Ralston Purina Company

RAL-US

empire of restaurants, hockey teams, and ski resorts

Bill Stiritz takes over as CEO, organizes business around high margin, low capital intensity consumer brands business, begins divesting assets – Improving ROIC

Convinces board to not fear buy-backs, aggressively purchaes while valuation is low

Acquires ITT's neglected Continental Baking

Acquires Energizer Battery from Union Carbide, paying full price in auction for a growing business

Agressively repurchases shares when market dips

Assets that were not receiving due attention: spun off collection of smaller brands in Ralcorp holdings

Spun off agriculture business

Spun off Energizer Holdings

Returns on Capital Employed 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

NWC 416.4 409.3 234.1 190.7 204.6 65.9 287.8 312.7 462.3 492.2 536.7 501.2 559.6 668.1 707.5 783.9 895.5 627.1 665.2 536.5 14.1

Net PPE 1,177.3 1,222.6 1,088.0 1,080.6 1,053.7 1,501.4 1,973.0 1,731.3 1,711.9 1,765.6 2,032.5 2,183.7 2,306.4 1,742.7 1,300.4 1,350.9 1,455.9 1,113.7 1,116.0 1,063.7 616.6

Invested Operating Capital 1,593.7 1,631.9 1,322.1 1,271.3 1,258.3 1,567.3 2,260.8 2,044.0 2,174.2 2,257.8 2,569.2 2,684.9 2,866.0 2,410.8 2,007.9 2,134.8 2,351.4 1,740.8 1,781.2 1,600.2 630.7

Debt 540.4 498.6 471.1 356.2 357.2 930.3 2,113.0 1,691.5 1,697.0 2,158.3 2,363.6 2,248.4 2,695.4 2,205.6 1,929.1 2,408.5 2,416.9 2,306.9 2,604.3 2,313.6 1,408.3

Equity 1,132.4 1,229.6 1,100.1 1,104.1 997.5 924.5 998.9 961.5 1,089.9 860.3 652.7 895.2 809.9 668.2 572.2 691.0 901.9 1,158.2 1,332.0 1,257.0 438.6

Invested Financial Capital 1,672.8 1,728.2 1,571.2 1,460.3 1,354.7 1,854.8 3,111.9 2,653.0 2,786.9 3,018.6 3,016.3 3,143.6 3,505.3 2,873.8 2,501.3 3,099.5 3,318.8 3,465.1 3,936.3 3,570.6 1,846.9

EBIT 342.7 388.1 378.8 498.5 512.7 594.2 657.9 715.7 806.1 791.3 880.4 887.7 813.1 747.2 756.5 751.1 785.3 639.7 716.4 762.6 555.5

Tax Adjustment (119.9) (135.8) (132.6) (174.5) (179.4) (208.0) (230.3) (250.5) (282.1) (277.0) (308.1) (310.7) (284.6) (261.5) (264.8) (262.9) (274.9) (223.9) (250.7) (266.9) (194.4)

NOPAT 222.8 252.3 246.2 324.0 333.3 386.2 427.6 465.2 524.0 514.3 572.3 577.0 528.5 485.7 491.7 488.2 510.4 415.8 465.7 495.7 361.1

NOPAT Margin 4.6% 4.8% 5.1% 6.7% 6.7% 6.6% 7.8% 7.9% 8.9% 7.7% 8.1% 7.8% 6.8% 8.2% 8.5% 6.8% 8.3% 9.3% 10.0% 10.5% 13.1%

NWC as % Sales 8.5% 7.8% 4.9% 3.9% 4.1% 1.1% 5.2% 5.3% 7.9% 7.4% 7.6% 6.8% 7.2% 11.3% 12.3% 10.9% 14.6% 14.0% 14.3% 11.4% 0.5%

PPE Turns 4.2x 4.3x 4.4x 4.5x 4.7x 3.9x 2.8x 3.4x 3.4x 3.8x 3.5x 3.4x 3.4x 3.4x 4.4x 5.3x 4.2x 4.0x 4.2x 4.4x 4.5x

