Analyzing Breadland Shareholder Value

1. Analyzing Breadland Shareholder Value

2. Breadland Performance versus Food Companies Breadland Performance versus RTE Companies Opportunities for Creating Additional Shareholder Value Appendix Contents

3. Companies with High ROE-Ke Spreads Tend to be Rewarded Will High Market to Book Ratios Value Creation Matrix High High Value Adders MV BV Low Value Adders Low High Low ROE - Ke High Value Adders tend to be companies with either high earnings or high potential for earnings growth.

4. Name of Stock MV/BV P/E Ralston 7.44 15 General Mills 7.09 22 Kellogg 4.22 21 Breadland 4.15 19 Heinz 3.79 15 Borden 2.62 13 Sara Lee 2.58 20 Hershey 2.53 19 Campbell 1.59 24 CPC International 0.98 18 Average 3.70 18.6 Breadland's Market to Book was Above the Industry Average in 1990 . . . 1990 1 Depending on which proxy is used (MV/BV or P/E), attaining parity with Kellogg could add between $71 MM and $410 MM in Shareholder Value. Source: Value Line, Wall Street Journal 9/12/91, Gemini Analysis (see appendix) 1. P/E is from 1991.

5. . . . and the Market to Book Has Been High in the Past Market to Book versus ROE-Ke Spread Food Companies 1988 - 1990 MV BV B = Borden CA = Campbell CP = CPC International G = General Mills HZ = Heinz HY = Hershey K = Kelloggs Q = Breadland R = Ralston S = Sara Lee ROE - Ke Source: Value Line, Gemini Analysis

6. Breadland Performance versus Food Companies Breadland Performance versus RTE Companies Opportunities for Creating Additional Shareholder Value Appendix Contents

7. Breadland Has Lagged Behind RTE Competitors in Achieving High ROE - Ke Spreads Market to Book versus ROE-Ke Spread RTE Companies 1988 - 1990 • Ralston Apparent Strategy • Licensing products • Private label MV BV • Kellogg Apparent Strategy • Strong International Sales • General Mills Apparent Strategy • Leverage brands with line extensions • Attack core industry segments • Long run “year 2000” growth plan Key • Breadland Strategy • Be the Best Breakfast Company • = General Mills • = Kelloggs • = Breadland • = Ralston ROE - Ke Spread (%) Source: Value Line, Gemini Analysis

8. Breadland: "As the [sports beverage] category grows in the U.S., will it attract more competitors?" — Dean Witter "Lower-than-expected results in its U.S. Grocery Division out to 1992." — Merrill Lynch General Mills: “Leveraging brands is one of General Mill's strong points - just look at the success of Cheerios and Total line extensions.” — Prudential Kelloggs: "Driven by strong overseas operations. Sales were up 20% in 1990" - Duff and Phelps “Clearly [overseas] is where the growth is, and Kellogg is wonderfully positioned to capitalize on it.” — Prudential Ralston: “Its calendar 1991 private-label gains only offset branded weakness… Ralston is doing what it can to survive and grow in a category in which it only has a modest share.” — Prudential And Equity Analysts Have Questioned the Sustainability ofBreadland Earnings Growth

9. Breadland Performance versus Food Companies Breadland Performance versus RTE Companies Opportunities for Creating Additional Shareholder Value Appendix Contents

10. For every $1 million that is added to Breadland ' RTE profit, value for Breadland stockholder increases by .24% Based on Breadland P/E, A $1 Million Profit Improvement CouldIncrease Shareholder Value by $11.4 Million RTE % of Sales 80% 25% 9% Company Kellogg General Mills Breadland PE 21 22 19 RTE Sales $4,200 $1,600 $441 Total Sales $5,181 $6,448 $5,031 $1,000,000 X (1-.40) X 19 = $11,400,000 Identified Cost Savings Breadland Tax Rate Breadland PE Additional Shareholder Value 1 $11,400,000 = 0.24% 2 $4,684,239,500 1. 1990 Annual Report. 2. 76,012,000 shares as of 3/31. Share price = $61.625 on 8/1/9 Source: Benchmarking Analysis

