company in 1970. Mr. Wood has
served as a director of Keebler since January 1996.

G. Anthony Campbell, age 45, has served as Secretary and General Counsel of
the Company since January 1985. Mr. Campbell served as Assistant General Counsel
of the Company from 1983 to 1985. Mr. Campbell has been a Director of the
Company since 1991. He joined the Company in 1983. Mr. Campbell has served as a
director of Keebler since February 1998.

Edward L. Baker, age 62, is Chairman of the Board of Florida Rock
Industries, Inc. (AMEX), a construction materials company based in Jacksonville,
Florida, which produces and markets sand, gravel, crushed stone, concrete blocks
and other building materials throughout the Southeast. He is also a Director of
American Heritage Life Insurance Company, the principal subsidiary of American
Heritage Life Investment Corporation (NYSE), Regency Realty Corporation (NYSE),
and FRP Properties (OTC). He has been a Director of the Company since 1992.

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<PAGE> 45

Joe E. Beverly, age 56, is Chairman of the Board of Commercial Bank in
Thomasville, Georgia, a wholly-owned subsidiary of Synovus Financial Corp.
(NYSE) and is the former Vice Chairman of the Board of Synovus Financial Corp.
He was President and a Director of Commercial Bank from 1973 to 1989. Mr.
Beverly has been a Director of the Company since 1996.

Franklin L. Burke, age 56, a private investor since 1991, is the former
Senior Executive Vice President and Chief Operating Officer of Bank South Corp.
(OTC), Atlanta, Georgia, and the former Chairman and Chief Executive Officer of
Bank South, N.A., the principal subsidiary of Bank South Corp. From June 1993
through February 1994, Mr. Burke was employed as an advisor by the J. B. Fuqua
Foundation, Inc. He has been a Director of the Company since 1994. Mr. Burke has
served as a director of Keebler since February 1998.

Langdon S. Flowers, age 75, retired as Chairman of the Board of Directors
of the Company in 1985. He has been a Director of the Company since 1968. Mr.
Flowers also is a Director of American Heritage Life Insurance Company, the
principal subsidiary of American Heritage Life Investment Corporation (NYSE).

Joseph L. Lanier, Jr., age 66, has been Chairman of the Board of Directors
and Chief Executive Officer of Dan River Inc. (NYSE), Danville, Virginia, a
textile company, since 1989. He is also a Director of Dimon, Inc. (NYSE),
SunTrust Banks, Inc. (NYSE), Torchmark Corp. (NYSE) and Waddell & Reed
Financial, Inc. (NYSE). Mr. Lanier has been a Director of the Company since
1977.

J.V. Shields, Jr., age 59, is Managing Director and Chairman of the Board
of Directors of Shields & Company, New York, New York, a diversified financial
services company and member of the New York Stock Exchange, Inc. Mr. Shields
also is the Chairman of the Board of Capital Management Associates, Inc., a
registered investment advisor, and the Chairman of the Board of Trustees of The
59 Wall Street Trust, the Brown Brothers Harriman mutual funds group. He has
been a Director of the Company since 1989.

Heeth Varnedoe III, age 60, who joined the Company's predecessor
corporation in 1960, retired from the office of President and Chief Operating
Officer on June 28, 1997. Mr. Varnedoe is currently employed as a consultant by
the Company and serves on the Company's Board of Directors, to which he was
first elected in 1980. Mr. Varnedoe also is a Director of Integrity Music, Inc.
(OTC).

George E. Deese, age 51, has served as President and Chief Operating
Officer of Flowers Bakeries, Inc. since January 1997. Prior to that time, Mr.
Deese served as President and Chief Operating Officer of the Baked Products
Group of the Company from 1983 to January 1997. He served as Regional Vice
President of the Baked Products Group from 1981 to 1983. Mr. Deese was President
of Atlanta Baking Company from 1980 to 1981. He joined the Company in 1964.

Gary L. Harrison, age 60, has served as President and Chief Operating
Officer of Mrs. Smith's Bakeries, Inc., since January 1997. Prior to that time,
Mr. Harrison served as President and Chief Operating Officer of the Specialty
Foods Group of the Company from 1989 to January 1997, served as Executive Vice
President of the Baked Products Group from 1987 to 1989, served as Regional Vice
President of the Baked Products Group from 1977 to 1987, and served as President
of Flowers Baking Company of Thomasville from 1976 to 1977. He joined the
Company in 1954.

Jimmy M. Woodward, age 37, has served as Treasurer and Chief Accounting
Officer of the Company since October 1997. Mr. Woodward served as Assistant
Treasurer of the Company for more than five years prior to that time. Mr.
Woodward has served as a director of Keebler since February 1998.

Marta Jones Turner, age 44, has served as Vice President of Public Affairs
of the Company since September 1997. She served as the Director of Corporate
Communications of the Company for more than five years prior to that time.

Heeth Varnedoe III is a nephew of Langdon S. Flowers. Robert P. Crozer,
J.V. Shields, Jr. and C. Martin Wood III are brothers-in-law, and their spouses
are nieces of Langdon S. Flowers.

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<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The following discussion of the Company's Articles, Bylaws and Georgia law
is qualified in its entirety by the actual terms of such documents and Georgia
law. Copies of the Company's Articles and Bylaws have been filed with the
Commission as exhibits to the Registration Statement.

The Company's Articles provide that the authorized capital of the Company
consists of 350,000,000 shares of Common Stock of $.625 par value per share,
10,467 shares of preferred stock, par value $100 per share convertible into
Common Stock, and 249,533 shares of preferred stock, par value $100 per share
that, at the discretion of the Board of Directors, may be either convertible or
nonconvertible, of which 100,000 shares has been designated by the Board of
Directors as Series A Junior Participating Preferred Stock ("Series A Preferred
Stock").

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Subject to
preferential rights of any issued and outstanding preferred stock, including the
Series A Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors of
the Company out of funds legally available therefor. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share ratably in all assets of the Company, if any, remaining
after payment of liabilities and the liquidation preferences of any issued and
outstanding preferred stock, including the Series A Preferred Stock. Holders of
Common Stock have no preemptive rights, no cumulative voting rights and no
rights to convert their shares of Common Stock into any other securities of the
Company or any other person. The Common Stock is not subject to redemption or
sinking fund redemption.

PREFERRED STOCK

The Board of Directors of the Company has the authority to issue up to
249,533 shares of preferred stock in one or more series and to fix the
designations, relative powers, preferences, rights, qualifications, limitations
and restrictions of all shares of each such series, including without
limitation, dividend rates, conversion rights, voting rights, redemption and
sinking fund provisions, liquidation preferences and the number of shares
constituting each such series, without any further vote or action by the holders
of Common Stock. Pursuant to such authority, the Board of Directors has
designated 100,000 shares of preferred stock as Series A Preferred Stock in
connection with the adoption of the Company's Shareholders' Rights Plan. The
issuance of one or more series of preferred stock will likely decrease the
amount of earnings and assets available for distribution to holders of Common
Stock as dividends or upon liquidation, respectively, and may adversely affect
the rights and powers, including voting rights, of the holders of Common Stock.
The issuance of preferred stock also could have the effect of delaying,
deterring or preventing a change in control of the Company.

SHAREHOLDERS' RIGHTS PLAN

In March 1989, the Board of Directors adopted a Shareholders' Rights Plan
(the "Rights Plan") pursuant to a Rights Agreement dated as of March 17, 1989.
Pursuant to the Rights Plan, the Company declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock to
the shareholders of record on April 3, 1989. Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series A
Preferred Stock, par value $100, of the Company (the "Preferred Shares") at a
price of $75.00 per one one-thousandth of a Preferred Share (the "Purchase
Price"), subject to adjustment from time to time to prevent dilution in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Shares, including any reclassification in connection with a
consolidation, merger or share exchange in which the Company is the continuing
or surviving corporation. The rights are not exercisable until the occurrence of
certain triggering events.

The Rights will become exercisable upon the earlier of (i) the tenth day
following a public announcement that an Acquiring Person (as defined in the
Rights Plan) acquired, or obtained the right to acquire, beneficial ownership of
10% or more of the outstanding Common Stock (the "Shares Acquisition Date"), or
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(ii) the tenth day following the commencement or announcement of an intention to
make a tender or exchange offer the consummation of which would result in a
Person (other than the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Stock for or pursuant to the terms of such plan) becoming the
Beneficial Owner of 30% or more of such outstanding Common Stock (the earlier of
such dates being called the "Distribution Date").

The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on April 2, 1999 (the "Final Expiration Date"),
unless earlier redeemed by the Company.

At any time prior to 5:00 p.m. on the earlier of (i) the tenth day
following the Shares Acquisition Date and (ii) the Final Expiration Date, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part (the "Redemption Date"), at a price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of the Rights Agreement (the "Redemption Price");
provided, however, that the Board of Directors of the Company may redeem the
Rights after the time at which an Acquiring Person obtains beneficial ownership
of 10% or more of the outstanding Common Stock only if a majority of the
directors are Continuing Directors (as defined in the Rights Plan). Immediately
upon the action of the Board of Directors ordering redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.

CERTAIN ARTICLES AND BYLAWS PROVISIONS

Certain provisions of the Company's Articles and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. The Company's Articles require the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of its outstanding shares of Common
Stock to approve, among other matters: (i) any plan of merger, share exchange or
consolidation of the Company with another corporation; (ii) any sale, lease,
transfer, exchange or other disposition of all or substantially all of the
property and assets of the Company; or (iii) any dissolution of the Company,
unless recommended by a majority of the Continuing Directors (as therein
defined), in which event the vote required would be the affirmative vote of a
majority of the outstanding shares of Common Stock. The Company's Articles
provide for a classified board of directors with staggered three-year terms. The
Company has also adopted a Bylaw electing to be covered by the Fair Price
Requirements of the Georgia Business Corporation Code, which is designed to
protect shareholders against two-tier, front-end loaded transactions.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is Wachovia
Bank of North Carolina, N.A.

