<PAGE>

FINANCIAL REVIEW


-------------------------------------------------------------------------
Five-Year Financial Highlights                                         16
Management's Discussion and Analysis of Results of Operations
  and Financial Condition                                              17
Consolidated Financial Statements                                      22
Notes to Consolidated Financial Statements                             26
Responsibility for Financial Statements                                39
Report of Independent Accountants                                      39




FORWARD-LOOKING STATEMENTS AND CAUTIONARY NOTE
Matters discussed in this Annual Report (particularly in this section and
the Letter to Shareholders, Employees, Customers and Consumers) contain
forward-looking information, as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are based on the best current
information and reasonable assumptions about anticipated developments in
order to provide the clearest possible description of Earthgrains' business
and outlook. However, because of the risks and uncertainties that always
exist in any operating environment or business, Earthgrains cannot make any
assurances that these expectations will prove correct. Actual results and
developments may differ materially, depending upon prices of raw materials,
fuel, commodities and other goods purchased; the ability of the Company to
realize projected savings from productivity and product-quality
improvements; the ability of the Company to continue to participate in
industry consolidation and to successfully integrate acquired businesses;
labor costs and labor relations; legal proceedings to which the Company may
become a party; competitive pricing; economic conditions in the Company's
countries of operations, including currency values and interest rates; and
other factors.
     Earnings before interest expense, income taxes, depreciation,
amortization and minority interest expense (EBITDA) and cash earnings per
diluted share are used in this report because they are financial indicators
of cash-generation capability and a company's ability to incur and service
indebtedness. Earthgrains' calculation of EBITDA may not be identical to
that used by other companies. EBITDA is not the same as income from
operations or cash flow from operating activities, and cash earnings per
diluted share is not the same as earnings per diluted share as determined in
accordance with generally accepted accounting principles. EBITDA margin is
expressed as a percentage of net sales.
     Further information on factors that could affect Earthgrains' financial
and other results is included in the Company's filings with the Securities
and Exchange Commission.



                                                                          15

<PAGE>
<PAGE>
<TABLE>
FIVE-YEAR FINANCIAL HIGHLIGHTS
THE EARTHGRAINS COMPANY

<CAPTION>
==============================================================================================================================
                                                                                    FISCAL YEARS
                                                       -----------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER-SHARE DATA)                          2001           2000           1999       1998 (a)           1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>            <C>
STATEMENT OF EARNINGS DATA:
Net sales                                                 $2,582.1       $2,039.3       $1,925.2       $1,719.0       $1,662.6
Cost of products sold                                      1,407.7        1,122.5        1,092.4          981.6          988.8
------------------------------------------------------------------------------------------------------------------------------
Gross profit                                               1,174.4          916.8          832.8          737.4          673.8
Marketing, distribution and administrative expenses        1,060.0          804.4          731.6          670.2          633.5
Provision for restructuring and consolidation                 11.5            2.3           28.0             --           12.7
------------------------------------------------------------------------------------------------------------------------------
Operating income                                             102.9          110.1           73.2           67.2           27.6
Other income and expenses:
  Interest (expense)                                         (76.8)         (26.5)         (19.5)          (8.2)          (6.3)
  Other income, net                                            3.5            4.3            6.2            3.0            1.4
------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                    29.6           87.9           59.9           62.0           22.7
Provision for income taxes                                    16.4           32.8           21.9           24.2            6.5
Minority interest expense                                     (0.8)          (0.6)            --             --             --
------------------------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of accounting
  change                                                      12.4           54.5           38.0           37.8           16.2
Cumulative effect of change in accounting principle,
  net of tax                                                    --             --             --            1.8 (b)         --
------------------------------------------------------------------------------------------------------------------------------
Net income                                                $   12.4 (c)   $   54.5 (d)   $   38.0 (e)   $   36.0       $   16.2 (f)
==============================================================================================================================

EARNINGS PER SHARE:(g)
Basic
  Earnings before cumulative effect
    of change in accounting principle                     $   0.30       $   1.34       $   0.93       $   0.93       $   0.40
  Cumulative effect of accounting change                        --             --             --           0.04             --
------------------------------------------------------------------------------------------------------------------------------
  Net earnings per share                                  $   0.30       $   1.34       $   0.93       $   0.89       $   0.40
==============================================================================================================================
  Weighted average shares outstanding                         40.7           40.6           40.7           40.7           40.6
==============================================================================================================================
Diluted
  Earnings before cumulative effect
    of change in accounting principle                     $   0.30       $   1.30       $   0.89       $   0.89       $   0.39
  Cumulative effect of accounting change                        --             --             --           0.04             --
------------------------------------------------------------------------------------------------------------------------------
  Net earnings per share                                  $   0.30       $   1.30       $   0.89       $   0.85       $   0.39
==============================================================================================================================
  Weighted average shares outstanding                         41.7           41.9           42.7           42.5           41.3
==============================================================================================================================

BALANCE SHEET DATA:
Working capital                                           $  122.5       $ (346.7) (h)  $  102.1       $   92.3       $   80.6
Current ratio                                                  1.4x           0.6x           1.4x           1.4x           1.4x
Plant and equipment, net                                  $  873.8       $  915.8       $  761.1       $  722.0       $  706.7
Long-term debt                                            $  970.5       $  562.3       $  369.3       $  266.7       $  103.0
Deferred income taxes, net                                $   52.1       $   50.5       $   62.9       $   69.1       $   73.9
Shareholders' equity                                      $  658.5       $  654.9       $  639.4       $  606.6       $  582.4
Total assets                                              $2,255.9       $2,339.5       $1,591.6       $1,394.3       $1,172.1
==============================================================================================================================
<FN>
(a)  Fiscal year 1998 contains 53 weeks.
(b)  A change in accounting principle required that costs of business
     process re-engineering be expensed as incurred. Accordingly, a
     cumulative adjustment was recorded in the third quarter of fiscal 1998.
(c)  Reflects the effects of an accounts receivable write-off and the
     provision for restructuring and consolidation. See "Management's
     Discussion and Analysis of Results of Operations and Financial
     Condition" and Note 3 in the Notes to the Consolidated Financial
     Statements.
(d)  Reflects the effects of a one-time write-off related to a customer
     bankruptcy filing and the provision for restructuring and
     consolidation. See "Management's Discussion and Analysis of Results of
     Operations and Financial Condition" and Note 3 in the Notes to the
     Consolidated Financial Statements.
(e)  Reflects the effects of the provision for restructuring and
     consolidation, a one-time tax benefit, and nonoperating gains on the
     sales of property. See "Management's Discussion and Analysis of Results
     of Operations and Financial Condition" and Note 3 in the Notes to the
     Consolidated Financial Statements.
(f)  Reflects the effects of the provision for restructuring and
     consolidation and $5.3 million of one-time Spanish tax incentives and
     credits.
(g)  Prior-year shares and per-share amounts have been restated to reflect
     the two-for-one stock splits effective July 20, 1998 and July 28, 1997.

(h)  The negative working capital for fiscal 2000 is directly related to the
     current maturities of long-term debt for initially financing the Metz
     acquisition.
</TABLE>


16

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE EARTHGRAINS COMPANY



INTRODUCTION

A number of significant factors, which are discussed below, affected the
consolidated results of operations, financial condition, and liquidity of
Earthgrains during the current fiscal year ended March 27, 2001, and the
prior fiscal years ended March 28, 2000, and March 30, 1999. This discussion
should be read in conjunction with the Consolidated Financial Statements and
notes thereto for such periods, which are included elsewhere in this report.

OVERVIEW AND OUTLOOK

After several consecutive years of record achievement in operating results
and earnings per share, fiscal 2001 was a very challenging year for
Earthgrains. A 28-day domestic labor strike, during the second and third
quarters, significantly impacted results for the year, particularly in the
domestic portion of the Bakery Products segment. While the Company continued
to operate and service all markets during the strike and did not lose major
customers or significant shelf space, the strike resulted in lost sales,
incremental spending, and reduced operating efficiencies. Despite the impact
of the strike and continuation of significantly unfavorable exchange rate
impacts, net sales increased for both business segments, Bakery Products and
Refrigerated Dough Products. The increased sales for the current year were
driven primarily by the acquisition of Metz Baking Company (Metz) in March
2000. In addition to the strike, results were also negatively impacted by
dramatic increases in fuel and energy costs, higher employee-related costs,
continued unfavorable foreign exchange rates, an unusual charge related to
collectibility of accounts receivable and the expected first-year dilution
from the Metz acquisition, specifically higher interest expense and
increased goodwill amortization.
     Pricing, taken in an effort to offset inflationary cost pressures, as
well as improved product mix, lower ingredient costs and strong performances
demonstrated by the European Baking operations and the Refrigerated Dough
Products segment were all positive factors during the year, partially
offsetting the negative impacts. Positive fourth-quarter performance across
both business segments, with particularly strong contributions from
Refrigerated Dough Products, was an important step in the Company's plan to
return to pre-strike performance levels and to get back on a track to
achieve established improvement goals. Full-scale marketing initiatives,
which were postponed during the strike, are back in place and new products
are being rolled out in both segments, with a continued focus to drive
growth in the higher-margin superpremium category. Improving product mix,
operating efficiencies, and pricing where appropriate will continue to be a
strong focus of both business segments in the coming year in order to
achieve profitability goals and to overcome higher levels of operating
costs, particularly for energy and employee benefits.
     The strength of acquisitions played a key role in driving improved
performance, most notably in Europe, during the current year. Reposteria
Martinez Group, of Santander, Spain, acquired at the end of fiscal 1999, and
Patrick Raulet, S.A., of Dole, France, acquired in the second quarter of
fiscal 2000, were strong complements to each of the Company's existing
European operations. Further benefits from the Reposteria Martinez
acquisition are expected in fiscal 2002, as a full year's benefit will be
realized from the fully completed integration. Integration of the Metz
acquisition is progressing as planned. The transition of their systems to
Earthgrains information systems and the related centralization of their
accounting and administrative functions is well under way and on schedule
for completion this coming fall. Accordingly, the Company plans to capture
the targeted synergies, which is a cumulative 60 to 70 percent of the annual
$30 million to $35 million of synergies, in the upcoming year and reach the
full annual level in fiscal 2003. Earthgrains' success in integrating
acquisitions has been a key component in the Company's excellent performance
record to date, and achieving the Metz synergies will be a key component of
performance improvement over the next two years. During the upcoming year,
the Company will also continue to review its operations, including Metz, to
balance capacity and consider further opportunities to maximize efficiencies
through consolidating operations.
     Over the past years, Earthgrains has demonstrated its ability to
implement its value-creating strategies. Both business segments have
contributed to growth in revenues, operating margin, EBITDA (earnings before
interest expense, income taxes, depreciation, amortization and minority
interest expense) margin, and earnings per share. The Company remains
focused on executing its successful core strategies of improving product
mix, driving continuous process improvement using total quality principles,
investing in technology to create competitive advantage and benefiting from
industry consolidation.

DOMESTIC LABOR STRIKE

On August 26, 2000, a strike was initiated by employees at the Fort Payne,
Alabama, bakery. The strike ultimately affected 27 bakeries before ending
with ratification of a new Fort Payne contract on September 22. The strike
resulted in lost sales, incremental spending and reduced operating
efficiencies. Significant incremental costs for overtime, temporary labor,
security, travel, distribution and purchased goods were incurred for the
Company to continue to operate bakeries and serve customers and consumers.
The labor strike had a significant impact on the Company's second and third
quarter operating results. The estimated negative impact of the strike on
sales, during both the strike itself and the related third-quarter recovery
period, was approximately $38 million. Earnings for the year were negatively
impacted by an estimated $0.50 per diluted share.




                                                                          17

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE EARTHGRAINS COMPANY



RESTRUCTURING AND CONSOLIDATION PROVISIONS

The Company recorded the following provisions during the periods presented:

*    An $11.5 million charge in fiscal 2001 for estimated expenses in
     conjunction with closing two bakeries;

*    A $2.3 million charge in fiscal 2000 for estimated expenses in
     conjunction with closing one bakery;

*    A $28.0 million charge in fiscal 1999 for restructuring of existing
     operations in Spain related to the Reposteria Martinez acquisition, for
     estimated expenses to close three domestic bakeries, and for severance
     costs related to creation of the centralized Financial Shared Services
     Center in St. Louis.

     The Company believes that benefits continue to be achieved through the
restructuring and consolidation program. Further benefits are expected to be
realized in the coming fiscal year, particularly in European Bakery
operations, as a full year's benefit will be reflected with the completion
of the route restructuring related to integrating the Reposteria Martinez
acquisition. The Company will continue to review its operations to balance
capacity and to seek additional opportunities to improve efficiencies
through route and manufacturing consolidation. See Note 3 in the Notes to
the Consolidated Financial Statements for additional information concerning
the details of the Company's restructuring charges, including a
reconciliation of the balance sheet reserve relating thereto.