ROIC (Operating) 14.0% 15.5% 18.6% 25.5% 26.5% 24.6% 18.9% 22.8% 24.1% 22.8% 22.3% 21.5% 18.4% 20.1% 24.5% 22.9% 21.7% 23.9% 26.1% 31.0% 57.2%

Intangibles 22.3 21.6 6.8 - 8.3 53.6 531.4 496.8 454.1 550.0 528.8 486.3 722.1 594.4 517.2 806.5 765.4 682.9 777.1 715.2 406.2

ROIC (Financial) 13.3% 14.6% 15.7% 22.2% 24.6% 20.8% 13.7% 17.5% 18.8% 17.0% 19.0% 18.4% 15.1% 16.9% 19.7% 15.8% 15.4% 12.0% 11.8% 13.9% 19.6%

Net Income Margin 3.3% 3.5% 1.9% 5.3% 4.9% 4.4% 4.8% 9.0% 6.2% 5.3% 5.6% 5.3% 4.1% 4.8% 4.0% 4.2% 5.9% 7.8% 8.4% 10.7% 15.8%

Asset Turns 2.2x 2.4x 2.3x 2.3x 2.5x 2.2x 1.3x 1.5x 1.5x 1.5x 1.6x 1.6x 1.5x 1.4x 1.5x 1.6x 1.3x 0.9x 0.8x 0.9x 0.9x

ROA 7.3% 8.3% 4.3% 12.2% 12.1% 9.7% 6.3% 13.6% 9.0% 8.0% 9.0% 8.5% 6.2% 6.6% 6.1% 6.6% 7.6% 7.4% 7.0% 9.4% 14.8%

Assets/Equity 2.0x 1.8x 1.9x 1.9x 2.0x 2.9x 4.2x 4.0x 3.7x 5.1x 6.7x 5.2x 6.4x 6.4x 6.6x 6.6x 5.3x 4.1x 4.2x 4.3x 6.7x

ROE 14.4% 15.0% 8.3% 23.2% 24.3% 27.7% 26.4% 54.7% 33.3% 40.8% 60.7% 43.8% 39.6% 42.4% 40.4% 43.4% 40.1% 30.1% 29.3% 40.2% 99.5%

Debt to EBITDA 1.2x 1.0x 0.9x 0.6x 0.6x 1.2x 2.6x 1.9x 1.7x 2.2x 2.2x 2.0x 2.5x 2.3x 2.0x 2.4x 2.5x 2.9x 3.0x 2.4x 2.1x

Debt to Invested Capital 32.3% 28.9% 30.0% 24.4% 26.4% 50.2% 67.9% 63.8% 60.9% 71.5% 78.4% 71.5% 76.9% 76.7% 77.1% 77.7% 72.8% 66.6% 66.2% 64.8% 76.3%

Capital Deployment 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Cash Sources Net Total

EBITDA Generated 440.6 492.4 497.2 608.4 621.4 748.6 799.0 890.5 991.3 979.6 1,084.5 1,108.7 1,067.8 938.9 946.0 989.6 966.6 782.2 862.3 955.2 657.4 17,428.1 81%

Working Capital Runoff - 7.1 175.2 43.4 - 138.7 - - - - - 35.5 - - - - - 268.4 - 128.7 522.4 248.2 1%

Sale of Assets 47.9 39.5 46.6 77.0 76.5 115.7 34.7 30.4 36.6 16.3 19.1 9.2 62.0 30.3 33.8 17.7 22.5 10.4 17.8 12.4 2.8 - 0%

Debt Raised 3.9 - - - 1.0 573.1 1,182.7 - 5.5 461.3 205.3 - 447.0 - - 479.4 8.4 - 297.4 - - 871.8 4%

Equity Raised - - - - - - - - - - - - - - - - - - - - - - 0%

Other - - - 57.2 0.6 - 834.2 832.2 82.7 - - 10.3 - 510.9 345.6 - 22.8 - 133.9 426.7 746.7 3,031.1 14%

Cash from Balance Sheet 128.7 9.9 - - 52.2 - - 101.3 - - 268.2 - 98.0 2.1 - 68.1 - - 19.3 5.1 - 66.5 0%