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

GENERAL

The following is a general discussion of certain material United States
federal income and estate tax consequences of the ownership and disposition of
shares of Common Stock applicable to Non-U.S. Holders of such shares of Common
Stock. As used herein, the term "Non-U.S. Holder" means a beneficial owner other
than (i) an individual citizen or income tax resident, of the United States,
(ii) a corporation created or organized in or under the laws of the United
States or of any State thereof, (iii) an estate the income of which is subject
to United States federal income tax purposes regardless of its source, (iv) a
trust over which a court within the United States is able to exercise primary
supervision and as to which one or more United States persons have the authority
to control all the substantial decisions of trust, or (v) a partnership or other
entity created or organized in or under the laws of the United States or of any
State thereof and properly classified as a United States entity. The discussion
is based on current law, which is subject to change retroactively or
prospectively, and is for general information only. The discussion does not
address all aspects of United States federal income and estate taxation and does
not address any aspects of state, local or foreign tax laws. The
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<PAGE> 48

discussion does not consider any specific facts or circumstances that may apply
to a particular Non-U.S. Holder. Accordingly, prospective investors are urged to
consult their tax advisors regarding the current and possible future United
States federal, state, local and non-U.S. income and other tax consequences of
holding and disposing of shares of Common Stock.

DIVIDENDS

In the event that dividends are paid to a Non-U.S. Holder, such dividends
will be subject to United States withholding tax at a 30% rate (or a lower rate
as may be specified by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States or (ii) if a tax treaty applies, attributable to a
United States permanent establishment or, in the case of an individual, a fixed
base in the United States, maintained by the Non-U.S. Holder. Dividends
effectively connected with such a trade or business or, if a tax treaty applies,
attributable to such permanent establishment or fixed base will generally not be
subject to withholding (if the Non-U.S. Holder files certain forms as required
with the payor of the dividend) but generally will be subject to United States
federal income tax on a net income basis at regular graduated individual or
corporate rates. In the case of a Non-U.S. Holder that is a corporation, such
effectively connected income also may be subject to the branch profits tax
(which is generally imposed on a foreign corporation on the deemed repatriation
from the United States of effectively connected earnings and profits) at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The branch profits tax may not apply if the recipient is a qualified resident of
certain countries with which the United States has an income tax treaty.

To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are currently
presumed to be paid to a resident of that country, unless the payor has definite
knowledge that such presumption is not warranted or an applicable tax treaty (or
United States Treasury Regulations thereunder) requires some other method for
determining a Non-U.S. Holder's residence. However, under recently finalized
United States Treasury Department Regulations, in the case of dividends paid
after December 31, 1999, a Non-U.S. Holder generally will be unable to claim the
benefits of a reduced rate under an income tax treaty, unless certain
certification procedures are complied with, directly or through an intermediary.
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these information
returns also may be made available under the provisions of a specific treaty or
agreement with the tax authorities of the country in which the Non-U.S. Holder
resides.

A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless: (i) the gain is effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States and, if a tax treaty applies, the gain is attributable to a permanent
establishment or a fixed base maintained by the Non-U.S. Holder in the United
States; (ii) the Non-U.S. Holder is an individual who holds the shares of Common
Stock as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition, and either (a) such Non-U.S. Holder
has a "tax home" (as specifically defined for United States federal income tax
purposes) in the United States (unless the gain from disposition is attributable
to an office or other fixed place of business maintained by such non-U.S. Holder
in a foreign country and a foreign tax equal to at least 10% of such gain has
been paid to a foreign country), or (b) the gain from the disposition is
attributable to an office or other fixed place of business maintained by such
Non-U.S. Holder in the United States; (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of United States tax law applicable to certain
United States expatriates; or (iv) the Company is or has been during certain
periods a "United States real property holding corporation" for United States
federal income tax purposes (which the
44
<PAGE> 49

Company does not believe that is has been, currently is or is likely to become)
and, assuming that the Common Stock is deemed for tax purposes to be "regularly
traded on an established securities market," the Non-U.S. Holder held, at any
time during the five-year period ending on the date of disposition (or such
shorter period that such shares were held), directly or indirectly, more than
five percent of the Common Stock.

ESTATE TAX

Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as specially defined for United States federal estate
tax purposes) of the United States at the time of death will be includible in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable tax treaty provides otherwise, and may be subject to United
States federal estate tax.

BACKUP WITHHOLDING AND INFORMATION REPORTING

As a general rule, under current United States federal income tax law,
backup withholding tax (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements) and
information reporting requirements apply to the actual and constructive payment
of dividends. The United States backup withholding tax and information reporting
requirements generally, under current regulations, will not apply to dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States, unless the payor has knowledge that the payee is a United States person.
Backup withholding and information reporting generally will apply to dividends
paid on Common Stock to addresses inside the United States to beneficial owners
that are not entitled to an exemption, as discussed above and that fail to
provide in the manner required certain identifying information. However, under
recently finalized United States Treasury Regulations, in the case of dividends
paid after December 31, 1999, a Non-U.S. Holder generally will be subject to
backup withholding at a 31% rate, unless certain certification procedures (or,
in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures) are complied with,
directly or through an intermediary.

The payment of the proceeds from the disposition of shares of Common Stock
to or through the United States office of a broker will be subject to
information reporting and backup withholding unless the holder, under penalties
of perjury, certifies, among other things, its status as a Non-U.S. Holder, or
otherwise establishes an exemption. Generally, the payment of the proceeds from
the disposition of shares of Common Stock to or through a non-U.S. office of a
non-U.S. broker will not be subject to backup withholding and will not be
subject to information reporting. In the case of the payment of proceeds from
the disposition of shares of Common Stock to or through a non-U.S. office of a
broker that is a United States person or a "U.S.-related person," United States
Treasury Regulations require (i) backup withholding if the broker has actual
knowledge that the owner is not a Non-U.S. Holder, and (ii) information
reporting on the payment unless the broker receives a statement from the owner,
signed under penalties of perjury, certifying, among other things, its status as
a Non-U.S. Holder, or the broker has documentary evidence in its files that the
owner is a Non-U.S. Holder and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S.-related person" is (i) a "controlled foreign
corporation" for United States federal income tax purposes, (ii) a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business, or (iii) in the case of payments made after December 31,
1999, a foreign partnership with certain connections to the United States.

Backup withholding is not an additional tax. Any amounts withheld from a
payment to a Non-U.S. Holder under the backup withholding rules will be allowed
as a credit against such holder's United States federal income tax liability, if
any, provided that such holder files the required information or appropriate
claim for refund with the IRS.

45
<PAGE> 50

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc. are acting as
U.S. Representatives, and the International Underwriters named below, for whom
Morgan Stanley & Co. International Limited and Swiss Bank Corporation, acting
through its division SBC Warburg Dillon Read, are acting as International
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, the respective number of U.S. Shares (as defined below) set
forth opposite the names of such Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated......................... 2,500,000
SBC Warburg Dillon Read Inc............................... 2,500,000
BT Alex. Brown Incorporated............................... 200,000
Burnham Securities Inc.................................... 100,000
Credit Suisse First Boston Corporation.................... 200,000
A.G. Edwards & Sons, Inc.................................. 200,000
Goldman, Sachs & Co....................................... 200,000
Janney Montgomery Scott Inc............................... 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 200,000
NationsBanc Montgomery Securities LLC..................... 200,000
Prudential Securities Incorporated........................ 200,000
The Robinson-Humphrey Company, LLC........................ 100,000
Schroder & Co. Inc........................................ 200,000
Shields & Company......................................... 100,000
Wasserstein Perella Securities, Inc....................... 200,000
---------
Subtotal............................................. 7,200,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................ 900,000
Swiss Bank Corporation, acting through its division
SBC Warburg Dillon Read................................ 900,000
---------
Subtotal............................................. 1,800,000
---------
Total............................................. 9,000,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over allotment option described below) if any such shares are
taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein); and (ii) it
has

46
<PAGE> 51

not offered or sold, and will not offer to sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares in the United States
or Canada or to anyone other than a United States or Canadian Person. Pursuant
to the Agreement between U.S. and International Underwriters, each International
Underwriter has represented and agreed that, with certain exceptions: (i) it is
not purchasing any Shares for the account of any United States or Canadian
Person; and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any prospectus relating to the
Shares in the United States or Canada or to any United States or Canadian
Person. With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representations and agreements (i) made
by it in its capacity as a U.S. Underwriter apply to it only in its capacity as
a U.S. Underwriter and (ii) made by it in its capacity as an International
Underwriter apply to it only in its capacity as an International Underwriter.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.

47
<PAGE> 52

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $.51 per share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $.10 per
share to other Underwriters or to certain other dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
1,350,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions. The
U.S. Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares of Common
Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of shares of Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.

Each of the Company and the Company's officers and directors have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, it will not, during the period ending 90 days after
the date of this Prospectus (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other agreement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to (a) the shares of Common Stock
offered hereby, (b) the issuance by the Company of shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof, (c) any options granted or shares of Common Stock issued
pursuant to existing benefit plans of the Company, or (d) transactions by any
person other than the Company involving shares of Common Stock or other
securities acquired in open market transactions after completion of the offering
of the Common Stock.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing shares of the Common Stock in the Offering, if the syndicate
repurchases previously distributed Common Stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities
48
<PAGE> 53

may stabilize or maintain the market price of the Common Stock above independent
market levels. The U.S. Underwriters are not required to engage in these
activities, and may end any of these activities at any time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

From time to time, the Representatives have provided, and continue to
provide, investment banking services to the Company.

LEGAL MATTERS

The validity of the Shares of Common Stock offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Atlanta, Georgia, and for
the Underwriters by King & Spalding, Atlanta, Georgia.

EXPERTS

The consolidated financial statements of Flowers at January 3, 1998, June
28, 1997 and June 29, 1996 and for the 27 weeks ended January 3, 1998, and the
52 weeks ended June 28, 1997, June 29, 1996, and July 1, 1995, included in this
Prospectus and incorporated by reference herein from the Company's Transition
Report on Form 10-K for the transition period ended January 3, 1998 have been so
included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of Keebler (including its predecessor company) as
of and for the fiscal year ended January 3, 1998, the 48-week period ended
December 28, 1996, the four week period ended January 26, 1996, and the fiscal
year ended December 30, 1995, incorporated by reference in this Prospectus from
the Company's Transition Report on Form 10-K for the transition period ended
January 3, 1998 and the Company's Current Report on Form 8-K/A dated March 13,
1998, have been audited by Coopers & Lybrand L.L.P., independent accountants,
and are incorporated by reference herein in reliance on the report of such firm,
given on the authority of that firm as experts in accounting and auditing.