CONSOLIDATED RESULTS OF OPERATIONS

The following discussion addresses the consolidated operating results and
financial condition of the Company for the current year ended March 27,
2001, and the prior years ended March 28, 2000, and March 30, 1999. See
further discussion to follow business results by operating segment.

NET SALES
On the strength of acquisitions, net sales for the 52-week fiscal year ended
March 27, 2001, increased by $542.8 million, or 26.6 percent, over the prior
year, despite a significant unfavorable foreign exchange rate impact of
$54.1 million. Excluding the effect of foreign exchange rates and the
estimated impact of the strike of approximately $38 million, sales increased
31.1 percent. The increase in sales is primarily attributable to the March
2000 Metz acquisition, which added $568 million to net sales in fiscal 2001.
Net sales increased $114.1 million, or 5.9 percent, in fiscal 2000 and
$206.2 million, or 12.0 percent, in fiscal 1999. After adjusting for the
unfavorable exchange rate impact in 2000, and the favorable exchange rate
impact in 1999 and 53rd week in 1998, sales increased 7.7 percent and 13.8
percent in 2000 and 1999, respectively. Both operating segments posted
increased sales in each of the three years, with the biggest contributor
being Bakery Products, attributable primarily to growth from acquisitions.

GROSS MARGIN
Gross margin of 45.5 percent in fiscal 2001 improved slightly from the prior
year level of 45.0 percent, despite impacts of the strike in the current
year, and increased from 43.3 percent in 1999. In addition to the labor
strike, margins were unfavorably impacted by higher fuel and energy costs
and employee-related costs in the current year. These factors were partially
offset by pricing initiatives and profit-margin improvements. Such margin
improvements were achieved by both business segments during each of the last
three years through continued favorable product mix improvement, acquisition
benefits and lower ingredient costs. European Bakery Products demonstrated
strong margin results in both fiscal 2001 and 2000 over prior year
performance, driven by price and mix improvements and continued benefits
from the March 1999 acquisition of Reposteria Martinez. In 1999, added
volume from supply agreements and manufacturing synergies related to
acquisitions drove margin improvements.
     Agricultural commodity costs represented 21-24 percent of cost of
products sold in fiscal 2001 and 22-25 percent during each of the prior two
fiscal years. Costs of products sold include agricultural commodities whose
prices are influenced by weather conditions, government regulations and
economic conditions. The Company utilized futures contracts and options to
hedge approximately 48-55 percent of such agricultural commodity costs, or
10-13 percent of cost of products sold during fiscal 2001. In 2000,
approximately 42-48 percent of such agricultural commodity costs, or 9-12
percent of cost of products sold, were hedged. In 1999, approximately 55-65
percent of such agricultural commodity costs, or 12-16 percent of cost of
products sold, were hedged. As of March 27, 2001, the amount of the
Company's aggregate obligation to purchase commodities under such contracts
was $22.5 million compared with $28.3 million a year ago.

OPERATING EXPENSES
Marketing, distribution and administrative expenses increased in 2001 to
41.1 percent from 39.4 percent in the prior year and 38.0 percent in 1999,
on a percentage-of-sales basis. The increase is a result of strike-related
expenses, the unusual $8.5 million write-off taken to appropriately reflect
the collectibility of accounts receivable in conjunction with centralizing
that processing function, and the increased goodwill amortization of $12.0
million from the Metz acquisition. Fiscal 2000 included a one-time $5.4
million accounts receivable write-off related to a customer bankruptcy
filing. Increases in expenses have also been experienced over the last two
years due to inflationary cost pressures, including increases in fuel,
energy and employee-related costs. 1999 expenses decreased to 38.0 percent
from 39.0 percent in 1998. During 1999, benefits were experienced from
integrating the CooperSmith, Inc., and Southern Bakeries, Inc.,
acquisitions.



18

<PAGE>
<PAGE>

INTEREST EXPENSE AND OTHER INCOME
Interest expense increased significantly in 2001 to $76.8 million from $26.5
million in 2000 and from $19.5 million in 1999, due primarily to higher debt
to finance acquisitions. As expected, the considerable increase in interest
expense in fiscal 2001 is a direct result of the increased debt level
related to the Metz acquisition. Other income in 1999 reflected above
average gains on property sales.

INCOME TAXES
The significant increase in the effective tax rate for fiscal 2001 to 55.4
percent from 37.3 percent a year ago is due to the effect of increased
nondeductible goodwill amortization related to the Metz acquisition on a
strike-impacted lower level of earnings in the current year. The increase in
the effective tax rate in fiscal 2000 from 36.6 percent in the prior year,
is directly related to the $2.0 million one-time tax benefit in 1999 from a
structure put into place during the fourth quarter of that year to improve
management of the Company's benefit programs. Excluding this one-time tax
benefit, the effective rate decreased in each of the two years since 1998
through sustained tax planning strategies. In fiscal 2002, the effective tax
rate is expected to moderate to a more normal effective tax rate of
approximately 42 percent.

MINORITY INTEREST EXPENSE
This line represents dividends paid on the $10 million of mandatorily
redeemable preferred stock in a wholly owned subsidiary of the Company that
was sold during March 1999. See further discussion of this transaction in
Note 8.

OPERATING SEGMENT INFORMATION
The business segments of the Company are Bakery Products, which consists of
the U.S. Bakery Products division and the European Bakery Products division,
and Refrigerated Dough Products, which comprises the U.S. Refrigerated Dough
Products division and the European Refrigerated Dough Products division.
This discussion has been modified to reflect business results by operating
segment, as reported consistently with how management assesses operating
segment performance. See Note 12 for comparative presentation of business
segment data.

BAKERY PRODUCTS -- The Bakery Products segment has delivered higher sales
results in each of the last three fiscal years, primarily on contributions
from acquisitions. Sales increased 30.3 percent in fiscal 2001, despite a
$41.5 million unfavorable exchange rate impact and lost revenues due to the
strike, and increased by 6.9 percent and 13.3 percent in 2000 and 1999 over
the prior year, respectively. In the current year, the majority of the
increase in sales can be attributed to the acquisition of Metz (March 2000).
The fiscal 2000 increase was driven primarily by the acquisition of
Reposteria Martinez (March 1999), and 10 days of sales from the Metz
acquisition. The fiscal 1999 increase in revenues is primarily attributable
to new customer supply agreements, the Southern Bakeries acquisition (August
1998) and a full year of the CooperSmith acquisition (January 1998).
     Faced with numerous operating challenges, unusual charges, continued
unfavorable effects of foreign exchange rates and cost pressures, operating
income for the Bakery Products segment decreased by $14.8 million, or 18.3
percent, in fiscal 2001. In addition to the significant impact of the
strike, current year operating results include the $8.5 million write-off to
reflect the collectibility of accounts receivable, an $11.5 million
provision for restructuring and consolidation and the anticipated first-year
dilutive effects of the Metz acquisition. Operating income increased $32.1
million, or 65.8 percent, in fiscal 2000, despite the $5.4 million one-time
write-off associated with a major food distributor's bankruptcy filing and
the $2.3 million charge for a plant closing. Fiscal 1999 operating income,
which included $28.0 million in restructuring and consolidation charges,
decreased $4.3 million, or 8.1 percent, over the prior year. Despite the
unfavorable challenges in fiscal 2001, operating results have been driven in
the past three years through price and mix improvements, lower ingredient
costs and the strength and synergies of acquisitions. A continued focus on
mix-shift improvement to branded and premium and superpremium categories
proved effective to partially offset inflationary cost pressures in fiscal
2001 and overcome such pressures in 2000, including increases in fuel and
energy costs as well as employee-related costs. European Bakery operations
also delivered strong operating results in fiscal 2001 and 2000,
attributable to benefits of their restructuring program, acquisition
synergies, pricing and favorable product mix combined with increased volume.

REFRIGERATED DOUGH PRODUCTS -- Refrigerated Dough operations delivered
strong operating results in fiscal 2001 on increased sales and significantly
increased operating income. Sales increased by 4.6 percent to $307.7 million
from $294.3 million a year ago. Excluding the unfavorable exchange rate
impact, sales increased by 8.8 percent. Strong volume and favorable pricing,
particularly in the last half of the year in the U.S., along with growth and
acquisition benefits in Europe accounted for the strong performance. Sales
increased slightly in the Refrigerated Dough segment in fiscal 2000 to
$294.3 million from $292.5 million, driven primarily by acquisitions and
branded sales growth in Europe. U.S. sales were negatively affected by the
conclusion of a cookie-dough co-pack contract (December 1998), which was a
strong contributor to the sales increase for the segment in fiscal 1999, and
timing of the Easter holiday resulting in benefits of two holiday selling
cycles in the prior year. Sales increased by $16.1 million, or 5.8 percent,
in fiscal 1999. Volume and product-mix improvements in the United States,
combined with acquisition-related growth in Europe, drove the increase in
1999 sales for the group.

<PAGE>
     The Refrigerated Dough segment has delivered strong double-digit growth
in operating results in each of the last three years, on product mix
improvement and pricing in the current year and even


                                                                          19

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE EARTHGRAINS COMPANY



though sales were only slightly higher in fiscal 2000 over 1999. Operating
income increased 18.6 percent to $48.4 million in fiscal 2001 from $40.8
million a year ago. In addition to price and mix improvement, volume growth
was a strong contributor to the current year improvement. The operating
income increase of 13.3 percent in fiscal 2000 over the prior year was due
in part by the benefits of the European acquisition of Patrick Raulet (June
1999). Fiscal 1999 operating income increased by $10.5 million, or 41.2
percent, over the prior year. Favorable product mix shift to specialty dough
products combined with continued operating efficiencies have driven notable
benefits each year.

LIQUIDITY AND CAPITAL RESOURCES

On April 20, 1999, Earthgrains issued $150 million of 10-year 6.5 percent
fixed-rate senior debentures under a $250 million shelf registration
statement filed with the Securities and Exchange Commission (SEC). Proceeds
from the offering were used to repay a portion of the borrowings under the
Company's $450 million revolving-credit facility. In connection with this
debt issuance, the Company terminated its related forward-starting interest
rate swap. Beginning in July 1999, the Company initiated a $400 million
commercial paper program to refinance the remaining borrowings under the
revolving credit facilities and to provide short-term financing for its
working capital and operating requirements.
     In conjunction with the acquisition of Metz Baking Company, the Company
secured a $600 million, committed revolving credit facility, due in March
2001, to initially finance the transaction. Concurrently, the Company
initiated an incremental $600 million commercial paper program which was
used to refinance borrowings under the new revolving credit facility.
     On July 25, 2000, Earthgrains issued $300 million in three-year, 8.375
percent fixed-rate Notes due 2003 and $250 million in five-year, 8.5 percent
fixed-rate Notes due 2005 from the $750 million shelf registration statement
filed with the SEC, which became effective in April 2000. Proceeds from
these notes, which were issued at a discount, were used to repay a portion
of the outstanding commercial paper borrowings. As of March 27, 2001, $200
million of securities under this shelf registration remain unissued. The
$100 million of unissued securities under the shelf registration statement
filed with the SEC in 1999 have been canceled. In conjunction with the fixed
rate debt issuance, the $600 million credit facility was reduced to $50
million and the $400 million in forward starting interest rate swaps,
entered into in May 2000, were terminated. The $7.8 million loss on these
swap agreements is being recognized as an adjustment to interest expense
over the term of the underlying notes. The remaining $50 million in
commitments under the $600 million revolving credit facility was terminated
by the Company in October 2000. At March 27, 2001, $50 million was
outstanding under the Company's $500 million in committed lines of credit.
     Borrowings outstanding under the commercial paper programs and the $50
million under the credit line at March 27, 2001, are classified as
noncurrent as they are supported by $450 million in committed lines of
credit due in September 2002. The commercial paper borrowings were at
weighted average interest rates of 6.6 percent during fiscal 2001 compared
to 5.9 percent for fiscal 2000. Maturities of the commercial paper issued
during the year generally had maturities of less than 90 days, with an
average maturity of 29 days at March 27, 2001. Additionally, a 10 million
euro committed revolving credit facility, due 2004, for the Company's French
subsidiary, EuroDough, and a 27 million euro revolving credit facility, due
2004, for operations in Spain, are in place to finance the Company's foreign
operations.
     Cash flow from operations, which was $165.0 million for the current
fiscal year ended March 27, 2001, continues to be a primary source of
liquidity. Price and mix improvements, acquisition benefits, and continued
lower ingredient costs have contributed to the cash flows from operations
for the current year. Net working capital, excluding cash and cash
equivalents, was $104.4 million at March 27, 2001, compared to a negative
$366.6 million a year ago. The negative working capital at fiscal year end
2000 is directly attributed to the current maturities of long-term debt
related to the Metz acquisition. During the second quarter, as discussed in
the preceding paragraph, the initial bridge financing for the acquisition
was substantially refinanced with the fixed-rate, long-term debt issuance.
     The Company's primary routine cash requirements will continue to
consist of funding capital expenditures and investing in the business,
repaying a portion of the outstanding debt in fiscal 2002, interest payments
pursuant to the outstanding debt, and dividends to shareholders. Investments
in capital expenditures during the current fiscal year were $96.7 million.
The Company expects to fund capital investments of approximately $105-$115
million in the upcoming year, with approximately two-thirds of the funding
toward high-return projects.
     The consolidated capital expenditure plan for fiscal 2002 includes
upgrades to various mixer refrigeration systems, an additional granola line
in the Rome, Georgia, plant, and an upgrade of the bun line at the Houston
bakery. The Company will also continue ongoing investments in systems
technology along with modernization plans for various domestic and
international bakeries and refrigerated dough plants primarily to improve
operating efficiencies.

