<PAGE> 1
R A L S T O N  P U R I N A  C O M P A N Y

Five Year Financial Summary
 ...............................................................................
(In millions except per share and percentage data)

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED SEPTEMBER 30,
                                             --------------------------------------------------------
STATEMENT OF EARNINGS DATA                   1997         1996       1995<Fd>     1994<Fg>       1993
                                             ----         ----       --------     --------       ----
<S>                                        <C>          <C>          <C>          <C>          <C>
Net Sales...............................   $4,486.8     $4,301.9     $5,645.4     $6,319.8     $6,542.0
Depreciation and Amortization...........      189.0        193.8        249.4        268.3        272.1
Earnings from Continuing Operations
  before Interest Expense, Income Taxes,
  Equity Earnings, Extraordinary Item
  and Cumulative Effect of Accounting
  Changes...............................      559.2        638.0        599.4        546.5        726.9
    As a Percent of Sales...............       12.5%        14.8%        10.6%         8.6%        11.1%
Earnings from Continuing Operations
  before Income Taxes, Equity Earnings,
  Extraordinary Item and Cumulative
  Effect of Accounting Changes..........   $  384.9     $  447.7     $  399.6     $  326.1     $  488.8
Income Taxes............................       70.0        162.9        167.8        162.6        194.4
Earnings from Continuing Operations
  before Extraordinary Item and
  Cumulative Effect of Accounting
  Changes<Fa>...........................      348.9        296.4        232.7        163.5        294.4
    As a Percent of Sales...............        7.8%         6.9%         4.1%         2.6%         4.5%
Net Earnings<Fb>........................     $423.7<Fh> $  359.6       $296.4<Fe> $  208.9     $  122.6
Earnings Available to Common
  Shareholders..........................      410.6        345.5        277.6        188.7        101.6

<CAPTION>
                                                         FOR THE YEAR ENDED SEPTEMBER 30,
                                             --------------------------------------------------------
BALANCE SHEET DATA                           1997         1996       1995<Fd>     1994<Fg>       1993
                                             ----         ----       --------     --------       ----
<S>                                        <C>          <C>          <C>          <C>          <C>
Working Capital.........................   $  289.7     $ (230.3)    $(141.4)     $ (60.1)     $   74.1
Property at Cost, Net...................    1,113.7      1,050.9        989.7      1,536.5      1,967.1
    Additions (during the year).........      282.9        228.8        235.2        281.8        271.8
    Depreciation (during the year)......      142.5        139.5        198.5        222.8        226.5
Total Assets............................    4,741.8      4,523.0      4,310.8      4,423.9      4,912.8
Long-Term Debt..........................    1,860.4      1,437.0      1,602.1      1,594.6      2,054.5
Redeemable Preferred Stock..............      304.9        323.5        348.7<Ff>    469.7        509.8
Shareholders Equity.....................      917.1        689.0        494.2        355.6        469.8
Common Shares Outstanding:
    RAL Stock<Fc>.......................      102.3        101.7        101.7        100.0        101.8
    CBG Stock...........................                                              20.6         20.7

<FN>
---------

<Fa>     Before extraordinary charges for early retirement of debt of $2.1 for 1996, $3.7 for 1995, $9.5 for 1994 and $11.8 for
         1993. Also, before charges for the cumulative effect of accounting changes of $206.9 in 1993.

<Fb>     After-tax restructuring provisions reduced earnings by $36.3 in 1997, $11.0 in 1996, $70.0 in 1995 and $82.4 in 1994.

<Fc>     Does not include 4.3, 4.2, 4.1 and 4.0 shares of RAL Stock held by the Company's Grantor Trust in 1997, 1996, 1995 and
         1994, respectively.

<Fd>     Effective July 22, 1995, the Company sold its Continental Baking Company (CBC) subsidiary. The Company's earnings and
         cash flows reflect the operations of CBC through July 22, 1995.

<Fe>     Includes an after-tax gain on the sale of CBC of $42.0.

<Ff>     Reflects conversion of 1.0 shares of Redeemable Preferred Stock in connection with the sale of CBC.

<Fg>     On March 31, 1994, the Company effected a spin-off of Ralcorp Holdings, Inc., (Ralcorp), its private label and branded
         cereal, baby food, crackers and cookies, ski resort and coupon redemption businesses. The Company's earnings and cash
         flows reflect the operations of those businesses through March 31, 1994.