The financial statements of Sunshine as of March 31, 1995 and 1996 and for
each of the three years in the period ended March 31, 1996, incorporated by
reference in this Prospectus from the Company's Current Report on Form 8-K/A
dated March 13, 1998, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

49
<PAGE> 54

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent accountants........................... F-2
Consolidated balance sheet at January 3, 1998, June 28, 1997
and June 29, 1996......................................... F-3
Consolidated statement of income for the twenty-seven weeks
ended January 3, 1998, and the fifty-two weeks ended June
28, 1997, June 29, 1996 and July 1, 1995.................. F-4
Consolidated statement of changes in stockholders' equity
for the twenty-seven weeks ended January 3, 1998, and the
fifty-two weeks ended June 28, 1997, June 29, 1996 and
July 1, 1995.............................................. F-5
Consolidated statement of cash flows for the twenty-seven
weeks ended January 3, 1998, and the fifty-two weeks ended
June 28, 1997, June 29, 1996 and July 1, 1995............. F-7
Notes to consolidated financial statements.................. F-9
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Flowers Industries, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Flowers Industries, Inc. and its subsidiaries at January 3, 1998, June 28, 1997
and June 29, 1996, and the results of their operations and their cash flows for
the twenty-seven week transition period ended January 3, 1998 and for each of
the three fiscal years in the period ended June 28, 1997, in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards 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.

As more fully discussed in Note 1 of the Notes to Consolidated Financial
Statements, during the twenty-seven week transition period ended January 3,
1998, the Company changed its method of accounting for business process
reengineering costs incurred in connection with an information technology
project, pursuant to Emerging Issues Task Force Consensus No. 97-13, "Accounting
for Costs Incurred in Connection with a Consulting Contract or an Internal
Project that Combines Business Process Reengineering and Information Technology
Transformation." In addition, as more fully discussed in Note 1 of the Notes to
Consolidated Financial Statements, during the twenty-seven week transition
period ended January 3, 1998, the Company changed the measurement date used in
its accounting for pensions.

/s/ PRICE WATERHOUSE LLP

Atlanta, Georgia
March 23, 1998

F-2
<PAGE> 56

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
JANUARY 3, JUNE 28, JUNE 29,
1998 1997 1996
---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 3,866 $ 31,080 $ 25,039
Accounts receivable....................................... 118,147 113,628 120,301
Inventories............................................... 105,431 104,577 68,576
Prepaid expenses.......................................... 9,421 7,825 5,319
Deferred income taxes..................................... 16,024 14,421 10,992
--------- --------- ---------
252,889 271,531 230,227
--------- --------- ---------
Property, Plant and Equipment:
Land...................................................... 20,388 20,692 23,386
Buildings................................................. 208,179 206,469 183,502
Machinery and equipment................................... 443,739 446,016 393,319
Furniture, fixtures and transportation equipment.......... 28,095 24,774 21,365
Construction in progress.................................. 46,262 49,062 63,005
--------- --------- ---------
746,663 747,013 684,577
Less: accumulated depreciation............................ (308,342) (299,014) (264,107)
--------- --------- ---------
438,321 447,999 420,470
--------- --------- ---------
Other Assets:
Investment in unconsolidated affiliate.................... 100,663 77,071 68,326
Notes receivable from distributors........................ 61,236
Other long-term assets.................................... 32,620 33,133 24,567
--------- --------- ---------
133,283 110,204 154,129
--------- --------- ---------
Cost in Excess of Net Tangible Assets....................... 78,368 70,939 45,962
Less: accumulated amortization............................ (3,480) (2,486) (1,345)
--------- --------- ---------
74,888 68,453 44,617
--------- --------- ---------
$ 899,381 $ 898,187 $ 849,443
========= ========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Commercial paper outstanding.............................. $ 53,506 $ 40,792 $
Current portion of long-term debt......................... 1,581 6,625 6,593
Obligations under capital leases.......................... 2,651 2,608 1,988
Accounts payable.......................................... 72,311 78,451 98,796
Accrued taxes other than income taxes..................... 5,230 6,276 5,369
Income taxes.............................................. 220 1,264
Other accrued liabilities................................. 97,333 107,497 67,738
--------- --------- ---------
232,612 242,469 181,748
--------- --------- ---------
Long-Term Notes Payable..................................... 259,249 259,884 254,355
--------- --------- ---------
Obligations Under Capital Leases............................ 4,012 2,413 2,573
--------- --------- ---------
Industrial Revenue Bonds.................................... 12,950 12,950 17,770
--------- --------- ---------
Deferred Income Taxes....................................... 39,686 38,886 47,270
--------- --------- ---------
Deferred Compensation....................................... 2,305 1,573
--------- --------- ---------
Deferred Income............................................. 40,403
--------- --------- ---------
Commitments and Contingencies...............................
--------- --------- ---------
Stockholders' Equity:
Preferred stock -- $100 par value, authorized 10,467
shares and none issued..................................
Preferred stock -- $100 par value, authorized 249,533
shares and none issued..................................
Common stock -- $.625 par value, authorized 350,000,000
shares, issued 88,636,089 shares........................ 55,398 55,398 55,398
Capital in excess of par value............................ 45,200 43,147 40,317
Retained earnings......................................... 266,734 260,094 234,069
Less: Common stock in treasury, 207,670, 563,076 and
761,010 shares, respectively............................ (2,452) (6,567) (6,493)
Restricted Stock Award and Equity Incentive Award.... (16,313) (12,060) (17,967)
--------- --------- ---------
348,567 340,012 305,324
--------- --------- ---------
$ 899,381 $ 898,187 $ 849,443
========= ========= =========
</TABLE>

(See Accompanying Notes to Consolidated Financial Statements)

F-3
<PAGE> 57

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
FOR THE 27
WEEKS
ENDED FOR THE 52 WEEKS ENDED
---------- ------------------------------------
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales............................................ $784,097 $1,437,713 $1,238,564 $1,129,203
Gain on sale of distributor notes receivable..... 43,244
Other income..................................... 2,442 3,540 7,909 10,751
Gain on issuance of additional stock of
unconsolidated affiliate....................... 4,111
-------- ---------- ---------- ----------
786,539 1,484,497 1,250,584 1,139,954
-------- ---------- ---------- ----------
Materials, supplies, labor and other production
costs.......................................... 418,926 787,799 674,762 599,416
Selling, delivery and administrative expenses.... 303,868 537,825 468,695 428,833
Depreciation and amortization.................... 26,930 45,970 40,848 36,604
Interest......................................... 11,796 25,109 13,004 7,086
Accrual for litigation settlement................ 4,935
-------- ---------- ---------- ----------
761,520 1,396,703 1,202,244 1,071,939
-------- ---------- ---------- ----------
Income before income taxes....................... 25,019 87,794 48,340 68,015
Federal and state income taxes................... 9,632 33,191 18,185 25,714
Income from investment in unconsolidated
affiliate...................................... 18,061 7,721 613
-------- ---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles.......................... 33,448 62,324 30,768 42,301
Cumulative effect of changes in accounting
principles, net of tax benefit of $6,146....... (9,888)
-------- ---------- ---------- ----------
Net income....................................... $ 23,560 $ 62,324 $ 30,768 $ 42,301
======== ========== ========== ==========
Earnings Per Common Share -- Basic
Income before cumulative effect of changes in
accounting principles....................... $ .38 $ .71 $ .35 $ .49
Cumulative effect of changes in accounting
principles, net of tax...................... (.11)
-------- ---------- ---------- ----------
Net income per common share.................... $ .27 $ .71 $ .35 $ .49
======== ========== ========== ==========
Weighted average shares outstanding............ 88,368 88,000 86,933 86,229
======== ========== ========== ==========
Earnings Per Common Share -- Diluted
Income before cumulative effect of changes in
accounting principles....................... $ .38 $ .71 $ .35 $ .49
Cumulative effect of changes in accounting
principles, net of tax...................... (.11)
-------- ---------- ---------- ----------
Net income per common share.................... $ .27 $ .71 $ .35 $ .49
======== ========== ========== ==========
Weighted average shares outstanding............ 88,773 88,401 87,211 86,438
======== ========== ========== ==========
</TABLE>

(See Accompanying Notes to Consolidated Financial Statements)

F-4
<PAGE> 58

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED
---------------------- TREASURY STOCK STOCK AWARD
NUMBER OF CAPITAL IN ----------------------- AND EQUITY
SHARES EXCESS OF RETAINED NUMBER OF INCENTIVE
ISSUED PAR VALUE PAR VALUE EARNINGS SHARES COST AWARD
---------- --------- ---------- --------- ----------- --------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 2,
1994................. 86,269,670 $53,919 $ 21,083 $ 225,601 (1,893,522) $ (15,200) $ (9,672)
Stock issued for
acquisitions......... 2,366,419 1,479 15,872 198,598 1,594
Exercise of employee
stock options........ (178) 104,449 841
Purchase of treasury
stock................ (554,745) (4,426)
Net income for the
year................. 42,301
Exercise of Restricted
Stock Award.......... 63 (74,634) (572) 708
Amortization of
Restricted Stock
Award and Equity
Incentive Award...... 1,825
Dividends
paid -- $.3622 per
common share......... (31,257)
---------- ------- --------- --------- ----------- --------- --------
Balances at July 1,
1995................. 88,636,089 55,398 36,840 236,645 (2,219,854) (17,763) (7,139)
Stock issued for
acquisitions......... 180 137,003 1,119
Exercise of employee
stock options........ (764) 285,366 2,337
Purchase of treasury
stock................ (144,840) (1,303)
Net income for the
year................. 30,768
Exercise of Restricted
Stock Award.......... 769 (187,596) (1,650) 1,526
Exercise of Equity
Incentive Award...... 301 (169,931) (1,830) 1,434
Stock issued into
escrow in connection
with Restricted Stock
Award................ 2,286 1,180,295 9,640 (11,918)
Stock issued into
escrow in connection
with Equity Incentive
Award................ 705 358,547 2,957 (3,662)
Amortization of
Restricted Stock
Award and Equity
Incentive Award...... 1,792
Dividends
paid -- $.3833 per
common share......... (33,344)
---------- ------- --------- --------- ----------- --------- --------
Balances at June 29,
1996................. 88,636,089 55,398 40,317 234,069 (761,010) (6,493) (17,967)
</TABLE>

F-5
<PAGE> 59
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED)