<PAGE>
     The Company's stock repurchase program authorizes the repurchase of
common stock through open market transactions as the Company determines. In
fiscal 2001, Earthgrains purchased 186,100 shares of the Company's common
stock on the open market at a cost of $3.3 million. During the four years of
the program, 1,803,300 shares, adjusted to reflect the two stock splits,
have been purchased to date for the treasury at a total cost of $39.1
million. On May 1, 2000, the Board of Directors authorized an additional
stock repurchase program that allows Earthgrains to acquire up to 1.7
million shares of its common stock through December 31, 2003.




20

<PAGE>
<PAGE>

     On both a short-term and long-term basis, management believes that its
cash flows from operations, together with its available borrowings under the
existing credit facilities and commercial paper programs and the remaining
shelf registration will provide the Company with sufficient resources to
meet its seasonal working capital needs, to finance its projected capital
expenditures, to make interest and dividend payments, and to meet its
foreseeable liquidity requirements.

MARKET RISK

The Company actively monitors its exposure to commodity price risk, foreign
currency exchange rate risk and interest rate risks and uses derivative
financial and commodity instruments to manage the impact of certain of these
risks. The Company uses derivatives only for purposes of managing risk
associated with underlying exposures. The Company does not trade or use
instruments with the objective of earning financial gains on the instruments
themselves or on a speculative basis, nor does it use instruments where
there are not underlying exposures.
     The Company has estimated its market risk exposures using sensitivity
analyses. Market risk exposure has been defined as the change in fair value
of a derivative commodity or financial instrument assuming a hypothetical 10
percent adverse change in market prices or rates. Fair value was determined
using quoted market prices, if available. Actual changes in market prices or
rates may differ from hypothetical changes.

COMMODITIES -- Earthgrains uses commodity futures and options to manage
price risk on commodity inventories or anticipated commodity purchases. The
Company typically purchases certain commodities such as wheat, corn and soy
oil. Based on the results of the sensitivity analysis, the estimated market
risk exposure on such instruments was approximately $2.2 million and $2.8
million as of March 27, 2001, and March 28, 2000, respectively.

FOREIGN EXCHANGE -- For the Company's international operations, the
functional currency is the local currency and any transactions denominated
in a currency other than the respective functional currency are immaterial.
The Company does not use derivative instruments to manage exchange risk of
net investments in or earnings of its foreign operations.

INTEREST RATES -- The Company manages its interest rate exposures to reduce
its borrowing costs and risks through the use of a mix of floating- and
fixed-rate debt, as well as interest rate swap agreements and other
appropriate hedging instruments. The Company's interest-rate-related
financial instruments consist of outstanding debt, a $100 million
forward-starting interest rate swap agreement (which was terminated on April
20, 1999, in conjunction with the issuance of $150 million of debentures due
April 15, 2009) and three separate, similar forward-starting interest rate
swaps entered into in May 2000 (which were terminated in conjunction with
the issuance of $550 million in fixed-rate debt in July 2000). Concurrent
with the debt issuances, the loss on these related swap agreements is being
recognized as an adjustment to interest expense over the term of the
underlying debt instruments.
     Assuming the year-end variable rates and the Company's average
outstanding floating-rate debt during each year, an assumed adverse 10
percent increase in interest rates would have increased annual interest
expense by $3.4 million and $2.4 million during fiscal 2001 and fiscal 2000,
respectively.

ENVIRONMENTAL MATTERS

The operations of Earthgrains, like those of similar businesses, are subject
to various federal, state and local laws and regulations with respect to
environmental matters, including air and water quality, underground
fuel-storage tanks, and other regulations intended to protect public health
and the environment. Earthgrains has been identified as a potentially
responsible party ("PRP") at certain locations under the Comprehensive
Environmental Responses, Compensation and Liability Act, and may be required
to share in the cost of cleanup with respect to one material site. In June
2000, the Company received a request from the Environmental Protection
Agency (EPA) for information pertaining to the Company's refrigerant
handling practices. The Company is cooperating with the EPA in connection
with such request. While it is difficult to quantify with certainty the
financial impact of actions related to environmental matters, based on the
information currently available it is management's opinion that the ultimate
liability arising from such matters taking into consideration established
reserves should not have a material effect on Earthgrains' results of
operations, cash flows from operations, or financial position.

RECENTLY ISSUED ACCOUNTING STANDARDS

See discussion in the Summary of Significant Accounting Principles and
Policies Note to the Financial Statements.



                                                                          21

<PAGE>
<PAGE>

<TABLE>
CONSOLIDATED BALANCE SHEETS
THE EARTHGRAINS COMPANY



<CAPTION>
==========================================================================================================
                                                                                MARCH 27,        MARCH 28,
(IN MILLIONS, EXCEPT SHARE DATA)                                                     2001             2000
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                    $     18.1       $     19.9
  Accounts receivable, net                                                          254.4            261.3
  Inventories, net                                                                   94.7             91.5
  Deferred income taxes                                                              50.7             67.1
  Other current assets                                                               32.1             41.5
----------------------------------------------------------------------------------------------------------
    Total current assets                                                            450.0            481.3

Goodwill, net                                                                       894.8            900.0
Plant and equipment, net                                                            873.8            915.8
Other assets                                                                         37.3             42.4
----------------------------------------------------------------------------------------------------------
    Total assets                                                               $  2,255.9       $  2,339.5
==========================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt                                         $      7.9       $    442.1
  Accounts payable                                                                  166.3            177.9
  Accrued salaries, wages and benefits                                               79.8             83.3
  Accrual for restructuring and consolidation                                         6.2             17.0
  Other current liabilities                                                          67.3            107.7
----------------------------------------------------------------------------------------------------------
    Total current liabilities                                                       327.5            828.0

Postretirement benefits                                                             103.8            104.1
Long-term debt                                                                      970.5            562.3
Deferred income taxes                                                               102.8            117.6
Other noncurrent liabilities                                                         82.8             62.6
Commitments and contingencies                                                          --               --

Minority interest-redeemable preferred stock of subsidiary                           10.0             10.0

Shareholders' equity:
  Common stock, $.01 par value, 150,000,000 authorized, 44,431,293,
    and 43,936,881 shares issued in 2001 and 2000, respectively                       0.4              0.4
  Additional paid-in capital                                                        633.4            621.6
  Retained earnings                                                                 128.7            125.8
  Unearned ESOP shares                                                               (7.0)           (11.0)
  Treasury stock                                                                    (41.3)           (35.8)
  Unearned portion of restricted stock                                               (4.0)            (1.6)
  Accumulated other comprehensive income                                            (51.7)           (44.5)
----------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                      658.5            654.9
----------------------------------------------------------------------------------------------------------
    Total liabilities and shareholders' equity                                 $  2,255.9       $  2,339.5
==========================================================================================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>




22

<PAGE>
<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
THE EARTHGRAINS COMPANY



<CAPTION>
==========================================================================================================
                                                                     FOR THE FISCAL YEARS ENDED
                                                        --------------------------------------------------
                                                             MARCH 27,         MARCH 28,         MARCH 30,
(IN MILLIONS, EXCEPT PER-SHARE DATA)                              2001              2000              1999
----------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>               <C>
Net sales                                                  $   2,582.1       $   2,039.3       $   1,925.2
Cost of products sold                                          1,407.7           1,122.5           1,092.4
----------------------------------------------------------------------------------------------------------
Gross profit                                                   1,174.4             916.8             832.8
Marketing, distribution and administrative expenses            1,060.0             804.4             731.6
Provision for restructuring and consolidation                     11.5               2.3              28.0
----------------------------------------------------------------------------------------------------------
Operating income                                                 102.9             110.1              73.2
Other income and expenses:
  Interest (expense)                                             (76.8)            (26.5)            (19.5)
  Other income, net                                                3.5               4.3               6.2
----------------------------------------------------------------------------------------------------------
Income before income taxes                                        29.6              87.9              59.9
Provision for income taxes                                        16.4              32.8              21.9
Minority interest expense                                         (0.8)             (0.6)               --
----------------------------------------------------------------------------------------------------------
Net income                                                 $      12.4       $      54.5       $      38.0
==========================================================================================================


Earnings per share:
  Basic
    Net earnings per share                                 $      0.30       $      1.34       $      0.93
==========================================================================================================
    Weighted average shares outstanding                           40.7              40.6              40.7
==========================================================================================================
  Diluted
    Net earnings per share                                 $      0.30       $      1.30       $      0.89
==========================================================================================================
    Weighted average shares outstanding                           41.7              41.9              42.7
==========================================================================================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>



                                                                          23

<PAGE>
<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE EARTHGRAINS COMPANY



<CAPTION>
=========================================================================================================================
                                                                                       FOR THE FISCAL YEARS ENDED
                                                                            ---------------------------------------------
                                                                                  MARCH 27,      MARCH 28,      MARCH 30,
(IN MILLIONS)                                                                          2001           2000           1999
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                                       $   12.4       $   54.5       $   38.0
  Adjustments to reconcile earnings to
    net cash flow provided by operations:
      Depreciation                                                                    112.9           89.9           82.6
      Amortization                                                                     39.3           26.3           19.8
      Deferred income taxes                                                            11.2           13.7           (2.0)
      Provision for restructuring and consolidation
        ($11.5 million, less cash payments of $2.5 million in 2001;
        $2.3 million, less cash payments of $1.0 million in 2000;
        $28.0 million, less cash payments of $2.8 million in 1999)                      9.0            1.3           25.2
      (Gain) on disposal of fixed assets                                               (1.4)          (0.7)          (5.6)
      (Increase) in noncash working capital                                           (28.2)         (54.0)         (18.9)
      Other, net                                                                        9.8          (24.1)          (8.9)
-------------------------------------------------------------------------------------------------------------------------
      Net cash flow from operations                                                   165.0          106.9          130.2
-------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Capital expenditures                                                                (96.7)         (94.1)         (86.5)
  Acquisitions, net of cash acquired                                                  (32.1)        (655.2)        (169.7)
  Proceeds from sale of property/business                                               7.0            7.4           40.7
  Other                                                                                (1.5)            --             --
-------------------------------------------------------------------------------------------------------------------------
      Net cash used by investing activities                                          (123.3)        (741.9)        (215.5)
-------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Net (payments on borrowings) increase in revolving credit facility                 (566.9)         483.2           90.1
  Issuance of long-term debt                                                          538.0          150.0            9.9
  Principal payments on long-term debt, including current maturities                     --           (4.1)          (0.9)
  Dividends to shareholders                                                            (9.5)          (7.8)          (6.0)
  Purchases of treasury stock                                                          (3.3)         (15.4)         (13.4)
  Proceeds from issuance of preferred stock of subsidiary                                --             --           10.0
  Other                                                                                 2.7            1.6            3.3
-------------------------------------------------------------------------------------------------------------------------
      Net cash (used by) provided by financing activities                             (39.0)         607.5           93.0
-------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                (4.5)          (5.7)           1.7
Net (decrease) increase in cash and cash equivalents                                   (1.8)         (33.2)           9.4
Cash and cash equivalents, beginning of year                                           19.9           53.1           43.7
-------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                                             $   18.1       $   19.9       $   53.1
=========================================================================================================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>


24

<PAGE>
<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE EARTHGRAINS COMPANY