<Fh>     Includes a tax benefit of $34.7 related to tax refund claims for 1993 through 1996 as a result of a change in the
         Company's method of computing foreign tax credits and an after-tax gain of $15.1 on the sale of 1.0 shares of
         Interstate Bakeries Corporation stock.
</TABLE>

14 ............................................................................

<PAGE> 2
R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
(In millions except per share data)

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED SEPTEMBER 30,
                                            ------------------------------------------------------
PER SHARE DATA                              1997        1996        1995        1994       1993<Fa>
                                            ----        ----        ----        ----       -------
<S>                                        <C>         <C>         <C>         <C>         <C>
RAL Stock (pro forma in 1995 and 1994
  assuming one class of common stock):
    Earnings from Continuing Operations
      before Extraordinary Item
        Primary.........................   $  3.29     $  2.77     $  2.10     $  1.40
        Fully Diluted...................      3.13        2.64        2.05        1.39
    Net Earnings
        Primary.........................      4.02        3.39        2.72        1.84
        Fully Diluted...................      3.80        3.21        2.63        1.80
    Average Shares Outstanding..........     102.1       101.8       101.9       102.4
RAL Stock (based on RPG Group earnings
  through May 15, 1995 and consolidated
  Ralston earnings thereafter):
    Earnings from Continuing Operations
      before Extraordinary Item and
      Cumulative Effect of Accounting
      Changes
        Primary.........................                           $  2.22     $  1.57     $   .30
        Fully Diluted...................                              2.16        1.55         .30
    Net Earnings
        Primary.........................                              2.85        2.04         .36
        Fully Diluted...................                              2.74        1.98         .35
CBG Stock (through May 15, 1995):
    Earnings (Loss) before Extraordinary
      Item and Cumulative Effect of
      Accounting Changes
        Primary.........................                           $  (.45)    $  (.74)    $   .21
        Fully Diluted...................                              (.45)       (.74)        .19
    Net Earnings (Loss)
        Primary.........................                              (.45)       (.78)        .19
        Fully Diluted...................                              (.45)       (.78)        .17
Ralston Purina Company Common Stock
  (through July 30, 1993):
    Earnings from Continuing Operations
      before Extraordinary Item and
      Cumulative Effect of Accounting
      Changes
        Primary.........................                                                   $  2.30
        Fully Diluted...................                                                      2.20
    Net Earnings
        Primary.........................                                                       .59
        Fully Diluted...................                                                       .63
Average Shares Outstanding:
    RAL Stock...........................                             100.7       100.5       102.2
    CBG Stock (through May 15, 1995)....                              20.6        20.5        20.7
    Ralston Purina Company Common
      Stock.............................                                                     103.6
Dividends Declared:
    RAL Stock...........................   $  1.20     $  1.20     $  1.20     $  1.20     $   .60<Fb>
    CBG Stock...........................                                                       .16<Fb>
    Ralston Purina Company Common
      Stock.............................                                                      .632<Fb>

<FN>
---------

<Fa>     Actual earnings per share for 1993 are segregated due to the redesignation of Ralston Purina Company Common Stock and
         the issuance of CBG Stock, both occurring on July 30, 1993. RAL Stock and CBG Stock earnings are for the period after
         July 30 through September 30, 1993.

<Fb>     Represents dividends declared on redesignated RAL Stock and newly issued CBG Stock from July 30, 1993 through September
         30, 1993 and dividends declared on Ralston Purina Company Common Stock from October 1, 1992 through July 30, 1993.
</TABLE>

 ............................................................................ 15

<PAGE> 3
R A L S T O N  P U R I N A  C O M P A N Y

Financial Review
 ...............................................................................

     The following discussion is a summary of the key factors management
considers necessary in reviewing the Company's results of operations, liquidity,
capital resources, and operating segment results. This discussion should be read
in conjunction with the Business Segment Information and the Consolidated
Financial Statements and related notes.

Highlights
 ..........

     Net earnings were $423.7 million for the year ended September 30, 1997
compared to $359.6 million in 1996. Earnings per share were $4.02 and $3.80 on
a primary and fully diluted basis, respectively, compared to earnings per
primary and fully diluted share of $3.39 and $3.21 in the prior year. Included
in net earnings in 1997 are net earnings from discontinued operations of $74.8
million and several unusual items which increased net earnings by $13.5
million. Discontinued operations consist of Soy Protein Products, which is
being sold to E.I. Du Pont de Nemours and Company (DuPont), and Agricultural
Products, which will be spun-off to shareholders in early 1998. The first
unusual item in 1997 was an after-tax restructuring charge of $36.3 million,
net of income tax benefits of $75.1 million, primarily related to continued
rationalization of Battery Products' worldwide battery production capacity and
business structure. The income tax benefits of $75.1 million associated with
current and past restructuring actions included current tax benefits of $13.4
million and the recognition of capital loss benefits of $61.7 million. The
second unusual item is a tax benefit of $34.7 million related to tax refund
claims for 1993 through 1996 as a result of a change in the Company's method of
computing foreign tax credits. The third unusual item is a $15.1 million
after-tax gain on the sale of 1.0 million shares of Interstate Bakeries
Corporation (IBC) stock.