Total Sources 621.1 548.9 719.0 786.0 751.7 1,576.1 2,850.6 1,854.4 1,116.1 1,457.2 1,577.1 1,163.7 1,674.8 1,482.2 1,325.4 1,554.8 1,020.3 1,061.0 1,330.7 1,528.1 1,929.3 21,645.8 100%

Cash Uses

EBITDA Burn - - - - - - - - - - - - - - - - - - - - - - 0%

Cash Interest 44.9 52.7 45.8 33.9 35.6 108.8 129.8 193.7 210.7 187.9 200.3 184.2 224.4 203.6 186.2 201.0 185.2 154.2 175.7 179.1 167.9 3,105.6 14%

Cash Taxes 132.2 148.9 85.3 205.9 193.8 223.5 261.3 444.1 172.6 229.4 250.2 232.0 220.4 216.4 234.5 203.2 187.6 166.7 146.4 201.4 222.0 4,377.7 20%

Working Capital Investment 154.1 - - - 13.9 - 221.9 24.9 149.6 29.9 44.5 - 58.4 108.5 39.4 76.4 111.6 - 38.1 - - - 0%

Capex 203.4 189.1 247.8 141.4 160.4 239.4 193.6 196.9 224.4 221.6 342.1 404.3 325.4 230.7 242.5 284.6 314.1 282.9 230.7 171.9 110.8 4,198.8 19%

Acquisition - - - - - 475.0 1,530.0 - 124.0 55.0 - 315.2 142.8 39.2 358.0 25.1 - 182.5 - - 3,246.8 15%

Debt Paydown - 41.8 27.5 114.9 - - - 421.5 - - - 115.2 - 489.8 276.5 - - 110.0 - 290.7 905.3 - 0%

Share Repurchase - - 83.5 153.9 266.2 253.5 248.2 485.8 170.1 78.1 532.6 35.0 355.7 59.5 100.9 141.3 33.7 55.1 416.1 552.9 398.0 4,420.1 20%

Dividend 69.1 77.7 81.1 82.3 81.9 80.4 83.8 87.5 99.2 114.8 137.5 147.9 157.7 30.9 151.2 153.8 145.0 143.9 141.2 132.1 97.8 2,296.8 11%

Other 17.4 38.8 114.0 - - 80.5 - - - 451.8 14.9 - 17.6 - - 136.5 - 101.4 - - - - 0%

Cash to Balance Sheet - - 34.0 53.7 - 115.1 182.0 - 89.5 19.7 - 45.1 - - 55.0 - 18.0 46.8 - - 27.5 - 0%

Total Uses 621.1 548.9 719.0 786.0 751.7 1,576.1 2,850.6 1,854.4 1,116.1 1,457.2 1,577.1 1,163.7 1,674.8 1,482.2 1,325.4 1,554.8 1,020.3 1,061.0 1,330.7 1,528.1 1,929.3 21,645.8 100%

EBITDA % sales 9.0% 9.4% 10.4% 12.5% 12.5% 12.8% 14.5% 15.2% 16.9% 14.7% 15.3% 15.0% 13.8% 15.9% 16.4% 13.7% 15.8% 17.4% 18.5% 20.2% 23.8%

Capex % sales 4.2% 3.6% 5.2% 2.9% 3.2% 4.1% 3.5% 3.4% 3.8% 3.3% 4.8% 5.5% 4.2% 3.9% 4.2% 3.9% 5.1% 6.3% 5.0% 3.6% 4.0%

Capex/EBITDA 46.2% 38.4% 49.8% 23.2% 25.8% 32.0% 24.2% 22.1% 22.6% 22.6% 31.5% 36.5% 30.5% 24.6% 25.6% 28.8% 32.5% 36.2% 26.8% 18.0% 16.9%

Capital Accumulation 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Beginning BVPS $ 1.60 $ 1.75 $ 1.90 $ 1.74 $ 1.86 $ 1.83 $ 1.89 $ 2.17 $ 2.21 $ 2.64 $ 2.26 $ 1.87 $ 2.68 $ 2.54 $ 2.16 $ 1.86 $ 2.26 $ 2.95 $ 3.78 $ 4.37 $ 4.08