<CAPTION>
===================================================================================================================================
                                                                                                                    ACCUM.
                                                                                                                     OTHER
                                               COMMON STOCK   ADDITIONAL            UNEARNED             UNEARNED  COMPRE-
                                            ------------------   PAID-IN  RETAINED      ESOP  TREASURY RESTRICTED  HENSIVE
(IN MILLIONS, EXCEPT SHARE DATA)                SHARES  AMOUNT   CAPITAL  EARNINGS    SHARES     STOCK      STOCK   INCOME    TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>     <C>       <C>       <C>       <C>         <C>     <C>      <C>
Balance March 31, 1998                      21,498,864    $0.2    $608.1    $ 47.1    $(14.1)   $ (7.0)     $(3.3)  $(24.4)  $606.6
Comprehensive income:
         Net income                                                           38.0                                             38.0
         Other comprehensive income,
           translation adjustments                                                                                     3.6      3.6
-----------------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                 38.0                                     3.6     41.6
Dividends ($.145 per share)                                                   (6.0)                                            (6.0)
Two-for-one stock split                     21,498,864     0.2      (0.2)                                                        --
Shares issued under stock plan and
  related tax benefits                         405,086               5.7                                                        5.7
Amortization of restricted stock                                                                              0.9               0.9
Shares allocated under ESOP                                          2.8                 1.1                                    3.9
Purchases of treasury stock                   (557,700)                                          (13.4)                       (13.4)
Other                                            6,737               0.2                                     (0.1)              0.1
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 30, 1999                      42,851,851     0.4     616.6      79.1     (13.0)    (20.4)      (2.5)   (20.8)   639.4
Comprehensive income:
         Net income                                                           54.5                                             54.5
         Other comprehensive income,
           translation adjustments                                                                                   (23.7)   (23.7)
-----------------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                 54.5                                   (23.7)    30.8
Dividends ($.19 per share)                                                    (7.8)                                            (7.8)
Shares issued under stock plan and
  related tax benefits                         190,130               2.4                                                        2.4
Amortization of restricted stock                                                                              0.9               0.9
Purchases of treasury stock                   (722,300)                                          (15.4)                       (15.4)
Shares allocated under ESOP                                          2.8                 2.0                                    4.8
Other                                                               (0.2)                                                      (0.2)
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 28, 2000                      42,319,681     0.4     621.6     125.8     (11.0)    (35.8)      (1.6)   (44.5)   654.9
Comprehensive income:
         Net income                                                           12.4                                             12.4
         Other comprehensive income,
           translation adjustments                                                                                    (7.2)    (7.2)
-----------------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                 12.4                                    (7.2)     5.2
Dividends ($.23 per share)                                                    (9.5)                                            (9.5)
Shares issued under stock plans and
  related tax benefits                         376,822               8.4                 1.2      (2.2)      (3.9)              3.5
Amortization of restricted stock                                                                              1.5               1.5
Purchases of treasury stock                   (186,100)                                           (3.3)                        (3.3)
Shares allocated under ESOP                                          3.4                 2.8                                    6.2
-----------------------------------------------------------------------------------------------------------------------------------
Balance March 27, 2001                      42,510,403    $0.4    $633.4    $128.7    $ (7.0)   $(41.3)     $(4.0)  $(51.7)  $658.5
===================================================================================================================================

See accompanying Notes to Consolidated Financial Statements
</TABLE>

                                                                          25

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



1    SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
     AND POLICIES
This summary of the Company's significant accounting principles and policies
is presented to assist in evaluating the Company's financial statements
included in this report. These principles and policies conform to generally
accepted accounting principles and are applied on a consistent basis among
years.

PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the Company and all its
subsidiaries. All significant intercompany transactions are eliminated.

FISCAL YEAR END
The Company has a 52- or 53-week year, with its fiscal year end being the
last Tuesday in March. The following table summarizes the periods covered in
each of the three fiscal years presented in these financial statements and
footnotes thereto unless otherwise stated:

============================================================================
FISCAL YEAR                PERIOD COVERED
----------------------------------------------------------------------------
2001                       52-week period ended March 27, 2001
2000                       52-week period ended March 28, 2000
1999                       52-week period ended March 30, 1999

FOREIGN CURRENCY TRANSLATION
The local currency of the Company's foreign operations is considered the
functional currency. Financial statements of the foreign operations 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. Adjustments resulting from foreign currency transactions are
recognized in income, whereas adjustments resulting from the translation of
financial statements are reflected within accumulated other comprehensive
income in shareholders' equity.

REVENUE RECOGNITION
Revenue is recognized upon shipment to and acceptance by the customer.
Discounts to customers are netted against sales. Costs and related expenses
to manufacture the products are recorded as costs of sales when the related
revenue is recognized.

GOODWILL
Goodwill is amortized on a straight-line basis over a period of 40 years.
Accumulated amortization at March 27, 2001, and March 28, 2000, was $124.6
million and $99.8 million, respectively. $105.5 million of the goodwill
balance at March 27, 2001, relates to the acquisition of the Company by
Anheuser-Busch in 1982.

SUPPLY AGREEMENTS
Cash payments made in conjunction with long-term supply agreements with
customers are capitalized as other assets and amortized over the term of the
respective agreement. Such amortization is reflected in marketing,
distribution and administrative expenses in the Consolidated Statements of
Earnings.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and temporary investments
purchased with an initial maturity of three months or less.

INVENTORIES AND PRODUCTION COSTS
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out method. Inventories include the cost of
materials, direct labor and manufacturing overhead. Obsolete or unsalable
inventories are reflected at their estimated realizable values. The Company
uses commodity futures and option contracts to hedge certain of its
commodity purchases as considered necessary to reduce the inherent risk
associated with market-price fluctuations. Such contracts are accounted for
as hedges; and accordingly, gains and losses on hedges of future commodity
purchases are recognized as a component of inventory in the same period as
the related purchase transaction. For any contracts that expire or are
terminated, any related gains or losses are recognized in income or expense
during the same period. The effect of any realized or deferred gains or
losses is immaterial to the financial position or results of operations of
the Company.

PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for new
facilities and expenditures that substantially increase the useful lives of
existing facilities. Maintenance, repairs and minor renewals are expensed as
incurred. When plant and equipment is retired or otherwise disposed, the
related cost and accumulated depreciation are eliminated and any gain or
loss on disposition is reflected in income or expense.
     Depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets, resulting in depreciation rates on
buildings ranging from 2-10 percent and on machinery and equipment ranging
from 5-25 percent.

<PAGE>
     In conjunction with the acquisition of the Company by Anheuser-Busch in
1982, a portion of the purchase price was associated with reflecting the
property, plant and equipment (buildings) at fair value through purchase
accounting. Additionally, the effect of the adoption of Statement of
Financial Accounting Standards No. 109 (SFAS 109) in fiscal 1992 was applied
to these assets. The remaining unamortized purchase price assigned to fixed
assets amounted to $185.0 million, with related deferred tax liabilities of
$70.8 million, at March 27, 2001.



26

<PAGE>
<PAGE>

CAPITALIZATION OF INTEREST
Interest relating to the cost of acquiring certain fixed assets is
capitalized. The capitalized interest is included as part of the cost of the
related asset and is amortized over its estimated useful life. Such amounts
capitalized were not material for any year presented.

INCOME TAXES
The provision for income taxes is based on the income and expense amounts as
reported in the Consolidated Statements of Earnings. Deferred income taxes
are recognized for the effect of temporary differences between financial and
tax reporting in accordance with the requirements of SFAS 109.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATION OF CREDIT RISK
The Company is a party to certain financial instruments with off-balance-
sheet risk incurred in the normal course of business. These financial
instruments include forward and option contracts designated as hedges.
Derivative financial instruments are used solely as hedges to manage
existing risks or exposure. The Company's exposure to credit loss in the
event of non-performance by the counterparties to these financial
instruments (either individually or in the aggregate) is not material to
the financial condition or results of operations of the Company.
     Derivative financial instruments, which are used by the Company in the
management of commodity exposures, are accounted for on an accrual basis.
Income and expense are recognized in the same category as that of the
related asset or liability. The fair value of derivative instruments is
determined based on the estimated amounts the Company would receive or pay
to terminate the contracts.
     In fiscal 1998, the Company entered into a forward-starting interest
rate swap transaction, in order to hedge its future borrowing costs for an
anticipated 10-year fixed rate debt issuance. Through this swap transaction,
the Company was obligated at a future date, up to one year, to make payments
based upon a fixed rate while receiving a LIBOR-based floating rate during a
10-year term. This interest rate swap agreement was terminated in
conjunction with the debt issuance on April 20, 1999. The loss of $2.3
million on the termination of this swap is reflected as a discount on the
notes and amortized to interest expense over their 10-year term.
     In May 2000, the Company entered into three separate, similar
four-month forward-starting interest rate swap transactions totaling $400
million, for anticipated three-year, five-year, and 10-year debt issuances.
Concurrent with the fixed-rate debt issuances on July 25, 2000, such swap
transactions were terminated. The $7.8 million loss on these swap agreements
is being recognized as an adjustment to interest expense on the underlying
notes over their respective three-year and five-year terms.
     The Company does not have a material concentration of accounts
receivable or credit risk.

FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 27, 2001 and March 28, 2000, the fair value of long-term debt
was $984.6 million and $984.0 million respectively. The fair value of
long-term debt was estimated based on the quoted market values for the same
or similar debt issues, or rates currently available for debt with similar
terms.

RESEARCH AND DEVELOPMENT AND ADVERTISING AND
PROMOTIONAL COSTS
Research and development and advertising and promotional costs are expensed
in the year in which these costs are incurred.

IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and goodwill for impairment whenever
events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. The Company performs
undiscounted cash-flow analyses to determine whether an impairment exists.
Impairment losses, if any, would be determined based on the present value of
the cash flows using discount rates that reflect the inherent risk of the
underlying business.

SYSTEMS DEVELOPMENT COSTS
The Company capitalizes certain systems development costs as required in
accordance with established criteria. Amounts capitalized are amortized over
a five-year period. In March 1998, the American Institute of Certified
Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement requires that certain internal and external
costs associated with the purchase and/or development of internal use
software be capitalized rather than expensed. The Company adopted this
statement as of the beginning of fiscal year 1999. Such adoption did not
have a material impact on the Company's financial position or results of
operations.

EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of
common stock outstanding during the year. The difference in the weighted
average shares outstanding used in the basic and dilutive earnings-per-share
calculations represents the assumed conversion of stock options and
restricted stock awards. The number of shares from such assumed conversion
were 1.0 million, 1.3 million and 2.0 million shares in fiscal 2001, 2000
and 1999, respectively.

STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees." Under APB 25, the Company
does not recognize compensation expense for options granted, because options
are only granted at a price equal to market value on the date of grant.



                                                                          27


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



In 1996, Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock Based Compensation" became effective, which
prescribes recognition of compensation expense based upon the fair value
of the options at the date of grant. However, SFAS 123 allows companies
to continue to apply APB 25 and disclose pro forma effects of the fair
value method. See Note 7 for additional discussion and pro forma
disclosures as if the fair value method had been utilized.

COMPREHENSIVE INCOME
Comprehensive income represents net income plus certain items that are
charged directly to stockholders' equity. Other comprehensive income for
the Company relates only to foreign currency translation adjustments.

USE OF ESTIMATES
In conformity with generally accepted accounting principles, the
preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Although these estimates
are based on our knowledge of current events and the actions that we may
undertake in the future, they may ultimately differ from actual results.

NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board (FASB) issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133."
This Statement established accounting and reporting standards for
derivative instruments, requiring recognition of the fair value of all
derivatives as assets or liabilities on the balance sheet. SFAS 133 will
become effective for fiscal 2002 financial reporting. Based upon a
review of the provisions of this standard, the Company's existing
derivative positions qualify for hedge accounting treatment under SFAS
133. Accordingly, the Company expects to record a net-of-tax cumulative
effect adjustment to other comprehensive income to recognize all
instruments that will be designated as cash flow hedges at fair value.
The Company believes that the adoption will not have a significant
impact on its results of operations or financial position.
     In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition,"
which provides guidance on the application of existing revenue
recognition rules for transactions that existing rules do not
specifically address. In June 2000, the SEC issued SAB No. 101B, which
delayed the effective date of SAB No. 101, making it applicable for the
Company's fourth quarter of fiscal year 2001. The implementation did not
have a material impact on the Company's consolidated financial
statements.
     In the third calendar quarter of fiscal 2000, the Emerging Issues
Task Force (EITF) of the FASB reached a consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Revenues and Costs." The consensus
establishes requirements for the classification and disclosure of
shipping and handling costs incurred and those costs billed. The
required reclassification did not have a material impact on the
Company's consolidated financial statements. Approximately $484.5
million, $344.1 million and $305.0 million of shipping and handling
costs are included in marketing, distribution and administrative
expenses in the Consolidated Statements of Earnings for fiscal 2001,
2000, and 1999, respectively.
     In May 2000, the EITF reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives." This consensus establishes
requirements for the recognition and presentation of sales incentives
such as coupons, rebates and other discounts. In April 2001, the EITF
reached a consensus to defer the effective date of this issue.
     In September 2000, the EITF released Issue No. 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products." EITF Issue No. 00-25
addresses when consideration from a vendor to a retailer (a) in
connection with the retailer's purchase of the vendor's products or (b)
to promote sales of the vendor's products by the retailer should be
classified in the vendor's income statement as a reduction of revenue.
In April 2001, a consensus was reached on this issue. The guidance under
Issue No. 00-14 and Issue No. 00-25 is effective for the Company's
fourth quarter of fiscal year 2002. The impact of Issue 00-14 is not
expected to have a significant impact on its financial position or
results of operations or have a material effect on its financial
statement reporting. The Company has not completed its evaluation of the
effect of Issue No. 00-25.
     The FASB is in the final stages of issuing a new statement,
"Business Combinations and Intangible Assets -- Accounting for
Goodwill," which would eliminate the amortization of purchased goodwill
and instead require an annual review of goodwill and intangibles for
impairment or when a change or event occurs that indicates goodwill may
be impaired. If this new standard is issued prior to the Company's
required SEC filing for the upcoming first quarter of fiscal 2002, it
would permit early adoption for the Company. Accordingly, pending
issuance of the new statement under the current provisions provided in
the existing related Exposure Draft, the Company plans to adopt the new
statement for reporting its first quarter of fiscal 2002 results. The
Company expects an annual, favorable impact to net income of
approximately $24 million upon adoption for fiscal 2002.