     Net earnings in 1996 included net earnings from discontinued operations of
$65.3 million, after-tax restructuring charges in the Pet Products and Battery
Products segments of $11.0 million and an extraordinary loss on early debt
retirement of $2.1 million, after taxes.

     In 1997, earnings from continuing operations before the unusual items
described above increased $28.0 million to $335.4 million, compared to $307.4
million in 1996. The 1997 earnings increase resulted from higher IBC equity
earnings, lower interest expense, lower translation and exchange losses and
higher returns on other investments. Operating profit was flat in 1997.
Earnings per share on this basis were $3.16 and $3.01 per primary and fully
diluted share, respectively, compared to $2.88 and $2.74 in the prior year.

     In 1996, net earnings increased $63.2 million and earnings per share
increased $.67 and $.58 on a primary and fully diluted basis, respectively.
Unusual items in 1995 included after-tax restructuring provisions of $70.0
million in Battery Products, an after-tax gain on the sale of Continental
Baking Company (CBC) of $42.0 million and an extraordinary loss on early debt
retirement of $3.7 million, after taxes. Additionally, 1995 results include net
earnings from the discontinued Soy Protein Products and Agricultural Products
operations of $67.4 million. Exclusive of these unusual items, 1996 earnings
from continuing operations increased on higher operating profit in Pet Products
and Battery Products, a lower tax rate and increased IBC equity earnings.

Transactions Affecting Comparability of Results
 ...............................................

Discontinued Operations

     In December 1997, the Company reached agreement to sell its Soy Protein
Products operations to DuPont for approximately $1.5 billion comprised of
DuPont common stock and the assumption of certain liabilities. The amount
received will be recorded in the first quarter of fiscal 1998 and will result in
a gain for the Company. The Soy Protein Products business is the world's leading
producer and marketer of high-quality dietary isolated protein and fiber food
ingredients and a leading marketer of polymer products worldwide.

     In addition, the Company has made significant progress in its efforts to
separate its Agricultural Products business in a tax-free spin-off to
shareholders. The spin-off is expected to be completed during the second
quarter of fiscal 1998 after receipt of a favorable tax ruling from the
Internal Revenue Service and final approval by the Board of Directors. The
Agricultural Products business is one of the world's largest producers and
marketers of formula feeds outside the United States.

     The Soy Protein Products and Agricultural Products segments are accounted
for as discontinued operations, and accordingly, amounts in the financial
statements and related notes for all periods shown have been restated to
reflect discontinued operations accounting. Summarized results of these
businesses are shown separately as Discontinued Operations in the accompanying
consolidated financial statements.

Other Transactions Affecting Comparability

     Effective July 22, 1995, the Company sold CBC to IBC for $220 million in
cash and 16,923,077 shares of common stock of IBC. The Company's earnings and
cash flows reflect the operations of CBC through July 22, 1995, and reflect an
equity interest in IBC thereafter.

     On April 7, 1995, the Company acquired the assets of Golden Cat
Corporation, the leading manufacturer and marketer of branded cat box filler in
the United States and Canada, for $340 million.

16 ............................................................................


<PAGE> 4
R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................

Operating Results from Continuing Operations
 ............................................

Net Sales

     Net sales increased $184.9 million or 4.3% in 1997 due to increases in
Pet Products. In 1996, net sales decreased $1,343.5 million or 23.8% on the
exclusion of CBC sales, partially offset by increases in Pet Products and
Battery Products and the inclusion of Golden Cat sales for a full year.
Excluding CBC sales in 1995, net sales increased 6.0% in 1996. Comments on
changes in sales by Business Segment may be found on pages 22 and 23 of this
report.