<TABLE>
<CAPTION>
COMMON STOCK RESTRICTED
---------------------- TREASURY STOCK STOCK AWARD
NUMBER OF CAPITAL IN ----------------------- AND EQUITY
SHARES EXCESS OF RETAINED NUMBER OF INCENTIVE
ISSUED PAR VALUE PAR VALUE EARNINGS SHARES COST AWARD
---------- --------- ---------- --------- ----------- --------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Stock issued for
acquisition.......... 1,025 322,233 2,975
Exercise of employee
stock options........ (1,017) 400,853 3,988
Purchase of treasury
stock................ (19,335) (289)
Net income for the
year................. 62,324
Exercise of Restricted
Stock Award.......... 1,072 (78,106) (1,362) 1,169
Exercise of Equity
Incentive Award...... 1,854 (151,469) (2,365) 1,738
Restricted Stock Award
Reversions........... (104) (56,430) (456) 557
Amortization of
Restricted Stock
Award and Equity
Incentive Award...... 2,443
Stock received from
escrow............... (219,812) (2,565)
Dividends
paid -- $.4125 per
common share......... (36,299)
---------- ------- --------- --------- ----------- --------- --------
Balances at June 28,
1997................. 88,636,089 55,398 43,147 260,094 (563,076) (6,567) (12,060)
Exercise of employee
stock options........ 45,000 524
Purchase of treasury
stock................ (6,227) (117)
Net income for the 27
weeks ended January
3, 1998.............. 23,560
Equity from investment
in unconsolidated
affiliate............ 2,700
Stock issued into
escrow in connection
with Restricted Stock
Award................ 2,118 347,609 3,965 (6,083)
Restricted Stock Award
Reversions........... (65) (30,976) (257) 435
Amortization of
Restricted Stock
Award and Equity
Incentive Award...... 1,395
Dividends
paid -- $.2225 per
common share......... (19,620)
---------- ------- --------- --------- ----------- --------- --------
Balances at January 3,
1998................. 88,636,089 $55,398 $ 45,200 $ 266,734 207,670 $ (2,452) $(16,313)
========== ======= ========= ========= =========== ========= ========
</TABLE>

(See Accompanying Notes to Consolidated Financial Statements)

F-6
<PAGE> 60

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
----------- ------------------------------------
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
----------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................. $ 779,029 $1,438,870 $1,232,963 $1,117,262
Interest received............................ 325 824 7,741 7,159
Sale of distributor notes receivable......... 65,954
Other........................................ 3,055 6,080 5,416 5,890
--------- ---------- ---------- ----------
Cash provided by operating activities.......... 782,409 1,511,728 1,246,120 1,130,311
--------- ---------- ---------- ----------
Cash paid to suppliers and employees......... 739,575 1,373,583 1,161,431 1,009,931
Interest paid................................ 11,878 25,955 8,582 6,465
Income taxes paid............................ 10,867 32,729 16,748 20,379
--------- ---------- ---------- ----------
Cash disbursed for operating activities........ 762,320 1,432,267 1,186,761 1,036,775
--------- ---------- ---------- ----------
Net cash provided by operating activities (See
Schedule 1).................................. 20,089 79,461 59,359 93,536
--------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment.... (32,857) (77,510) (75,542) (73,466)
Acquisition of businesses.................... (7,931) (28,118) (17,018)
Divestiture of businesses.................... 200 1,061 22,679
Decrease in divestiture receivables.......... 2,399 417 173
Investment in unconsolidated affiliate....... (61,352)
Escrow funds................................. 4,835
Other........................................ 2,145 63 (6,485) (1,845)
--------- ---------- ---------- ----------
Net cash disbursed for investing activities.... (36,244) (76,830) (170,263) (64,815)
--------- ---------- ---------- ----------
Cash flows from financing activities:
Dividends paid............................... (19,620) (36,299) (33,344) (31,257)
Purchase of treasury stock................... (117) (289) (1,303) (4,426)
Increase in short-term notes payable......... 7,713 40,792
Increase in long-term notes payable.......... 356,000 524,400 356,625 151,391
Payments of long-term notes payable.......... (355,035) (525,194) (217,871) (132,351)
--------- ---------- ---------- ----------
Net cash (disbursed for) provided by financing
activities................................... (11,059) 3,410 104,107 (16,643)
--------- ---------- ---------- ----------
Net (decrease) increase in cash and cash
equivalents.................................. $ (27,214) $ 6,041 $ (6,797) $ 12,078
========= ========== ========== ==========
</TABLE>

F-7
<PAGE> 61
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
----------- ------------------------------------
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
----------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
SCHEDULE 1.
Schedule Reconciling Earnings to Net Cash
Provided by Operating Activities:
Net income................................ $ 23,560 $ 62,324 $ 30,768 $ 42,301
Noncash expenses, revenues, losses and
gains included in income:
Depreciation and amortization........... 26,930 45,970 40,848 36,604
Gain on sale of distributor notes
receivable........................... (43,244)
Deferred income taxes................... (803) 1,506 3,494 2,847
Cumulative effect of changes in
accounting principles................ 9,888
Gain on issuance of additional stock of
unconsolidated affiliate............. (4,111)
Net income from investment in
unconsolidated affiliate............. (18,061) (7,721) (613)
Changes in assets and liabilities, net of
acquisitions and divestitures:
(Increase) decrease in accounts
receivable........................... (2,282) 7,863 (17,742) (5,510)
Increase in inventories................. (413) (36,144) (12,821) (4,651)
Increase in prepaid expenses............ (1,495) (2,242) (1,650) (86)
Decrease in distributor notes
receivable........................... 65,954
(Decrease) increase in accounts
payable.............................. (6,685) (21,082) 28,029 5,859
(Decrease) increase in accrued taxes and
other liabilities.................... (10,550) 6,277 (6,843) 16,172
--------- ---------- ---------- ----------
$ 20,089 $ 79,461 $ 59,359 $ 93,536
========= ========== ========== ==========
SCHEDULE 2.
Schedule of Noncash Investing and Financing
Activities:
Common stock issued in connection with the
exercise of employee stock options........ $ 272 $ 2,971 $ 1,573 $ 663
Stock issued and held in escrow in connection
with Restricted Stock Award and Equity
Incentive Award........................... 6,083 15,580
Stock issued for acquisitions................ 4,000 1,299 18,945
Note payable issued in acquisition of
business.................................. 15,000
Exercise of Restricted Stock Award and Equity
Incentive Award........................... 3,727 3,480 572
Stock released from escrow................... 2,565
</TABLE>

(See Accompanying Notes to Consolidated Financial Statements)

F-8
<PAGE> 62

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CHANGE IN FISCAL YEAR

In January 1998, the Company changed its fiscal year-end from the Saturday
nearest June 30 to the Saturday nearest December 31. As a result, the Company is
reporting a twenty-seven week transition period of June 29, 1997 through January
3, 1998.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Flowers
Industries, Inc. and its wholly owned subsidiaries. Intercompany accounts and
transactions are eliminated in consolidation. The Company's 45% investment
interest in Keebler Foods Company is accounted for under the equity method.
Equity accounting for this investment is discussed in Note 13 to the
consolidated financial statements.

REVENUE RECOGNITION

Revenue from sale of products is recognized at the time of shipment. Sales
to a single customer were approximately $84,000,000, or 10.7% of sales during
the twenty-seven weeks transition period ended January 3, 1998, $163,000,000, or
11% of sales during fiscal 1997, $150,000,000, or 12% of sales during fiscal
1996 and $142,000,000, or 13% of sales during fiscal 1995.

CASH AND CASH EQUIVALENTS

The Company considers deposits in banks, certificates of deposits and
short-term investments with original maturities of three months or less as cash
and cash equivalents for the purposes of the statement of cash flows.

The major components of cash and cash equivalents are as follows:

<TABLE>
<CAPTION>
JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996
--------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash............................................ $ $11,010 $10,484
Time deposits................................... 3,866 20,070 14,555
------ ------- -------
Total................................. $3,866 $31,080 $25,039
====== ======= =======
</TABLE>

ACCOUNTS RECEIVABLE

Accounts receivable consists of trade receivables, current portion of
distributor notes receivable and miscellaneous receivables. As the Company has
historically experienced an insignificant amount of uncollectible accounts, when
a receivable balance is determined to be uncollectible, it is charged directly
to expense.

CONCENTRATION OF CREDIT RISK

The Company grants credit to its distributors and customers, who are
primarily in the grocery, foodservice, restaurant and fast-food markets.

INVENTORY

Inventories are carried at the lower of cost (primarily first-in,
first-out) or market.

HEDGING TRANSACTIONS -- RAW MATERIAL COSTS

The Company's primary raw materials are flour, sugar, shortening and fruit.
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. The
F-9
<PAGE> 63
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company enters into various forward purchase agreements and other derivative
financial instruments to reduce the impact of volatility in ingredients prices.
Amounts payable or receivable under the agreements which qualify as hedges are
recognized as deferred gains or losses and are included in other assets or other
liabilities. These deferred amounts are charged or credited to cost of sales as
the related raw materials costs used in production. Gains and losses on
agreements which do not qualify as hedges are recognized immediately as other
income or expense. At January 3, 1998, the Company had no material commitments
outstanding relating to derivative financial instruments.

During June 1997, the Company entered into an arrangement that allows for
the Company to engage in commodity price agreements based on fixed and floating
prices of an agreed type of commodity. At January 3, 1998, no material amounts
were outstanding under this agreement.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

The Company provides depreciation for financial reporting purposes over the
estimated useful lives of fixed assets using the straight-line method. Upon
retirement or sale of fixed assets, the book value is removed from the accounts
and the difference between such net book value and salvage value received is
recorded in income. Expenditures for maintenance and repairs are charged to
expense; renovations and improvements are capitalized.

The approximate annual rates of depreciation are 3% to 5% for buildings, 8%
for machinery and equipment and 10% to 25% for furniture, fixtures and
transportation equipment. Depreciation expense for the twenty-seven weeks ended
January 3, 1998, fiscal 1997, fiscal 1996 and fiscal 1995 was $25,936,000,
$44,829,000, $40,559,000 and $35,874,000, respectively.

INTERNALLY DEVELOPED SOFTWARE

The Company capitalizes certain costs, primarily hardware, software, and
installation costs, associated with internally developed software projects. Such
amounts are depreciated over periods not to exceed eight years. The Company does
not anticipate that Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed, or Obtained for Internal Use," will have a material
impact on the Company's results of operations or financial condition. As further
discussed below, during the twenty-seven week period ended January 3, 1998, the
Company recorded a cumulative after-tax charge of $8,842,000, to write off
business process reengineering costs that had been incurred as part of an
information systems development project.