2    ACQUISITIONS
     On January 1, 2001, Earthgrains' European Bakery unit acquired the
assets of Ortiz, the toasted bread business of Nutrexpa, S.A. Ortiz,
which produces toasted bread through one plant in Vergel, Spain, with
annual sales of approximately $12.0 million, makes the Company the
market leader in toasted bread products in Spain. The cash transaction
is being funded through cash flows of the local existing Spanish
operations and has been accounted for using the purchase method.
Accordingly, the results of operations are reflected in the Consolidated
Statement of Earnings from the date of acquisition.

28


<PAGE>
<PAGE>

     Effective June 30, 1999, Earthgrains acquired the stock of Patrick
Raulet, S.A., a leading producer of refrigerated dough products in Dole,
France. This acquisition complements the Company's existing European
Refrigerated Dough Products business, making it the largest refrigerated
dough supplier in France. This acquisition was funded through the cash
flows of the local existing operations. Effective March 18, 2000, the
Company acquired the stock of Metz Baking Company for $625 million.
Metz, which currently operates 20 bread and specialty bakeries, added
major markets and brands in the upper Midwest. The acquisition was
initially financed through new and existing committed credit facilities
and commercial paper. In July 2000, three- and five-year notes were
issued to refinance a portion of the original borrowings.
     Both acquisitions were purchased for cash and have been accounted
for using the purchase method. Accordingly, the results of operations
are reflected in the Consolidated Statement of Earnings from the
respective dates of acquisition. The purchase price has been allocated
to the assets acquired and the liabilities assumed based upon their
estimated fair market value, and the excess costs over net tangible
assets are being amortized over 40 years. $494.6 million in excess costs
over assets acquired as of March 27, 2001 relates to the Metz
acquisition. Had these purchases taken place on April 1, 1998, unaudited
pro forma consolidated net sales would have been $2,601.3 million and
$2,467.2 million for fiscal years 2000 and 1999, respectively.
Consolidated net earnings and earnings per diluted share would have been
$35.7 million and $0.85 per share in fiscal 2000 and $19.7 million and
$0.46 per share in fiscal 1999.
     On August 3, 1998, Earthgrains acquired the assets of Societe De
Concept en Produits Agro-Alimentaires, S.A., which owns Chevalier
Servant, S.A., of Vittel, France. Chevalier Servant, a refrigerated- and
frozen-dough producer, has been combined with the Company's existing
French-based refrigerated dough operations. On August 19, 1998, the
Company acquired the assets of Palmetto Baking Company of Orangeburg,
S.C., and Tatum Bakeries of Birmingham, Ala., from Southern Bakeries,
Inc. Palmetto produces Sunbeam(R) and Country Hearth(R) brand bread,
buns and rolls in South Carolina and eastern Georgia. Tatum produces
specialty rolls for sale to other wholesale bakers. Effective October 5,
1998, Earthgrains completed the transaction with Interstate Bakeries
Corporation to exchange assets of Earthgrains' My Bread Baking Co. in
New Bedford, Mass., for those of IBC's Holsum Bakery in Grand Junction,
Colo., plus a cash payment from IBC. The exchange, which added new
brands and contiguous sales territory in western Colorado, did not
significantly affect financial results. On March 25, 1999, the Company
completed the acquisition of Reposteria Martinez Group of Santander,
Spain. Reposteria Martinez Group is a producer of fresh-baked sweet
goods and with this acquisition, the Company became the branded market
leader in the retail sweet-good segments of cake and morning goods in
Spain.
     All of these acquisitions were purchased for cash and have been
accounted for using the purchase method. Accordingly, the results of
operations are reflected in the Consolidated Statement of Earnings from
the date of acquisition. The purchase price has been allocated to the
assets acquired and the liabilities assumed based upon their estimated
fair market value, and the excess costs over net tangible assets are
being amortized over 40 years. Had these purchases taken place on April
1, 1998, unaudited pro forma consolidated net sales would have been
$2,035.0 million for fiscal year 1999. Consolidated net earnings and
earnings per share would not have been significantly different from the
amounts reflected in the accompanying financial statements.
     On July 22, 1998, the Company entered into a multiyear agreement
to supply store-brand fresh bread and bakery products to Kroger Food
Stores in Texas and Louisiana. Earthgrains services this contract
through its existing bakeries in Dallas and Houston. On September 21,
1998, the Company entered into a multiyear agreement to supply store-
brand fresh bread, buns and rolls to Lucky Stores, Inc., in northern
California. Earthgrains services this contract through its existing
bakeries in Oakland and Sacramento. Cash payments made in conjunction
with long-term supply agreements with customers are capitalized as other
assets and amortized over the term of the respective agreement.
     Pro forma data do not purport to be indicative of the results that
would have been obtained had these events actually occurred at the
beginning of the periods presented and such data are not intended to be
a projection of future results.

3    PROVISIONS FOR RESTRUCTURING AND CONSOLIDATION
     The Company has recorded various provisions for restructuring and
consolidation in conjunction with closing domestic bakeries and
restructuring operations in Spain in order to increase efficiencies and
streamline operations. Reserves have also been established in
conjunction with certain acquisitions for restructuring related to the
acquiree's operations. In accordance with generally accepted accounting
principles, the acquisition-related reserves were recorded as an
increase to goodwill and no provision was recorded.
     During fiscal 2001, an $11.5 million pretax restructuring charge
was recorded for costs associated with closing bakeries in Des Moines,
Iowa and Louisville, Kentucky. Additionally, the Rockford, Illinois
bakery was also closed, which was acquired as part of Metz Baking
Company. Costs associated with the Rockford closing are being charged
against additional acquisition-related reserves of $2.6 million and no
provision was recorded. These provisions and reserves include costs of
reflecting certain fixed assets at net realizable value less cost of
disposal, employee severance benefits, and other related closing costs
that do not benefit future periods.


     In fiscal 2000, the Company recorded a provision of $2.3 million
in conjunction with closing one bakery. During fiscal 1999, provisions
totaling $28.0 million were recorded in conjunction with closing three
domestic bakeries, severance costs associated with the creation of a
centralized Financial Shared Services Center in

                                                                          29


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



St. Louis, and for the restructuring of existing operations in Spain
related to the fourth quarter acquisition of Reposteria Martinez Group.
These provisions reflect costs of writing off certain fixed assets,
employee severance benefits, and other related closing costs. In the
case of plant closings, production was transferred to other facilities.
     Costs for the respective-year provisions are categorized as
follows (in millions):

<TABLE>
<CAPTION>
=====================================================================
FISCAL YEAR                              2001        2000        1999
---------------------------------------------------------------------
<S>                                     <C>          <C>        <C>
Noncash asset write-offs                $ 8.0        $0.8       $ 3.0
Other, primarily severance                3.5         1.5        25.0
---------------------------------------------------------------------
                                        $11.5        $2.3       $28.0
=====================================================================
</TABLE>


     Additionally, reserves have been established in conjunction with
certain acquisitions in prior years for restructuring related to the
acquiree's operations. During fiscal 1999, reserves totaling $7.2
million were recorded primarily for severance relative to the Chevalier
Servant and Reposteria Martinez Group acquisitions. During fiscal 2000,
reserves of $0.3 million and $3.5 million were established in
conjunction with the Patrick Raulet and Metz acquisitions, respectively.
Both reserves were for severance. In accordance with generally accepted
accounting principles, these acquisition-related reserves were recorded
as an increase to goodwill and no provision was recorded. At March 27,
2001, $2.6 million of the reserve balance is comprised of cash charges
to be incurred, primarily severance; the remaining $3.6 million is
comprised of noncash charges.
     A reconciliation of activity with respect to the Company's
restructuring and consolidation is as follows (in millions):

<TABLE>
====================================================================
<S>                                                           <C>
Ending balance, March 31, 1998                                $  6.1
Provision, 1999                                                 28.0
Acquisition-related reserves                                     7.2
Noncash asset write-offs                                        (2.0)
Cash payments associated with severance                         (5.8)
Other miscellaneous items, net                                  (1.1)
--------------------------------------------------------------------
Ending balance, March 30, 1999                                  32.4
Provision, 2000                                                  2.3
Acquisition-related reserves                                     3.8
Noncash asset write-offs                                        (1.8)
Cash payments associated with severance                        (19.2)
Other miscellaneous items, net                                  (0.5)
--------------------------------------------------------------------
Ending balance, March 28, 2000                                  17.0
Provision, 2001                                                 11.5
Acquisition-related reserves                                     2.6
Noncash asset write-offs                                       (10.2)
Cash payments associated with severance                        (14.3)
Other miscellaneous items, net                                  (0.4)
--------------------------------------------------------------------
ENDING BALANCE, MARCH 27, 2001                                $  6.2
====================================================================
</TABLE>

4    LONG-TERM DEBT
     Long-term debt is as follows (in millions):

<TABLE>
<CAPTION>
=====================================================================
                                             MARCH 27,      MARCH 28,
                                                  2001           2000
---------------------------------------------------------------------
<S>                                           <C>           <C>
Commercial Paper, 5.7% and 6.2%
  wtd. avg., respectively                       $229.0       $  259.1
Revolving Credit Facility due 2000                  --           25.0
Revolving Credit Facility due 2001                  --          568.0
Revolving Credit Facilities due 2001              50.0             --
Notes Payable, 6.5%, due 2009                    148.0          150.0
Notes Payable, 8.375%, due 2003                  296.9             --
Notes Payable, 8.5%, due 2005                    245.5             --
Euro Revolving Credit Facility
  due 2004                                         7.4             --
Industrial Development Bonds,
  9.5%, due 2001                                   1.5            1.5
Other                                              0.1            0.8
---------------------------------------------------------------------
                                                 978.4        1,004.4
Less current portion                               7.9          442.1
---------------------------------------------------------------------
                                                $970.5       $  562.3
=====================================================================
</TABLE>


     The aggregate maturities on long-term debt are $50.0 million,
$229.0 million, $307.4 million, and $250.0 million in fiscal years 2002,
2003, 2004 and 2006, respectively.
     On April 20, 1999, Earthgrains issued $150 million of 10-year 6.5
percent fixed-rate senior debentures under a $250 million shelf
registration statement filed with the SEC. Proceeds from the offering
were used to repay a portion of the borrowings under the Company's
existing $450 million revolving credit facility.
     Beginning in July 1999, the Company initiated a $400 million
commercial paper program to refinance the remaining borrowings under the
revolving credit facilities and to provide short-term financing for its
working capital and operating requirements.
     In conjunction with the acquisition of Metz Baking Company in
March 2000, the Company secured a $600 million committed revolving
credit facility, due in March 2001, to initially finance the
transaction. Concurrently, the Company initiated an incremental $600
million commercial paper program to refinance any borrowings under the
new revolving credit facility.
     On July 25, 2000, Earthgrains issued $300 million in three-year,
8.375 percent fixed-rate Notes due 2003 and $250 million in five-year,
8.5 percent fixed-rate Notes due 2005 from the $750 million shelf
registration statement filed with the SEC, which became effective in
April 2000. Proceeds from these notes, which were issued at a discount,
were used to repay a

30

<PAGE>
<PAGE>

portion of the outstanding commercial paper borrowings. As of March
27, 2001, $200 million of securities under this shelf registration
remain unissued. The $100 million of unissued securities under the shelf
registration statement filed with the SEC in 1999 have been canceled. In
conjunction with the fixed rate debt issuance, the $600 million
revolving credit facility was reduced to $50 million and the $400
million in forward starting interest rate swaps, entered into in May
2000, were terminated. The $7.8 million loss on these swap agreements is
being recognized as an adjustment to interest expense over the term of
the underlying notes. The remaining $50 million in commitments under the
$600 million revolving credit facility was terminated by the Company in
October 2000. At March 27, 2001, $50 million was outstanding under the
Company's $500 million in committed lines of credit.
     Borrowings outstanding under the commercial paper program and the
$50 million under the credit line at March 27, 2001, are classified as
noncurrent as they are supported by $450 million in committed lines of
credit due in September 2002. The commercial paper borrowings were at
weighted average interest rates of 6.6 percent during fiscal 2001
compared to 5.9 percent for fiscal 2000. Maturities of the commercial
paper issued during the year generally were less than 90 days, with an
average maturity of 29 days at March 27, 2001. Additionally, the Company
has a 10 million committed Euro revolving credit facility, due 2004, for
the Company's French subsidiary, EuroDough, and a 27 million Euro
revolving credit facility, due 2004, for operations in Spain, to finance
the Company's foreign business requirements.
     As of March 27, 2001, $26.6 million in letters of credit were also
outstanding under the revolving credit facility, principally related to
self-insurance requirements. Based on outstanding debt, commercial paper
and letters of credit, approximately $200 million was available for
incremental borrowings under the existing $500 million in committed
lines of credit at March 27, 2001. All credit facilities contain
customary covenants, including maintenance of interest coverage and
debt-to-total capitalization ratios plus certain other restrictions.