Gross Profit

     Gross profit increased 5.2% in 1997 due to an increase in Pet Products.
In 1996, gross profit decreased 24.2% on the exclusion of CBC. Excluding such
operations, gross profit increased 5.2% in 1996 on increases in both Pet
Products and Battery Products. Gross profit as a percentage of sales was 49.1%
in 1997 compared to 48.7% in 1996 and 49.1% in 1995, excluding CBC operations.
The increased percentage in 1997 reflects slightly improved margins in Pet
Products and increased sales in the higher margin Pet Products segment. The
decreased percentage in 1996 reflects a decreased percentage in Pet Products,
slightly offset by increased sales in the higher margin Pet Products' segment
and improvements in Battery Products. Pet Products' margins were unfavorably
impacted in 1996 by higher grain prices as price increases were insufficient to
maintain historical margin levels. In 1996, the Battery Products' 1995 plant
closings had a favorable impact on margins.

     Cost of products sold in the Pet Products segment is somewhat dependent on
agricultural commodity market prices. Prices may fluctuate due to weather
conditions, government regulations, economic climate or other unforeseen
circumstances. The Company manages exposure to changes in the commodities
markets as considered necessary by hedging certain of its ingredient
requirements such as corn or soybean meal. Agricultural commodity costs of the
Pet Products' segment have represented approximately 19% to 24% of cost of
products sold during the three year period ended September 30, 1997. See Market
Risk Sensitive Instruments and Positions section of this financial review for
further discussion of commodities.

Operating Expenses

     Selling, general and administrative expenses increased 6.2% in 1997
primarily due to increases in Pet Products, start-up expenses related to
capital projects and incremental expense associated with options and
mark-to-market adjustments on liabilities denominated in share equivalents.
Exclusive of CBC operations in 1995, selling, general and administrative
expenses increased 4.4% in 1996 primarily due to the inclusion of a full year
of Golden Cat expenses. Selling, general and administrative expenses, exclusive
of CBC operations in 1995, were 20.5%, 20.1% and 20.4% of sales in 1997, 1996
and 1995, respectively.

     Advertising and promotion expense increased 13.1% in 1997 due to
additional promotional spending in Pet Products. In 1996, advertising and
promotion expense, exclusive of CBC operations in 1995, increased 7.0% on the
inclusion of Golden Cat and on increased brand development spending in Pet
Products. Excluding CBC operations in 1995, advertising and promotion expense
was 14.4% of sales in 1997 compared to 13.3% in 1996 and 13.2% in 1995.

Interest Expense and Other Income/Expense

     Interest expense decreased in 1997 to $174.3 million compared to $190.3
million in 1996 and $199.8 million in 1995. The decrease from 1995 resulted
primarily from lower interest rates associated with the Company maintaining a
larger percentage of its total debt on a short-term basis during 1996 and much
of 1997. Additionally, the 1997 decrease resulted from a lower average debt
balance during the year. Other income/expense, net, was favorable by $16.8
million in 1997 due to higher prior year foreign currency translation and
exchange losses and higher returns on other investments in the current year. In
1996, other income/expense, net, was unfavorable by $11.9 million due primarily
to lower returns on other investments.

Income Taxes

     Income taxes, which represent federal, state and foreign taxes, were 18.2%,
36.4% and 42.0% of pre-tax earnings before equity earnings and extraordinary
item in 1997, 1996 and 1995, respectively. Income taxes include certain unusual
items in all years. The first unusual item in 1997 was the recognition of
capital loss tax benefits of $61.7 million related to prior years'
restructuring actions. These capital loss tax benefits will be used to
partially offset taxes due upon the disposition of shares of IBC stock. The
second unusual item in 1997 was a tax benefit of $34.7 million related to tax
refund claims for 1993 through 1996 as a result of a change in the Company's
method of computing foreign tax credits. In addition, the income tax percentage
in each year was unfavorably impacted by pre-tax restructuring provisions which
did not result in tax benefits due to tax loss situations or particular
statutes of a country. In 1995, the income tax percentage was favorably
impacted by a lower tax rate on the gain on the sale of CBC. Income tax
percentages, excluding the impact of these unusual items in each year, were
36.2%, 35.7% and 41.0% in 1997, 1996 and 1995, respectively.

 ............................................................................ 17

<PAGE> 5
R A L S T O N  P U R I N A  C O M P A N Y

Financial Review (continued)
 ...............................................................................

Liquidity and Capital Resources
 ...............................

     Cash flow from operations is the Company's primary source of liquidity.
Management continues to have a strong orientation toward cash flows and the
effective management of cash generated. In addition, the Company uses financial
leverage to minimize the overall cost of capital and maintain adequate
operating and financial flexibility. Management monitors leverage through its
interest coverage ratio, debt to internal funds ratio and total debt as a
percentage of total capitalization.