11. A $47 Million Profit Improvement Program in BBC Should Increase Shareholder Value by at Least $532 Million Total Breadland Increase in Shareholder Value BBC Division Increase in Shareholder Value $1,386 MM Breadland if at “Best-in-Class” $189 MM $616 MM BBC if at “Best-in-Class” Gen. Mills PE = 22 Breadland “As Is” $84 MM Gen. Mills PE = 22 BBC “As Is” Business Case Profit Improvement Estimate $104 MM Breadland PE = 19 $41 MM $47 MM 19.4% Profit Improvement Migration to ALL of Breadland Breadland PE = 19 $532 MM $19 MM Tax $1,197 MM $63 MM ² ATOI $28 MM ² ATOI 1 1 19.4% Profit Improvement 1. No Interest expense deducted yet. 2. 1991 Breakfast Division P&L, 1991 Breadland P&L.

12. Improving BBC Profit by $47 MM Will Raise Breadland's ROE by 2.6% ROE Improvement 27.1% Breadland Profit Improvement = $104 MM 23.8% 21.2% BBC Profit Improvement = $47 MM 1990 ROE Projected ROE Effect on ROE by BBC Profit Improvement: Effect on ROE by Total Breadland Profit Improvement: Net Income + Profit Improvement • (1 - tax rate) Net Income + Profit Improvement • (1 - tax rate) ROE = ROE = Average Stockholder Equity Average Stockholder Equity 228.9 + $47 MM (1 - .40) 228.9 + $104 MM (1 - .40) 23.8% = 27.1% = $1,078 MM $1,078 MM Source: Value Line, Business Case

13. Breadland Could Break Out of the Middle of the Pack by Increasing its ROE - Ke Spread Market Value vs. ROE - Ke 1990 Heinz Kellogg Medium Value High Returns High Value Medium Returns Sara Lee Campbell Soup General Mills CPC International Borden Ralston Market Value ($MM) Breadland Medium Value Medium Returns Hershey Low Value Low Returns ROE - Ke

14. Breadland Market Value Share Price 9/25/91 $58 Common Shares Outstanding x 76,537,000 shares Total Market Value $4,439 MM Hot Cereals Contributed the Most to Breadland MarketValue Hots $912 MM RTE $609 MM North American BBC $2,104 MM Wholesome $580 MM USGP $4,141 MM Canada - $146 MM Other BBC- ($143 MM) Frozen - $139 MM Food Service - $308 MM Pet Foods - $337 MM Grocery Service Division $1,767 MM Golden Grain - $248 MM Gatorade $762 MM Van Camp - $112 MM Pritiken & Other - $131 MM Other

15. Breadland Performance versus Food Companies Breadland Performance versus RTE Companies Opportunities for Creating Additional Shareholder Value Appendix Contents

16. p.5 If Breadland attains Kellogg's MV/BV of 4.22, $71 million will be added to market value. Increase in shareholder value = (D MV/BV) • (Breadland Book Value) D MV/BV = (Kellogg - Breadland) = .07 D Market Value = (.07) • Breadland Book Value = (.07) • $1019 million = $71 million If Breadland attains Kellogg's P/E of 21, $410 million will be added to market value. Increase in shareholder value = (D P/E) • (Breadland Book Value) D MV/BV = (Kellogg - Breadland) = 2 D Market Value = 2 • Breadland Earnings = 2 • $205 million = $410 million Appendix: Calculations

17. p.12 BBC Division Increase in Shareholder Value BBC contribution to increase in shareholder value = (BBC ATOI Improvement) • (1-tax rate) • Breadland PE = ($47 MM) • (1-0.40) • 19 = $532 MM Total Breadland Increase in Shareholder Value (Assumes 19.4% improvement in ATOI across all of Breadland Total = (Breadland ATOI Improvement) • (1-tax rate) • Breadland PE = ($104 MM) • (1-0.40) • 19 = $1,197 MM Appendix: Calculations (cont'd) 1 $47 MM Note: $47 MM improvement in profit for BBC => ­ 19.4 % For total Breadland this implies 19.4% • 533 MM = $104 MM. $242 MM 1. From Business Case