5    RETIREMENT BENEFITS
     PENSION PLANS
For fiscal 2001, salaried employees from the Metz acquisition were
included in the Company's salaried pension plan. The Metz Bargaining
Unit Plan, also assumed from the acquisition, is maintained as a
separate plan and is included in the disclosures below. During fiscal
2000, the Company adopted a nonunion hourly pension plan to provide
benefit coverage for new nonunion hourly employees from acquired
companies. Net pension expense for single-employer defined benefit plans
was comprised of the following for the three fiscal years (in millions):

<TABLE>
<CAPTION>
====================================================================
FISCAL YEAR                              2001        2000       1999
--------------------------------------------------------------------
<S>                                    <C>          <C>        <C>
Service cost (benefits
  earned during the year)               $ 7.8       $ 6.2       $4.4
Interest cost on projected
  benefit obligation                      4.9         1.9        1.4
Expected return on assets                (5.9)       (2.0)      (1.0)
Amortization of actuarial gains,
  prior service cost, and the
  excess of market value of plan
  assets over projected benefit
  obligation at January 1, 1986           1.1         1.2        1.0
--------------------------------------------------------------------
Net pension expense                     $ 7.9       $ 7.3       $5.8
====================================================================
</TABLE>

     The key actuarial assumptions used in determining pension expense
for single-employer defined benefit plans were as follows for each of
the three fiscal years:

<TABLE>
<CAPTION>
=====================================================================
FISCAL YEAR                               2001        2000       1999
---------------------------------------------------------------------
<S>                                    <C>          <C>        <C>
Discount rate                             7.5%        7.0%      7.25%
Long-term rate of return
  on plan assets                         10.0%       10.0%      10.0%
Weighted-average rate of
  compensation increase                   4.5%        4.5%       4.5%
=====================================================================
</TABLE>

     The actual (loss) gain on pension assets was $(0.9) million in
fiscal 2001, $2.6 million in fiscal 2000, and $1.1 million in fiscal
1999.

     The following tables set forth a reconciliation of funded status
to pension liability of all Company single-employer defined benefit
plans for the two years ended (in millions):

<TABLE>
<CAPTION>
====================================================================
                                             MARCH 27,     MARCH 28,
                                                  2001          2000
--------------------------------------------------------------------
<S>                                          <C>             <C>
Funded status -- Plan assets (less than)
  projected benefit obligation (PBO)            $(14.4)        $(5.6)
Unamortized excess of market value
  of plan assets over PBO
  at January 1, 1986, being
  amortized over 15 years                         (0.4)         (0.4)
Unrecognized net actuarial loss                    7.6           1.0
Unrecognized prior service costs                    .2           4.9
--------------------------------------------------------------------
Accrued pension liability                       $ (3.0)        $(0.1)
====================================================================
</TABLE>

                                                                          31

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY

     The assumptions used in determining the funded status of these plans
were as follows:

<TABLE>
<CAPTION>
====================================================================
                                                   2001         2000
--------------------------------------------------------------------
<S>                                               <C>          <C>
Discount rate                                      7.5%         7.5%
Weighted-average rate of
  compensation increase                            4.5%         4.5%
====================================================================
</TABLE>

     The following tables summarize the change in the projected benefit
obligation and the change in fair market value of plan assets for all
company single-employer defined benefit pension plans for the years
ended (in millions):

<TABLE>

CHANGE IN PROJECTED BENEFIT OBLIGATION (PBO):

<CAPTION>
====================================================================
                                              MARCH 27,    MARCH 28,
                                                   2001         2000
--------------------------------------------------------------------
<S>                                              <C>           <C>
PBO, beginning of year                            $66.8        $27.0
Service cost                                        7.8          6.2
Interest cost                                       4.9          1.9
Acquisitions                                         --         32.7
Plan amendments                                     0.4          0.7
Actuarial (gain)                                   (0.2)        (0.9)
Benefits paid                                      (2.1)        (0.8)
--------------------------------------------------------------------
PBO, end of year                                  $77.6        $66.8
====================================================================
</TABLE>

<TABLE>
CHANGE IN PLAN ASSETS (CONSISTING PRIMARILY OF CORPORATE EQUITY
SECURITIES AND PUBLICLY TRADED BONDS):

<CAPTION>
====================================================================
                                              MARCH 27,    MARCH 28,
                                                   2001         2000
--------------------------------------------------------------------
<S>                                               <C>          <C>
Fair market value, beginning of year              $60.9        $14.7
Actual return on plan assets                       (0.7)         2.6
Acquisitions                                         --         34.3
Employer contributions                              5.1         10.1
Benefits paid                                      (2.1)        (0.8)
--------------------------------------------------------------------
Fair market value, end of year                    $63.2        $60.9
====================================================================
</TABLE>

     The amounts listed as acquisitions in the preceding tables,
reflect the projected benefit obligation and related pension assets from
the Metz acquisition.
     Contributions to multiple and multi-employer plans in which the
Company participates are determined in accordance with the provisions of
negotiated labor contracts. Contributions to these plans were $32.3
million, $24.3 million, and $24.9 million for fiscal 2001, 2000, and
1999, respectively.

POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Salaried and certain bargaining unit
employees generally become eligible for retiree health care benefits
after reaching age 55 with 15 years of service.
     The following table sets forth the accumulated postretirement
benefit obligation (APBO) and the total postretirement benefit liability
for all single-employer defined benefit plans in the Company's
Consolidated Balance Sheets as of (in millions):


<TABLE>
<CAPTION>
===================================================================
                                              MARCH 27,   MARCH 28,
                                                   2001        2000
-------------------------------------------------------------------
<S>                                            <C>          <C>
Accumulated postretirement
  benefit obligation (APBO)                      $ 86.0      $ 68.9
Unrecognized prior service benefits                25.3        30.2
Unrecognized net actuarial gains                    2.7        14.3
-------------------------------------------------------------------
Total postretirement benefit liabilities         $114.0      $113.4
===================================================================
</TABLE>

     As of March 27, 2001, and March 28, 2000, $103.8 million and
$104.1 million of this obligation was classified as a long-term
liability, respectively, and $10.2 million and $9.3 million was
classified in other current liabilities, respectively.
     The following tables summarize the change in the accumulated
postretirement benefit obligation for the years ended (in millions):

<TABLE>
CHANGE IN ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO):

<CAPTION>
===================================================================
                                             MARCH 27,    MARCH 28,
                                                  2001         2000
-------------------------------------------------------------------
<S>                                            <C>            <C>
APBO, beginning of year                         $ 68.9        $72.0
Service cost                                       3.8          3.0
Interest cost                                      5.8          5.0
Acquisitions                                       6.6           --
Actuarial loss (gain)                             10.9         (1.8)
Benefits paid                                    (10.0)        (9.3)
-------------------------------------------------------------------
APBO, end of year                               $ 86.0        $68.9
===================================================================
</TABLE>

     The amount listed as acquisitions in the preceding table, reflects
the accumulated postretirement benefit obligation from the Metz
acquisition.
     Net periodic postretirement benefits expense for single-employer
defined benefit plans for the following periods was comprised of the
following (in millions):

<TABLE>
<CAPTION>
=====================================================================
FISCAL YEAR                                   2001     2000      1999
---------------------------------------------------------------------
<S>                                          <C>     <C>       <C>
Service cost (benefits attributed
  to service during the year)                $ 3.8    $ 3.0     $ 3.4
Interest cost on accumulated
  postretirement benefit obligation            5.8      5.0       6.1
Amortization of prior service benefit         (4.9)    (4.9)     (4.9)
Amortization of actuarial gain                (0.7)    (1.0)     (0.8)
---------------------------------------------------------------------
Net periodic postretirement
  benefits expense                           $ 4.0    $ 2.1     $ 3.8
=====================================================================
</TABLE>

32

<PAGE>
<PAGE>

     In measuring the APBO, the pre-Medicare medical indemnity costs
were assumed to increase 7.67 percent for fiscal year 2001, decreasing
by 1/3 percent per year to an ultimate rate of 4.0 percent in fiscal
year 2012. The post-Medicare medical indemnity costs were assumed to
increase 9.5 percent for fiscal year 2001, decreasing by 0.5 percent per
year to an ultimate rate of 4.0 percent in fiscal year 2012. The
Medicare Risk HMO medical costs were assumed to increase 5.75 percent in
fiscal year 2001, decreasing by 0.25 percent per year to an ultimate
rate of 4.0 percent in fiscal year 2008. The indemnity medical trend
rate combining pre- and post-Medicare costs for fiscal 1999 was assumed
to be 8.5 percent; the Medicare HMO medical trend rate was at an assumed
4.0 percent.
     The weighted average discount rate used in determining the APBO
was 8.0 percent at March 27, 2001, and at March 28, 2000.
     Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects (in millions):

<TABLE>
<CAPTION>
====================================================================
                                              TREND +1%    TREND -1%
--------------------------------------------------------------------
<S>                                             <C>           <C>
Effect on total of service and
  interest cost components for 2001                $1.0        $(1.0)
Effect on year-end 2001
  postretirement benefit obligation                $7.3        $(6.3)
====================================================================
</TABLE>


6    EMPLOYEE STOCK OWNERSHIP PLAN
     Substantially all domestic regular salaried and hourly employees
are eligible for participation in the company-sponsored Employee Stock
Ownership Plan (ESOP) that became effective July 1, 1996. The ESOP
borrowed $16.8 million from the Company for a term of 10 years at an
interest rate of 8.0 percent and used the proceeds to buy 2,052,456
shares of common stock from the Company. ESOP shares are being allocated
to participants over the 10-year period, as contributions are made to
the plan. At March 27, 2001, 1,198,472 shares have been allocated to
participants.
     The ESOP cash contributions and ESOP expense accrued during the
plan year are determined by several factors, including the market price
and number of shares allocated to participants, ESOP debt service,
dividends on unallocated shares and the Company's 401(k) matching
contribution. Over the 10-year life of the ESOP, total expense
recognized will equal the total cash contributions made by the Company.
     The ESOP is based on a June 30 plan year with cash contributions
made monthly. Cash contributions and dividends on unallocated ESOP
shares for fiscal 2001, 2000, and 1999 were $5.1 million and $0.3
million, $2.6 million and $0.3 million, and $1.4 million and $0.2
million, respectively.

