SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)
[ X ] Annual report  pursuant to section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the fiscal year ended August 31, 1998 or [ ]  Transition  report
pursuant to section 13 or 15(d) of the  Securities  Exchange Act of 1934 for the
transition period from _________ to _________.

                           Commission File No. 1-13479

                         AGRIBRANDS INTERNATIONAL, INC.
           -----------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                               MISSOURI 43-1794250
          ------------------------------------------------------------
          (State of Incorporation) (I.R.S. Employer Identification No.)

                9811 SOUTH FORTY DRIVE, ST. LOUIS MISSOURI 63124
 ------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (314) 812-0500
          ------------------------------------------------------------
              (Registrant's telephone number, including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                                   Name of each Exchange
         Title of Each Class                       on which Registered
         -----------------------                   ----------------------------

         Agribrands International, Inc.            New York Stock Exchange, Inc.
         Common Stock, par value $.01 per share

        Securities Registered Pursuant to Section 12(g) of the Act: None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of the voting stock held by nonaffiliates of the
Registrant is  $249,017,958,  based upon the closing  market price on October 1,
1998.  Excluded  from  this  figure is the  voting  stock  held by  Registrant's
Directors, who are the only persons known to Registrant who may be considered to
be its "affiliates" as defined under Rule 12b-2.

     The number of shares of Common Stock, $.01 par value, outstanding as of the
close of business on October 1, 1998: 10,668,571.

                      Documents Incorporated by Reference:

     Portions of Registrant's  1999 Notice of Annual Meeting and Proxy Statement
(to be filed) are incorporated by reference into Part III of the Form 10-K.


<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
INTRODUCTION

              Forward Looking Statements                                      1
              Risk Factors                                                    1
PART I     
Item 1   Business                                                             7
     Item 2.  Properties                                                     12
     Item 3.  Legal Proceedings                                              14
     Item 4.  Submission of Matters to a Vote of Security Holders            15

PART II
     Item 5.  Market for the Registrant's Common Stock and Related          
              Stockholder Matters                                            15
     Item 6.  Selected Financial Data                                        16
     Item 7.  Management's Discussion and Analysis of Financial Condition
              And Results of Operations                                      17
     Item 7A. Quantitative and Qualitative Disclosures about Market Risk     27
     Item 8.  Financial Statements and Supplementary Data                    27
     Item 9.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosures                           53

PART III
     Item 10. Directors and Executive Officers of the Registrant             53
     Item 11. Executive Compensation                                         53
     Item 12. Security Ownership of Certain Beneficial Owners and Management 53
     Item 13. Certain Relationships and Related Transactions                 53

PART IV
     Item 14. Exhibits, Financial Statement Schedules and 
              Reports on Form 8-K                                            54

<PAGE>

FORWARD-LOOKING STATEMENTS


     Certain statements in this report are  "forward-looking  statements" within
the meaning of the federal securities law. This includes  statements  concerning
plans and  objectives  of  management  relating  to  Agribrands'  operations  or
economic   performance,   and   assumptions   related   thereto.   Because  such
forward-looking statements involve risks and uncertainties,  there are important
factors  that could cause  actual  events or results to differ  materially  from
those expressed or implied by such forward-looking statements.

RISK FACTORS

Company and Industry Specific Risks

     Limited Operating History as an Independent Company

     The  assets   associated   with  Ralston   Purina   Company's   ("Ralston")
international  animal  feeds  and  agricultural  products  business  were  first
contributed to Agribrands  International,  Inc.  ("Agribrands"  or "Company") on
April 1, 1998 (the  "Distribution  Date")  when the  shares of  Agribrands  were
distributed  to the  Ralston  shareholders  (the  "Distribution").  As a result,
Agribrands has a limited operating history as an independent company.  While the
business  conducted by Agribrands and its subsidiaries was profitable as part of
Ralston,  there  is no  assurance  that  it  can  be  operated  profitably  as a
stand-alone  public  company.  In  addition,  from time to time,  certain  local
operations of Agribrands  have operated at a loss.  Agribrands is no longer able
to rely on Ralston for financial  support or benefit from its relationship  with
Ralston to obtain credit or receive  favorable terms for the purchase or sale of
certain  goods and  services.  In  addition,  except  for  certain  transitional
services,  Agribrands  is  responsible  for  its  own  corporate  administrative
services such as tax,  treasury,  accounting,  legal,  research and development,
information systems and human resources.

     Obligations to Ralston

     Under agreements entered into with Ralston at the time of the Distribution,
Agribrands  has  agreed  to  indemnify  Ralston  against,  among  other  things,
liabilities  relating to the  operation  of the  Agribrands  business  and other
former  businesses   associated  with  Ralston's   international   animal  feeds
operations, or the ownership of the assets utilized in those businesses,  except
to the extent such were  assumed or retained  by  Ralston.  Agribrands  has also
agreed that  neither  Agribrands  nor its  subsidiaries  will enter into certain
transactions,  which  could  cause the  Distribution  to be  determined  to be a
taxable  event for three years  following  the  Distribution,  and to  indemnify
Ralston  and its  shareholders  as of the date of the  Distribution  against tax
liabilities  incurred  by reason of the  Distribution  being a taxable  event if
Agribrands engages in any such transactions.

     Animal Feeds Industry

     The Company, as a supplier of animal feeds and other agricultural products,
is subject to the risks and uncertainties  associated with the animal production
industry and the resulting  fluctuations in demand for Agribrands' products. The
animal  production  industry,  and consequently the animal feeds industry,  in a
particular country, can be negatively affected by a number of factors, including
the  following:  the prices of  commodities  and the ability to pass costs on to
customers;  the market price of  livestock,  poultry and other animals and their
food products;  alternative  feed sources;  changes in consumer  demand for, and
consumption  of,  grain,  meat,  fish,  milk and eggs;  outbreaks of diseases in
humans or animals (such as BSE or "mad cow  disease,"  foot and mouth disease or


                                       1
<PAGE>

aviarian virus);  real estate values;  urban  development;  weather  conditions;
government farm programs; government regulations; restrictive quota policies and
trade  policies and tariffs;  production  difficulties,  including  capacity and
supply  surpluses  and  constraints;  and general  economic  conditions,  either
locally,  regionally or globally. In certain markets, the increasing nutritional
efficiency  of available  feeds has  resulted in lower volume  demand for feeds.
Profit pressure and  overcapacity in various markets has led to consolidation of
both the feed  production  and animal  production  industries in those  markets.
Larger animal  producers have tended to integrate their business by acquiring or
constructing  feed  production  facilities  to meet  some or all of  their  feed
requirements,  and consequently  have relied less on outside suppliers of animal
feeds.

     Significant Competitive Activity

     There is substantial excess capacity in the animal feed business worldwide,
including the  countries in which the Company  operates.  The Company  currently
faces intense,  and as a result of consolidation may face increasingly  intense,
competition from large  multinational  and other  international as well as local
and regional feed manufacturers,  cooperatives, single-owner establishments and,
in the case of a number of countries,  government feed companies.  Some of these
competitors are larger and have greater financial resources than Agribrands, and
in  some  countries   cooperatives   and  government  feed  companies  may  have
significant financial and political advantages. Because of limited technological
or capital  constraints  on entry to the animal feed  industry and the extremely
fragmented nature of the industry, new competitors with relatively modest return
objectives  can arise in any  market  at any time.  In  addition,  lower  priced
alternative  feed  sources or methods of feeding  may be elected by  Agribrands'
customers during times of weak economic  conditions  affecting their markets and
operations.

     The animal feed and animal  production  industries are  consolidating  as a
result of end-product price pressures and overcapacity,  and management  expects
this trend to continue.  The tendency of large producers to vertically integrate
their businesses by acquiring or constructing feed production  facilities has at
times led to  significantly  less reliance on outside  suppliers of feed. As the
consolidation of animal producers  continues,  competition is likely to increase
among  independent  feed  suppliers,   and  that  industry  is  also  likely  to
consolidate.

     Competition is based upon price,  product quality and efficiency,  customer
service and the  ability to identify  and  satisfy  animal  production  needs in
particular  countries.  The Company from time to time experiences price pressure
in certain of its markets as a result of competitors' pricing practices.  As the
Company  operates on an  international  basis and markets a broad line of animal
feeds and other agricultural  products,  it bears higher costs associated with a
multi-layered  distribution  system, a complex  production  system,  and tax and
financing obligations imposed by its international and multi-currency structure.
Such higher costs may restrict its ability to compete in  particular  markets on
the basis of price.

     Also, low commodity  prices may reduce the value of and demand for complete
feeds as livestock and poultry  feeders switch  pre-mix or concentrate  products
which are mixed with directly acquired  commodities.  A significant reduction in
demand  for  complete  feeds  could  materially  affect the  utilization  of the
Company's fixed assets thereby affecting its financial performance.

     Raw Material Price Volatility

     The  prices of raw  materials  generally  dictate  that the  principal  raw
materials  used in the Company's  business,  such as grain,  grain  products and
protein ingredients,  be sourced locally rather than regionally or globally, and
as a result the costs  associated with raw materials  procurement are especially
susceptible to currency fluctuations and fluctuations due to weather conditions,


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<PAGE>

crop disease or pestilence,  government  regulations,  economic  climate,  labor
disputes  or  other  unforeseen  circumstances,  and  such  fluctuation  may  be
volatile.  Operating  results  may be affected  by the price  volatility  of raw
materials which constitute a substantial component of the cost of goods sold for
the Company's  business.  The rapid  turnover of certain raw material  inventory
items and, for certain  products,  the ability to substitute  alternative  lower
cost ingredients to produce feeds with specified nutritional  characteristics at
a  lower  total  cost  may  provide  Agribrands  with  some  protection  against
fluctuating raw material prices.  Agribrands  believes that adequate supplies of
its  necessary  raw  materials  are  available at the present  time,  but cannot
predict future availability or prices of such products and materials.  There can
be no assurance that  Agribrands  will be able to pass increases in raw material
costs  through to its  customers  in the form of price  increases,  and any such
inability  would have an adverse  impact upon the  profitability  of Agribrands.
Agribrands  may from time to time hedge its  commodities  purchases or otherwise
take market positions in various  ingredients.  Although such transactions would
be intended to assure supply or establish ingredient costs for anticipated sales
volume,  such transactions may under certain  circumstances  magnify the adverse
effect of unanticipated changes in market prices.

     Non-Compete Agreements

     The Company has agreed with Ralston that,  until April 1, 2003, the Company
will not engage in the manufacture,  distribution or sale of foods for pets, pet
products,  pet supplies,  pet accessories,  litter or personal care products for
cats, dogs or other pets, subject to certain limited exceptions.  If the Company
does enter into any of those  businesses  following the restriction  period,  it
will not have the right to use its  trademarks  Purina(R)  and  Chow(R)  and the
"Checkerboard"  Nine Square Logo(R),  on pet food products,  other than products
produced for Ralston, or provided by Ralston.

     Year 2000 and European Economic and Monetary Union

     Many  computer  systems and other  systems with  embedded  chip  technology
process  dates based on two digits for the year of a  transaction  rather than a
full four digits. These systems are unable to properly process dates in the year
2000 and beyond.  Agribrands  utilizes a number of computer  systems  across its
entire worldwide operation.  The Company has identified its significant software
coding issues  related to the year 2000 date  recognition  for key financial and
operational  systems. The Company has already resolved the year 2000 matter at a
number of its  locations  and plans to  continue  resolving  the matter  through
either  replacement of existing systems with new year 2000 compatible systems or
reprogramming  existing  systems.  The Company  incurred costs of less than $0.5
million  in 1998 for year 2000  reprogramming  of  existing  systems.  Year 2000
reprogramming  costs  were  negligible  in  1997  and  1996  as  Agribrands  was
converting to new systems in  anticipation of the  Distribution.  To make all of
its systems year 2000 compliant,  the Company estimates  incurring an additional
$0.5 million of  reprogramming  costs and spending an additional $1.7 million on
replacement hardware and software. Completion of all reprogramming, hardware and
software replacement, and appropriate testing is expected to occur by August 31,
1999. All costs related to the  reprogramming  of existing  systems for the year
2000 issue are expensed as incurred.  Hardware  and software  replacement  costs
will be capitalized.

     Based on the  Company's  efforts  to  date,  management  believes  that its
systems  will be year  2000  compliant.  The  Company  is  working  with its key
customers  and suppliers to obtain  assurances  that their systems are year 2000
compliant.  However,  the  Company  does not have any  control  over these third
parties  and, as a result,  cannot  currently  determine  to what extent  future
operating  results  may be  adversely  effected  by the  failure of these  third
parties to successfully address their year 2000 issues. In addition, the Company


                                       3
<PAGE>

operates in sixteen  countries on four  continents at various stages of economic
development  and is  dependent  on systems  operated by  governments,  financial
institutions,  utilities,  communications  suppliers and others in each of these
countries.  The failure of any of such  infrastructural  systems to be year 2000
compliant  could disrupt the Company's  business for a period of time and if not
quickly  resolved  could  have a material  adverse  effect on the  Company.  The
Company has not yet developed  formal  contingency  plans in the event of a Year
2000 failure.

     On January 1, 1999, eleven of the European Union countries  (including four
countries where  Agribrands'  operations are located) are scheduled to adopt the
Euro as their single currency,  and there will be fixed conversion rates between
their existing currencies ("legacy currencies") and the Euro. The Euro will then
trade on currency exchanges and be available for noncash transactions. Following
the introduction of the Euro, the legacy  currencies will remain legal tender in
the  participating  countries during the transition  period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue Euro-denominated bills and coins for use in cash transactions.  On or
before July 1, 2002, the participating  countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.

     The Company's key financial  information  systems in Europe are equipped to
process both Euro and legacy currency  transactions during the transition period
from January 1, 1999 through January 1, 2002; however,  they are not equipped to
handle  the July 1, 2002  withdrawal  of all  legacy  currencies.  As part of an
initiative to make all of the Company's key financial systems  consistent across
the organization, management is planning to replace these old systems with a new
system that can handle the July 1, 2002  mandatory  conversion to the Euro.  All
costs  associated with the new system will be  capitalized.  The Company has not
incurred any  reprogramming  costs in connection with the conversion to the Euro
and does not anticipate  incurring any such costs in the future.  From a broader
business  perspective,  conversion to the Euro may cause pricing  disparities in
different markets to narrow, lowering the Company's margins.

Foreign Operations Risk

     Worldwide Regulatory and Political Risk

     The Company has interests in operating companies in 16 countries around the
world and is subject to government regulation and political risk in each market.
Because the Company operates through its subsidiaries, the Company is subject to
regulation by numerous common market,  national and local governmental  entities
and agencies around the world.  Changes in the laws or administrative  practices
relating to foreign  ownership and control,  local employment and benefits,  air
and water  quality,  noise  pollution,  underground  fuel storage  tanks,  waste
handling and disposal and other  regulations  intended to protect  public health
and the  environment,  currency  exchange  controls,  alienability  of property,
taxation  or other  matters in any of such  jurisdictions  could have a material
adverse  effect  on  the  operations  and  prospects  of  the  Company  in  such
jurisdiction and as a whole.  Such countries differ widely with respect to legal
and political  structure and  stability and some of such  countries  lack stable
legal and regulatory systems. For example,  many European countries,  as well as
the  European  Union,  have been very  active in  adopting  and  enforcing  food
handling  regulations,  while many  developing  countries  in which the  Company
operates have not adopted or enforced  significant  regulation  relating to food
safety,  the environment,  occupational  safety,  employment  practices or other
matters  extensively  regulated in the United States. As such economies develop,
it is possible  that new and  expanded  regulations  may  increase  the risk and
expense of doing business in such countries.  Governmental  regulations may also
restrict the ability of the Company's  operating  subsidiaries to remit funds to
the Company, or impose minimum requirements as to the capital structure of local
operating companies.



                                       4
<PAGE>

     In addition, the Company's operations may at times in the future be subject
to  expropriation,  confiscatory  taxation or price controls,  and political and
economic changes may damage operating and growth prospects by causing  political
and regulatory uncertainty or economic difficulties. For example, in Europe, any
failure of a country in which the Company  does  business  to join the  European
Union or the European  Monetary  Union may have a negative  effect on borrowing,
exchange  rates and  economic  stability in such  country,  and any delay in the
expansion  or  development  of  those  Unions  may  have a  negative  effect  on
borrowing,  exchange  rates  and  economic  stability  in  Europe  as  a  whole.
Furthermore,  conversion to the Euro may cause pricing  disparities in different
markets  to  narrow,  lowering  the  Company's  margins.  In  Asia,  the  recent
devaluation  of the Korean  currency,  combined  with the effects of  government
sponsored  cooperatives  resistance  to changes in  selling  prices,  may have a
significant negative impact on operating profits in Korea.

     Inflation and High Local Interest Rates

     Many developing countries have in the recent past experienced,  and in some
cases  still  experience,  substantial  or at  times  extremely  high  rates  of
inflation and correspondingly high interest rates. Inflation, hyperinflation and
rapid fluctuations in inflation rates have had and may continue to have negative
effects  on  the  currencies,   economies,  capital  markets  and  the  business
environment of certain developing  countries and could have an adverse effect on
various  of the  Company's  operating  subsidiaries  and  investments  in  those
countries, including an adverse effect on their ability to obtain financing.

