Analyzing Breadland Shareholder Value

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

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

Shareholder Value Breadland 4 Breadland's Market to Book was Above the Industry Average in Name of StockMV/BVP/E Ralston General Mills Kellogg Breadland Heinz Borden Sara Lee Hershey Campbell CPC International Average 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. 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

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

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

Shareholder Value Breadland 7 Breadland Has Lagged Behind RTE Competitors in Achieving High ROE - Ke Spreads Market to Book versus ROE-Ke Spread RTE Companies ROE - Ke Spread (%) Source: Value Line, Gemini Analysis MV BV G= General Mills K= Kelloggs Q= Breadland R= Ralston Key Breadland Strategy Be the Best Breakfast Company 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 Ralston Apparent Strategy Licensing products Private label

Shareholder Value Breadland 8 And Equity Analysts Have Questioned the Sustainability of Breadland Earnings Growth 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

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

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

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

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

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

Shareholder Value Breadland 14 Hot Cereals Contributed the Most to Breadland Market Value Breadland Market Value Share Price 9/25/91$58 Common Shares Outstanding x76,537,000shares Total Market Value$4,439 MM Breadland Market Value Share Price 9/25/91$58 Common Shares Outstanding x76,537,000shares Total Market Value$4,439 MM Hots $912 MM RTE $609 MM Wholesome $580 MM Canada - $146 MM Other BBC- ($143 MM) Frozen - $139 MM Food Service - $308 MM Pet Foods - $337 MM Golden Grain - $248 MM Gatorade $762 MM Van Camp - $112 MM Pritiken & Other - $131 MM Other USGP $4,141 MM North American BBC $2,104 MM Grocery Service Division $1,767 MM

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

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

Shareholder Value Breadland 17 Appendix: Calculations (cont'd) 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 1 1. From Business Case Note:$47 MM improvement in profit for BBC => ­ 19.4 % For total Breadland this implies 19.4% 533 MM = $104 MM. $47 MM $242 MM