7    STOCK OPTIONS AND RESTRICTED STOCK
     The 1996 Incentive Plan, as amended, authorizes the issuance of up
to 7,834,850 shares of Earthgrains Common Stock pursuant to the grant of
restricted stock and the exercise of incentive stock options,
nonqualified stock options and stock appreciation rights. Grants under
the 1996 Incentive Plan are made at the market price on the date of the
grant. Options granted pursuant to the 1996 Incentive Plan vest over a
three-year period from the date of grant and, once vested, are generally
exercisable over 10 years from the anniversary of the grant date. The
plan also provides for the granting of stock appreciation rights (SARs)
in tandem with stock options. The exercise of a SAR cancels the related
option and the exercise of an option cancels the related SAR. At March
27, 2001, there were no SARs outstanding under the plan.
     Under the 1996 Incentive Plan, 666,204 restricted shares of
Earthgrains Common Stock were issued to certain officers of the Company
in fiscal 1997. This restricted share award vests one-half each after 54
and 66 months following the date of the award. Accordingly, one-half of
the shares under this award vested and were issued in October 2000. The
remaining half of the award will vest in October 2001. During fiscal
2001, 207,900 additional restricted shares of common stock were issued
to certain officers of the Company. This restricted share award vests 5
years from the date of the award. Compensation cost is recognized over
the vesting period.
     The Company applies Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," in accounting for
its stock option plans. Accordingly, because the grant price equals the
market price on the date of grant, no compensation expense is recognized
for stock option grants. Had compensation cost for the Company's stock
options been determined based upon the fair value at the grant date
consistent with the methodology prescribed under FAS 123, the Company's
net income and earnings per share for the years ended March 27, 2001,
March 28, 2000, and March 30, 1999, would have been affected as follows
(in millions except shares, per grant and per share amounts):

<TABLE>
<CAPTION>
=====================================================================
FISCAL YEAR                                       2001    2000   1999
---------------------------------------------------------------------
<S>                                             <C>      <C>    <C>
Reported net income                              $12.4   $54.5  $38.0
Pro forma net income                             $ 8.1   $50.5  $35.1
Reported earnings per diluted share              $0.30   $1.30  $0.89
Pro forma earnings per diluted share             $0.19   $1.21  $0.82
=====================================================================
</TABLE>


                                                                          33


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



     The weighted-average fair value of options granted (which is
amortized to expense over the option 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 assumptions:

<TABLE>
<CAPTION>
=====================================================================
                                          2001        2000       1999
---------------------------------------------------------------------
<S>                                    <C>         <C>        <C>
Risk-free interest rate                   6.1%        6.2%       6.1%
Expected life of option                 5 YRS.      5 Yrs.     4 Yrs.
Expected volatility of
  Earthgrains stock                        38%         36%        34%
Expected dividend yield on
  Earthgrains stock                      1.12%       1.33%      0.75%
=====================================================================
</TABLE>

     The weighted-average fair value of options granted during 2001,
2000, and 1999 is as follows:

<TABLE>
<CAPTION>
===========================================================================
                                                2001        2000       1999
---------------------------------------------------------------------------
<S>                                         <C>        <C>         <C>
Fair value of options granted                  $7.29       $6.07      $7.19
Number of options granted                    493,950     668,715    681,928
Total fair value of all options granted        $ 3.6       $ 4.1      $ 4.9
===========================================================================
</TABLE>

     In accordance with FAS 123, the weighted-average fair value of
stock options granted is required to be based on a theoretical
statistical model in accord with assumptions noted above. In actuality,
because employee stock options do not trade on a secondary exchange,
employees receive no benefit and derive no value from holding stock
options under these plans without an increase in the market price of
Earthgrains stock. Such an increase in stock price would benefit all
stockholders.
     The following table summarizes the stock option transactions under
the Earthgrains 1996 Incentive Plan:

<TABLE>
<CAPTION>
=====================================================================
                                               WTD. AVG.
                                     OPTION     EXERCISE      OPTIONS
                                     SHARES        PRICE  EXERCISABLE
---------------------------------------------------------------------
<S>                               <C>             <C>       <C>
Outstanding,
   March 31, 1998                 3,447,620       $11.33      977,750
      Granted                       681,928       $22.41
      Exercised                     405,086       $ 8.43
      Cancelled                      38,608       $15.10
---------------------------------------------------------------------
Outstanding,
   March 30, 1999                 3,685,854       $13.66    1,001,309
      Granted                       668,715       $16.14
      Exercised                     190,130       $ 8.67
      Cancelled                      94,401       $20.12
---------------------------------------------------------------------
Outstanding,
   March 28, 2000                 4,070,038       $14.15    2,833,452
      Granted                       493,950       $18.75
      Exercised                     309,444       $10.02
      Cancelled                      75,995       $20.12
---------------------------------------------------------------------
OUTSTANDING,
   MARCH 27, 2001                 4,178,549       $14.91    3,076,618
=====================================================================
</TABLE>

     The following table summarizes information for options currently
outstanding at March 27, 2001:

<TABLE>
<CAPTION>
=====================================================================
                       OPTIONS OUTSTANDING
---------------------------------------------------------------------
                                              WTD. AVG.     WTD. AVG.
RANGE                                         REMAINING      EXERCISE
OF PRICES                        NUMBER            LIFE         PRICE
---------------------------------------------------------------------
<S>                         <C>               <C>             <C>
$ 7.65-13.06                  1,991,312        5.4 YRS.        $ 9.72
$14.46-14.63                     58,450        9.0 YRS.         14.62
$15.59-15.72                    603,174        8.8 YRS.         15.72
$17.50-20.41                    422,100        9.4 YRS.         19.30
$21.34-25.28                  1,103,513        7.6 YRS.         22.15
---------------------------------------------------------------------
$ 7.65-25.28                  4,178,549        6.9 YRS.        $14.91
=====================================================================
</TABLE>

     At March 27, 2001, 1,678,190 shares of Earthgrains Common Stock
were available for future awards under the 1996 Incentive Plan. The plan
provides for acceleration of exercisability of outstanding options and
the vesting of restricted shares upon the occurrence of certain events
relating to a change of control, merger, sale of assets or liquidation
of the Company.


8    CAPITAL AND PREFERRED STOCK
     7,834,850 shares are authorized for issuance under the amended
1996 Stock Incentive Plan. Of those shares, 666,204 were issued as
restricted share grants to certain Earthgrains Officers in fiscal 1997.
2,052,456 shares were authorized for the Employee Stock Ownership Plan,
activated on July 1, 1996, of which 1,198,472 shares have been allocated
to participants. 19,200 shares have been granted as restricted shares
and 22,601 shares issued as compensation to members of the Board of
Directors. During fiscal 2001, 207,900 additional shares were issued as
a restricted share grant to certain officers of the Company.
     1,803,300 shares have been repurchased into the treasury under the
Company's stock repurchase program. Approximately 1.7 million remaining
shares are authorized for repurchase as of March 27, 2001. 42,510,403
shares of Earthgrains Common Stock were issued and outstanding as of
March 27, 2001.
     All share and per-share amounts have been adjusted to reflect the
two-for-one common stock splits effective July 20, 1998 and July 28,
1997.
     During March 1999, the Company sold $10.0 million of mandatorily
redeemable preferred stock in a wholly owned subsidiary of Earthgrains.
This preferred stock is presented as a Minority Interest between long-
term debt and shareholders' equity. The Company authorized and issued
10,000 shares of preferred stock, which at any time on or after March 1,
2006, all (but not less than all) of the shares may be redeemed at the
option of the Company, at the redemption price of $1,000 per share. On
March 1, 2019, the Company shall redeem all of the then-outstanding
shares at the redemption price. During fiscal year 2000, the Company
began paying dividends on this preferred stock at a LIBOR-based variable
interest rate. Such dividends were recorded as Minority Interest Expense
below the income tax provision line.


34

<PAGE>
<PAGE>

9    INCOME TAXES
     The provision for income taxes consists of the following amounts
for the periods ended (in millions):

<TABLE>
<CAPTION>
=========================================================================
FISCAL YEAR                                 2001          2000       1999
-------------------------------------------------------------------------
<S>                                        <C>           <C>        <C>
Current tax (benefit) provision:
  Federal                                  $(0.5)        $16.1      $20.1
  State and foreign                          5.7           3.0        3.8
-------------------------------------------------------------------------
                                             5.2          19.1       23.9
-------------------------------------------------------------------------
Deferred tax provision (benefit):
  Federal                                    7.6           8.6        3.1
  State and foreign                          3.6           5.1       (5.1)
-------------------------------------------------------------------------
                                            11.2          13.7       (2.0)
-------------------------------------------------------------------------
Provision for income taxes                 $16.4         $32.8      $21.9
=========================================================================
</TABLE>

     The deferred tax assets and deferred tax liabilities as of the end
of each period are comprised of the following (in millions):

<TABLE>
<CAPTION>
=========================================================================
                                                    MARCH 27,   MARCH 28,
                                                         2001        2000
-------------------------------------------------------------------------
<S>                                                   <C>         <C>
Deferred tax liabilities:
  Depreciation and
    property differences                              $ 163.7     $ 164.9
  Deferred systems development costs                      5.4         7.0
  Pension plan                                            0.9         1.4
  Other                                                   8.1         8.1
-------------------------------------------------------------------------
  Deferred tax liabilities                              178.1       191.4
-------------------------------------------------------------------------
Deferred tax assets:
  Postretirement benefits other
    than pensions                                       (39.8)      (39.6)
  Self-insurance reserves                               (21.3)      (23.7)
  Reserve for restructuring and
    consolidation                                        (2.7)      (14.9)
  Accrued liabilities                                   (17.8)      (20.9)
  Deductible goodwill                                    (3.2)       (4.3)
  NOLs and tax credit carryforwards                     (29.5)      (23.6)
  Other                                                 (11.7)      (13.9)
-------------------------------------------------------------------------
  Deferred tax (assets)                                (126.0)     (140.9)
-------------------------------------------------------------------------
  Net deferred tax liabilities                        $  52.1     $  50.5
=========================================================================
</TABLE>

     The NOLs and tax credit carryforwards expire beginning in fiscal
2008 through 2019.

     A reconciliation between the statutory rate and the effective rate
is presented below:

<TABLE>
<CAPTION>
=========================================================================
                                                  2001      2000     1999
-------------------------------------------------------------------------
<S>                                             <C>        <C>     <C>
Tax at statutory rate                            $10.1     $30.5    $21.0
State income taxes,
  net of federal benefit                           0.6       0.7      1.0
Amortization of goodwill                           7.5       3.4      3.0
Foreign tax credits and other                     (2.3)     (2.4)    (1.5)
Benefit management program                          --        --     (2.0)
Other, net                                         0.5       0.6      0.4
-------------------------------------------------------------------------
Provision for income taxes                       $16.4     $32.8    $21.9
=========================================================================
</TABLE>


10   CASH FLOWS
     Supplemental information with respect to the Consolidated
Statements of Cash Flows for each of the periods is presented below (in
millions):

<TABLE>
<CAPTION>
=========================================================================
FISCAL YEAR                                       2001      2000     1999
-------------------------------------------------------------------------
<S>                                             <C>     <C>        <C>
Interest paid, net of
  capitalized interest                          $ 71.5    $ 23.2    $19.2
Income taxes (refunded) paid, net                 (0.9)     25.1     34.0
-------------------------------------------------------------------------
Changes in noncash working
  capital, net of effect
  of acquisitions:
Decrease (increase) in
  noncash current assets:
        Accounts receivable, net                   5.3     (35.5)    (9.2)
        Inventories, net                          (3.9)      3.2     (1.9)
        Other current assets                       9.3      (8.0)     8.2
Increase (decrease) in
  current liabilities:
        Accounts payable                         (11.9)      9.1    (21.2)
        Accrued salaries,
              wages and benefits                  (3.7)      2.7     (2.9)
        Accrual for restructuring
              and consolidation                  (10.9)    (18.7)    (3.0)
        Other current liabilities                (12.4)     (6.8)    11.1
-------------------------------------------------------------------------
(Increase) in noncash
  working capital                               $(28.2)   $(54.0)  $(18.9)
=========================================================================
</TABLE>

                                                                          35




<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



11   COMMITMENTS AND CONTINGENCIES
     The Company and certain of its subsidiaries are involved in
certain claims and legal proceedings in which monetary damages and other
relief are sought. These proceedings, arising in the normal course of
business, are in varying stages and may proceed for protracted periods of
time.
     Although it is impossible to predict the outcome of any legal
proceeding, the Company believes that it has meritorious defenses or
insurance coverage to meet the proceedings pending against it and that
the outcome of such proceedings should not, individually or in the
aggregate, have a material adverse effect on the results of operations or
financial condition of the Company.
     The operations of Earthgrains, like those of similar businesses,
are subject to various Federal, state and local laws and regulations with
respect to environmental matters, including air and water quality,
underground fuel storage tanks, and other regulations intended to protect
public health and the environment. Earthgrains has been identified as a
potentially responsible party ("PRP") at certain locations under the
Comprehensive Environmental Responses, Compensation and Liability Act,
and the Company may be required to share in the cost of cleanup with
respect to one material site. In June 2000, the Company received a
request from the Environmental Protection Agency (EPA) for information
pertaining to the Company's refrigerant handling practices. The Company
is cooperating with the EPA in connection with such request. Although it
is difficult to quantify with certainty the financial impact of actions
related to environmental matters, based on the information currently
available it is management's opinion that the ultimate liability arising
from such matters, taking into consideration established reserves, should
not have a material effect on the Company's results of operations or
financial position.
     Future rental commitments under noncancelable operating leases in
effect as of the end of fiscal year 2001 were, in millions: 2002 - $22.5;
2003 - $18.5; 2004 - $15.3; 2005 - $12.5; 2006 - $9.9; thereafter -
$29.1.
     Total rental expense for all operating leases was $28.9 million,
$18.7 million, and $16.8 million in fiscal 2001, 2002, and 1999,
respectively.