     Currency Fluctuations

     The assets,  liabilities,  sales and  expenses of the  Company's  operating
subsidiaries  are in general  denominated in local currency.  Consequently,  the
value of the Company's  investment in an operating  subsidiary,  and of payments
made by such entity to the  Company,  is  partially  a function of the  currency
exchange rate between the U.S.  Dollar and the  applicable  local  currency.  In
addition,   the  Company's  operating   subsidiaries  report  their  results  of
operations  in the local  currency  while the  Company  reports  its  results of
operations and other financial data in U.S. Dollars.  Accordingly, the Company's
results of operations are affected by changes in currency exchange rates between
those  currencies  and the U.S.  Dollar.  Agribrands  periodically  enters  into
foreign exchange forward  contracts to mitigate  economic exposure to changes in
exchange  rates,  but does not as a matter of  policy,  hedge  against  all such
exposure.  As a result, the Company may experience economic loss with respect to
its investments and fluctuations in its results of operations solely as a result
of currency exchange rate fluctuations.  For example,  the Company experienced a
significant  decline  in the value of its  investment  in its  Korean  operating
subsidiary  as a result of the sharp  decline  in the  value of the  Korean  Won
during fiscal 1998, and the attendant economic instability in Korea. Many of the
currencies of developing  countries where the Company  operates have experienced
steady devaluations  relative to the U.S. Dollar.  Sudden major adjustments have
also  been  made in the  past  and may  again  occur  in the  future.  Any  such
devaluation  could have a material  adverse effect on the Company.  In addition,
while the revenues of the  Company's  operating  subsidiaries  are  generally in
local currency, many of their significant liabilities (such as grain or oil seed
purchases) and expenses (such as debt and debt service on borrowings  from local
financial  institutions) are payable in U.S. Dollars or in currencies other than
the local currency.  As a result, any devaluation of the local currency relative
to the  currencies in which such  liabilities  are payable could have a material
adverse effect on such subsidiary, and, indirectly, on the Company.



                                       5
<PAGE>

     U.S. Regulation of International Commerce

     The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing foreign
officials  for the  purpose of  obtaining  or keeping  business  or  licenses or
otherwise  obtaining  favorable  treatment.   Although  the  Company  has  taken
precautions  to  comply  with the  FCPA,  there  can be no  assurance  that such
precautions  will  protect  the  Company  against   liability  under  the  FCPA,
particularly  as a result of  actions  which may in the past have been  taken or
which may be taken in the  future by agents and other  intermediaries  for whose
actions  the  Company  may be held liable  under the FCPA.  In  particular,  the
Company  may be held  responsible  for  actions  taken by its local  agents even
though  such  agents may not be subject to the FCPA,  and  actions  which may be
customary  and  considered  to be ethical  under  local  practice  may result in
inadvertent  violations  of the FCPA.  Any  determination  that the  Company has
violated the FCPA could have a material adverse effect on the Company.

     Trade  sanctions  imposed by the United  States in  response  to  political
developments  may limit the  Company's  access to  suppliers  or  customers.  In
addition,  the Company may at times become  subject to  conflicting  obligations
under the laws of the United States and the laws of the  jurisdictions  in which
it operates,  including  circumstances  when trade  sanctions or boycotts may be
imposed by the laws of one  jurisdiction,  while laws of the other  jurisdiction
may expressly prohibit participation in such sanctions or boycott.

     International Tax Risks

     Income earned by the Company's operating  subsidiaries and distributions of
earnings and other  payments made by the Company's  operating  subsidiaries  are
often subject to  withholding  and other taxes imposed by the  jurisdictions  in
which such  entities  are  formed or  operating.  In  general,  a United  States
corporation  may claim a foreign  tax  credit  against  any  federal  income tax
expense for such foreign  withholding  taxes and foreign  taxes paid directly by
corporate  entities in which the Company  owns 10% or more of the voting  stock.
The ability to claim such foreign tax credits and to utilize net foreign  losses
is, however, subject to numerous limitations,  and the ability of the Company to
utilize such credits may be limited  because (i) tax rates are higher in certain
jurisdictions  than the  comparable  tax rates in the United States and (ii) the
Company may not be in a tax-paying position in the United States.  Intense focus
by tax authorities on intercompany transactions of international companies could
lead to  challenges  of the  Companies'  tax  treatment of such items which,  if
sustained,  could generate tax liabilities,  material to a particular quarter or
annual period.

     Reporting Standards and Financial Data

     Companies  operating  overseas  are  subject to  accounting,  auditing  and
financial  standards and requirements that differ, in some cases  significantly,
from those applicable under U.S. GAAP. The Company's  ability to comply with the
informational  and filing  requirements  will  depend on the  timely  receipt of
accurate  and  complete  financial  and  other  information  from the  Company's
operating  subsidiaries.  The failure to receive  such  information  on a timely
basis could have a material adverse effect on the Company,  including preventing
it from  satisfying  the  informational  and filing  requirements.  Furthermore,
maintenance of adequate  internal  control systems may be made more difficult by
the  geographical   dispersion  and  autonomous   management  structure  of  the
Agribrands business.



                                       6
<PAGE>

     Entering New Markets

     Agribrands  anticipates  that it will continue to explore  opportunities to
enter new geographic  markets when  appropriate  opportunities  are  identified.
Opening such new markets can result in increased  earnings for the Company,  but
not all such ventures are likely to be  successful,  which could have an adverse
effect on the  overall  operating  results of the  Company.  The  success of new
ventures will be dependent, to a significant extent, on the efforts of the local
managers.


                                     PART I

ITEM 1.  Business

General

     The Company,  incorporated in Missouri in 1997, is a leading  international
producer and marketer of a broad line of animal feeds and other agricultural and
nutrition products for hogs, dairy cows, cattle,  poultry (broilers and layers),
rabbits,  horses,  shrimp and fish. The Company operates 74 manufacturing plants
in 16 countries on four continents.  Management  believes that, among commercial
producers  of  complete  animal  foods,  Agribrands  is the most  geographically
diversified company of its type in the world, and that its local operations rank
among the top three in share of the commercial animal feed market in most of the
countries in which it operates.

     The  Agribrands  business  consists  of the  international  animal feed and
agricultural  products  businesses  conducted by Ralston prior to April 1, 1998,
when the shares of the Company  were  distributed  to the Ralston  shareholders.
Accordingly, the Company benefits from Ralston's over 100 years of experience in
the animal feeds and agricultural  products  industry,  during which time it has
built and  maintained  a leading  industry  position by  consistently  providing
high-quality,  research-proven  products and customer  service.  The Company has
more than thirty years' experience operating across four continents.

Principal Products

     The  Company's  animal  feeds and other  agricultural  products are sold as
complete  feeds or as  concentrates  which are mixed  with the  customer's  base
ingredients. The Company's products are generally marketed under the "Purina"(R)
and "Chow"(R) brands and the  "Checkerboard"(R)  logo, and product names such as
"Omolene"(R) and "Hi-Octane"(R).

Sources and Availability of Raw Materials

     Because of high transportation  costs, animal feeds, as a general rule, are
produced locally--close to their end markets--using  available local ingredients
with imported  ingredients  when  cost-effective.  The local  markets  served by
Agribrands  vary  dramatically  with respect to locally  available  ingredients,
animal  species  being  raised,   climate,   real  estate  values  and  economic
conditions.  In order to  manage  effectively  in this  environment,  day-to-day
operating  decisions are made by local  managers with  extensive  experience and
with  knowledge  of local  factors,  who operate on a highly  autonomous  basis.
Regional  and global  oversight  procedures  are  designed  to provide the local
managers  with the benefits of the  Company's  combined  resources and worldwide
best  practices,  which the  managers  can apply  taking into account the unique
local circumstances.



                                       7
<PAGE>

Distribution Network

     Agribrands'   distribution  network  consists  of  over  3,200  independent
dealers,  most of whom sell the Company's  products on an exclusive  basis.  The
dealers are independent  wholesalers who  redistribute to thousands of points of
sale. More than 70% of the Company's sales are made through these dealers,  with
the balance made through direct sales to primarily  large  feeders.  The Company
offers  assistance  to dealers in  establishing  sound  financial  and  business
practices,  including training,  marketing support,  promotional materials,  and
formal  business  management  programs,  including  assistance in obtaining bank
financing. As a result, the Company enjoys a high level of dealer loyalty.

Patents and Trademarks

     At the time of the Distribution, Ralston entered into a Trademark Agreement
with  Agribrands  pursuant  to  which  Ralston  assigned  to  Agribrands  all of
Ralston's rights in certain country specific  trademarks  associated solely with
the Agribrands business,  such as "Omolene"(R) and "Hi-Octane"(R) and granted to
Agribrands a perpetual license,  on a royalty-free  basis, to use the trademarks
"Purina"(R) and "Chow"(R)  brands and the  "Checkerboard"  (R) logo, and certain
other  trademarks  with  respect to  agricultural  and certain  other  products,
subject to the rights of Purina Mills, Inc.  referred to below.  Agribrands does
not have the  right to use such  trademarks  on pet food  products,  other  than
products produced for Ralston or provided by Ralston.

     The Company has agreed with Ralston that,  until April 1, 2003, the Company
will not engage in the manufacture,  distribution or sale of foods for pets, pet
products,  pet supplies,  pet accessories,  litter or personal care products for
cats, dogs or other pets, subject to certain limited exceptions.

     In 1986,  Ralston sold the  outstanding  capital stock of its Purina Mills,
Inc. ("PMI")  subsidiary,  which was engaged in the animal feed and agricultural
products  business in the United States.  In connection  with that sale, PMI was
granted a  perpetual  license  in the  United  States  with  respect  to certain
significant  trademarks  which are currently  used by Agribrands  outside of the
United States.  Although  Agribrands does not currently  compete with PMI in the
United States, there are no restrictions on Agribrands' right to expand into the
United States  market,  subject to the  exclusive  rights of PMI to utilize such
trademarks and trade names and certain  proprietary  technologies  in the United
States.  PMI may expand into markets  outside the United States,  subject to the
exclusive  rights of the  Company as  described  above,  and is  competing  with
Agribrands  in the  Philippines.  In  March of 1998,  PMI was  acquired  by Koch
Agriculture, a privately held company.


Seasonality of Business

     Sales  prices  and  volume  can  both  be  impacted  by  seasonal  factors.
Agricultural  product  sales  prices are directly  influenced  by changes in the
underlying  commodity  prices for the raw  materials  used to  formulate  animal
feeds.  Commodity  prices are usually at their lowest in the months  immediately
following the fall harvest.  Sales volume may fluctuate  somewhat  seasonally as
temperature affects caloric intake or breeding cycles.



                                       8
<PAGE>

     Currently,  seasonal  factors have a minimal impact on the Company's  total
performance  in any given  period.  Seasonality  of  commodity  prices  does not
materially  affect  earnings  due to  the  industry  practice  of  pricing  at a
relatively  constant margin over ingredient costs.  Seasonally driven changes in
consumption  do not  materially  affect volume or earnings due to the geographic
and species diversification of Agribrands' operations.

Competition

     The animal feed  business has  substantial  excess  capacity on a worldwide
basis,  including  excess capacity in the countries where the Company  operates.
The  Company  faces   competition  in  most  of  its  markets  from  other  feed
manufacturers, including, in certain countries, large multinational corporations
such  as  Nutreco,   Ridley,   Cargill  and  Charoen   Pokphand,   cooperatives,
single-owner  establishments  and,  in a number of  countries,  government  feed
companies.  Some of these  competitors  are  larger and have  greater  financial
resources than  Agribrands,  and in some countries  cooperatives  and government
feed companies may have significant financial and political advantages.  Because
of limited  technological  or capital  constraints on entry into the animal feed
business,  new competitors with relatively modest return objectives can arise in
any market at any time.  In  addition,  less  effective  but lower  priced  feed
sources become an attractive alternative to Agribrands' products when livestock,
poultry and other animal end product  prices are low and customers are unwilling
to pay a premium for quality feeds.  Although the strength of competitors varies
by  geographic  area  and  product  line,  Agribrands  believes  that  no  other
commercial  producer of complete  feeds  produces and markets as broad a line of
animal feed products in as many countries as Agribrands.

     Both the animal feeds and animal production  industries are  consolidating,
and this  trend is  expected  to  continue.  In the  past,  Agribrands  has been
successful  in generating  sales to large  producers.  However,  the tendency of
large  producers  to  vertically  integrate  their  businesses  by  acquiring or
constructing feed production  facilities has at times led to significantly  less
reliance on outside  suppliers of feed. As the consolidation of animal producers
continues,  competition is likely to increase among  independent feed suppliers,
and that industry is also likely to  consolidate.  Agribrands  believes that the
superiority of its products and its  reputation for service and knowledge  about
animal  nutrition  needs should allow it to  effectively  compete in the face of
such trends.

     Much of the  competition  in the  animal  feeds and  agricultural  products
industry centers around price, due to the commodity-like aspects of basic animal
feed.  Agribrands  generally bears higher costs  associated with a multi-layered
distribution  system,  a  complex  production  system,  and  tax  and  financing
obligations  imposed by its international  and  multi-currency  structure.  Such
higher costs may restrict  its ability to compete in  particular  markets on the
basis of price.  However,  Agribrands  believes that product  quality,  customer
service and the  ability to identify  and  satisfy  animal  production  needs in
individual  markets are also significant  competitive  factors.  Agribrands also
believes it has significant  advantages due to its extensive dealer distribution
network,  its  nutritional  expertise,  its ability to convert its  research and
technology into products which meet the diverse requirements of its customers in
different  markets under  different  economic  circumstances,  its high level of
customer service and the responsiveness of its locally autonomous structure, and
the breadth, quality and efficacy of its product lines.

     The animal feeds and agricultural  products  business is expected to remain
highly competitive in the foreseeable  future.  Future growth  opportunities are
expected to depend on the  Company's  ability to implement  its  strategies  for
competing  effectively  in  new,  growing  agricultural   markets,   maintaining


                                       9
<PAGE>

effective cost control  programs,  making  strategic  acquisitions,  effectively
managing  customers  changing  preferences for complete  feeds,  concentrates or
premixes,   and   developing  and   implementing   methods  for  more  efficient
manufacturing  and distribution  operations,  while at the same time maintaining
aggressive pricing and promotion of its products.

Research and Development

     Agribrands  research and engineering  development is coordinated  centrally
but conducted on a decentralized  basis in each of the three regions  (Americas,
Europe and Asia).  Fundamental research is conducted in cooperation with leading
agricultural research  universities,  institutes and commercial entities such as
Purdue University (U.S.A.),  Massey University (New Zealand),  INRA (France) and
Guelph  University  (Canada).  Agribrands  provides  funding  for  leading  edge
research in exchange for the rights to commercially apply the results.

     Research  projects  are selected  based on  priorities  established  by the
Agribrands'    research   and   technology    department   and   an   Agribrands
interdisciplinary product steering group. The product steering group is composed
of senior management, research, engineering, operating personnel and specialists
for key animal species groups.

     The  Agribrands  research  group consists of more than 25 persons with post
graduate  or  doctoral  degrees  in animal  nutrition,  veterinary  medicine  or
agricultural  sciences.  In  1998,  Agribrands  expenditures  for  research  and
development  amounted to $5.5 million.  The increase from 1997  expenditures  of
$3.2 million is due to a transfer of non-allocated research costs in Europe from
general administrative costs to research and development costs and not due to an
increase in total expenditures on research and development.

Governmental Regulation and Environmental Matters

     The  operations of Agribrands  are subject to regulation by various  common
market and local  governmental  entities and agencies and various common market,
national and local laws and regulations with respect to  environmental  matters,
including  air and water  quality,  noise  pollution,  underground  fuel storage
tanks,  waste  handling and disposal and other  regulations  intended to protect
public  health and the  environment.  Many  European  countries,  as well as the
European  Union,  have been very active in adopting and enforcing  environmental
regulations.  In many developing countries in which Agribrands  operates,  there
has not been significant  governmental  regulation  relating to the environment,
occupational  safety,  employment  practices or other business matters routinely
regulated in the United States. As such economies  develop,  it is possible that
new  regulations  may  increase  the risk and expense of doing  business in such
countries. Evolving environmental and zoning requirements have led to Agribrands
relocating two of its Korean facilities from urban areas to industrial sites.

     While it is difficult to quantify with  certainty  the potential  financial
impact of actions regarding expenditures for environmental matters, particularly
remediation,   and  future  capital   expenditures  for  environmental   control
equipment,  in the opinion of management,  based upon the information  currently
available,  the ultimate liability arising from such environmental  matters will
not have a  material  effect  on  Agribrands'  financial  position  but could be
material to capital expenditures or earnings.



                                       10
<PAGE>

Employees

     The Company,  as a whole,  employs 45  employees  in the United  States and
5,736 in foreign jurisdictions.

Executive Officers of the Registrant

     The following is a list of all the executive  officers (8) of Agribrands as
of August 31, 1998.  All of these  officers  were elected by the Board and shall
serve in such positions until their  successors shall have been duly elected and
qualified.  There  are no  family  relationships  between  any of the  executive
officers.


Name                   Age                       Positions


William P. Stiritz     64   Chairman of the Board,  Chief Executive  Officer and
                            President for  Agribrands  since  1998.  Mr. Stiritz
                            joined Ralston in 1963 and served as Chief Executive
                            Officer and President of Ralston from 1982 until his
                            retirement in 1997.

David R. Wenzel        35   Chief Financial Officer for  Agribrands  since 1998.
                            Mr. Wenzel  served  as the  Chief  Financial Officer
                            for  Ralston's  international  agricultural products
                            business  since  1996. He  joined  Ralston's Protein
                            Technologies  subsidiary  as  Director of  Strategic
                            Planning  in 1993 and  in  1994  became  Director of
                            Corporate  Planning for  Ralston. Prior  to  joining
                            Ralston,  Mr. Wenzel  was  a Manager,  Tax Services,
                            for PricewaterhouseCoopers LLP  in  their  St. Louis
                            office.