ADVERTISING AND CONSUMER PROMOTION

Advertising and consumer promotion costs are generally expensed as incurred
or no later than when the advertisement appears or the event is run. Advertising
and consumer promotion expense was approximately $16,998,000 for the
twenty-seven weeks ended January 3, 1998, $19,063,000 for fiscal 1997,
$15,081,000 for fiscal 1996 and $15,875,000 for fiscal 1995. There are no
deferred advertising costs at January 3, 1998, June 28, 1997 or June 29, 1996.

NOTES RECEIVABLE AND DEFERRED INCOME

The Company sells its territories to independent distributors. The income
from these sales is recognized as the cash payments are received. The sales of
the territories were previously financed by the Company with ten year notes. In
September 1996, the Company sold these notes, which totaled approximately
$66,000,000, to a financial institution. The proceeds were used to repay debt
outstanding at that time. Of the notes sold, approximately $44,000,000 were
initially without recourse to the Company with approximately $22,000,000 having
limited recourse. Concurrently, approximately $43,000,000 of deferred pre-tax
income was recognized

F-10
<PAGE> 64
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by the Company during fiscal 1997. Subsequent to September 1996, all distributor
purchase arrangements are made directly between the distributor and a financial
institution and, pursuant to an agreement, the Company acts as the servicing
agent for the financial institution and receives a fee for these services. Such
fees aggregated $2,317,000 and $5,029,000 during the twenty-seven weeks ended
January 3, 1998 and fiscal 1997, respectively.

AMORTIZATION OF INTANGIBLE ASSETS

Costs in excess of the net tangible assets acquired are, in the opinion of
management, attributable to long-lived intangibles having continuing value.
Excess amounts related to the purchases of businesses are amortized over forty
years from the acquisition date using the straight-line method. Costs of
purchased trademark rights are amortized over the period of expected future
benefit, which is approximately ten to forty years. At each balance sheet date,
the Company assesses whether there has been an impairment of long-lived assets
and the related unamortized goodwill, based on whether certain indicators of
impairment are present. If such indicators are present, the Company evaluates
whether an impairment exists by comparing the gross, undiscounted cash flows to
the carrying value of the related asset. Amortization expense for the
twenty-seven weeks ended January 3, 1998, fiscal 1997, fiscal 1996 and fiscal
1995 was $994,000, $1,141,000, $289,000 and $730,000, respectively.

TREASURY STOCK

The Company records acquisitions of its common stock for treasury at cost.
Differences between proceeds for reissuances of treasury stock and average cost
are credited to capital in excess of par value or charged to capital in excess
of par value to the extent of prior credits and thereafter to retained earnings.

PENSION PLANS

The Company accounts for pensions in accordance with Statement of Financial
Accounting Standards No. 87 -- "Employers' Accounting for Pensions." Pension
accounting information is disclosed in Note 8 to the consolidated financial
statements.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 -- "Accounting for Income Taxes" (SFAS 109). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates. Income
tax accounting information is disclosed in Note 9 to the consolidated financial
statements.

NET INCOME PER COMMON SHARE

The Company computes net income per common share in accordance with
Statement of Financial Accounting Standards No. 128 -- "Earnings Per Share"
(SFAS 128). Basic earnings per share is computed by dividing net income by
weighted average common shares outstanding for the period. Diluted earnings per
share is computed by dividing net income by weighted average common and common
equivalent shares outstanding for the period. Common stock equivalents consist
of the incremental shares associated with the Company's stock option plans, as
determined under the treasury stock method. Earnings per share information for
years prior to the twenty-seven weeks ended January 3, 1998, has been restated
in accordance with SFAS 128.

F-11
<PAGE> 65
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CHANGES IN ACCOUNTING PRINCIPLES

On November 20, 1997, the Emerging Issues Task Force (EITF), a subcommittee
of the Financial Accounting Standards Board, issued EITF 97-13, which requires
the cost of business process reengineering activities that are part of an
information systems development project be expensed as those costs are incurred.
Any unamortized costs that were previously capitalized were required to be
written off as a cumulative adjustment in the quarter that included November 20,
1997. During the twenty-seven week period ended January 3, 1998, the Company
recorded a cumulative after-tax charge of $8,842,000, or $.10 per share, as a
result of its adoption of this pronouncement. These costs were attributable to a
state-of-the-art management information system at the Company's Mrs. Smith's
Bakeries locations.

The Company measures its pension plan assets three months prior to the
beginning of its fiscal year. As a result of the Company's changing its fiscal
year, the measurement date has changed from March 31 to September 30. This
change resulted in a cumulative adjustment, net of tax, of $1,046,000, or $.01
per share, for the twenty-seven week period ended January 3, 1998.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

BUSINESS SEGMENTS

The Company's only business is to provide quality fresh and frozen baked
food products to grocery, foodservice, restaurant and fast-food markets.

NOTE 2. INVENTORIES

The major components of inventories are as follows:

<TABLE>
<CAPTION>
JANUARY 3, JUNE 28, JUNE 29,
1998 1997 1996
---------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Ingredients and raw materials........................... $ 27,310 $ 25,479 $14,951
Packaging materials..................................... 13,149 12,500 10,988
Finished goods.......................................... 44,650 47,314 25,527
Supplies................................................ 20,322 19,284 17,110
-------- -------- -------
Total......................................... $105,431 $104,577 $68,576
======== ======== =======
</TABLE>

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 -- "Disclosure about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.

The carrying value of cash and cash equivalents, notes receivable from
distributors, other notes receivable, industrial revenue bonds and long-term
debt payable to financial institutions approximates fair value at January 3,
1998, June 28, 1997 and June 29, 1996.

F-12
<PAGE> 66
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. DEBT

In July 1996, the Company entered into a five-year $300,000,000 syndicated
loan facility, of which, $122,000,000 was outstanding at January 3, 1998.
Amounts are borrowed under this facility for periods not to exceed 180 days and
can be reborrowed as necessary during the term of the facility. Interest under
the syndicated loan facility is generally payable monthly and is variable based
on a performance grid using a choice of LIBOR plus .375% or money market rates.
Subsequent to fiscal year-end, on January 30, 1998, this facility was amended to
become a five-year $500,000,000 syndicated loan facility. Interest under the
amended facility is generally payable monthly and is variable based on a
performance grid using a choice of LIBOR plus .475% or money market rates.
Subsequent to period end, the Company borrowed $422 million under the amended
facility. Such proceeds were primarily used to finance the acquisition of a
controlling interest in Keebler.

In October 1997, the Company amended its short-term commercial paper
program to increase the limit from $50,000,000 to $75,000,000 for use in
financing inventory. Borrowings under this program at January 3, 1998 were
$53,506,000.

In January 1996, the Company completed a private placement of $125,000,000
of long-term Senior Notes. These notes are due in three tranches: $100,000,000
due in semi-annual instalments from January 5, 2004 through January 5, 2008
which bears interest at 6.80% per annum; $20,000,000 due January 5, 2011 which
bears interest at 6.99% per annum; and $5,000,000 due January 5, 2016 which
bears interest at 7.08% per annum. Interest on the Senior Notes is payable
semiannually. A portion of the proceeds were used to pay off $114,150,000 of
debt that was outstanding at that time, with the remaining proceeds being used
for working capital and for other general corporate purposes.

The Company also has a $10,000,000 revolving-term loan agreement entered
into in March of 1993, of which no amounts were outstanding at January 3, 1998.

Several loan agreements of the Company contain restrictions which, among
other things, require maintenance of certain financial ratios and restrict
encumbrance of assets and creation of indebtedness. At January 3, 1998, the
Company was in compliance with these financial ratio requirements.

F-13
<PAGE> 67
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total debt consists of:

<TABLE>
<CAPTION>
JANUARY 3, JUNE 28, JUNE 29,
1998 1997 1996
---------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Private placement long-term Senior Notes with interest
from 6.80% to 7.08% payable in instalments from 2004
through 2016........................................ $125,000 $125,000 $125,000
Borrowings under syndicated loan facility with
interest from 5.98% to 6.45%........................ 122,000 117,000
Commercial paper program with interest from 5.65% to
6.25%............................................... 53,506 40,792
Borrowings under revolving-term loan agreements....... 103,375
Various industrial revenue bonds with interest from
4.20% to 6.00% payable in instalments through 2017
secured by property................................. 13,170 13,170 18,170
Borrowings scheduled to mature in equal instalments
over the next two years with interest from 5.64% to
6.49%............................................... 10,000 15,000
Various unsecured notes payable with interest of
approximately 7.5%, payable in instalments through
2004................................................ 13,610 14,289 17,173
-------- -------- --------
327,286 320,251 278,718
Due within one year................................... 55,087 47,417 6,593
-------- -------- --------
Due after one year.................................... $272,199 $272,834 $272,125
======== ======== ========
</TABLE>

Annual maturities of long-term debt for each of the six years following
January 3, 1998 are $1,581,000 (excludes $53,506,000 for commercial paper),
$5,819,000, $1,362,000, $1,467,000, $1,579,000 and $1,701,000, respectively.

NOTE 5. COMMITMENTS AND CONTINGENCIES

DESCRIPTION OF OPERATING LEASE ARRANGEMENTS

The Company leases certain property and equipment under operating leases
which expire over the next twenty years. Most of these operating leases provide
the Company with the option, after the initial lease term, either to purchase
the property at the then fair value or renew its lease at the then fair rental
value for periods of one month to ten years. Generally, management expects that
leases will be renewed or replaced by other leases in the normal course of
business.

The Company has in place a $50,000,000 ten-year master lease agreement to
finance the automated production lines at certain of its facilities. At January
3, 1998, approximately $38,693,000 had been used under this agreement.

F-14
<PAGE> 68
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Minimum payments for operating leases having initial or remaining
noncancelable terms in excess of one year are as follows:

<TABLE>
<CAPTION>
(AMOUNTS
IN
FISCAL YEAR(S) THOUSANDS)
- -------------- ----------
<S> <C>
1998........................................................ $15,979
1999........................................................ 13,948
2000........................................................ 11,897
2001........................................................ 9,326
2002........................................................ 8,233
2003 to termination (aggregate)............................. 29,730
-------
Total minimum lease payments...................... $89,113
=======
</TABLE>

Total rent expense for all operating leases amounted to $16,225,000 for the
twenty-seven weeks ended January 3, 1998, $24,151,000 for fiscal 1997,
$16,936,000 for fiscal 1996 and $18,897,000 for fiscal 1995.

OTHER COMMITMENTS

The Company's various commodity purchase agreements effectively commit the
Company to purchase raw materials in amounts totaling approximately $55,656,000,
at January 3, 1998, which will be used in production in future periods.