EPS 0.24 0.27 0.14 0.42 0.44 0.51 0.56 1.19 0.87 0.84 1.01 1.04 0.88 0.81 0.68 0.89 1.08 1.04 1.19 1.60 1.50

DPS (0.11) (0.12) (0.13) (0.14) (0.15) (0.16) (0.18) (0.20) (0.24) (0.30) (0.39) (0.44) (0.49) (0.10) (0.40) (0.40) (0.40) (0.40) (0.40) (0.40) (0.34)

(Repurchases)/Issue Per Share - - (0.13) (0.25) (0.47) (0.49) (0.52) (1.09) (0.40) (0.20) (1.46) (0.10) (1.09) (0.19) (0.33) (0.46) (0.11) (0.18) (1.36) (1.80) (1.34)

Other 0.01 (0.00) (0.04) 0.08 0.16 0.20 0.42 0.14 0.20 (0.72) 0.46 0.32 0.56 (0.91) (0.25) 0.37 0.13 0.37 1.16 0.32 (2.38)

Ending BVPS $ 1.75 $ 1.90 $ 1.74 $ 1.86 $ 1.83 $ 1.89 $ 2.17 $ 2.21 $ 2.64 $ 2.26 $ 1.87 $ 2.68 $ 2.54 $ 2.16 $ 1.86 $ 2.26 $ 2.95 $ 3.78 $ 4.37 $ 4.08 $ 1.52

% y/y 9.0% 8.5% (8.2)% 6.5% (1.2)% 3.2% 14.5% 2.1% 19.2% (14.4)% (17.1)% 43.5% (5.4)% (15.1)% (13.6)% 21.4% 30.6% 28.1% 15.5% (6.5)% (62.7)%

BVPS Accumulation ex Dist $ 1.86 $ 2.25 $ 2.61 $ 3.50 $ 4.72 $ 6.09 $ 7.77 $ 10.39 $ 12.10 $ 12.71 $ 16.03 $ 17.94 $ 20.96 $ 21.16 $ 22.32 $ 24.44 $ 26.15 $ 28.14 $ 32.25 $ 36.38 $ 37.17

% y/y 9.1% 21.0% 16.2% 34.2% 34.7% 29.1% 27.7% 33.7% 16.4% 5.1% 26.1% 11.9% 16.9% 0.9% 5.5% 9.5% 7.0% 7.6% 14.6% 12.8% 2.2%

Shares Out 647.4 647.6 630.9 594.7 543.6 488.1 460.7 434.4 413.2 381.1 348.9 333.6 318.9 310.0 307.1 305.6 305.3 306.2 304.9 307.8 287.9 286.7

% y/y 0.0% 0.0% (2.6)% (5.7)% (8.6)% (10.2)% (5.6)% (5.7)% (4.9)% (7.8)% (8.4)% (4.4)% (4.4)% (2.8)% (0.9)% (0.5)% (0.1)% 0.3% (0.4)% 1.0% (6.5)%

Valuation 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 4/25/2001

RAL-US Price $ 1.81 $ 2.42 $ 4.05 $ 5.14 $ 4.80 $ 6.71 $ 8.61 $ 8.53 $ 9.46 $ 10.55 $ 10.30 $ 9.37 $ 8.31 $ 9.98 $ 13.96 $ 16.52 $ 21.35 $ 21.88 $ 20.85 $ 23.69 $ 32.80 acquired by Nestle 12/31/01

% y/y 33.5% 67.7% 26.9% (6.6)% 39.6% 28.4% (0.9)% 10.9% 11.5% (2.4)% (9.0)% (11.4)% 20.2% 39.9% 18.4% 29.2% 2.5% (4.7)% 13.6% 38.5%