Bill G. Armstrong      50   Chief Operating  Officer for Agribrands  since 1998.
                            Mr. Armstrong served as  Executive Vice President of
                            Operations for Ralston's international  agricultural
                            products  business  during 1997  and  Regional Chief
                            Executive Officer - South Asia from 1995 to 1997. He
                            served    as    Managing   Director  of    Ralston's
                            international   agricultural    products  Philippine
                            operations from 1992 to 1995.

Gonzalo Dal Borgo      58   Vice President,  Strategic  Project  Development for
                            Agribrands   since  1998.   Mr  Dal   Borgo   joined
                            Ralston   in   1968.    He   served   as   Ralston's
                            international agricultural  products  Regional Chief
                            Executive Officer - Americas from 1994 to 1998,  and
                            President  and  Managing   Director  for   Ralston's
                            international   agricultural  products Brazilian and
                            South American operations from 1991 to 1994.

Kim Ki Yong            53   Chief  Operating   Officer - North  Asia  Region for
                            Agribrands  since 1998. Mr. Kim served  as  Regional
                            Chief Executive Officer - North  Asia  of  Ralston's
                            international  agricultural  products business since
                            1995 and  President and  Chief Executive  Officer of
                            Ralston's international agricultural products Korean
                            operations from 1993 to 1995.

Eric M. Poole          53   Chief   Operating   Officer -  Europe  Region    for
                            Agribrands  since 1998. Mr.  Poole  served  as  Vice
                            President - Americas  for  Ralston's   international
                            agricultural products operations from  1993 to 1995;
                            and as international  agricultural products Regional
                            Chief  Executive Officer - Europe from 1995 to 1998.
                          



                                       11
<PAGE>

Michael J. Costello   46    Secretary and General  Counsel for Agribrands  since
                            1998.  Mr. Costello served as International  Counsel
                            for Ralston's  international  animal and human foods
                            businesses from 1989 to 1998.
                                                                                
Robert W. Rickert, Jr. 47   Treasurer  for   Agribrands  since 1998. Mr. Rickert
                            served as Director of International Finance Services
                            for  Ralston's  international  agricultural products
                            business  from  1990 to 1998; Director International
                            Finance - Latin  America,  Middle  East,  and Africa
                            from 1988 to 1992; and Manager,International Finance
                            from 1986 to 1988.                             
                           
ITEM 2.  PROPERTIES

     Agribrands'   principal   properties  are  its  animal  feed  manufacturing
locations.  Shown  below  are  the  locations  of the  principal  properties  of
Agribrands,  all of which,  except as indicated,  are owned by Agribrands or its
wholly owned  subsidiaries.  Agribrands'  facilities in the Peoples  Republic of
China are  located  on sites  subject  to  long-term  lease  agreements.  Due to
restrictions on foreign land ownership, Agribrands facilities in the Philippines
are leased from a company which owns the sites. Agribrands' Philippine affiliate
owns forty percent of the shares of the leasing company.  Agribrands  leases the
office space in St. Louis County, Missouri where its principal executive offices
are located. Although a substantial number of these manufacturing facilities are
more than twenty years old,  management  believes the Company's  facilities  are
adequately  maintained  and are suitable and adequate for the purposes for which
they are used.  During the fiscal year ended August 31, 1998, the utilization of
these facilities averaged approximately 70% of capacity, and management believes
that existing capacity should be sufficient for anticipated needs.


                                       12
<PAGE>

BRAZIL                                KOREA                            
Canoas                                Kimhae                           
Carmo do Cajaru (1)                   Kunsan                           
Inhumas                               Pusan (3)                        
Maringa                               Songtan                          
Paulinia                                                               
Recife                                MEXICO                           
Volta Redonda                         Cuautitlan                       
                                      Ganadon                          
CANADA                                Guadalajara                      
Addison, Ontario                      Merida (2)                       
Courtice, Ontario (1)                 Mexicali                         
Drummondville, Quebec                 Monterrey                        
Palmerston, Ontario                   Obregon                          
St. Romuald, Quebec                   Salamanca                        
Strathroy, Ontario                    Tehuacan                         
Woodstock, Ontario                                                     
                                      PEOPLE'S REPUBLIC OF CHINA       
COLOMBIA                              Fushun (2)                       
Buga                                  Langfang                         
Cartagena                             Nanjing (2)                      
Giron (1)                             Yantai (2)                       
Ibaque (1)                                                             
Medellin (1)                          PERU                             
Mosquera                              Arequipa (1)                     
                                      Chiclayo                         
FRANCE                                Lima                             
Chatillon (2)                                                          
Courchelettes                         PHILIPPINES                      
Limoges (2)                           Pulilan                          
Longue                                Villasis                         
Pommevic                                                               
St. Ybard (2)                         PORTUGAL                         
Sorcy                                 Benavente (3)                     
                                      Cantenhede                       
GUATEMALA                                                              
Guatemala City                        SPAIN                            
                                      Benavente                        
HUNGARY                               Dos Hermanas                     
Kaposvar                              La Coruna                        
Karcag                                Marcilla                         
                                      Merida                           
ITALY                                 Torrejon                         
Borgoratto (3)                        Valencia                         
Sospiro                                                                
Spessa                                TURKEY                           
San Felice                            Bolu                             
Termoli                               Gonen                            
                                      Luleburgaz                       
                                                                       
                                      VENEZUELA                        
                                      Barcelona                        
                                      Cabimas (2) (3)                  
                                      Maracaibo                        
                                      Maracay                          
                                                                       
                                      Hatcheries - Valencia, Venezuela 



                                       13
<PAGE>

     In  addition  to  the  properties  identified  above,  Agribrands  and  its
subsidiaries  own  and/or  operate  sales  offices,  regional  offices,  storage
facilities, distribution centers and terminals and related properties.

(1) Leased              (2) Joint Venture          (3) To be Divested

ITEM 3.  LEGAL PROCEEDINGS

     In the  fall of  1997,  Agribrands'  wholly  owned  subsidiary,  Agribrands
Philippines, Inc. (formerly Purina Philippines,  Inc.), applied for renewal of a
warehouse  license  to store  corn and rice  and  by-products  therefrom  at its
Pulilan  facility.   The  Philippines   National  Food  Authority  ("NFA"),  the
governmental  agency  that  administers  the  Philippines  laws and  regulations
governing the corn and rice industry,  advised Agribrands  Philippines by letter
dated October 31, 1997,  that its license renewal  application  was denied.  The
letter cites Philippines  legislation and regulations  requiring that businesses
operating  in the  corn and  rice  industry  not  have  more  than  40%  foreign
ownership. Since the NFA believes that Agribrands Philippines is in the corn and
rice industry,  they have requested Agribrands  Philippines to file a divestment
plan in order to comply with the 40% maximum foreign ownership requirement.

     Agribrands  Philippines has appealed the denial of its license renewal, and
on January 23, 1998,  Agribrands  Philippines received  notification that it may
operate its warehouse under a "provisional permit" pending the resolution of the
appeal.  The appeal has been transferred by Presidential  Decree from the Office
of the  Secretary  of  Agriculture  to the Office of the  President.  Agribrands
Philippines  believes it does not need a warehouse license, as it believes it is
not  engaged  in the corn and rice  industry  as  defined  by law.  Furthermore,
Agribrands  Philippines  believes  that  it  should  not be  subject  to the NFA
regulation  based upon its original  Board of  Investments  One Stop  investment
approval of a 100% foreign owned investment.  Agribrands  Philippines intends to
pursue its appeal in the Philippines legal system.

     In the event that Agribrands  Philippines is required to file a divestiture
plan, it is expected,  based on previous case  precedents,  that a plan would be
approved that would permit the necessary  divestiture over a considerable period
of time.

     Various tax and labor  claims  have been  asserted  against the  Agribrands
Business in Brazil. The claims arose principally from monetary  corrections made
in  connection  with the  institution  of  economic  plans  by  prior  Brazilian
administrations to control inflation.

     On June 14, 1997, a claim seeking  compensatory  damages,  punitive damages
and damages under the U.S.  Racketeer  Influenced and Corrupt  Organization  Act
totalling   approximately   $300  million  was  filed  against   Ralston  Purina
International  Holding Company,  Inc. ("RPIHCI"),  a subsidiary of Ralston which
was merged into Ralston. The plaintiff, Menichetti Fuente, a Chilean company, is
the former partner with RPIHCI in a joint venture named  Alimentos  Purina Chile
S.A.  ("APCH").  This joint venture was originally formed in 1991 between RPIHCI
and Menichetti Fuente which agreement was subsequently amended, effective March,
1993. The amended joint venture agreement by its terms lapsed as of December 31,
1996. This dispute has been submitted to arbitration in Santiago, Chile. Ralston


                                       14
<PAGE>

and Agribrands have agreed that Agribrands will pay 80% and Ralston will pay 20%
of any  award or  settlement  and all  costs  related  to this  claim up to $2.5
million.  Any amounts  over $2.5 million  will be shared  equally.  The claim is
being  vigorously  defended and  Agribrands  believes  that Ralston has numerous
meritorious defenses.

     Ralston  or local  subsidiaries  engaged  in the  Agribrands  Business  are
parties to a number of other legal proceedings in various foreign  jurisdictions
arising out of the operations of the Agribrands Business. Agribrands will assume
liability  for these  proceedings  except to the extent  liability is assumed by
Ralston in connection with the Distribution.

     Many of the foregoing  legal  matters are in  preliminary  stages,  involve
complex issues of law and fact and may proceed for  protracted  periods of time.
The amount of the eventual  liability,  if any, from these proceedings cannot be
determined with  certainty;  however,  in the opinion of Agribrands  management,
based upon the  information  presently  known, as well as upon the limitation of
certain  of its  liabilities  under  the  Agreement  and Plan of  Reorganization
between  Ralston and  Agribrands  for the spin-off of  Agribrands,  the ultimate
liability of Agribrands, if any, arising from the pending legal proceedings,  as
well as from asserted  legal claims and known  potential  legal claims which are
probable of assertion,  taking into account  established  accruals for estimated
liabilities,  should not be material to the financial position of Agribrands but
could be  material  to results  of  operations  or cash  flows for a  particular
quarter or annual period.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's  common stock (AGX) is traded on the New York Stock Exchange.
There were 18,148 shareholders of record on October 1, 1998. The Company has not
paid cash  dividends in 1998 and does not intend to begin paying cash  dividends
in fiscal 1999. The following table sets forth, for the five months ended August
31, the range of high and low sale prices of Agribrands Common Stock as reported
on the NYSE Composite Tape.


                             AGRIBRANDS COMMON STOCK

                                        MARKET PRICES
                                   HIGH              LOW              DIVIDENDS
1998

Fourth Quarter                     $35.69           $29.13                --
Third Quarter (April 1 - May 31)   $42.69           $32.25



                                       15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>

                                                   FIVE YEAR FINANCIAL SUMMARY
                                               (In millions except per share data)

<CAPTION>
                                                               For the year ended August 31,
                                         ----------------------------------------------------------------------------
                                         -------------  ---------------  -------------  -------------   -------------
STATEMENT OF EARNINGS DATA                   1998            1997            1996           1995            1994
                                         -------------  ---------------  -------------  -------------   -------------

<S>                                         <C>             <C>             <C>            <C>             <C>      
Tons of feed product sold                         5.2             5.1             4.8            4.3             4.0
Net sales                                   $ 1,410.1       $ 1,527.6       $ 1,401.3      $ 1,147.2       $ 1,024.5
Income over ingredient cost (IOIC)              345.8           361.7           333.3          298.0           278.9

Depreciation and amortization                    21.2            21.9            20.4           17.5            16.8
Provisions for restructuring                      3.0             3.2             8.3            1.8             2.8
(Gain)/loss on sale of property                   -               -              (3.6)          (1.6)          (13.5)
Interest expense                                 12.0            10.9            13.0           12.1            16.7
Investment Income                                (5.2)           (4.2)           (3.6)          (4.9)           (7.6)
Translation and exchange loss                    12.8             3.7             8.3            4.0            11.8

Earnings before income taxes                     34.2            33.1            24.9           33.4            32.4
Income taxes                                     20.4            24.4            14.0           18.7            25.8
Net earnings (a,b)                          $    13.8       $     8.7       $    10.9      $    14.7       $     6.6

Earnings per share:
  Basic (c)                                 $    1.29       $     .82       $    1.02      $    1.37       $     .62
  Diluted (c)                               $    1.29       $     .82       $    1.02      $    1.37       $     .62

                                                                         August 31,
                                         ----------------------------------------------------------------------------
BALANCE SHEET DATA                           1998            1997            1996           1995            1994
                                         -------------  ---------------  -------------  -------------   -------------

Working capital                             $   153.7       $    46.7       $    59.4      $    37.4       $    43.4
Net property                                    176.6           156.9           145.6          137.1           139.0
  Additions (during the period)                  44.6            44.1            28.5           27.1            24.9
  Depreciation (during the period)               19.3            19.6            19.1           17.3            16.8
Total assets                                    578.4           481.2           497.8          407.8           364.2
Long-term debt                                   14.2            22.8            41.3           34.3            45.2
Shareholders equity                         $   339.4       $   198.1       $   190.3      $   139.9       $   130.1

Average common shares outstanding:
  Basic (c)                                      10.7            10.7            10.7           10.7            10.7
  Diluted (c)                                    10.7            10.7            10.7           10.7            10.7


</TABLE>

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

(a)  After-tax provisions for restructuring  reduced net earnings by $1.7 in the
     year ended August 31, 1998,  $3.2 in 1997,  $7.2 in 1996,  $1.0 in 1995 and
     $2.8 in 1994.

(b)  After-tax  gain on the sale of property  increased  net earnings by $2.9 in
     the year ended August 31, 1996, $1.1 in 1995, and $3.8 in 1994.

(c)  Assumes  10.7  million  shares  outstanding  for all  periods  prior to the
     Distribution Date.

                                       16
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The  following  discussion  is a  summary  of the  key  factors  management
considers  necessary in reviewing  Agribrands  results of operations,  operating
segment results, liquidity and capital resources.

     Agribrands  is a leading  international  producer  and  marketer of formula
animal  feeds and  other  agricultural  products.  Prior to April 1,  1998,  the
Company  was a  wholly-owned  subsidiary  of  Ralston.  On  that  date,  Ralston
distributed  the common stock of the Company to its  shareholders  in a tax-free
spin-off.  The Company is a successor to Ralston's  over 100 years of experience
in the animal feeds and agricultural products industry.

     The production and sale of animal feed was the primary  business of Ralston
when it was established in 1894. From that date until the Distribution,  Ralston
built  and  maintained   its  industry   position  by   consistently   providing
high-quality,  research-proven  products and  customer  service.  Although  this
business  originated in the United  States,  it expanded  throughout  the world,
entering the Americas (outside of the United States) in 1927, Europe in 1957 and
Asia in 1967. The Company now operates 74 manufacturing  plants in 16 countries,
and has more than thirty years' experience operating across four continents.

     The  primary  animal  feed  business  of  Agribrands  is  conducted  almost
exclusively  outside the United States.  Ralston sold its U.S.  animal feeds and
agricultural  products  business in 1986. The U.S. animal feeds and agricultural
products  business  formerly  owned by Ralston is currently a subsidiary of Koch
Agriculture.

Key Measures for Understanding the Business

     Agricultural product sales prices and percent of sales gross profit margins
are directly  influenced by changes in the underlying  commodity  prices for raw
materials used to formulate  animal feeds.  The feed industry  generally  prices
products on the basis of aggregate  ingredient cost plus a fixed margin,  rather
than a gross margin percentage.  As ingredient prices fluctuate, the changes are
generally  passed on to  customers  through  changes  in the  Company's  product
pricing.  Income over ingredient cost ("IOIC"- which is equal to net sales minus
cost of ingredients),  rather than sales dollars,  is the key indicator of sales
performance  because of the  distortions  in sales dollars  caused by changes in
commodity  prices.  In addition to gross IOIC,  IOIC per ton sold is another key
measure used by management to evaluate sales trends.


                                       17
<PAGE>

<TABLE>

RESULTS OF OPERATIONS

<CAPTION>
                                                Consolidated     Americas    Europe      Asia

<S>                                                 <C>            <C>       <C>       <C>            
Year Ended August 31, 1998:
Net Sales                                           $1,410.1       $625.6    $397.2    $387.3
Operating Profit                                    $   56.3 (a)    $33.5    $ 11.9    $ 28.2

Tons of feed product sold (in thousands)               5,178        2,190     1,585     1,403
Income over Ingredient Costs                        $  345.8       $145.2    $115.2    $ 85.4


Year Ended August 31, 1997:
Net Sales                                           $1,527.6       $599.6    $467.7    $460.3
Operating Profit                                    $   43.5 (a)   $ 16.0    $  5.1    $ 32.8

Tons of feed product sold (in thousands)               5,078        2,004     1,686     1,388
Income over Ingredient Costs                        $  361.7       $127.1    $123.2    $111.4


Year Ended August 31, 1996:
Net Sales                                           $1,401.3       $573.7    $461.5    $366.1
Operating Profit                                    $   41.2 (a)   $ 22.7    $  6.5    $ 20.7

Tons of feed product sold (in thousands)               4,761        2,067     1,564     1,130
Income over Ingredient Costs                        $  333.3       $127.7    $118.1    $ 87.5

</TABLE>

Note:
(a)  Consolidated  operating  profit includes  unallocated  corporate  expenses,
provisions  for  restructuring  and  gains  on sale of  property.  Refer  to the
Geographic  Segment  Information in the notes to the financial  statements for a
reconciliation of consolidated operating profit.