NOTE 6. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of:

<TABLE>
<CAPTION>
JANUARY 3, JUNE 28, JUNE 29,
1998 1997 1996
---------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Compensation............................................. $ 8,344 $ 13,707 $ 7,518
Vacation cost............................................ 9,779 10,277 10,030
Pension cost............................................. 12,217 12,438 8,729
Workers' compensation insurance.......................... 8,945 9,009 10,881
Other insurance.......................................... 4,484 4,799 5,013
Interest................................................. 5,113 5,195 6,041
Purchase accounting reserves............................. 34,953 35,530
Other.................................................... 13,498 16,542 19,526
------- -------- -------
Total.......................................... $97,333 $107,497 $67,738
======= ======== =======
</TABLE>

NOTE 7. STOCKHOLDERS' EQUITY

F-15
<PAGE> 69
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMMON STOCK

PREFERRED STOCK

SHAREHOLDER RIGHTS PLAN

On March 17, 1989, the Company's Board of Directors declared a dividend of
one preferred share purchase right (collectively, the "Rights") for each share
of Common Stock held of record on April 3, 1989. Under certain circumstances, a
Right may be exercised to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock (the "Preferred Stock") at an exercise
price of $33.33.

The Rights become exercisable 10 days after (i) a person or group acquires
10% or more of the Company's outstanding Common Stock, or (ii) an announcement
of a tender offer for 30% or more of the Company's outstanding Common Stock.

If the Rights become exercisable, each Right will entitle the holder
thereof to purchase one-thousandth of a share of the Preferred Stock. If a
person or group acquires 10% or more of the outstanding Common Stock of the
Company, the holder of each Right not owned by the 10% or more shareholder would
be entitled to purchase for $33.33 (the exercise price of the Right) Common
Stock of the Company having market value equal to $66.66. If the Company is a
party to certain mergers or business combination transactions or transfers 50%
or more of its assets or earning power, each Right will entitle its holder to
buy a number of shares of Common Stock of the acquiring or surviving entity (or
of the Company in certain instances) having a market value of twice the exercise
price of the Right, or $66.66. If the Rights are fully exercised, the shares
issued thereby would have a dilutive effect on the shares previously
outstanding.

The Rights expire April 2, 1999, and may be redeemed by the Company for
$.01 per Right at any time prior to the close of business on the tenth day after
a public announcement of an acquisition of 10% or more of the Common Stock of
the Company.

F-16
<PAGE> 70
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The principal terms of the Rights are set forth in a registration statement
on Form 8-A filed with the Securities and Exchange Commission and dated as of
March 20, 1989.

STOCK INCENTIVE PLANS

The Company has 12,050,000 shares of Common Stock authorized for issuance
to eligible employees under the Executive Stock Incentive Plan (ESIP). The ESIP
authorizes the Compensation Committee of the Board of Directors to grant to
eligible participants of the Company and its subsidiaries, through October 1999,
stock options, stock appreciation rights, restricted or deferred stock awards,
stock purchase rights and other stock-based awards.

During the twenty-seven weeks ended January 3, 1998 and fiscal 1996,
347,609 and 1,180,295 shares, respectively, of the Company's Common Stock were
granted as restricted stock awards (RSA). These shares are held in escrow by the
Company and will be released to the grantee upon the grantee's satisfaction of
continued employment at the same or a higher level during the restriction
periods, which end June 15, 2001, June 15, 1999, May 20, 2000 and June 18, 2000,
and upon payment of the purchase price of $8.75, $4.22, $5.11, and $5.89 per
share, respectively. The purchase price is fifty percent of the mean of the high
and low market value of the Company's Common Stock at the date of grant. The
difference between the market price at the date of grant and the purchase price
to be paid by the grantee is recognized ratably by the Company as compensation
expense over the restriction period. This expense for the twenty-seven weeks
ended January 3, 1998, fiscal 1997, fiscal 1996 and fiscal 1995 was $1,066,000,
$1,661,000, $1,299,000 and $901,000, respectively.

With respect to the grant issued during the twenty-seven week period ended
January 3, 1998, if the mean of the high and low market value for the Company's
Common Stock equals or exceeds $25.63 during the restriction period an
additional 347,609 shares at a purchase price of $12.82 per share will be
granted. Subsequent to year end, on February 26, 1998, the stated market value
was attained and the additional shares were granted. The restriction period for
this grant ends February 26, 2000.

During fiscal 1996, 358,547 shares of the Company's Common Stock were
granted as equity incentive awards (EIA). These shares are held in escrow by the
Company and may be released ratably to the grantee upon the grantee's
satisfaction of continued employment at the same or a higher level during the
restriction periods which end May 20, 1999, and upon payment of the purchase
price of $5.11 per share. The purchase price is fifty percent of the mean of the
high and low market value of the Company's Common Stock at the date of grant.
The difference between the market value at the date of grant and the purchase
price to be paid by the grantee is recognized ratably by the Company as
compensation expense over the restriction period. This expense for the
twenty-seven weeks ended January 3, 1998, fiscal 1997, fiscal 1996 and fiscal
1995 was $329,000, $782,000, $493,000 and $924,000, respectively.

During fiscal 1996, 843,750 shares of the Company's Common Stock were
granted as non-qualified stock options (NQSO's). The NQSO's are exercisable at
any time, commencing on the first anniversary of the grant date, until the year
2005. The optionees are required to pay the market value of the shares,
determined as of the grant date, which was $8.45. As of fiscal year end January
3, 1998, June 28, 1997, and June 29, 1996, there were 787,500, 787,500 and
843,750, NQSO's outstanding, respectively. In addition to the ESIP, the Company
has 377,778 shares of Common Stock authorized for issuance to key employees
under the Company's Stock Option Plan. Option prices must be 100% of the market
value of the Common Stock at the time of the grant. The Plan expired on October
15, 1992, therefore no additional grants will be made pursuant to this Plan.

The Company has a Nonemployee Directors' Equity Plan (the "Directors'
Plan") pursuant to which an aggregate 300,000 shares of Common Stock, may be
issued and as to which grants or awards of stock options may be made.

F-17
<PAGE> 71
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All individuals who are nonemployee Directors on the first day of the
Company's fiscal year (a "Plan Year") are eligible to participate in the
Directors' Plan. Under the Directors' Plan, the nonemployee Director may
designate the amount of annual compensation payable without regard to the number
of Board or committee meetings attended or committee positions held (the
"Retainer") which can be invested in stock options (an "Option") under the
Directors' Plan. A Director shall be permitted to invest in an Option under the
Directors' Plan only if the total amount invested by that Director is equal to
at least twenty-five percent (25%) of the Retainer. To the extent a Director
elects to invest all or a portion of the Retainer for a Plan Year, an Option
shall be granted on the first day of such Plan Year for that number of shares of
Common Stock ("Shares") equal to 150% of the amount of the Retainer invested
divided by the value of an Option for one Share on the Valuation Date. For this
purpose, value shall be determined by the Black-Scholes option pricing model, as
applied by the Committee.

Subject to the expiration or earlier termination of the Option, 100% of the
Option shall become exercisable on the first anniversary of the date of grant.
An Option shall expire ten years from the date the Option is granted and shall
be subject to earlier termination as hereinafter provided. Once an Option
becomes exercisable, it may thereafter be exercised, wholly or in part, at any
time prior to its expiration or termination. In the event of the Director's
termination from service on the Board, an outstanding Option may be exercised
only to the extent it was exercisable on the date of such termination and shall
expire two years after such termination, or on its stated expiration date,
whichever occurs first. Notwithstanding the above, in the event of a termination
for cause as determined by the Committee, all unexercised Options shall be
forfeited.

The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," (APB 25) and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for options granted under the Company's Stock Option Plan or the
ESIP.

Had compensation expense for the options and restricted stock awards under
the ESIP been determined based on the fair value at the grant dates for the
awards consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123 -- "Accounting for Stock-Based Compensation", the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
--------------- --------------------------------------------
JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
--------------- ------------- ------------- ------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
As Reported:
Net income......................... $23,560 $62,324 $30,768 $42,301
Net income per common share:
Basic........................... .27 .71 .35 .49
Diluted......................... .27 .71 .35 .49
Pro forma:
Net income......................... $22,735 $61,716 $29,694 $42,301
Net income per common share:
Basic........................... .26 .70 .34 .49
Diluted......................... .26 .70 .34 .49
</TABLE>

The fair values of the awards granted were estimated as of the date of
grant using the Black-Scholes option-pricing model based on the following
weighted-average assumptions used for grants during the twenty-seven weeks ended
January 3, 1998: no expected dividend yield; expected volatility of 26.8
percent; risk-free interest rate of 6.31 percent; and expected lives of four
years; and for grants during fiscal 1996: dividend yield of 3.43 percent;
expected volatility of 24.7 percent; risk-free interest rate of 6.23 percent;
and expected lives of five years.

F-18
<PAGE> 72
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock option activity for the twenty-seven weeks ended January 3, 1998,
fiscal 1997, fiscal 1996 and fiscal 1995 is set forth below:

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
------------------ ------------------------------------------------------------
JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year..................... 1,211 $7.52 1,664 $7.11 1,114 $5.70 1,222 $5.67
Granted.................... 844 $8.44
Exercised.................. (46) $6.06 (453) $6.03 (294) $5.59 (108) $5.40
----- ----- ------ -----
Outstanding at end of
year..................... 1,165 $7.57 1,211 $7.52 1,664 $7.11 1,114 $5.70
===== ===== ====== =====
Exercisable at end of
year..................... 1,165 1,211 820 1,114
===== ===== ====== =====
Weighted average fair value
of options granted during
the year................. $ 2.91
======
</TABLE>

All stock options outstanding at January 3, 1998, are exercisable. The
weighted average exercise price is $7.57 and the weighted average remaining
contractual life is 6.39 years.