RAH Price per RAL Share $ 2.73 $ 3.40 $ 2.99 $ 5.28 $ 3.96 $ 5.00 $ 3.99 $ 5.50

% y/y 24.3% (12.2)% 76.9% (25.1)% 26.3% (20.1)% 37.8%

AGX Price per RAL Share $ 2.91 $ 4.86 $ 3.98 $ 5.45 acquired by Cargill 4/27/01

% y/y 67.0% (18.3)% 37.0%

ENR Price per RAL Share $ 8.17 $ 5.54

% y/y (32.2)%

S&P 500 Price $ 135.8 $ 122.6 $ 140.6 $ 164.9 $ 167.2 $ 211.3 $ 242.2 $ 247.1 $ 277.7 $ 353.4 $ 330.2 $ 417.1 $ 435.7 $ 466.5 $ 459.3 $ 615.9 $ 740.7 $ 970.4 $ 1,229.2 $ 1,469.3 $ 1,320.3 $ 1,148.1

% y/y (9.7)% 14.8% 17.3% 1.4% 26.3% 14.6% 2.0% 12.4% 27.3% (6.6)% 26.3% 4.5% 7.1% (1.5)% 34.1% 20.3% 31.0% 26.7% 19.5% (10.1)% (13.0)%

Adj Relative Performance 1.00x 1.16x 1.66x 2.08x 1.54x 1.87x 2.36x 2.08x 1.81x 2.16x 1.67x 1.46x 1.21x 1.87x 1.91x 1.78x 1.86x 1.58x 1.42x 2.04x 2.91x

RAL-US PB 1.0x 1.3x 2.3x 2.7x 3.9x 5.5x 6.2x 5.8x 5.6x 7.3x 9.2x 6.2x 6.2x 10.8x 17.7x 14.7x 13.6x 10.2x 5.2x 18.8x 14.1x

RAL-US PE 6.9x 8.5x 28.4x 12.2x 16.8x 20.0x 23.6x 11.0x 15.8x 18.6x 15.0x 13.2x 13.8x 13.3x 27.3x 24.8x 26.0x 21.8x 22.8x 11.6x 18.0x

RAL-US PS 0.23x 0.30x 0.52x 0.61x 0.78x 0.86x 1.12x 0.96x 1.03x 0.92x 0.76x 0.66x 0.52x 0.64x 1.05x 1.01x 1.53x 2.08x 1.87x 1.83x 3.42x

RAL-US EV/EBITDA 3.3x 3.9x 4.3x 5.0x 4.1x 6.0x 5.8x 4.9x 5.5x 5.5x 5.0x 5.3x 5.0x 5.2x 6.7x 7.7x 11.2x 10.7x 9.1x 12.3x 15.8x

RAL-US EV/Sales 0.31x 0.40x 0.54x 0.62x 0.53x 0.88x 0.88x 0.83x 0.81x 0.84x 0.75x 0.73x 0.80x 0.85x 0.92x 1.21x 1.95x 1.97x 1.83x 2.94x 3.53x

S&P 500 PB 1.4x 1.2x 1.2x 1.5x 1.3x 1.6x 1.8x 1.6x 1.8x 2.1x 1.8x 2.1x 2.3x 2.6x 2.5x 2.8x 3.3x 3.8x 4.4x 4.9x 4.2x 3.4x

S&P 500 PE 9.1x 8.1x 10.2x 12.4x 9.9x 13.5x 16.3x 15.6x 12.2x 14.7x 15.3x 22.9x 24.3x 22.9x 17.0x 17.4x 20.8x 24.5x 28.3x 29.5x 24.3x 25.9x

S&P 500 PS 0.49x 0.41x 0.47x 0.55x 0.50x 0.62x 0.70x 0.68x 0.68x 0.77x 0.67x 0.84x 0.87x 0.96x 0.92x 1.15x 1.30x 1.65x 2.09x 2.30x 1.89x 1.72x

S&P 500 Net Margin 5.4% 5.1% 4.6% 4.4% 5.0% 4.6% 4.3% 4.4% 5.6% 5.3% 4.4% 3.7% 3.6% 4.2% 5.4% 6.6% 6.2% 6.7% 7.4% 7.8% 7.8% 6.6%

S&P 500 ROE 15.6% 14.6% 12.2% 11.8% 13.4% 11.6% 11.1% 10.3% 14.4% 14.1% 11.9% 9.0% 9.6% 11.5% 14.7% 16.3% 15.8% 15.6% 15.7% 16.6% 17.2% 13.1%