      Year ended August 31, 1998 as compared to year ended August 31, 1997
      --------------------------------------------------------------------

Net Sales

     Consolidated  net sales  decreased  $117.5  million,  or 7.7%,  to $1,410.1
million in 1998 from $1,527.6 million in 1997. Volume increased 100,000 tons, or
2.0%, to 5,178,000  tons in 1998 from 5,078,000 tons in 1997. The decline in net
sales was  generated  by a  decrease  in  commodity  prices and  devaluation  of
functional  currencies  against  the U.S.  Dollar in excess of  increased  sales
prices in the local currencies.  Declining worldwide commodity costs contributed
to constrained pricing consistent with the feed industry's practice of adjusting
prices to achieve relatively stable unit margins.  The increase in volume is due
primarily to strong growth in the Americas.



                                       18
<PAGE>

     Net sales in the  Americas  increased  $26.0  million,  or 4.3%,  to $625.6
million in 1998 from  $599.6  million  in 1997.  The  increase  in net sales was
generated by  incremental  revenue from  increased  unit volume,  which was only
partially offset by a $14 per ton decline in average selling prices. The decline
in revenues per ton  primarily  reflects the decline in  commodity  costs.  This
decline  was less than that seen in other  regions  due to  increasing  sales of
higher priced aqua feeds (primarily shrimp feeds).  Unit volume for the Americas
operations increased 9.3% in 1998, primarily as a result of increased feed sales
in Mexico.  Agribrands' operations in Mexico experienced increased demand due to
improved economic conditions when compared to the prior year.

     Net sales in Europe decreased $70.5 million, or 15.1%, to $397.2 million in
1998 from  $467.7  million in 1997.  The  decline in net sales  resulted  from a
combination of decreased volume and lower ingredient costs.  Europe  experienced
volume  declines in the rabbit  segment,  which  suffered from a decline in feed
consumption as a result of an epidemic in that species,  and across all segments
due to plant closures.

     Net sales in Asia decreased  $73.0 million,  or 15.9%, to $387.3 million in
1998  from  $460.3  million  in  1997.  Unit  volume  for the  Asia  region  was
essentially flat for the year due to recessionary trends following the financial
crisis in the  region.  The  decline in net sales is due to  devaluation  of the
local  currencies  against the Dollar in excess of increased sales prices in the
local currencies and a decline in commodity costs.  During fiscal year 1998, the
Korean Won and Philippine Peso both devalued approximately one-third against the
Dollar.


Operating Profit

     Consolidated  operating profit increased $12.8 million,  or 29.4%, to $56.3
million  in  1998  from  $43.5  million  in  1997.  Operating  profit  increased
significantly  as improved  margins and increased  volume in the Americas region
and better  results  from Europe more than offset a decline in the Asia  region.
Corporate  administrative  expenses  increased  $7.1  million,   reflecting  the
stand-alone cost structure of the Company versus lower overheads  incurred while
the Agribrands businesses were owned by Ralston.

     Operating  profit in the Americas  increased $17.5 million,  or 109.4%,  to
$33.5 million in 1998 from $16.0 million in 1997.  The  improvement in operating
profit was  broad-based  but most  notable in Mexico where  increased  aqua feed
sales,  with  their  overall  higher  margins,  helped  increase  profitability.
Ingredient costs per ton declined $16 as a result of lower commodity prices. The
per ton  decline  in  ingredient  costs in the  region is less than that seen in
other regions  because of cost  increases in  specialized  ingredients  for aqua
feeds and more regulated markets for locally-sourced  feedstuffs.  IOIC improved
14.2% on higher volume and improved mix including higher aqua sales.

     Operating  profit in Europe  increased  $6.8 million,  or 133.3%,  to $11.9
million in 1998 from $5.1  million in 1997.  Costs for feed  ingredients  in the
region  decreased  $62.5 million as per unit costs declined $26,  reflecting the
decrease in worldwide  commodity  prices.  IOIC declined $8.0 million,  or 6.5%,
largely due to the reduction in volume. The decline in IOIC was more than offset
by a $14.8 million reduction in production,  overhead and miscellaneous costs. A


                                       19
<PAGE>

devaluation  benefit in these cost categories was partially  offset by increased
local currency costs including increased marketing and administrative  expenses.
The operations in Hungary continue to be the largest  contributor to earnings in
the region.

     Operating profit in Asia decreased $4.6 million, or 14.0%, to $28.2 million
in 1998 from $32.8  million in 1997.  Costs for feed  ingredients  in the region
decreased $47.0 million as per unit costs declined $36,  reflecting the decrease
in worldwide  commodity prices.  IOIC declined $26.0 million, or 23.3%, as local
pricing  adjustments  were  unable to offset the full effect of  devaluation  of
local currencies. IOIC declined $19 per ton in this environment.  The decline in
IOIC was largely offset by a $21.4 million reduction in production, overhead and
miscellaneous  costs.  A  devaluation  benefit  in  these  cost  categories  was
partially  offset  by  increased  local  currency  costs,   including  increased
provision for bad debts in Korea.

     Asian operating  results for the current period were adversely  affected by
difficult  economic  conditions  in the  region,  particularly  in  Korea  which
represents approximately 75% of the Company's Asian sales volume. Reduced demand
for  meat  products  caused  wholesale  meat  prices  to  settle  near or  below
production  costs.  This restricted the Korean  operations'  ability to maintain
volume and margins,  particularly in its largest product category - hog feed. In
spite of this difficult economic environment, the overall Korean operations have
remained  profitable in part through successful  development and introduction of
new products into the marketplace.

Restructuring activities

     In 1998,  Agribrands  recorded  provisions for restructuring  which reduced
earnings  before income taxes and net earnings by $3.0 million and $1.7 million,
respectively.  These charges  represented  primarily  severance  costs and fixed
asset write-offs  associated with the streamlining of Agribrands'  operations in
Europe.  The  restructuring  provided  for the  severance  of  approximately  40
employees,  most of whom were released prior to August 31, 1998. Severance costs
related to these restructuring  provisions were substantially paid by August 31,
1998. The pre-tax cost savings from these restructuring  activities approximated
$0.9  million in 1998 and are  expected to  approximate  $2.3  million  annually
beginning in 1999.

     In 1997,  Agribrands  recorded  provisions for restructuring  which reduced
earnings before income taxes and net earnings by $3.2 million.


Earnings Before Income Taxes

     Earnings  before income taxes  increased  $1.1  million,  or 3.3%, to $34.2
million in 1998 from $33.1 million in 1997.

     Interest expense totaled $12.0 million in 1998 compared to $10.9 million in
1997.  The increase is primarily due to higher  interest rates in the markets in
which the Company operates.

     Other  income/expense,  net,  was  unfavorable  by  $10.6  million  in 1998
compared to 1997.  Translation  and exchange  losses were  substantially  higher
during 1998 as a result of higher  foreign  currency  exchange  losses on Dollar


                                       20
<PAGE>

denominated debt in Korea and Colombia and higher  translation losses in Mexico,
where the Company  uses  hyper-inflationary  accounting.  Earnings for 1998 were
also adversely  impacted by a $2.5 million charge to write-off  financing  costs
associated with a credit  facility the Company elected not to close.  Investment
income was $1.0 million higher in 1998 due to higher levels of interest  bearing
investments.

Net Earnings

     Net earnings  increased  $5.1 million,  or 58.6%,  to $13.8 million in 1998
from $8.7  million in 1997.  Income  taxes,  which  included  United  States and
foreign  taxes,  were 59.6% of pre-tax  earnings in 1998 and 73.7% in 1997.  The
lower  effective  rate  for 1998  resulted  from  changes  in the  earnings  mix
including a  significant  reduction of foreign  losses in countries for which no
tax benefit could be currently  recognized.  Absent unforeseen operating losses,
management  anticipates  a  further  decrease  of  its  effective  tax  rate  to
approximately 50% of pre-tax earnings in 1999.

      Year ended August 31, 1997 as compared to year ended August 31, 1996
      --------------------------------------------------------------------

Net Sales

     Consolidated  net sales  increased  $126.3  million,  or 9.0%,  to $1,527.6
million in 1997 from $1,401.3 million in 1996. Volume increased 317,000 tons, or
6.7%,  to  5,078,000  tons in 1997 from  4,761,000  tons in 1996.  Net sales and
volume  increases  were  primarily  due to the  strong  performance  of the Asia
region.

     Net sales in the  Americas  increased  $25.9  million,  or 4.5%,  to $599.6
million in 1997 from $573.7  million in 1996.  Volume  decreased in the Americas
region from 2,067,000  tons in 1996 to 2,004,000 tons in 1997,  primarily due to
declines in Mexico and Venezuela  where  difficult  economic  conditions had the
greatest impact. Despite these volume decreases,  higher prices charged to cover
rising commodity prices resulted in increased net sales.

     Net sales in Europe  increased $6.2 million,  or 1.3%, to $467.7 million in
1997 from $461.5 million in 1996.  Volume and net sales in Europe  increased due
to an  acquisition  in France  and the  impact  of a full  year of  consolidated
results  from the 1996  acquisition  of the  remaining  interest in  Agribrands'
business in Spain, which were partially offset by declines in net sales in Italy
and Portugal.  Italy experienced  volume declines mainly in the dairy and cattle
segments,  which suffered from red meat concerns due to BSE or "Mad Cow" disease
and reduced milk  production  quotas imposed by the European Union. In Portugal,
volume declined in conjunction with a restructuring of its operations.

     Net sales in Asia increased  $94.2 million,  or 25.7%, to $460.3 million in
1997 from $366.1 million in 1996.  Volume and net sales in Asia increased due to
strengthening  demand for Agribrands  products as well as rapid overall economic
growth in the region.


Operating Profit

     Consolidated  operating  profit  increased $2.3 million,  or 5.6%, to $43.5
million  in 1997 from  $41.2  million  in 1996.  Operating  profit  improved  as


                                       21
<PAGE>

favorable  margins and  increased  volume in Asia was only  partially  offset by
lower operating profit in Europe and the Americas. Consolidated operating profit
also reflects  provisions for  restructuring,  which decreased $5.1 million,  or
61%, to $3.2 million in 1997 from $8.3 million in 1996.

     Operating profit in the Americas decreased $6.7 million, or 29.5%, to $16.0
million in 1997 from $22.7  million in 1996.  Included in  operating  profit for
1997 is a $2 million charge  incurred in connection with exiting an unsuccessful
joint venture in Chile.  The  competitive  pressure in Mexico and Venezuela also
contributed to the decline in operating profit in 1997.

     Operating  profit in  Europe  decreased  $1.4  million,  or 21.5%,  to $5.1
million in 1997 from $6.5 million in 1996. This decrease was primarily caused by
a $6.5 million,  or 5.8%,  increase in production and overhead costs.  Increased
IOIC of $5.1 million on the  increased  volume  helped to offset the majority of
the increased production and overhead costs.

     Operating  profit in Asia  increased  $12.1  million,  or  58.5%,  to $32.8
million in 1997 from $20.7 million in 1996.  Operating  profit in Asia increased
on higher volume and improved margins.  The margin  improvement was most notable
in the Philippines  where Agribrands  experienced  favorable  ingredient  costs,
gains in production  efficiency and strong end-product markets.  Operations also
remained strong in Korea accounting for  approximately  75% of the net sales and
50% of the region's operating profit during 1997.


Restructuring Activities

     In 1997,  Agribrands  recorded  provisions for restructuring  which reduced
earnings  before  income  taxes  and net  earnings  by $3.2  million.  In  1996,
Agribrands  recorded  provisions for restructuring which reduced earnings before
income taxes and net earnings by $8.3  million and $7.2  million,  respectively.
These charges  primarily  represented  asset write-downs and severance costs and
were associated with the streamlining of the Agribrands operations in advance of
the  planned  spin-off.   The  restructuring   provided  for  the  severance  of
approximately  300  employees,  most of whom were  released  prior to August 31,
1997.   Severance   costs  related  to  these   restructuring   provisions  were
substantially  paid by August 31,  1997.  The pre-tax  cost  savings  from these
restructuring activities were approximately $7.0 million in 1997.


Earnings Before Income Taxes

     Earnings  before income taxes  increased $8.2 million,  or 32.9%,  to $33.1
million in 1997 from $24.9 million in 1996.

     Interest expense totaled $10.9 million in 1997 compared to $13.0 million in
1996.  The decrease in 1997 resulted from lower average  outstanding  borrowings
and lower interest rates.

     In 1997,  other  income/expense,  net,  improved  by $3.8  million on lower
foreign  currency  exchange  losses in Mexico  and lower  translation  losses in
Venezuela.


Net Earnings.

     Net earnings decreased $2.2 million, or 20.2%, to $8.7 million in 1997 from
$10.9  million in 1996.  Income taxes,  which include  United States and foreign


                                       22
<PAGE>

taxes, were 73.7% of pretax earnings in 1997 and  56.2% in  1996.  The  increase
in the  effective  rate  for 1997  resulted from  changes in  the  earnings  mix
including   increased  foreign   losses  in countries  for  which no tax benefit
could be currently recognized. In addition,  Agribrands experienced higher taxes
in 1997  because of  increased  repatriation  of foreign  earnings to the United
States.


Liquidity and Capital Resources

     Cash flow from operations  totaled $33.3 million in 1998.  Inventory levels
increased  primarily to support the growth of the  business in Mexico.  Accounts
receivable  increased  primarily as a result of $12.9 million in receivables due
from Ralston in connection with the  Distribution.  Accounts payable and accrued
liabilities  declined  due to changes in the timing of  payments,  primarily  in
Korea.  Cash  flow  from  operations  was  higher  in 1997 as a result  of lower
inventory and other working capital  requirements.  Lower inventory  levels were
most notable in Korea where strong  fourth  quarter  sales volume  combined with
timely inventory  purchases to result in a very favorable  inventory position at
August 31,  1997.  Cash flow from  operations  decreased  in 1996 as  Agribrands
experienced  significant  increases in receivables  and inventory as a result of
substantial  increases in  commodity  prices and in support of the growth of the
business.

     Capital  expenditures,  primarily to replace or enhance existing production
facilities and equipment, totaled $44.6 million, $44.1 million and $28.5 million
in  fiscal  years  1998,  1997  and  1996,   respectively.   Projected   capital
expenditures of approximately $30 million in 1999 are expected to be funded with
existing  cash  reserves  as well as from cash  generated  from  operations  and
borrowings from banks.

     Agribrands is  continually  evaluating  new  investment  opportunities.  In
December 1997,  Agribrands invested $5.0 million in Agribrands Purina (Langfang)
Feedmill Co.,  Ltd., a new wholly owned foreign  subsidiary.  The new subsidiary
utilized these funds along with $2 million in proceeds from the issuance of debt
to acquire a feed mill in Langfang,  Peoples Republic of China. In January 1998,
Agribrands  acquired a feed mill in  Maracay,  Venezuela  for $4.3  million.  In
January 1998,  Agribrands  also  acquired a feed mill in Spessa,  Italy for $7.3
million.  Agribrands  had  previously  leased the feed mills in both Maracay and
Spessa.  These  acquisitions were funded through a combination of funds provided
by  Ralston  and local  country  borrowings.  Assuming  these  acquisitions  had
occurred as of September 1, 1997,  they would not have had a material  effect on
net sales or net earnings.

     Agribrands' capital investments and acquisitions have been partially funded
with  investments  by and advances from Ralston.  Net proceeds from Ralston were
$141.9 million, $13.7 million, and $51.3 million in fiscal years 1998, 1997, and
1996, respectively. During 1998, in connection with the Distribution, Agribrands
received   approximately   $90.0  million  of  cash  from  Ralston   (offset  by
approximately $65.0 million of debt retained by Agribrands' affiliates.)

     The  Company's  subsidiaries  generally  fund their  working  capital needs
through  short-term  borrowings  provided by local country banks and branches of
multi-national  banks.  Intercompany loans are also used by the Company and have
the  effect  of  reducing  external  local  borrowing  costs  by more  than  the
opportunity cost of lower U.S. invested reserves.  Short-term  borrowings of the
Company's  subsidiaries increased from $33.8 million in 1997 to $46.9 million in
1998  primarily  through a shift from long-term  debt. The Company  continues to
utilize lenders which provided financing prior to the Distribution.  Uncommitted


                                       23
<PAGE>

credit lines are generally  established in each country with several  lenders in
order to assure availability of working capital. On August 31, 1998 total unused
uncommitted lines of credit were  approximately  $175 million.  The $175 million
includes  approximately  $90  million  of  uncommitted  lines of credit  for the
Company's Korean subsidiary.

     Cash on hand, cash flow from operations, and borrowings under various lines
of credit are Agribrands' primary sources of liquidity.  Management has a strong
focus on cash flow and the  effective  use of excess  cash  flow.  The  combined
operating, cash and equity position of Agribrands should continue to provide the
capital  flexibility  necessary to fund future  opportunities as well as to meet
existing obligations.


Foreign Currency Exchange Risks

     International  operations account for almost all of Agribrands' revenue and
operating income. Foreign currency exposures arise from transactions,  including
firm commitments and anticipated  transactions,  denominated in a currency other
than an entity's functional  currency and from foreign denominated  revenues and
profits translated into U.S. Dollars.

     Agribrands  periodically  enters into foreign exchange forward contracts to
mitigate  Agribrands'  economic  exposure to changes in exchange rates.  Company
policy  allows  foreign  currency  hedging  transactions  only for  identifiable
foreign  currency  exposures  and,  therefore,  Agribrands  does not enter  into
foreign  currency  contracts  for trading  purposes  where the  objective  is to
generate  profits.  The potential loss in fair value at August 31, 1998 for such
net currency  positions  resulting  from a  hypothetical  10% adverse  change in
foreign currency exchange rates is $0.3 million.