NOTE 8. PENSION PLANS

The Company has noncontributory defined benefit pension plans covering
certain employees who have completed prescribed service requirements. The
benefits are based on years of service and the employee's career earnings. The
Company also has a supplemental defined benefit pension plan covering certain
Company employees which provides benefits to participants commencing at
retirement calculated according to the formula contained in the Company's
tax-qualified retirement plan, but without regard to statutory limitations on
the maximum amount of compensation which may be taken into account by, nor the
maximum benefits which may be paid from, such plans. Benefits provided by this
supplemental plan are reduced by benefits provided by the defined benefit
pension plans. Pension expense was $2,111,000, $4,860,000, $5,660,000 and
$5,003,000 in the twenty-seven weeks ended January 3, 1998, fiscal 1997, fiscal
1996 and fiscal 1995, respectively. Pension plans are funded at amounts
deductible for income tax purposes but not less than the minimum funding
required by the Employee Retirement Income Security Act of 1974. As of January
3, 1998, June 28, 1997 and June 29, 1996, the assets of the plans include
certificates of deposit, marketable equity securities, mutual funds, corporate
and government debt securities and annuity contracts. The marketable equity
securities include 506,250 shares of Common Stock of the Company with a fair
value of approximately $10,346,000, $8,543,000 and $5,442,000 at January 3,
1998, June 28, 1997 and June 29, 1996, respectively.

During the second quarter of fiscal 1995, the Company recognized an
after-tax curtailment gain of $912,000 or $.01 per share, in accordance with
Statement of Financial Accounting Standards No. 88 -- "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits." The gain arose from the sale of a portion of the
Company's territories to independent distributors and the termination of
participation in the Flowers Industries, Inc. Retirement Plans of certain
employees.

F-19
<PAGE> 73
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net periodic pension costs of these plans for each of the respective
periods includes the following components:

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
----------- -----------------------------
JANUARY 3, JUNE 29, JUNE 29, JULY 1,
1998 1997 1996 1995
----------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost-benefit earned during the
period...................................... $ 2,846 $ 5,603 $ 5,765 $ 5,538
Interest cost on projected benefit
obligation.................................. 5,207 10,311 9,341 8,261
Reduction of pension costs due to actual
return on plan assets....................... (26,113) (10,415) (9,073) (8,593)
Net amortization and deferral................. 20,171 (639) (373) (203)
-------- -------- ------- -------
$ 2,111 $ 4,860 $ 5,660 $ 5,003
======== ======== ======= =======
</TABLE>

Assumptions used to determine net periodic pension cost for these plans at
each of the respective period ends are as follows:

<TABLE>
<CAPTION>
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
---------- -------- -------- -------
<S> <C> <C> <C> <C>
Discount rate....................................... 8.00% 8.00% 7.75% 8.25%
Rate of increase in compensation levels............. 5.50 5.50 5.25 5.75
Expected long-term rate of return on assets......... 9.00 9.00 9.00 9.00
</TABLE>

Flowers Industries, Inc. Retirement Plans No. 01 and 02 have assets that
exceed the accumulated benefit obligation. There are certain plans, however,
with accumulated benefit obligations which exceed plan assets. The following
table summarizes the funded status of the Company's pension plans and the
related amounts that are recognized in the Company's balance sheet at January 3,
1998, June 28, 1997 and June 29, 1996:
<TABLE>
<CAPTION>
PLANS FOR PLANS FOR PLANS FOR PLANS FOR
WHICH WHICH WHICH WHICH
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
--------------- --------------- --------------- ---------------
JANUARY 3, 1998 JANUARY 3, 1998 JUNE 28, 1997 JUNE 28, 1997
--------------- --------------- --------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit
obligations:
Vested................... $(118,783) $(4,810) $(112,419) $(4,696)
Nonvested................ (2,604) (143) (2,387) (137)
--------- ------- --------- -------
$(121,387) $(4,953) $(114,806) $(4,833)
========= ======= ========= =======
Plan assets at fair value.... $ 152,748 $ 2,080 $ 135,810 $ 2,009
Projected benefit
obligations................ (139,244) (7,693) (132,122) (7,473)
--------- ------- --------- -------
Plan assets in excess of
(less than) projected
benefit obligations........ 13,504 (5,613) 3,688 (5,464)
Items not yet recognized in
earnings:
Unrecognized net asset at
transition............... (4,154) (4,366)
Unrecognized prior service
cost..................... 528 88 562 33
Unrecognized net (gain)
loss..................... (18,847) 2,277 (9,308) 2,417
--------- ------- --------- -------
Contribution payable......... $ (8,969) $(3,248) $ (9,424) $(3,014)
========= ======= ========= =======

<CAPTION>
PLANS FOR PLANS FOR
WHICH WHICH
ACCUMULATED ACCUMULATED
BENEFITS EXCEED BENEFITS EXCEED
ASSETS ASSETS
--------------- ---------------
JUNE 29, 1996 JUNE 29, 1996
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit
obligations:
Vested................... $ (98,543) $(4,615)
Nonvested................ (1,937) (136)
--------- -------
$(100,480) $(4,751)
========= =======
Plan assets at fair value.... $ 114,508 $ 2,047
Projected benefit
obligations................ (117,730) (6,932)
--------- -------
Plan assets in excess of
(less than) projected
benefit obligations........ (3,222) (4,885)
Items not yet recognized in
earnings:
Unrecognized net asset at
transition............... (5,207)
Unrecognized prior service
cost..................... (110) 348
Unrecognized net (gain)
loss..................... 2,929 1,417
--------- -------
Contribution payable......... $ (5,610) $(3,120)
========= =======
</TABLE>

F-20
<PAGE> 74
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company made contributions of approximately $526,000 in the
twenty-seven weeks ended January 3, 1998, $371,000 in fiscal 1997, $271,000 in
fiscal 1996 and $441,000 in fiscal 1995 to collectively bargained, multiemployer
pension plans based on specific rates per hour worked by participating
employees.

NOTE 9. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
----------- -----------------------------
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
----------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current taxes:
Federal...................................... $5,686 $26,910 $13,915 $21,886
State........................................ 2,395 5,557 2,621 2,723
------ ------- ------- -------
8,081 32,467 16,536 24,609
------ ------- ------- -------
Deferred taxes:
Federal...................................... 2,395 1,587 1,636 1,358
State........................................ (319) 347 347 854
------ ------- ------- -------
2,076 1,934 1,983 2,212
------ ------- ------- -------
Benefit of operating loss carryforwards........ (525) (1,210) (334) (1,107)
------ ------- ------- -------
Provision for income taxes..................... $9,632 $33,191 $18,185 $25,714
====== ======= ======= =======
</TABLE>

Deferred tax liabilities (assets) are comprised of the following:

<TABLE>
<CAPTION>
FOR THE 27 FOR THE 52 WEEKS
WEEKS ENDED ENDED
----------- -------------------
JANUARY 3, JUNE 28, JUNE 29,
1998 1997 1996
----------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Depreciation......................................... $ 52,936 $ 51,275 $ 47,999
Other................................................ 13,871 8,673 7,902
-------- -------- --------
Gross deferred tax liabilities..................... 66,807 59,948 55,901
-------- -------- --------
Self-insurance accrual............................... (5,228) (5,274) (5,926)
Vacation accrual..................................... (2,080) (2,275) (2,554)
Pension accrual...................................... (3,246) (2,481) (2,547)
Purchase accounting reserves......................... (13,921) (14,483) --
Loss carryforwards................................... (4,739) (4,117) (3,805)
Other................................................ (16,050) (9,093) (7,565)
-------- -------- --------
Gross deferred tax assets.......................... (45,264) (37,723) (22,397)
Deferred tax assets valuation allowance.............. 2,119 2,240 2,774
-------- -------- --------
$ 23,662 $ 24,465 $ 36,278
======== ======== ========
</TABLE>

The net change in the valuation allowance for deferred tax assets was a
decrease of $121,000, related to operating loss carryforwards.

F-21
<PAGE> 75
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes on income differs from the amount computed
by applying the U.S. federal income tax rate (35%) because of the effect of the
following items:

<TABLE>
<CAPTION>
FOR THE 27
WEEKS ENDED FOR THE 52 WEEKS ENDED
----------- -----------------------------
JANUARY 3, JUNE 28, JUNE 29, JULY 1,
1998 1997 1996 1995
----------- -------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at U.S. federal income tax rate............ $8,757 $30,728 $16,919 $23,805
State income taxes, net of U.S. federal income
tax benefit.................................. 1,390 3,837 1,929 2,325
Benefit of operating loss carryforwards........ (525) (1,210) (334) (1,107)
Other.......................................... 10 (164) (329) 691
------ ------- ------- -------
Provision for income taxes................... $9,632 $33,191 $18,185 $25,714
====== ======= ======= =======
</TABLE>

The amount of federal operating loss carryforwards generated by certain
subsidiaries prior to their acquisition is $2,825,000 with expiration dates
through the fiscal year 2009. The use of pre-acquisition operating losses and
tax credit carryforwards is subject to limitations imposed by the Internal
Revenue Code. The Company does not anticipate that these limitations will affect
utilization of the carryforwards prior to their expiration. Various subsidiaries
have state operating loss carryforwards of $63,579,000 with expiration dates
through the fiscal year 2013.

During fiscal 1997, the Internal Revenue Service ("IRS") completed an
examination of the Company's federal income tax returns for fiscal years 1993
through 1995. During the examination, the IRS asserted that the Company's
independent distributor program generated ordinary income upon the initial sale
of the territories. As a result, the Company paid for certain claims by the IRS
relating primarily to the Company's independent distributor program.

NOTE 10. OTHER EMPLOYEE BENEFIT PLANS

Under the Company's Bonus Plan, approved annually by the Compensation
Committee, certain key employees may receive bonus compensation based on
attainment of specified income goals. Total compensation under the Bonus Plan
was approximately $3,405,000, $6,969,000, $877,000 and $6,157,000 for the
twenty-seven weeks ended January 3, 1998, fiscal 1997, fiscal 1996 and fiscal
1995, respectively.

The Flowers Industries, Inc. 401(k) Retirement Savings Plan covers
substantially all employees who have completed certain service requirements.
Generally the cost and contributions for employees who participate in the
defined benefit pension plan is 25% of the first $400 contributed by the
employee. The costs and contributions for employees who do not participate in
the defined benefit pension plan is 2% of compensation and 25% of the employees
contributions up to 6% of compensation. During the twenty-seven weeks ended
January 3, 1998, fiscal 1997, fiscal 1996 and fiscal 1995, the total cost and
contributions was $646,000, $1,367,000, $1,268,000 and $265,000, respectively.

NOTE 11. LEGAL MATTERS AND CONTINGENCIES

The Company is engaged in various legal proceedings which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to those proceedings will not be material to the
Company's financial position or results of operations. A reserve of $4,935,000
was recorded during fiscal 1996 and paid during fiscal 1997 representing final
settlement of certain litigation involving subsidiary operations in Texas.