12   BUSINESS SEGMENTS
     The business segments of the Company are Bakery Products, which
consists of the U.S. Bakery Products division and the European Bakery
Products division, and Refrigerated Dough Products, which contains the
U.S. Refrigerated Dough Products division and the European Refrigerated
Dough Products division. Summarized below is the Company's business
segment information for 2001, 2000, and 1999 (in millions):

<TABLE>
<CAPTION>
=======================================================================
FISCAL YEAR                              2001         2000         1999
-----------------------------------------------------------------------
<S>                                  <C>          <C>          <C>
INCOME STATEMENT INFORMATION
NET SALES
  Bakery Products                    $2,274.4     $1,745.0     $1,632.7
  Refrigerated Dough Products           307.7        294.3        292.5
-----------------------------------------------------------------------
  Total                              $2,582.1     $2,039.3     $1,925.2
=======================================================================

DEPRECIATION & AMORTIZATION
  Bakery Products                    $  124.0     $   88.1     $   77.8
  Refrigerated Dough Products            16.6         16.5         13.0
  Corporate(a)                           11.6         11.6         11.6
-----------------------------------------------------------------------
  Total                              $  152.2     $  116.2     $  102.4
=======================================================================

OPERATING INCOME(b)
  Bakery Products                    $   66.1     $   80.9     $   48.8
  Refrigerated Dough Products            48.4         40.8         36.0
  Corporate(a)                          (11.6)       (11.6)       (11.6)
-----------------------------------------------------------------------
  Total                              $  102.9     $  110.1     $   73.2
=======================================================================

BALANCE SHEET INFORMATION
TOTAL ASSETS
     Bakery Products                 $1,782.0     $1,839.6     $1,111.5
     Refrigerated Dough Products        183.5        194.2        162.8
     Corporate(a)                       290.4        305.7        317.3
-----------------------------------------------------------------------
     Total                           $2,255.9     $2,339.5     $1,591.6
=======================================================================

CAPITAL EXPENDITURES
     Bakery Products                 $   84.3     $   76.7     $   71.1
     Refrigerated Dough Products         12.4         17.4         15.4
-----------------------------------------------------------------------
     Total                           $   96.7     $   94.1     $   86.5
=======================================================================

<FN>
(a)  Amounts represent purchase accounting valuation in conjunction
     with the acquisition of the Company by Anheuser-Busch Companies,
     Inc. in 1982 and the related depreciation and organization thereon.

(b)  2001 operating income was reduced by the $8.5 million pretax
     accounts receivable write-off and the $11.5 million pretax provision
     for restructuring and consolidation. 2000 operating income was reduced
     by the $5.4 million pretax write-off related to a customer bankruptcy
     filing and the $2.3 million pretax provision for restructuring and
     consolidation. 1999 operating income was reduced by the $28.0 million
     pretax provision for restructuring and consolidation. All amounts related
     to the Bakery Products segment.
</TABLE>


36

<PAGE>
<PAGE>

13   GEOGRAPHIC INFORMATION
     The Company operates in the United States and Europe. The foreign
information below is comprised primarily of the Company's operations in
Spain.

<TABLE>
<CAPTION>
=======================================================================
(IN MILLIONS)                      2001            2000            1999
-----------------------------------------------------------------------
<S>                            <C>             <C>             <C>
NET SALES
  Domestic                     $2,205.3        $1,638.9        $1,611.1
  Foreign                         376.8           400.4           314.1
-----------------------------------------------------------------------
  Consolidated Total           $2,582.1        $2,039.3        $1,925.2
=======================================================================

OPERATING INCOME (LOSS)
  Domestic                     $   74.2 (a)    $   87.6 (b)    $   79.2
  Foreign                          28.7            22.5            (6.0)
-----------------------------------------------------------------------
  Consolidated Total           $  102.9        $  110.1        $   73.2 (c)
=======================================================================

IDENTIFIABLE ASSETS
  Domestic                     $1,078.9        $1,128.4        $  852.5
  Foreign                         282.2           311.1           339.3
-----------------------------------------------------------------------
  Consolidated Total           $1,361.1        $1,439.5        $1,191.8
=======================================================================
<FN>
(a) 2001 operating income was reduced by the $8.5 million pretax accounts
    receivable write-off and the $11.5 million pretax provision for
    restructuring and consolidation.
(b) 2000 operating income was reduced by the $5.4 million pretax write-off
    related to a customer bankruptcy filing and the $2.3 million pretax
    provision for restructuring and consolidation.
(c) 1999 operating income was reduced by the $28.0 million pretax
    provision for restructuring and consolidation, $19.6 million of
    which related to foreign operations.
</TABLE>



14   SUPPLEMENTAL BALANCE SHEET
     INFORMATION

<TABLE>
<CAPTION>
=======================================================================
                                              MARCH 27,       MARCH 28,
(IN MILLIONS)                                      2001            2000
-----------------------------------------------------------------------
<S>                                            <C>             <C>
Receivables:
  Trade                                        $  257.3        $  265.1
  Allowance for doubtful accounts                  (2.9)           (3.8)
-----------------------------------------------------------------------
                                               $  254.4        $  261.3
=======================================================================

Inventories:
  Raw materials                                $   67.5        $   68.3
  Finished goods                                   27.2            23.2
-----------------------------------------------------------------------
                                               $   94.7        $   91.5
=======================================================================

Plant and equipment:
  Land                                         $   71.8        $   76.0
  Buildings                                       513.5           508.9
  Machinery and equipment                       1,055.1         1,000.2
  Construction in progress                         28.6            43.5
-----------------------------------------------------------------------
                                                1,669.0         1,628.6
  Less accumulated depreciation                  (795.2)         (712.8)
-----------------------------------------------------------------------
                                               $  873.8        $  915.8
=======================================================================

Accrued salaries, wages and benefits:
  Accrued payroll                              $   31.2        $   29.1
  Accrued vacation                                 23.6            27.1
  Accrued group benefits                           25.0            27.1
-----------------------------------------------------------------------
                                               $   79.8        $   83.3
=======================================================================

Other current liabilities:
  Current portion of
    self-insurance reserves                    $   21.5        $   24.9
  Accrued taxes, other than
    income taxes                                   10.6            15.2
  Other items                                      35.2            67.6
-----------------------------------------------------------------------
                                               $   67.3        $  107.7
=======================================================================

Other noncurrent liabilities:
  Self-insurance reserves                      $   30.5        $   32.6
  Environmental reserves                           13.1            10.1
  Other items                                      39.2            19.9
-----------------------------------------------------------------------
                                               $   82.8        $   62.6
=======================================================================

<CAPTION>
=======================================================================
FISCAL YEAR                              2001         2000         1999
-----------------------------------------------------------------------
<S>                                    <C>          <C>          <C>
Allowance for doubtful accounts
  Balance, beginning of period         $  3.8       $  5.6       $  6.2
  Provision charged to expense           10.9          7.4          0.9
  Acquisition-related additions            --          1.6           --
  Write-offs, less recoveries           (11.8)       (10.8)        (1.5)
-----------------------------------------------------------------------
Balance, end of period                 $  2.9       $  3.9       $  5.6
=======================================================================
</TABLE>



                                                                          37

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE EARTHGRAINS COMPANY



15   QUARTERLY FINANCIAL DATA (UNAUDITED)
     Summarized quarterly financial data for each of the fiscal years
appear below (each quarter represents a period of twelve weeks except
for the December quarter, which includes sixteen weeks):

<TABLE>
<CAPTION>
========================================================================================================
                                                  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
                                        ----------------------------------------------------------------
                                              JUNE    SEPTEMBER    DECEMBER         MARCH         FISCAL
(IN MILLIONS, EXCEPT PER SHARE DATA)       QUARTER      QUARTER     QUARTER       QUARTER           YEAR
--------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>          <C>
FISCAL 2001
Net sales                                   $599.6       $603.2       $782.1       $597.2       $2,582.1
Gross profit                                 279.8        277.6        344.9        272.1        1,174.4
Net income (loss)                             10.9          8.9 (a)    (13.0)(b)      5.6           12.4
Basic earnings per share:
Net earnings per share                      $ 0.27       $ 0.22 (a)   $(0.32)(b)   $ 0.14       $   0.30 (c)
========================================================================================================
Diluted earnings per share:
Net earnings per share                      $ 0.27       $ 0.21 (a)   $(0.32)(b)   $ 0.13       $   0.30 (c)
========================================================================================================

FISCAL 2000
Net sales                                   $449.6       $469.4       $642.8       $477.5       $2,039.3
Gross profit                                 202.1        208.9        286.8        219.0          916.8
Net income                                    12.5         15.7         18.7 (d)      7.6 (e)       54.5
Basic earnings per share:
Net earnings per share                      $ 0.31       $ 0.39       $ 0.46 (d)   $ 0.19 (e)   $   1.34 (c)
========================================================================================================
Diluted earnings per share:
Net earnings per share                      $ 0.30       $ 0.37       $ 0.45 (d)   $ 0.18 (e)   $   1.30
========================================================================================================
<FN>
(a) Quarter's results include an estimated $7.3 million pretax or $0.13 per
    share impact from the strike.
(b) Quarter's results include an $11.5 million pretax provision for
    restructuring and consolidation, an $8.5 million pretax accounts
    receivable write-off and an estimated $24.0 million pretax or
    $0.37 per share impact from the strike.
(c) Earnings per share is computed independently for each of the periods
    presented, therefore, the sum of the earnings per share amounts for
    the quarters may not equal the total for the year.
(d) Quarter's results include a $2.3 million pretax provision for
    restructuring and consolidation.
(e) Quarter's results include a $5.4 million pretax accounts receivable
    write-off related to a customer bankruptcy filing.
</TABLE>


16   QUARTERLY COMMON STOCK PRICE (UNAUDITED)
     RANGES AND DIVIDENDS
The Earthgrains Company common stock is listed and traded on the New York
Stock Exchange under the ticker symbol "EGR." The table below presents
the high and low market for the stock and per-share cash dividend
information for each quarter of fiscal 2001 and 2000.

<TABLE>
<CAPTION>
============================================================================================================
                                              FISCAL 2001                              FISCAL 2000
                                    ------------------------------------------------------------------------
                                      HIGH         LOW    DIVIDENDS            HIGH         LOW    DIVIDENDS
------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>            <C>           <C>         <C>            <C>
June Quarter                        $21.00      $13.50         $.05          $25.38      $20.13         $.04
September Quarter                    21.94       16.44          .06           29.00       23.50          .05
December Quarter                     24.00       14.94          .06           24.44       15.31          .05
March Quarter                        21.20       15.13          .06           16.44       13.31          .05
============================================================================================================
</TABLE>



38

<PAGE>
<PAGE>

RESPONSIBILITY FOR FINANCIAL STATEMENTS



The management of The Earthgrains Company is responsible for the
preparation and integrity of the consolidated financial statements
appearing in this annual report. The financial statements were prepared
in conformity with generally accepted accounting principles appropriate
in the circumstances and, accordingly, include certain amounts based on
our best judgments and estimates.
     We are responsible for maintaining a system of internal accounting
controls and procedures, which we believe are adequate to provide
reasonable assurance, at an appropriate cost/benefit relationship, that
assets are safeguarded against loss from unauthorized use or disposition
and financial records provide a reliable basis for preparation of the
financial statements. The internal accounting control system is
augmented by a program of internal audits and appropriate reviews by
management, written policies and guidelines, careful selection and
training of qualified personnel, and a written Code of Business Conduct
adopted by our Company's Board of Directors, applicable to all
management employees of our Company.
     The Audit and Finance Committee of our Company's Board of
Directors, composed solely of directors who are not officers of our
Company, meets with the independent auditors, management and internal
auditors periodically to discuss internal accounting controls and
auditing and financial reporting matters. The Committee reviews with the
independent auditors the scope and results of the audit effort. The
Committee also meets with the independent auditors and the chief
internal auditor without management present to ensure that the
independent auditors and the chief internal auditor have free access to
the Committee.
     PricewaterhouseCoopers LLP is engaged to audit the consolidated
financial statements of The Earthgrains Company and conduct such tests
and related procedures as it deems necessary in conformity with
generally accepted auditing standards. The opinion of the independent
auditors, based upon their audits of the consolidated financial
statements, is shown below.


REPORT OF INDEPENDENT ACCOUNTANTS


To the Shareholders and Board of Directors of
The Earthgrains Company

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, cash flows and
shareholders' equity present fairly, in all material respects, the
financial position of The Earthgrains Company and its subsidiaries at
March 27, 2001, and March 28, 2000, and the results of their operations
and their cash flows for the fiscal years ended March 27, 2001, March
28, 2000, and March 30, 1999, in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards generally accepted in the United
States of America, 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 our opinion.

/s/ PricewaterhouseCoopers LLP


St. Louis, Missouri
April 26, 2001


                                                                          39