     Agribrands   generally  views  as  long-term  its  investments  in  foreign
subsidiaries with a functional currency other than the U.S. Dollar. As a result,
Agribrands does not generally hedge these net investments.  However,  Agribrands
uses capital  structuring  techniques  to manage its net  investment  in foreign
currencies as considered  necessary.  Additionally,  Agribrands closely monitors
its U.S.  Dollar net  monetary  liabilities  in  currencies  of  countries  with
historically high rates of inflation.  The net investment in Agribrands' foreign
subsidiaries and affiliates  translated into dollars using the year-end exchange
rates is  approximately  $205 million at August 31, 1998.  The potential loss in
value of  Agribrands'  net investment in foreign  subsidiaries  resulting from a
hypothetical  10% adverse  change in quoted foreign  currency  exchange rates at
August 31, 1998 amounts to $18.7 million.

     The net investment in Agribrands' Korean operations translated into dollars
using the year-end  exchange  rates is  approximately  $49 million at August 31,
1998.  The  potential  loss in value of  Agribrands'  net  investment  in Korean
operations resulting from a hypothetical 10% adverse change in the quoted Korean
won currency exchange rate at August 31, 1998 amounts to $4.5 million.

Commodity Price Risks

     The  availability  and price of  agricultural  products are subject to wide
fluctuations due to unpredictable factors such as weather conditions, government
regulations,  economic  climate or other unforeseen  circumstances.  The Company
utilizes  highly  correlative  and  effective  commodity  futures  contracts and
options to manage  certain of these  exposures.  The  Company  hedges  only firm


                                       24
<PAGE>

commitments or anticipated transactions, and Company policy prohibits the use of
commodity  derivatives  for  speculation.  The  potential  loss in fair value at
August 31, 1998 of the Company's  commodity  positions,  excluding  inventory on
hand and fixed price contracts, resulting from a hypothetical 10% adverse change
in commodity prices is $0.2 million.

Year 2000 Costs

     Many  computer  systems and other  systems with  embedded  chip  technology
process  dates based on two digits for the year of a  transaction  rather than a
full four digits. These systems are unable to properly process dates in the year
2000 and beyond.  Agribrands  utilizes a number of computer  systems  across its
entire worldwide operation.  The Company has identified its significant software
coding issues  related to the year 2000 date  recognition  for key financial and
operational  systems. The Company has already resolved the year 2000 matter at a
number of its  locations  and plans to  continue  resolving  the matter  through
either  replacement of existing systems with new year 2000 compatible systems or
reprogramming  existing  systems.  The Company  incurred costs of less than $0.5
million  in 1998 for year 2000  reprogramming  of  existing  systems.  Year 2000
reprogramming  costs  were  negligible  in  1997  and  1996  as  Agribrands  was
converting to new systems in  anticipation of the  Distribution.  To make all of
its systems year 2000 compliant,  the Company estimates  incurring an additional
$0.5 million of  reprogramming  costs and spending an additional $1.7 million on
replacement hardware and software. Completion of all reprogramming, hardware and
software replacement, and appropriate testing is expected to occur by August 31,
1999. All costs related to the  reprogramming  of existing  systems for the year
2000 issue are expensed as incurred.  Hardware  and software  replacement  costs
will be capitalized.

     Based on the  Company's  efforts  to  date,  management  believes  that its
systems  will be year  2000  compliant.  The  Company  is  working  with its key
customers  and suppliers to obtain  assurances  that their systems are year 2000
compliant.  However,  the  Company  does not have any  control  over these third
parties  and, as a result,  cannot  currently  determine  to what extent  future
operating  results  may be  adversely  effected  by the  failure of these  third
parties to successfully address their year 2000 issues. In addition, the Company
operates in sixteen  countries on four  continents at various stages of economic
development  and is  dependent  on systems  operated by  governments,  financial
institutions,  utilities,  communications  suppliers and others in each of these
countries.  The failure of any of such  infrastructural  systems to be year 2000
compliant  could disrupt the Company's  business for a period of time and if not
quickly  resolved  could  have a material  adverse  effect on the  Company.  The
Company has not yet developed  formal  contingency  plans in the event of a Year
2000 failure.

European Economic Monetary Union

     On January 1, 1999, eleven of the European Union countries  (including four
countries where  Agribrands'  operations are located) are scheduled to adopt the
Euro as their single currency,  and there will be fixed conversion rates between
their existing currencies ("legacy currencies") and the Euro. The Euro will then
trade on currency exchanges and be available for noncash transactions. Following
the introduction of the Euro, the legacy  currencies will remain legal tender in
the  participating  countries during the transition  period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue euro-denominated bills and coins for use in cash transactions.  On or
before July 1, 2002, the participating  countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.



                                       25
<PAGE>

     The Company's key financial  information  systems in Europe are equipped to
process both Euro and legacy currency  transactions during the transition period
from January 1, 1999 through January 1, 2002; however,  they are not equipped to
handle  the July 1, 2002  withdrawal  of all  legacy  currencies.  As part of an
initiative to make all of the Company's key financial systems  consistent across
the organization, management is planning to replace these old systems with a new
system that can handle the July 1, 2002  mandatory  conversion to the Euro.  All
costs  associated with the new system will be  capitalized.  The Company has not
incurred any  reprogramming  costs in connection with the conversion to the Euro
and does not anticipate  incurring any such costs in the future.  From a broader
business  perspective,  conversion to the Euro may cause pricing  disparities in
different markets to narrow, lowering the Company's margins.

Inflation

     Management  recognizes  that  inflationary  pressures  may have an  adverse
effect  on  Agribrands  through  higher  asset  replacement  costs  and  related
depreciation   and  higher  material   costs.  In  addition,   hyperinflationary
conditions have occurred in many of the countries in which Agribrands  operates.
Agribrands tries to minimize these effects through geographical diversification,
cost  reductions and  productivity  improvements  as well as price  increases to
maintain  reasonable profit margins.  It is management's view that inflation has
not had a significant  impact on the consolidated  operations in the three years
ended August 31, 1998.

Seasonality

     Sales  prices  and  volume  can  both  be  impacted  by  seasonal  factors.
Agricultural  product  sales  prices are directly  influenced  by changes in the
underlying  commodity  prices for the raw  materials  used to  formulate  animal
feeds.  Commodity  prices are usually at their lowest in the months  immediately
following the fall harvest.  Sales volume may fluctuate  somewhat  seasonally as
temperature affects caloric intake and breeding cycles.

     Currently,  seasonal  factors have a minimal impact on the Company's  total
performance  in any given  period.  Seasonality  of  commodity  prices  does not
materially  affect  earnings  due to  the  industry  practice  of  pricing  at a
relatively  constant margin over ingredient costs.  Seasonally driven changes in
consumption  do not  materially  affect volume or earnings due to the geographic
and species diversification of Agribrands' operations.

Outlook

     Operating  results in the Americas  region  improved  significantly  during
fiscal  1998  largely   driven  by  improved   margins  and  increased   volume,
particularly in Mexico. Management believes the strategic initiatives underlying
these trends are sustainable  operationally,  but expects that financial results
will remain highly sensitive to potentially volatile  macro-economic  conditions
in Central and South America,  consistent with troubles across emerging  markets
globally.

     The  European  animal  feed  industry  is  mature,  fragmented  and  highly
competitive  with excess  capacity.  Consolidation of the animal feed and animal
production  industries  is  underway  throughout  Europe.  In  response to these
factors, the Company recently announced a management  reorganization whereby the


                                       26
<PAGE>

Western Europe operations  (France,  Italy, Spain and Portugal) will be operated
as a single unit under one operational management team (previously,  there was a
team within each country).  It is hoped that the new structure  will  facilitate
dissemination  of  research,  manufacturing,  and sales and  marketing  concepts
across the region and, over time, allow for further administrative efficiencies.
The new structure will also allow management to view opportunities  arising from
industry consolidation in the context of a regionwide approach.  Earnings growth
and value  creation  in the  region is  dependent  on  Management's  ability  to
implement this approach successfully.

     Recent results in Asia reflect the sensitivity of the Company's  operations
to local macro-economic conditions. This sensitivity is heightened when a region
is dependent on imported feed  ingredients  typically  valued in U.S. Dollars at
global market prices.  The local  currency costs of ingredients  imported into a
region  increase  as the local  currencies  devalue.  This may cause  short-term
declines in margins due to delays in changing feed prices.  More  significantly,
the resulting  local currency cost increase for the animal  producer can lead to
unfavorable   economics  for  livestock  and  poultry  producers  leading  to  a
contraction in the feed market.  These conditions  currently apply to Agribrands
operations in Korea and the Philippines  whose currencies  devalued by one-third
in fiscal 1998.

     If the Asia region's financial condition stabilizes, management anticipates
a further,  though less severe, decline in total industry output in fiscal 1999,
as the region  makes a long-term  adjustment  to the new  economic  environment.
Agribrands'  return to prior levels of profitability  and renewed growth in Asia
will  require both  favorable  economic  circumstances  and  continued  tactical
excellence  in Korea  and in the  Philippines  which  was the  region's  largest
contributor to operating profit in fiscal 1998.

     While  current  conditions  have made  operating  in the Asian  region more
difficult,  Agribrands  remains  committed  to the  Asian  market  and views the
current  financial crises as a possible  opportunity to strengthen its long-term
market position within the region.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     See Note 5 of the Company's Notes to Financial  Statements for management's
quantitative and qualitative disclosure about market risk.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


REPORT OF MANAGEMENT

     The  management  of  Agribrands   International,   Inc.  has  prepared  the
accompanying  consolidated  financial  statements for the years ended August 31,
1998, 1997 and 1996 and is responsible for their integrity and objectivity.  The
statements  were  prepared in  conformity  with  generally  accepted  accounting
principles, applying certain estimates and judgments as required.

     The Company  maintains  accounting  and internal  control  systems which it
believes  are  adequate  to  provide   reasonable   assurance  that  assets  are
safeguarded  against loss from  unauthorized  use or  disposition  and financial
records are reliable for  preparing  financial  statements.  The  selection  and


                                       27
<PAGE>

training  of  qualified  personnel,   the  establishment  and  communication  of
accounting and administrative policies and procedures,  and an extensive program
of internal audits, are important elements of these control systems.

     The Board of Directors,  through its Audit Committee  consisting  solely of
non-management directors, meets periodically with management, internal audit and
the independent  accountants to discuss audit and financial  reporting  matters.
Both the internal auditors and  PricewaterhouseCoopers LLP have direct access to
the Audit Committee.

     The report of PricewaterhouseCoopers LLP appears below.


REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of Agribrands International, Inc.:

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated  statements of earnings,  of cash flows and of shareholders
equity  present  fairly,  in all material  respects,  the financial  position of
Agribrands International, Inc. and its subsidiaries at August 31, 1998 and 1997,
and the results of their  operations  and their cash flows for each of the three
years in the period ended August 31, 1998, 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.



/S/ PricewaterhouseCoopers LLP

St. Louis, Missouri
October 20, 1998

                                       28
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                       CONSOLIDATED STATEMENT OF EARNINGS
                              Year ended August 31
                              (Dollars in Millions)


<TABLE>

<CAPTION>
                                             1998         1997         1996
                                           ---------   ----------   ----------
<S>                                        <C>         <C>          <C>                         

Net Sales                                  $ 1,410.1   $ 1,527.6    $ 1,401.3
Costs and Expenses
    Cost of products sold                    1,207.2     1,322.0      1,217.4
    Selling, general and administrative        143.6       158.9        138.0
    Interest                                    12.0        10.9         13.0
    Provisions for restructuring                 3.0         3.2          8.3
    Gain on sale of property                      -           -          (3.6)
    Other (income)/expense, net                 10.1        (0.5)         3.3
                                           ---------   ----------   ---------
                                             1,375.9     1,494.5      1,376.4
                                           ---------   ----------   ---------

Earnings before Income Taxes                    34.2        33.1         24.9
Income Taxes                                    20.4        24.4         14.0
                                           ---------   ---------    ---------
Net Earnings                               $    13.8   $     8.7    $    10.9
                                           =========   ==========   =========

Earnings Per Share
    Basic                                  $    1.29   $     .82    $    1.02 
                                           =========   ==========   =========
    Diluted                                $    1.29   $     .82    $    1.02
                                           =========   ==========   =========
</TABLE>



The above financial  statement  should be read in conjunction  with the Notes to
Financial Statements.



                                       29
<PAGE>


<TABLE>

                         AGRIBRANDS INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
                                    August 31
                              (Dollars in Millions)
<CAPTION>
                                                          1998           1997
                                                         --------    ----------
<S>                                                      <C>         <C>       
Assets
Current Assets
    Cash and cash equivalents                            $  136.5    $     25.2
    Marketable securities                                     1.5           6.8
    Receivables, less allowance for doubtful accounts       103.0         114.4
    Inventories                                              98.8         112.0
    Other current assets                                     11.1          11.7
                                                         --------    ----------
      Total Current Assets                                  350.9         270.1
                                                         --------    ----------

Investments and Other Assets                                 50.9          54.2
Property, Plant and Equipment - net                         176.6         156.9
                                                         --------    ----------
        Total                                            $  578.4    $    481.2
                                                         ========    ==========

Liabilities and Shareholders Equity
Current Liabilities
    Current maturities of long-term debt                 $    8.7    $     19.4
    Notes payable                                            46.9          33.8
    Accounts payable and accrued liabilities                132.8         162.7
    Income taxes                                              8.8           7.5
                                                         --------    ----------
      Total Current Liabilities                             197.2         223.4
                                                         --------    ----------

Long-Term Debt                                               14.2          22.8
Deferred Income Taxes                                         2.7           9.6
Other Liabilities                                            24.9          27.3

Shareholders Equity
    Common stock, $.01 par value, issued
       10,668,571 shares                                      0.1
    Capital in excess of par                                419.5
    Retained earnings                                         6.1
    Cumulative translation adjustment                       (86.3)
                                                         ---------   ----------
      Total Shareholders Equity                             339.4
                                                         ---------   ----------

Ralston Equity Investment                                                 198.1
                                                         ---------   ----------
        Total                                            $  578.4    $    481.2
                                                         =========   ==========
</TABLE>


The above financial  statement  should be read in conjunction  with the Notes to
Financial Statements.



                                       30
<PAGE>

<TABLE>

                         AGRIBRANDS INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                              Year Ended August 31
                              (Dollars in Millions)

<CAPTION>

                                                                               1998         1997         1996
                                                                             --------     --------     -------
<S>                                                                         <C>          <C>          <C>    

Cash Flow from Operations
   Net earnings                                                             $  13.8      $    8.7       $10.9
                                                                                              
   Adjustments to reconcile net earnings to cash from operations:
      Depreciation and amortization                                            21.2          21.9        20.4
      Translation and exchange loss                                            12.8           3.7         8.3
      Non-cash restructuring                                                    0.7           2.2          -
      Deferred income taxes                                                    (5.1)          1.9        (3.4)
      Gain on sale of property                                                  -             -          (3.6)
      Changes in assets and liabilities used in operations:
        Increase in accounts receivable                                        (6.5)         (2.7)      (17.3)
        (Increase) decrease in inventories                                     (4.1)         16.6       (43.8)
        (Increase) decrease in other current assets                            (1.2)         (1.1)        1.2
        (Decrease) increase in accounts payable and accrued liabilities        (6.0)         10.3        17.2
        Increase (decrease) in income taxes payable                             3.3           0.7        (0.4)
      Other, net                                                                4.4           5.6        (7.8)
                                                                            --------     --------     -------
          Net cash provided by (used by) operations                            33.3          67.8       (18.3)
                                                                            --------     --------     -------

Cash Flow from Investing Activities
   Acquisitions of businesses                                                 (16.6)         (3.3)      (25.6)
   Property additions                                                         (44.6)        (44.1)      (28.5)
   Proceeds from the sale of Korean cereal business                              -             -         10.0
   Proceeds from the sale of property                                           1.2           2.0         1.2
   Other, net                                                                   0.3           6.9         6.8
                                                                            --------     --------     -------
          Net cash used by investing activities                               (59.7)       (38.5)      (36.1)
                                                                            --------     --------     -------

Cash Flow from Financing Activities
   Proceeds from issuance of long-term debt                                    19.0           3.8        10.7
   Principal payments on long-term debt, including current maturities         (32.4)         (5.3)      (17.0)
   Net increase (decrease) in notes payable                                    16.7         (33.3)       16.1
   Net transactions with Ralston                                              141.9          13.7        51.3
                                                                            --------     --------     -------
          Net cash provided by (used by) financing activities                 145.2         (21.1)       61.1
                                                                            --------     --------     -------

Effect of Exchange Rate Changes on Cash and Cash Equivalents                   (7.5)         (3.3)       (2.2)
                                                                            --------     --------     -------
Net Increase in Cash and Cash Equivalents                                     111.3           4.9         4.5
Cash and Cash Equivalents, Beginning of Period                                 25.2          20.3        15.8
                                                                            --------     --------    --------
Cash and Cash Equivalents, End of Period                                     $136.5       $  25.2     $  20.3
                                                                            ========     ========     =======

The above financial  statement  should be read in conjunction  with the Notes to
Financial Statements.
</TABLE>


                                       31
<PAGE>


--------------------------------------------------------------------------------
                         AGRIBRANDS INTERNATIONAL, INC.
                  CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
                        Three years ended August 31, 1997
                              (Dollars in Millions)

<TABLE>

<CAPTION>

                                                     Ralston               Capital in             Cumulative
                                                      Equity     Common    Excess of   Retained   Translation
                                                    Investment   Stock     Par Value   Earnings   Adjustment
<S>                                                 <C>          <C>       <C>         <C>        <C>    

Balance at August 31, 1995                          $ 136.3
Net earnings                                           10.9
Net transactions with Ralston                          47.5
Foreign currency translation adjustment                (4.4)
                                                    --------
Balance at August 31, 1996                          $ 190.3
Net earnings                                            8.7
Net transactions with Ralston                          20.5
Foreign currency translation adjustment               (21.4)
                                                    --------
Balance at August 31, 1997                          $ 198.1
Net earnings                                            7.7
Net transactions with Ralston                         142.8
Foreign currency translation adjustment               (15.3)
                                                    --------
Balance at March 31, 1998                           $ 333.3
Distribution to Ralston's shareholders               (333.3)     $   .1    $  419.5          -    $  (86.3)
Net earnings                                             -           -           -     $    6.1         -
Foreign currency translation adjustment                  -           -           -           -          -
                                                    --------     -------  --------     --------   --------            

Balance at August 31, 1998                          $   -        $   .1    $  419.5    $    6.1   $  (86.3)
                                                    ========     =======   ========    ========   ========

</TABLE>

The above financial  statement  should be read in conjunction  with the Notes to
Financial Statements.
===============================================================================

                                       32
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)



1.       BASIS OF PRESENTATION

     Effective   April   1,   1998   (the   "Distribution   Date"),   Agribrands
International,  Inc.  (the  "Company" or  "Agribrands")  became an  independent,
publicly owned company as a result of the distribution by Ralston Purina Company
("Ralston")of  the  Company's  $.01 par value Common Stock to holders of Ralston
Purina  Company  Common  Stock  at a  distribution  ratio  of one for  ten  (the
"Distribution").  Prior to the Distribution,  the Company was formed as a wholly
owned  subsidiary  of Ralston for the  purpose of  effecting  the  Distribution.
Included in this transaction was the transfer of substantially all of the assets
and liabilities related to the animal feeds and agricultural products businesses
(the "Agribrands  Businesses").  Ralston's international pet products businesses
("RPI  Consumer") were not included in the spin-off.  Ralston did not retain any
ownership interest in the Company.