F-22
<PAGE> 76
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. ACQUISITIONS

On May 31, 1996, the Company acquired certain assets of Mrs. Smith's, Inc.,
a manufacturer and marketer of frozen pies, including its brand name and
trademarks from the J. M. Smucker Company. Under the terms of the acquisition
agreement, Flowers paid $30,000,000, consisting of $15,000,000 in cash at
closing and a $15,000,000 note payable. In addition, the Company entered into
ten-year leases for the property, plant and equipment used in the business. The
acquisition has been accounted for as a purchase, and, accordingly, the results
of operations of the acquired business are included in the consolidated
statement of income from the date of acquisition.

The following unaudited condensed combined pro forma results of operations
assume the acquisition occurred as of the beginning of each fiscal year:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------
JUNE 29, 1996 JULY 1, 1995
------------- ------------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales....................................................... $1,351,769 $1,249,461
Net income.................................................. 33,056 45,057
Earnings per share -- basic................................. .38 .52
Earnings per share -- diluted............................... .38 .52
</TABLE>

The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been consummated
as of the beginning of the fiscal year, nor are they necessarily indicative of
future operating results.

In addition, the Company acquired certain other businesses during fiscal
1996, fiscal 1997 and the twenty-seven weeks ended January 3, 1998 which have
been accounted for as purchases. These acquisitions are immaterial to the
results of operations and financial condition of the Company.

During fiscal 1997, the Company recorded $22,653,000, net of tax of
$14,483,000, in additional goodwill related to liabilities anticipated to be
incurred for planned activities for certain acquisitions made during fiscal 1996
and fiscal 1997. A reserve of $34,953,000 and $35,530,000 relating to these
transactions is included in other accrued liabilities at January 3, 1998 and
June 28, 1997, respectively.

NOTE 13. INVESTMENT IN UNCONSOLIDATED AFFILIATE

In January 1996, the Company acquired, for $62,500,000, a 49.6% interest in
INFLO Holdings Corporation (INFLO), a newly formed corporation jointly owned by
the Company and Artal Luxembourg S.A. On January 26, 1996, INFLO acquired 100%
of Keebler Corporation for an aggregate consideration of $454,900,000 from
United Biscuits (Holdings) plc. Keebler is the second largest cookie and cracker
manufacturer in the United States. The acquisition of Keebler Corporation was
financed through the equity of INFLO and bank borrowings. The Company accounts
for its investment in INFLO using the equity method of accounting.

On June 4, 1996, Keebler Corporation acquired 100% of Sunshine Biscuits
from G. F. Industries, Inc. (GFI) for an aggregate purchase price of
$171,600,000. The acquisition was funded by Keebler Corporation's working
capital, bank financing and the issuance to GFI of $23,600,000 of INFLO common
stock and warrants. In fiscal 1996, the Company recognized a pre-tax gain on the
shares issued to GFI of $4,111,000. As a result of this transaction, the
Company's interest in INFLO was reduced to 45.2%.

F-23
<PAGE> 77
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Condensed financial information of INFLO is as follows:

<TABLE>
<CAPTION>
APRIL 19, 1997 APRIL 20, 1996
-------------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 332,782 $252,791
Total assets................................................ 1,081,984 867,429
Current liabilities......................................... 347,647 384,635
Total liabilities........................................... 911,997 741,174
Common stockholders' equity................................. 169,987 126,255
Total liabilities and common stockholders' equity........... 1,081,984 867,429
</TABLE>

<TABLE>
<CAPTION>
APRIL 21, 1996 -- APRIL 19, 1997 JANUARY 26, 1996 -- APRIL 20, 1996
-------------------------------- ----------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Sales.......................... $1,907,307 $345,600
Gross profit................... 1,030,539 177,900
Net income..................... 19,411 1,255
</TABLE>

On November 20, 1997, INFLO was merged into Keebler Corporation and
subsequently changed its name to Keebler Foods Company ("Keebler"). Condensed
financial information of Keebler for the period included in the Company's
results for the twenty-seven weeks ended January 3, 1998 are as follows:

<TABLE>
<CAPTION>
JANUARY 3, 1998
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 301,646
Total assets................................................ 1,042,851
Current liabilities......................................... 368,185
Total liabilities........................................... 820,800
Common stockholders' equity................................. 222,051
Total liabilities and common stockholders' equity........... 1,042,851
</TABLE>

<TABLE>
<CAPTION>
JUNE 29, 1997 - JANUARY 3, 1998
-------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Sales................................................. $1,164,224
Gross profit.......................................... 668,529
Net income............................................ 45,372
</TABLE>

As presented above, the Company's net income from its investment in Keebler
for the twenty-seven weeks ended January 3, 1998, includes twenty-seven weeks of
Keebler's operating results. The increase in retained earnings reflected as
equity from investment in unconsolidated affiliate of $2,700,000 was
necessitated by the Company's change in fiscal year end and represents the
elimination of the lag of approximately two months in its recognition of
Keebler's results.

Currently, Keebler's existing credit agreement places certain restrictions
on its ability to pay dividends. As of January 3, 1998, the Company had
recognized aggregate equity of $29 million from its investment in Keebler.

F-24
<PAGE> 78
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION

Results of operations for each of the two quarters of the twenty
seven-weeks ended January 3, 1998 and for each of the four quarters of the
fiscal years ended June 28, 1997 and June 29, 1996 follow (each quarter
represents a period of twelve weeks except the fourth quarter, which includes
sixteen weeks and the second quarter of 1998, which includes fifteen weeks):

<TABLE>
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH
------- --------- --------- --------- ---------
1998 1998
1997 1997 1997 1997
1996 1996 1996 1996
--------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales...................................... $308,387 $475,710(1) $ -- $ --
322,710 381,290 301,392 432,321
269,674 290,538 275,013 403,339
Gross Profit............................... 142,911 222,260(1) -- --
140,438 164,756 142,278 202,442
125,893 130,676 125,398 181,835
Income before income taxes................. 15,364 9,655(1) -- --
32,925 19,175 9,912 25,782
12,696 12,749 9,135 13,760
Net (loss) income from investment in
unconsolidated affiliate................. 5,157 12,904(1) -- --
(531) 336 6,005 1,911
-- -- -- 613
Net income................................. 14,529 9,031(1) -- --
19,948 12,263 12,170 17,943
7,897 7,930 5,682 9,259
Basic net income per common share.......... .16 .10(1) -- --
.23 .14 .14 .20
.09 .09 .07 .11
Diluted net income per common share........ .16 .10(1) -- --
.23 .14 .14 .20
.09 .09 .07 .11
</TABLE>

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

(1) Amounts relate to a fifteen week period ended January 3, 1998 and, as such,
do not correspond to the amounts reported in the Company's Second Quarter
Form 10-Q for the twelve week period ended December 13, 1997.

F-25
<PAGE> 79
FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15. NET INCOME PER SHARE

Earnings per share is calculated using the weighted average number of
common and common equivalent shares outstanding during each period. The common
stock equivalents consist of the incremental shares associated with the
Company's stock option plans, as determined under the treasury stock method.

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

<TABLE>
<CAPTION>
27 WEEKS 52 WEEKS ENDED
ENDED --------------------------------------------
JANUARY 3, 1998 JUNE 28, 1997 JUNE 29, 1996 JULY 1, 1995
--------------- ------------- ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Numerator:
Income before cumulative effect of changes
in accounting principles, net of tax... $33,448 $62,324 $30,768 $42,301
Cumulative effect of changes in accounting
principles, net of tax................. (9,888)
------- ------- ------- -------
Net income................................ $23,560 $62,324 $30,768 $42,301
======= ======= ======= =======
Denominator:
Basic weighted average shares............. 88,368 88,000 86,933 86,229
Effect of dilutive securities:
Stock options.......................... 405 401 278 209
------- ------- ------- -------
Diluted weighted average shares........... 88,773 88,401 87,211 86,438
======= ======= ======= =======
</TABLE>

NOTE 16. UNAUDITED OPERATING RESULTS FOR THE TWENTY-SEVEN WEEKS ENDED JANUARY
4, 1997

The unaudited condensed results of operations for the twenty-seven weeks
ended January 4, 1997 are presented below. In the opinion of the Company, the
accompanying unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the
results of operations.

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
-----------------------
<S> <C>
Sales....................................................... $774,767
Income before income taxes.................................. 50,335
Income taxes................................................ 19,027
Net loss from investment in unconsolidated affiliate........ (195)
Net income.................................................. 31,113
Earnings per share -- basic................................. .35
Earnings per share -- diluted............................... .35
</TABLE>

F-26
<PAGE> 80

FLOWERS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. SUBSEQUENT EVENT

On February 3, 1998, the Company acquired an additional 11.5% of the common
stock of Keebler, giving the Company a controlling ownership position in Keebler
of approximately 55%. Under the terms of the acquisition agreement, the Company
paid $308,624,000 in cash at closing. The acquisition was financed through
borrowings under the $500,000,000 syndicated loan facility.

The following unaudited condensed combined pro forma results of operations
assume the acquisition occurred as of the beginning of each period:

<TABLE>
<CAPTION>
FOR THE FOR THE
TWENTY-SEVEN WEEKS FIFTY-TWO WEEKS
ENDED ENDED
JANUARY 3, 1998 JUNE 28, 1997
------------------ ---------------
(AMOUNTS IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Sales....................................................... $1,792,419 $3,421,082
Net income.................................................. 27,915 56,765
Earnings per share -- basic................................. .32 .65
Earnings per share -- diluted............................... .31 .64
</TABLE>

The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been consummated
as of the beginning of the period, nor are they necessarily indicative of future
operating results.

F-27
<PAGE> 81

[INSIDE BACK COVER PAGE GRAPHICS: PHOTOGRAPH OF SUWANEE, GEORGIA FROZEN
DISTRIBUTION WAREHOUSE INTERIOR -- CAPTION: MRS. SMITH'S BAKERIES' 225,000
SQUARE FOOT FROZEN DISTRIBUTION CENTER IN SUWANEE, GEORGIA]

<PAGE> 82

[LOGO OF FLOWERS]

<PAGE> 83
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-48787

PROSPECTUS

9,000,000 SHARES
FLOWERS INDUSTRIES, INC.

COMMON STOCK
------------------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 9,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,800,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 7,200,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS.
SEE "UNDERWRITERS." THE COMMON STOCK OF THE COMPANY IS LISTED ON
THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "FLO." ON APRIL 21,
1998, THE LAST REPORTED SALE PRICE OF THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE WAS $22 5/16 PER SHARE.

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

PRICE $22 A SHARE
------------------------

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

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