     Agribrands is one of the leading  international  producers and marketers of
animal feeds and, through its subsidiaries and joint venture partners,  operates
74 manufacturing  plants in 16 countries.  Its products are marketed outside the
United States under the Purina and Chow brands and the Checkerboard logo through
a network of approximately 3,200 independent  dealers, as well as an independent
and a direct sales force.

     The Balance  Sheet as of August 31,  1998 is  presented  on a  consolidated
basis. The Statement of Earnings for the year ended August 31, 1998 includes the
combined  results of operations of the Agribrands  Businesses  under Ralston for
the seven months prior to the Distribution Date and the consolidated  results of
operations  of the Company for the five month period ended August 31, 1998.  The
financial  statements  as of August 31,  1997 and for all  periods  prior to the
Distribution  Date are presented on a combined basis and reflect  periods during
which the Agribrands Businesses operated primarily as wholly-owned  subsidiaries
of Ralston and its  subsidiaries.  The  combined  financial  statements  include
assets,  liabilities,  revenues,  and expenses that are directly  related to the
Agribrands  Businesses.  All  significant  intercompany  transactions  have been
eliminated from the combined financial statements.

      RPI Consumer, while not included in the accompanying financial statements,
generally operated within the same subsidiaries and affiliates as the Agribrands
Businesses prior to the Distribution Date. See Related Party Activity note for a
more complete discussion.

     Certain  previously  reported  amounts have been  reclassified to make them
consistent with the current year presentation.


2.       SUMMARY OF ACCOUNTING POLICIES

     Agribrand's  significant  accounting  policies,  which conform to generally
accepted  accounting  principles  and are  applied on a  consistent  basis among
years, except as indicated, are described below:

     Principles  of  Consolidation  - These  financial  statements  include  the
accounts of Agribrands  and its  majority-owned  subsidiaries.  All  significant


                                       33
<PAGE>

intercompany  transactions  have  been  eliminated.  Investments  in  affiliated
companies, 20% through 50%-owned, are carried at equity.

     Minority interests in earnings of subsidiaries and Agribrands' share of the
net  earnings  of  unconsolidated  companies  carried at equity are  included in
selling, general and administrative expenses.

     Foreign Currency  Translation - Financial  statements of foreign operations
where the  local  currency  is the  functional  currency  are  translated  using
exchange  rates in effect at period end for assets and  liabilities  and average
exchange rates during the period for results of operations.  Related translation
adjustments are reported as a separate component of Shareholders Equity.

     For foreign operations where the U.S. Dollar is the functional currency and
for countries which are considered highly  inflationary,  translation  practices
differ in that inventories,  investments,  properties,  accumulated depreciation
and  depreciation  accounts are  translated at historical  rates of exchange and
related translation adjustments are included in earnings.  Gains and losses from
foreign currency transactions are generally included in earnings.

     Derivative  Financial  Instruments - All derivative  financial  instruments
held by the Company are designated as hedges,  have a high degree of correlation
with the underlying  exposure and are highly effective in offsetting  underlying
price movements.  Accordingly,  gains and losses from changes in derivative fair
values are  deferred  and  recognized  in the  statement of earnings in the same
period as the  underlying  transaction.  If the  underlying  transaction  was no
longer  expected to occur,  any gain or loss would be recognized  immediately in
the statement of earnings. See FINANCIAL INSTRUMENTS for additional information.

     Cash  Equivalents,  for  purposes  of the  statement  of  cash  flows,  are
considered to be all highly liquid  investments  with a maturity of three months
or less when purchased,  including time deposits of $12.8 and $6.4 at August 31,
1998 and 1997, respectively.

     Marketable Securities are valued at cost which approximates market.

     Inventories are valued generally at the lower of average cost or market.

     Property  at  Cost -  Expenditures  for  new  facilities  and  those  which
substantially  increase the useful  lives of the  property,  including  interest
during construction,  are capitalized.  Maintenance,  repairs and minor renewals
are expensed as incurred.  When properties are retired or otherwise disposed of,
the related cost and accumulated  depreciation are removed from the accounts and
gains or losses on the dispositions are reflected in earnings.

     Depreciation is generally provided on the straight-line basis by charges to
costs  or  expenses  at  rates  based  on  the  estimated  useful  lives  of the
properties.  Estimated  useful lives range from 5 to 15 years for  machinery and
equipment and 15 to 40 years for  buildings.  Depreciation  expense was $19.3 in
1998, $19.6 in 1997, and $19.1 in 1996.


                                       34
<PAGE>
            
                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)


     Goodwill, which is included in Investments and Other Assets, represents the
excess  of cost  over the net  tangible  assets of  acquired  businesses  and is
amortized over periods of up to 40 years, with the majority being amortized over
a 25 year period.

     Subsequent to acquisition,  Agribrands  continually evaluates whether later
events and  circumstances  have occurred  that indicate the remaining  estimated
useful life of  businesses  carrying  goodwill may warrant  revision or that the
remaining  balance  of  goodwill  may not be  recoverable.  The  measurement  of
possible  impairment  is based on the ability to recover the balance of goodwill
from expected  future  operating  cash flows on an  undiscounted  basis.  In the
opinion of  management,  no such  impairment  existed as of August 31,  1998 and
1997.

     Revenue  is  recognized  when  products  are  shipped to  customers.  Sales
discounts,  returns and allowances are included in net sales.  The provision for
doubtful accounts is included in selling, general and administrative expenses.

     Advertising Costs are expensed as incurred and were $13.7 in 1998, $16.8 in
1997 and $15.7 in 1996.

     Research  and  Development  Costs are expensed as incurred and were $5.5 in
1998 and $3.2 in 1997 and 1996.

     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.

     Income Taxes - Agribrands  follows the liability  method of accounting  for
income taxes.  Deferred  income taxes are recognized for the effect of temporary
differences  between financial and tax reporting.  No additional U.S. taxes have
been  provided  on earnings of foreign  subsidiaries  expected to be  reinvested
indefinitely.   Additional  income  taxes  are  provided,  however,  on  planned
repatriation of foreign earnings after taking into account  tax-exempt  earnings
and applicable  foreign tax credits.  Management  assesses the  realizability of
deferred tax assets and provides valuation allowances as deemed necessary.

     Earnings  per Share - Basic  earnings  per share are based on the  weighted
average number of shares  outstanding  during the year including  assumed shares
outstanding  of 10.7  million for all periods  prior to the  Distribution  Date.
Diluted  earnings per share are adjusted for the dilutive effect of common stock
equivalents. See EARNINGS PER SHARE for additional information.

     New Accounting  Standards - The Financial Accounting Standards Board issued
SFAS No. 130, "Reporting  Comprehensive  Income," and SFAS No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities," in June 1997 and June 1998,
respectively.  The Company is evaluating the effects these  statements will have
on its financial reporting and disclosures.  The Company will adopt SFAS No. 130
in fiscal year 1999 and SFAS No. 133 in fiscal year 2000.




                                       35
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)


3.   ACQUISITIONS

     In January 1998, the Company acquired feed mills in Maracay,  Venezuela and
Spessa, Italy for $4.3 and $7.3, respectively.  Agribrands had previously leased
the feed mills in both Maracay and Spessa.

     In December 1997,  Agribrands invested $5.0 in Agribrands Purina (Langfang)
Feedmill Co.,  Ltd., a new wholly owned foreign  subsidiary.  The new subsidiary
utilized  the funds to acquire a feed mill in  Langfang,  People's  Republic  of
China.

     In May 1997,  Agribrands acquired a 75% interest in Purina Fushun Feed Mill
Co. Ltd., a new joint venture in Fushun, People's Republic of China, for $3.0.

     These acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included in the  consolidated
statement of earnings from the date of acquisition.  Assuming these acquisitions
had occurred as of the beginning of their  respective  fiscal years,  they would
not have had a material effect on net sales or net earnings.























                                       36
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)
<TABLE>

4.        GEOGRAPHIC SEGMENT INFORMATION

                                              1998         1997         1996
                                            --------     --------     --------
<S>                                         <C>          <C>          <C>     
Sales
        Americas                            $  625.6     $  599.6      $ 573.7
        Europe                                 397.2        467.7        461.5
        Asia                                   387.3        460.3        366.1
                                            --------     --------     --------
             Total                          $1,410.1     $1,527.6     $1,401.3
                                            ========     ========     ========

Income over Ingredient Costs
        Americas                            $  145.2     $  127.1     $  127.7
        Europe                                 115.2        123.2        118.1
        Asia                                    85.4        111.4         87.5
                                            --------     --------     --------
             Total                          $  345.8     $  361.7     $  333.3
                                            ========     ========     ========
   
Operating Profit
        Americas                            $   33.5     $   16.0     $   22.7
        Europe                                  11.9          5.1          6.5
        Asia                                    28.2         32.8         20.7
        Provisions for Restructuring            (3.0)        (3.2)        (8.3)
        Gain on Sale of Property                 -            -            3.6
        Unallocated Corporate Expenses         (14.3)        (7.2)        (4.0)
                                            --------     --------     --------
        Operating Profit                        56.3         43.5         41.2
        Interest Expense                       (12.0)       (10.9)       (13.0)
        Other Income/(Expense), Net            (10.1)         0.5         (3.3)
                                            --------     --------     --------
             Earnings Before Income Taxes   $   34.2     $   33.1     $   24.9
                                            ========     ========     ========


Depreciation & Amortization
        Americas                            $    7.0     $    6.9     $    6.4
        Europe                                   8.3          8.6          7.6
        Asia                                     5.9          6.4          6.4
                                            --------     --------     --------
             Total                          $   21.2     $   21.9     $   20.4
                                            ========     ========     ========
  


Translation & Exchange (Gain) / Loss
        Americas                            $    9.1     $    2.7     $    6.9
        Europe                                  (0.5)         0.5          0.3
        Asia                                    4.2          0.5           1.1
                                            --------     --------     --------
             Total                          $   12.8     $    3.7     $    8.3
                                            ========     ========     ========

Total Assets
        Americas                            $  306.2     $  180.7     $  168.7
        Europe                                 139.7        143.9        163.6
        Asia                                   132.5        156.6        165.5
                                            --------     --------     --------
             Total                          $  578.4     $  481.2     $  497.8
                                            ========     ========     ========
</TABLE>

                                       37
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)

5. FINANCIAL INSTRUMENTS

     Derivatives - The Company  currently uses forwards and option  contracts to
manage foreign  currency risk and futures and options to manage  commodity price
risk. All gains and losses from changes in derivative  fair values are deferred;
therefore,  derivatives have no carrying value.  Derivatives used by the Company
have an initial term of less than a year, and all currently hedged  transactions
are  expected to occur  within the next year.  Because  the Company  hedges with
instruments that have high correlation with the underlying  transaction pricing,
changes in derivative values are expected to be offset by changes in pricing.

     The following  summarizes the underlying  notional  transaction amounts and
fair values for outstanding  derivatives,  by risk category and instrument type,
at August 31:

<TABLE>
                                           1998                    1997
                                  -----------------------  -------------------
                                    Notional     Fair        Notional     Fair
                                     Amount      Value        Amount     Value
<S>                               <C>            <C>           <C>       <C>      
                                  ----------     -------   ----------    -----
 Foreign Currency:
  Forwards                             $ 2.5     $  -           $ 1.4    $  -
  Options                                 -         -             -         -
                                  ----------     -------   ----------    -----
                                         2.5        -             1.4       -
                                  ----------     -------   ----------    -----

Commodity Price:
  Futures                                2.3        0.3           -         -
  Options                                1.8       (0.1)          -         -
                                  ----------     -------   ----------    -----
                                         4.1        0.2           -         -
                                  ----------     -------   ----------    -----

Total of outstanding derivatives       $ 6.6     $  0.2         $ 1.4    $  -
                                  ==========     =======   ==========    =====
</TABLE>

     The fair value of  derivative  financial  instruments  is the  amount  that
Agribrands   would  receive  or  pay  to  terminate  the  specific   agreements,
considering  first,  quoted market prices of  comparable  agreements,  or in the
absence of quoted market  prices,  such factors as currency  exchange  rates and
remaining maturities.

     Concentration  of  Credit  Risk - The  Company  does  not  have a  material
concentration  of credit  risk.  Concentrations  of credit risk with  respect to
accounts receivable are limited due to the large number of customers,  generally
short payment terms and their dispersion across geographic areas.

     Nonderivative  Financial Instruments - Nonderivative  financial instruments
include cash equivalents,  marketable  securities,  and short-term and long-term
debt. Due to the nature of cash equivalents and marketable securities,  carrying
amounts on the balance sheet approximate fair value.

                                       38
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)

     Agribrands  has borrowings in numerous  countries  under a variety of terms
and arrangements.  Due to the number of countries  involved and the availability
of  information  about  market  value  of debt  in  these  countries,  it is not
practicable  to determine  the market value of such debt of Agribrands at August
31, 1998.

6.       INCENTIVE COMPENSATION PLANS

     Under terms of the Company's 1998 incentive stock plan, officers, directors
and employees may be granted  options to purchase the Company's  common stock at
no less than 100% of the  market  price on the date the option is  granted.  The
plan also authorizes the issuance of stock appreciation rights (SARs) settled by
cash payment. Options and SARs generally vest over five years and have a maximum
term of 10 years.  At August 31, 1998,  there were 1.5 million shares  available
for future awards under the plan.

     The Company  recognizes  compensation  expense for SARs based on the amount
that the Company's  common share price exceeds the exercise price. At August 31,
1998, there were 98,500 SARs outstanding. No compensation expense was recognized
for SARs in 1998 because the  exercise  prices of the SARs were greater than the
year-end market price of the common shares.

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting for its stock options.  Had compensation cost for the Company's stock
options  been  recognized  based on the fair  value on the grant  date under the
methodology  prescribed by SFAS No. 123, the Company's net earnings and earnings
per share  would have been  reduced to the pro forma  amounts  indicated  in the
following table.



                                                             1998
                                                         ------------
Reported net earnings                                      $ 13.8
Pro forma net earnings                                       12.8

Reported diluted earnings per share                        $ 1.29
Pro forma diluted earnings per share                         1.20


     The fair value of options  granted  (which is amortized to expense over the
options  vesting period in determining the pro forma impact) is estimated on the
date of grant using the  Black-Scholes  option  pricing model with the following
weighted-average assumptions:



                                                            1998
                                                     -----------------
Risk-free interest rate                                 5.6% to 5.7%
Expected life of option                                   9 years
Expected volatility of Agribrands stock                     30.0%
Expected dividend yield on Agribrands stock                  0.0%



                                       39
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)

     The  weighted  average  fair value of  options  granted  during  1998 is as
follows:





                                                           1998
                                                        ----------
Fair value of each option granted                        $ 18.62
Total number of options granted (in millions)               1.12
                                                         -------
Total fair value of options granted (in millions)        $  20.9
                                                         =======

     The following table summarizes stock option plan activity:
<TABLE>

-------------------------------------------------------------------------------------------
                                                    Wtd. Avg.                   Wtd. Avg.
                                                    Exercise       Options      Exercise
                                       Options       Price       Exercisable      Price
<S>                                   <C>           <C>          <C>            <C>   

Balance at March 31, 1998                    -      $   -              -        $   -
Granted                               1,122,500        36.41           -            -
Exercised                                    -          -              -            -
Cancelled                                (7,500)       34.25           -            -
                                      ----------    --------      ---------     ---------
Balance at August 31, 1998            1,115,000     $  36.43           -        $   -
                                      =========     ========      =========     =========
</TABLE>

     A summary of stock options currently  outstanding and exercisable at August
31, 1998 is presented below:


<TABLE>
                              Options Outstanding        Options Exercisable

                           Wtd. Avg.        Wtd. Avg.                  Wtd. Avg.
Range of                   Remaining        Exercise                   Exercise
     Prices    Number         Life            Price     Number           Price
<S>            <C>         <C>              <C>         <C>            <C> 

$34-37         1,115,000   10 years         $ 36.43       -            $  -

</TABLE>



                                       40
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions)


7.       PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

     Certain  foreign  employees are covered by defined  benefit plans,  some of
which are required by local law or coordinated with government-sponsored  plans.
These plans generally provide retirement or severance benefits based on years of
service and compensation.  In addition,  substantially  all U.S.  administrative
employees participate in the Company's defined contribution plan.

     Prior  to the  Distribution  Date,  most  U.S.  employees  participated  in
Ralston's noncontributory defined benefit plan. The costs of this plan allocated
to the Company  based on  employee  population  were $0.2,  $0.3 and $0.2 in the
years ended August 31, 1998, 1997 and 1996, respectively.

     Pension cost and other retirement savings plan costs included the following
components for the years ended August 31:


<TABLE>

                                                        1998     1997      1996
                                                       ------    ------   ------
<S>                                                    <C>       <C>      <C>           
Defined benefit plans
     Service cost for benefits earned during the year  $ 5.1     $ 4.2    $ 4.2
     Interest cost on projected benefit obligation       2.2       2.4      2.4
     Return on plan assets                              (1.0)     (6.7)    (4.0)
     Net amortization and deferral                      (2.0)      3.6      1.0
                                                       -----     -----    -----
Total defined benefit plans                              4.3       3.5      3.6
Defined contribution plans                               0.1        -        -
                                                       -----     -----    -----
            Total                                      $ 4.4     $ 3.5    $ 3.6
                                                       ======    =====    =====
</TABLE>

The following table presents the funded status of the principal  defined benefit
plans and amounts recognized in the balance sheet at August 31:

 <TABLE>
<CAPTION>
                                                    1998              1997
                                                  -------------   --------------
<S>                                                 <C>               <C>     
Actuarial present value of:
    Vested benefits                                 $ (10.8)          $ (19.0)
    Nonvested benefits                                 (0.3)               -
                                                    --------          --------
    Accumulated benefit obligation                    (11.1)            (19.0)
    Effect of future salary increases                  (7.0)             (9.1)
                                                    --------          --------
    Projected benefit obligation                      (18.1)            (28.1)
Plan assets at fair value                              14.7              36.8
                                                    --------          --------
Funded status                                          (3.4)              8.7
Unrecognized net loss (gain)                            1.7              (1.3)
Unrecognized prior service cost                         0.6               0.7
Unrecognized net asset at transition, net of 
     amortization                                      (0.4)             (3.2)
                                                    --------          --------

Net pension (liability) asset                       $  (1.5)          $   4.9
                                                    ========          ========
</TABLE>


                                       41
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions)


     The  assumptions  used in  determining  the preceding  information  reflect
weighted averages for the component plans and are as follows:

                                                              1998        1997
                                                              ----        ----
         Discount rate                                        8.3%        9.0%
         Rate of increase of future compensation levels       6.7%        7.3%
         Long-term rate of return on assets                   8.6%        9.2%

     The net pension  (liability) asset disclosed above does not include balance
sheet  accruals for unfunded  plans of $12.3 and $12.4 as of August 31, 1998 and
1997,  respectively.  These accruals  approximate the actuarial present value of
vested  benefits for these plans or represent  accrual  amounts that comply with
local regulations for required termination payments.

     In connection with the Distribution,  in March 1998 Agribrands  transferred
to Ralston $9.7 of net pension  asset  previously  allocated  to the  Agribrands
Business in Canada.

     Prior to the  Distribution  Date,  Ralston  provided  health  care and life
insurance  benefits for a limited  group of retired  employees who met specified
age and years of service  requirements.  Ralston also  sponsored  plans  whereby
certain  management  employees  could defer  compensation  in exchange  for cash
benefits after retirement.  The cost of these  postretirement  benefits has been
allocated to Agribrands  based on employee  population and was $0.5 in the seven
months  ended  March 31,  1998 and $0.8 in the years  ended  August 31, 1997 and
1996.


8.       PROVISIONS FOR RESTRUCTURING

     In 1998,  Agribrands  recorded  provisions for restructuring  which reduced
earnings  before  income taxes by $3.0 and net earnings by $1.7.  These  charges
represented primarily severance costs and fixed asset write-offs associated with
the streamlining of Agribrands' operations in Europe. The restructuring provided
for the  severance of  approximately  40  employees,  most of whom were released
prior to August 31, 1998. Provisions for restructuring in previous years related
to closing of production facilities and reorganization of certain administrative
functions.  Severance  costs  related  to these  restructuring  provisions  were
substantially paid by August 31, 1998.

     Components of the provisions for the years ended August 31 are as follows:

                                         1998           1997            1996
                                   -------------  --------------  --------------
Severance                                $2.2           $0.6            $7.1
Other cash costs                          0.1            0.4             1.2
Fixed asset writedown                     0.7            2.2             -
                                   -------------  -------------   -------------
                                         $3.0           $3.2            $8.3
                                   =============  ==============  ==============


                                       42
<PAGE>
        
                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions)

                     
     The following summarizes activity within the restructuring reserves:

                                               1998         1997          1996
                                            ----------   -----------   ---------
Balance at beginning of year                 $  1.4        $  4.3       $  2.4
Provision during year                           3.0           3.2          8.3
Spending/fixed asset writedown during year     (3.1)         (6.1)        (6.4)
                                            ----------     -------      -------
Balance at end of year                         $1.3        $  1.4         $4.3
                                            ==========     =======      =======

         Most of the reserve balance is expected to be expended in 1999.


9.       OTHER (INCOME)/EXPENSE, NET

                                              1998           1997        1996
                                            ----------    ----------   ---------
Translation and exchange loss                $ 12.8        $  3.7       $  8.3
Investment income                              (5.2)         (4.2)        (3.6)
Write-off financing costs                       2.5            -            -
Other income                                     -             -          (1.4)
                                            --------       -------      -------
                                             $ 10.1        $ (0.5)      $  3.3
                                            ========       =======      =======

     In 1998, the Company  incurred a $2.5 charge to write-off  financing  costs
associated with a credit facility the Company elected not to close.


10.      INCOME TAXES

     The  provisions  for income taxes  consisted of the following for the years
ended August 31:
<TABLE>
<CAPTION>

                                                  1998      1997        1996

                                                 -------   -------     -----
<S>                                              <C>       <C>         <C>
Currently payable:
     United States                               $   1.7   $   3.8     $  6.5
     Foreign                                        19.1      14.5        8.5
     Taxes on repatriation of foreign earnings       4.7       4.2        2.4
                                                 -------   -------     ------
        Total current                               25.5      22.5       17.4
                                                 -------   -------     ------
Deferred:
     United States                                  (0.2)       -          -
     Foreign                                        (4.9)      1.9       (3.4)
                                                 -------   -------     ------
        Total deferred                              (5.1)      1.9       (3.4)
                                                 -------   -------     ------
                                                  $ 20.4   $  24.4     $ 14.0
                                                 =======   =======     ======
The source of pre-tax earnings was:

                                                   1998      1997       1996
                                                 -------   -------     ------
     United States                               $   1.2   $   3.2     $ 12.2

     Foreign                                        33.0      29.9       12.7
                                                 -------    ------    -------     
        Total                                    $  34.2   $  33.1     $ 24.9
                                                 =======     =====     ======
</TABLE>

                                       43
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTE TO FINANCIAL STATEMENTS
                              (Dollars in Millions)

     A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:

                                                   1998       1997       1996
                                                  ------     -------    ------
Computed tax at federal statutory rate            $ 12.0     $ 11.6     $ 8.7
Increases (decreases) in taxes resulting from:
   Foreign tax rates other than domestic rate       (2.7)      (1.0)      1.4
   Change in valuation allowance                     3.0        6.9      (0.6)
   Taxes on repatriation of foreign earnings         4.7        4.2       2.4
   Other, net                                        3.4        2.7       2.1
                                                  ------     ------     -----
                                                  $ 20.4     $ 24.4     $14.0
                                                  ======     ======     =====

Deferred tax assets and deferred tax  liabilities  recorded on the balance sheet
as of August 31, 1998 and 1997 are as follows:

                                                     1998         1997
                                                   -----------  ----------
Deferred Tax Liabilities:
     Depreciation and property differences           $   6.3      $   4.5
     Inventory differences                               6.2          5.0
     Retirement plans                                    2.3          3.6
     Other tax liabilities, current                      0.5          0.6
     Other tax liabilities, non-current                  9.2         10.5
                                                   -----------  ----------
        Gross deferred tax liabilities               $  24.5      $  24.2
                                                   -----------  ----------
 
Deferred Tax Assets:
     Tax loss carryforwards                          $ (13.9)     $  (3.8)
     Accrued expenses                                   (7.7)        (5.7)
     Tax credits                                        (5.7)        (3.8)
     Other tax assets, current                          (5.8)        (6.0)
     Other tax assets, non-current                      (8.2)        (6.2)
                                                   -----------  ----------
        Gross deferred tax (assets)                    (41.3)       (25.5)
     Valuation allowance                                19.5         10.9
                                                   -----------  ----------
Net deferred tax liabilities                         $   2.7      $   9.6
                                                   ===========  ==========

     Approximately  $0.2 of tax loss  carryforwards  and tax credits  expired in
1998.  Future  expiration  of tax loss  carryforwards  and tax  credits,  if not
utilized,  are as follows:  1999 - none,  2000 - none, 2001 - $1.5, 2002 - $3.3,
2003 - $2.0 and beyond - $12.8. The valuation allowance is primarily  attributed
to certain tax loss  carryforwards and tax credits outside the United States. In
connection  with  the  Distribution,   in  March  1998  Ralston  transferred  to
Agribrands $5.6 of deferred tax assets,  primarily tax loss  carryforwards,  and
related valuation allowance.

     At August 31, 1998,  approximately $78.0 of foreign subsidiary net earnings
was  considered  permanently  invested in those  businesses.  Accordingly,  U.S.



                                       44
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)

income taxes have not been provided for such earnings.  It is not practicable to
determine the amount of unrecognized  deferred tax  liabilities  associated with
such earnings.

     Prior to the Distribution Date, U.S. income tax payments, refunds, credits,
provision and deferred tax components were allocated to Agribrands in accordance
with  Ralston's tax  allocation  policy.  Such policy  allocated tax  components
included in the  consolidated  income tax return of Ralston to Agribrands to the
extent such components were generated by or related to Agribrands.  Tax payments
due on income earned prior to the Distribution  Date are the  responsibility  of
Ralston.

     Had Agribrands' income tax provision been calculated as if Agribrands was a
single, stand-alone U.S. taxpayer during periods prior to the Distribution Date,
the income tax  provision  would  have been lower by  approximately  $1.1 in the
seven  months  ended March 31, 1998 and $3.8 and $2.8 in the years ended  August
31, 1997 and 1996, respectively.


11.      EARNINGS PER SHARE

     Basic  earnings per share ("EPS") is computed  using the average  number of
common  shares  outstanding  during the period.  Diluted EPS gives effect to the
dilution that would occur if stock options were exercised. Basic and diluted EPS
computations for the three years ended August 31 follow:


                                             1998         1997          1996
                                           ---------   ---------    -----------
  Numerator:
    Net earnings                          $     13.8   $       8.7   $      10.9
    Effect of dilutive securities               -             -               -
                                          ----------    ----------    ----------
    Net earnings - assuming dilution      $     13.8   $      8.7    $      10.9
                                          ==========   ===========    ==========

  Denominator:
    Weighted average shares outstanding   10,668,571    10,668,571    10,668,571
    Assumed conversion of stock options        -              -             -
                                          ----------    ----------    ----------
    Weighted average shares - assuming 
       dilution                           10,668,571    10,668,571    10,668,571
                                          ==========   ===========   ===========

  Basic earnings per share                $     1.29   $       .82   $      1.02
                                          ==========   ===========   ===========
                                          
  Diluted earnings per share              $     1.29   $       .82   $      1.02
                                          ==========   ===========   ===========

     There were 10,668,571 shares of common stock outstanding at August 31, 1998
and the Distribution  Date. The above EPS calculations  assume 10,668,571 shares
outstanding  for all periods  prior to the  Distribution  Date. As of August 31,
1998,  stock  options  to  purchase   1,115,000  shares  of  common  stock  were
outstanding  but were not included in the computation of diluted EPS because the
exercise prices of the options were greater than the average market price of the
common shares.


                                       45
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)


12.      PREFERRED AND COMMON STOCK

     At August 31, 1998,  10,000,000  shares of $.01 par value  preferred  stock
were  authorized  and unissued.  The  Company's  Board of Directors is expressly
authorized,  prior  to  issuance,  to set  preferences,  voting  powers,  annual
dividend rates (if any) and other terms and conditions relating to the shares.

     The  Company has been  authorized  to issue  50,000,000  shares of $.01 par
value  common  stock  as of  August  31,  1998.  There  were  10,668,571  shares
outstanding at August 31, 1998

     On September 25, 1998,  the  Company's  Board of Directors  authorized  the
purchase by the Company of up to 2,000,000 shares of Agribrands  common stock in
open market transactions.


13.      RELATED PARTY ACTIVITY

     Prior to the Distribution Date, the Agribrands  Businesses and RPI Consumer
shared some general and  administrative  functions and distributed  some product
through a combined distribution  network.  Costs of these shared activities were
allocated to the Company based on utilization or other methods which  management
believes to be reasonable.  Total costs of these shared activities were $22.1 in
the seven  months  ended  March 31,  1998 and $46.0 and $56.9 in the years ended
August 31, 1997 and 1996, respectively. Of such costs, allocations to Agribrands
were $19.1 in the seven  months  ended March 31, 1998 and $38.7 and $40.8 in the
years ended August 31, 1997 and 1996, respectively.

     Ralston also provided  certain general and  administrative  services to the
Agribrands Businesses including finance,  legal,  facilities and systems.  These
expenses were  allocated to  Agribrands  based on  utilization  or other methods
which management  believes to be reasonable.  These allocations were $1.2 in the
seven  months  ended March 31, 1998 and $2.0 and $1.3 in the years ended  August
31, 1997 and 1996, respectively.

     Agribrands receives technical service fees from non-consolidated affiliates
which are  carried  under the equity  method of  accounting.  Included  in other
income and expense is service fee income from such  affiliates  of $1.4 in 1996.
Service fee income from  non-consolidated  affiliates was  insignificant in 1998
and 1997.

     Included  in  Ralston  Equity   Investment   are   cumulative   translation
adjustments occurring in non-hyperinflationary  countries of $71.0 at August 31,
1997,  representing  net  devaluation of currencies  relative to the U.S. Dollar
over the period of investment.  Also included in Ralston  Equity  Investment are
accounts  payable and receivable  between  Agribrands and Ralston and Agribrands
borrowings from Ralston.


                                       46
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)


14.      LEGAL AND ENVIRONMENTAL MATTERS

     The Company is subject to legal  proceedings  and claims arising out of its
business  that  cover a wide  range  of  matters,  including  trade  regulation,
contracts,   environmental  issues,  product  liability,  patent  and  trademark
matters, and taxes. These proceedings are in varying stages and many may proceed
for  protracted  periods  of  time.  Some  proceedings  involve  highly  complex
questions of fact and law.

     In the  fall of  1997,  Agribrands'  wholly  owned  subsidiary,  Agribrands
Philippines, Inc. (formerly Purina Philippines,  Inc.), applied for renewal of a
warehouse  license  to store  corn and rice  and  by-products  therefrom  at its
Pulilan  facility.   The  Philippines   National  Food  Authority  ("NFA"),  the
governmental  agency  that  administers  the  Philippines  laws and  regulations
governing the corn and rice industry,  advised Agribrands  Philippines by letter
dated October 31, 1997,  that its license renewal  application  was denied.  The
letter cites Philippines  legislation and regulations  requiring that businesses
operating  in the  corn and  rice  industry  not  have  more  than  40%  foreign
ownership. Since the NFA believes that Agribrands Philippines is in the corn and
rice industry,  they have requested Agribrands  Philippines to file a divestment
plan in order to comply with the 40% maximum foreign ownership requirement.

     Agribrands  Philippines has appealed the denial of its license renewal, and
on January 23, 1998,  Agribrands  Philippines received  notification that it may
operate its warehouse under a "provisional permit" pending the resolution of the
appeal.  The appeal has been transferred by Presidential  Decree from the Office
of the  Secretary  of  Agriculture  to the Office of the  President.  Agribrands
Philippines  believes it does not need a warehouse license, as it believes it is
not  engaged  in the corn and rice  industry  as  defined  by law.  Furthermore,
Agribrands  Philippines  believes  that  it  should  not be  subject  to the NFA
regulation  based upon its original  Board of  Investments  One Stop  investment
approval of a 100% foreign owned investment.  Agribrands  Philippines intends to
pursue its appeal in the Philippines legal system.

     In the event that Agribrands  Philippines is required to file a divestiture
plan, it is expected,  based on previous case  precedents,  that a plan would be
approved that would permit the necessary  divestiture over a considerable period
of time.

     Various tax and labor  claims  have been  asserted  against the  Agribrands
Business in Brazil. The claims arose principally from monetary  corrections made
in  connection  with the  institution  of  economic  plans  by  prior  Brazilian
administrations to control inflation.

     On June 14, 1997, a claim seeking  compensatory  damages,  punitive damages
and damages under the U.S.  Racketeer  Influenced and Corrupt  Organization  Act
totaling   approximately   $300  million  was  filed  against   Ralston   Purina
International  Holding Company,  Inc. ("RPIHCI"),  a subsidiary of Ralston which
was merged into Ralston. The plaintiff, Menichetti Fuente, a Chilean company, is
the former partner with RPIHCI in a joint venture named  Alimentos  Purina Chile
S.A.  ("APCH").  This joint venture was originally formed in 1991 between RPIHCI
and Menichetti Fuente which agreement was subsequently amended, effective March,
1993. The amended joint venture agreement by its terms lapsed as of December 31,


                                       47
<PAGE>

                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions


1996. This dispute has been submitted to arbitration in Santiago, Chile. Ralston
and Agribrands have agreed that Agribrands will pay 80% and Ralston will pay 20%
of any  award or  settlement  and all  costs  related  to this  claim up to $2.5
million.  Any amounts  over $2.5 million  will be shared  equally.  The claim is
being  vigorously  defended and  Agribrands  believes  that Ralston has numerous
meritorious defenses.

     Ralston  or local  subsidiaries  engaged  in the  Agribrands  Business  are
parties to a number of other legal proceedings in various foreign  jurisdictions
arising out of the operations of the Agribrands Business. Agribrands will assume
liability  for these  proceedings  except to the extent  liability is assumed by
Ralston in connection with the Distribution.

     Many of the foregoing  legal  matters are in  preliminary  stages,  involve
complex issues of law and fact and may proceed for  protracted  periods of time.
The amount of the eventual  liability,  if any, from these proceedings cannot be
determined with  certainty;  however,  in the opinion of Agribrands  management,
based upon the  information  presently  known, as well as upon the limitation of
certain  of its  liabilities  under  the  Agreement  and Plan of  Reorganization
between  Ralston and  Agribrands  for the spin-off of  Agribrands,  the ultimate
liability of Agribrands, if any, arising from the pending legal proceedings,  as
well as from asserted  legal claims and known  potential  legal claims which are
probable of assertion,  taking into account  established  accruals for estimated
liabilities,  should not be material to the financial position of Agribrands but
could be  material  to results  of  operations  or cash  flows for a  particular
quarter or annual period.

15.      OTHER CONTINGENCIES AND COMMITMENTS

     Guarantees  - At August 31,  1998,  Agribrands  had third party  guarantees
outstanding in the aggregate  amount of  approximately  $12.0.  These guarantees
relate to financial  arrangements  with customers,  suppliers and other business
relations.

     Sale of  Receivables  -  Agribrands  sells  certain  of its trade  accounts
receivable and notes  receivable to others subject to defined  limited  recourse
provisions. The Company is responsible for collection of the accounts and remits
the proceeds to the purchaser on a monthly basis. During 1998,  Agribrands sold,
on average,  accounts  receivable  totaling $2.2 each month. At August 31, 1998,
$1.7 of  transferred  receivables  were  outstanding  and  subject  to  recourse
provisions.

     Other Commitments - Future minimum rental commitments under  noncancellable
operating leases in effect as of August 31, 1998 were: 1999 - $1.4, 2000 - $1.2,
2001 - $0.6,  2002 - $0.3,  2003 - $0.2  and  thereafter  - $0.2.  Total  rental
expense  for all  operating  leases was $7.1 in 1998,  $10.8 in 1997 and $7.5 in
1996.


16.      NOTES PAYABLE

     Notes payable of $46.9 and $33.8 at August 31, 1998 and 1997, respectively,
had a weighted average interest rate of 18.0% and 11.2%, respectively. At August


                                       48
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)

31, 1998,  substantially  all notes payable are denominated in local  currencies
and are due to banks.  Compensating  balance  arrangements  ensure future credit
availability  and  do  not  restrict  the  withdrawal  of  funds.   Under  these
arrangements, Agribrands maintained compensating bank balances of $21.6 and $5.6
at August 31, 1998 and 1997, respectively.

     On  August  31,  1998,  total  unused  uncommitted  lines  of  credit  were
approximately $175.

17.      LONG-TERM DEBT

The detail of long-term debt as of August 31 follows:

                                                                  1998     1997
                                                                 -------  ------

Korean subsidiary, interest rate of 10.0%; due 1999               $ 5.8   $  8.8

Korean subsidiary, interest rate of 11.0%; open-ended maturity      3.7      7.3

Italian subsidiary, interest rate of 5.0%; due 2000                 3.2       -

Canadian subsidiary, weighted average interest rate of 4.1%
at August 31, 1997                                                   -      11.5

Colombian subsidiary, Libor + .25%, or 5.9% at August 31, 1997       -       4.5
 
Other long-term debt with interest rates ranging from 1.3% to
12.8%                                                         10.2     10.1
                                                             ------   ------
                                                              22.9     42.2
Less: Current Maturities                                      (8.7)   (19.4)
                                                             ------   ------
                                                             $14.2   $ 22.8
                                                             ======  =======

     Aggregate  maturities of long-term debt are $5.7,  $1.3,  $1.8 and $0.2 for
the years ending August 31, 2000 through 2003, respectively.


                                       49
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              (Dollars in millions)


18.      SUPPLEMENTAL BALANCE SHEET INFORMATION
                                                               August 31
                                                          1998           1997
                                                        ---------    ----------
Receivables (current)
     Trade                                             $  79.8         $  92.1
     Value added tax                                       6.9            12.1
     Receivable from Ralston                              12.9             -
     Other                                                13.8            20.0
     Allowance for doubtful accounts                     (10.4)           (9.8)
                                                       --------        --------
                                                       $ 103.0         $ 114.4
                                                       ========        ========

Inventories
     Raw materials and supplies                        $  77.8         $  89.7
     Finished products                                    21.0            22.3
                                                       --------        --------
                                                       $  98.8         $ 112.0
                                                       ========        ========

Investments and Other Assets
     Goodwill (net of accumulated amortization of      $  32.4         $  34.0
         $5.8 in 1998 and $4.1 in 1997)
     Investments in affiliated companies                   6.5             4.1
     Deferred charges and other assets                    12.0            16.1
                                                       --------        --------
                                                       $  50.9         $  54.2
                                                       ========        ========


Property, Plant and Equipment - net
     Land                                              $  11.0         $  12.2
     Buildings                                            81.8            68.7
     Machinery and equipment                             241.9           228.0
     Construction in progress                             12.2            20.7
                                                       --------        --------
                                                         346.9           329.6
     Accumulated depreciation                           (170.3)         (172.7)
                                                       --------        --------
                                                       $ 176.6         $ 156.9
                                                       ========        ========


Accounts Payable and Accrued Liabilities
     Trade accounts payable                            $  81.4         $ 107.2
     Incentive compensation, salaries and vacations       15.8            14.8
     Restructuring reserves                                1.3             1.4
     Other items                                          34.3            39.3
                                                       --------        --------
                                                       $ 132.8         $ 162.7
                                                       ========        ========


Other Liabilities
     Retirement and other employee benefits            $  20.3         $  16.2
     Minority interests                                    2.7             2.7
     Other                                                 1.9             8.4
                                                       --------        --------
                                                       $  24.9         $  27.3
                                                       ========        ========


                                       50
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions)

19.      ALLOWANCE FOR DOUBTFUL ACCOUNTS

                                             1998         1997          1996
                                         -----------  ------------  ------------
Balance, beginning of year                $  9.8         $  7.2        $  4.5
Provision charged to expense                 6.4            4.6           3.8
Write-offs, less recoveries                 (4.0)          (1.0)         (0.7)
Translation adjustment                      (1.8)          (1.0)         (0.4)
                                          -------        -------       -------
Balance, end of year                      $ 10.4         $  9.8        $  7.2
                                          =======        =======       =======


20.      SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

                                            1998           1997         1996
                                         -----------  ------------  ------------
Interest paid                             $ 11.8         $ 10.4        $ 11.6
                                          =======        =======       =======
Income taxes paid                         $ 22.6         $ 21.1        $ 14.2
                                          =======        =======       =======























                                       51
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                         QUARTERLY FINANCIAL INFORMATION
                   (Dollars in millions except per share data)
                                  (unaudited)


         The results of any single  quarter are not  necessarily  indicative  of
Agribrands'  results for the year.  The  following  tables  assume 10.7  million
shares outstanding for all periods prior to the Distribution Date.

Fiscal 1998
                                     First      Second      Third       Fourth
                                    --------   ---------   ---------   ---------
Net sales                           $ 374.8     $ 333.0     $ 351.1     $ 351.2
Gross profit                           56.1        46.4        46.7        53.7
Net earnings (a)                        4.0         2.0         3.4         4.4

Basic earnings per share (a)            .37         .19         .32         .41
Diluted earnings per share (a)          .37         .19         .32         .41

(a)      Net  earnings  and  earnings  per share were  reduced by the  following
         amounts due to provisions for restructuring:

                                    First      Second       Third       Fourth
                                   ---------  ---------    --------    ---------
  Net earnings                         -        $   1.1          -      $    .6 

  Basic earnings per share             -            .10          -          .06
  Diluted earnings per share           -            .10          -          .06
 


Fiscal 1997
                                     First     Second       Third       Fourth
                                    --------  ---------    --------    ---------
Net sales                           $ 390.0     $ 363.1     $ 375.5     $ 399.0
Gross profit                           54.1        50.7        51.6        49.2
Net earnings (b)                        7.0         1.2         6.6        (6.1)

Basic earnings (loss) per share (b)     .65         .12         .62        (.57)
Diluted earnings (loss) per share (b)   .65         .12         .62        (.57)

(b)  Net earnings  and earnings per share in 1997 were reduced by the  following
     amounts due to provisions for restructuring:

                                    First      Second      Third        Fourth
                                   --------   --------    --------     ---------
  Net earnings                         -          -           -        $    3.2

  Basic earnings per share             -          -           -             .30
  Diluted earnings per share           -          -           -             .30



                                       52
<PAGE>


                         AGRIBRANDS INTERNATIONAL, INC.
                         NOTES TO FINANCIAL STATEMENTS
                             (Dollars in millions)

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  regarding  directors and the  information  appearing under
"Compliance  with Section  16(a) of the  Exchange  Act" will be contained in The
Notice of the 1999 Annual Meeting and Proxy  Statement,  to be filed pursuant to
Regulation 14-A, is incorporated herein by reference.

     The  executive  officers  of the  Company  are listed  under Item 1 of this
document.

ITEM 11. EXECUTIVE COMPENSATION

     Information   appearing  under  "Executive   Compensation",   "Compensation
Committee  Interlocks and Insider  Participation",  "Nominating and Compensation
Committee  Report  on  Executive  Compensation",   "Performance  Graph",  "Stock
Ownership"  and  the  remuneration   information   under  "Directors   Meetings,
Committees  and Fees" will be contained in The Notice of the 1999 Annual Meeting
and Proxy  Statement,  to be filed pursuant to Regulation  14-A, is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The discussion of the security  ownership of certain  beneficial owners and
management  appearing under "Stock Ownership" will be contained in The Notice of
the 1999 Annual Meeting and Proxy Statement,  to be filed pursuant to Regulation
14-A, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information appearing under "Compensation  Committee Interlocks and Insider
Participation"  will be contained  in The Notice of the 1999 Annual  Meeting and
Proxy Statement, to be filed pursuant to Regulation 14-A, is incorporated herein
by reference.



                                       53
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1.)  Financial Statements

     The  following  financial  statements  are filed as a part of this document
under Item 8. Financial Statements and Supplementary Data.

     Consolidated Balance Sheet - for years ended August 31, 1998 and 1997

     Consolidated Statement of Earnings - for years ended August 31, 1998, 1997
     and 1996

     Consolidated  Statement of Shareholders Equity - for years ended August 31,
     1998,1997 and 1996

     Consolidated  Statement  of Cash Flows - for years ended  August 31,  1998,
     1997 and 1996

     Notes to Consolidated Financial Statements

     Report of Independent Accountants

(a)(2.)  Financial Statement Schedules

     All financial  statement  schedules have been included in the  consolidated
financial statements or are either not applicable or not significant.













                                       54
<PAGE>

(a)(3.) Exhibits  (Listed by numbers  corresponding to the Exhibit Table of Item
     601 in Regulation S-K)

     2.1  Agreement and Plan of Reorganization  (Filed as Exhibit (10)(i) to the
          Company's 10-Q filed for the Quarter Ending February 28, 1998)

     3.1  Articles of Incorporation of Agribrands International,  Inc. (Filed as
          Exhibit 3.1 to the Company's  Registration  Statement on Form 10 dated
          February 9, 1998)

     3.2  Bylaws of Agribrands International,  Inc. (Filed as Exhibit 3.2 to the
          Company's Registration Statement on Form 10 dated February 9, 1998)

     4.1  Rights Agreement  (Filed as Exhibit 4.1 to the Company's  Registration
          Statement on Form 10 dated February 9, 1998)

     10.1 Technology  Transfer and License  Agreement (Filed as Exhibit (10)(ii)
          to the Company's Form 10-Q for the Period Ending February 28, 1998)

     10.2 Trademark  Agreement (Filed as Exhibit (10)(iii) to the Company's Form
          10-Q for the Period Ending February 28, 1998)

     10.3 Credit  Agreements (Long and Short Term) (Filed as Exhibit (10)(iv) to
          the Company's Form 10-Q for the Period Ending February 28, 1998)

     10.4 Tax  Sharing   Agreement  (Filed  as  Exhibit  2.2  to  the  Company's
          Registration Statement on Form 10 dated March 19, 1998)

     10.5 Bridging Agreement (Filed as Exhibit 2.3 to the Company's Registration
          Statement on Form 10 dated March 19, 1998)

     *10.6 Incentive   Stock  Plan  (Filed  as  Exhibit  10.1 to  the  Company's
           Registration Statement on Form 10 dated March 19, 1998)

     *10.7 Form of Management Continuity Agreement (Filed as Exhibit 10.3 to the
           Company's Registration Statement on Form 10 dated February 9, 1998)

     *10.8 Non-Qualified Deferred Compensation Plan (Filed as Exhibit  10.2  to
           the Company's Registration Statement on Form 10 dated March 19, 1998)

     *10.9 Form of Non-Qualified Stock Option Agreement dated May 12, 1998, with
           Chief Executive  Officer of the  Company  (Filed as  Exhibit  10.1 to
           Company's Form 10-Q for the Period Ending May 31, 1998)

     *10.10 Form of  Non-Qualified  Stock Option  Agreement  dated May 29, 1998,
            with certain  executive  officers  of  the Company (Filed as Exhibit
            10.2 to the Company's Form 10-Q for the Period Ending May 31, 1998)

     10.11 First Amendment to Agreement and Plan of Reorganization dated May 29,
           1998

     *10.12 Form of Notice of Stock Appreciation Right dated May 29, 1998

     *10.13 Form  of  Indemnification  Agreement  between  the  Company  and its
           Directors

                                       55
<PAGE>

     *10.14 Form  of  Indemnification  Agreement  between  the  Company  and its
            executive officers

     *10.15 Financial Planning Reimbursement Program

     *10.16 Form of Split Dollar Life Insurance Agreement

     *10.17 Form of letter amending the May 29, 1998 Non-Qualified  Stock Option
            Agreements

     21   Subsidiaries of the Company

     27   Financial Data Schedule

     *Denotes a management contract or compensatory plan or arrangement.

(b)      Reports on Form 8-K.

         No Current  Reports on Form 8-K were  filed by the  Company  during the
fourth quarter of its fiscal year ended August 31, 1998.















                                       56
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Agribrands International, Inc. has duly caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

                                        AGRIBRANDS INTERNATIONAL, INC.

                                        /s/ William P. Stiritz
                                        -----------------------------------
                                        William P. Stiritz
                                        Chairman of the Board,
                                        Chief Executive Officer and President

Date:  October 29, 1998


     KNOW ALL MEN BY THESE PRESENTS, that the below-named director of Agribrands
International, Inc. whose signature appears below constitutes and appoints M. J.
Costello   and  W.  P.   Stiritz   and  each  of  them,   his  true  and  lawful
attorney-in-fact and agent, with full power of substitution and resolution,  for
him and in his name,  place,  and stead, in any and all capacities,  to sign any
and all  amendments  to this  report,  and to file the same,  with all  exhibits
thereto,  and other documents in connection  therewith,  with the Securities and
Exchange Commission,  granting unto said attorneys-in-fact and agents full power
and  authority  to do and  perform  each and every act and thing  requisite  and
necessary to be done in and about the premises,  as fully and to all intents and
purposes as he might or could do in person,  hereby ratifying and confirming all
that said  attorneys-in-fact and agents or their substitute or substitutes,  may
lawfully do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  this report has been signed by the following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE                          TITLE                               DATE

/s/ William P. Stiritz             Chairman of the Board,       October 29, 1998
---------------------              Chief Executive Officer,
William P. Stiritz                 and President     

/s/ David R. Wenzel                Chief Financial Officer      October 29, 1998
----------------------
David R. Wenzel                    

/s/ Douglas W. Faust               Controller (Chief            October 29, 1998
----------------------             Accounting Officer)
Douglas W. Faust                   
                                              
/s/ David R. Banks                 Director                     October 29, 1998
----------------------
David R. Banks                     

/s/ Jay W. Brown                   Director                     October 29, 1998
----------------------
Jay W. Brown                       




                                       57
<PAGE>

/s/ M. Darrell Ingram              Director                     October 29, 1998
----------------------
M. Darrell Ingram                  

/s/ H. Davis McCarty               Director                     October 29, 1998
----------------------
H. Davis McCarty                   

/s/ Joe R. Micheletto              Director                     October 29, 1998
----------------------
Joe R. Micheletto                  

/S/ Martin K. Sneider              Director                     October 29, 1998
----------------------
Martin K. Sneider                 



















                                       58
<PAGE>