<TABLE>
<CAPTION>
DOLLARS IN MILLIONS                                               1997       1996       1995
-------------------                                               ----       ----       ----
<S>                                                              <C>        <C>        <C>
Cash Flow from Continuing Operations........................     $451.1     $436.1     $384.2

Interest Coverage<Fa>.......................................        4.0        3.7        3.5

Debt to Internal Funds<Fb><Fc>..............................        4.0        4.0        4.3

Total Debt as a Percentage of Total Capitalization<Fc>......         67%        73%        78%

<FN>
---------

<Fa>     Defined as earnings from continuing operations before extraordinary item, interest expense, amortization, provisions for
         restructuring, gains on the sale of CBC and on IBC stock, income taxes and equity earnings divided by interest expense.

<Fb>     Defined as average debt divided by net earnings before non-cash restructuring reserves, depreciation and amortization,
         deferred income tax provision and gain on the sale of CBC (cash earnings).

<Fc>     Excludes market value of $1.1 billion of IBC stock.
</TABLE>

     On a current equity market basis, total debt as a percentage of total
capitalization was 20% at September 30, 1997 compared to 25% at September 30,
1996 and 28% at September 30, 1995. For purposes of the debt ratios, the
guarantee of the ESOP debt is treated as debt and redeemable preferred stock
and related unearned compensation are treated as capital. The historical cost
basis ratio is significantly influenced by the large amount of stock
repurchased by the Company.

     Cash flow from continuing operations increased 3.4% in 1997 as changes in
cash earnings were largely offset by changes in working capital items. Cash
flow from continuing operations increased 13.5% in 1996 due primarily to
increased cash earnings. The interest coverage ratio improved in 1997 and in
1996 on lower interest expense, and, in 1996, on higher earnings. The debt to
internal funds ratio was flat in 1997 due to lower cash earnings, offset by a
lower average debt balance. In 1996, the debt to internal funds ratio improved
on higher cash earnings.

     The Company's working capital requirement for inventories and receivables
is influenced by seasonality, the availability of raw materials and changes in
raw materials costs, and as a result, may fluctuate widely. The Company has
traditionally used short-term debt to finance these seasonal and other working
capital requirements and, from time to time, to finance capital expenditures on
a temporary basis. In addition, the Company is currently using international
short-term debt to minimize its overall after-tax cost of debt. Bank lines of
credit provide future credit availability and support the sale of commercial
paper. Payment for lines of credit is effected primarily through fees. At
September 30, 1997, total unused lines of credit were $429.0 million.

     At September 30, 1997, working capital was $289.7 million. At September
30, 1996, current liabilities exceeded current assets by $230.3 million. The
increase in working capital is primarily due to the Company maintaining a
larger percentage of its total debt on a long-term basis at year-end 1997, as
compared to 1996, as a result of the Company's issuance of Stock Appreciation
Income Linked Securities (SAILS) in July 1997. See further discussion of the
SAILS in the financing section of this financial review.

Investing Activities
 ....................

     Cash flow used for investing activities by continuing operations was
$223.4 million in 1997 compared to $213.8 million in 1996 and $372.4 million in
1995. In 1997, the increase in cash used for capital expenditures related to
the expansion of production capacity was largely offset by proceeds from the
sale of 1.0 million shares of IBC stock. The 1995 acquisition of the assets of
Golden Cat Corporation for $340 million represented a significant investment,
and the 1995 sale of CBC resulted in cash proceeds of $220 million. Capital
expenditures related to continuing operations were $282.9 million, $228.8
million and $235.2 million in fiscal years 1997, 1996 and 1995, respectively.
Anticipated capital expenditures of approximately $300 million in 1998 are
expected to be financed with funds generated from operations.

Financing Activities
 ....................

     Long-term financings are arranged as necessary to meet the Company's
capital or other requirements, with the timing of issue, principal amount and
form depending on the prevailing securities markets and general economic
conditions. The Company received $541.1 million in proceeds from new debt
issuances in 1997 and made payments on long-term debt of $63.5 million. In July
of 1997, the Company issued $480 million of SAILS consisting of 7% exchangeable
notes due in 2000. At maturity, the notes are mandatorily exchangeable into a
number of shares of IBC common stock owned by the Company, or cash, at the
Company's option. The number of shares of IBC common stock to be exchanged will
depend upon the market price of the IBC stock at maturity of the notes, ranging
from one share per note if the price at maturity is less than or equal to the
initial price of

18 ............................................................................

<PAGE> 6
R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................

approximately $62.00, to .82 of a share per note if the maturity price is
greater than or equal to $75.50 per share. Approximately 7.7 million notes were
issued. This transaction effectively limits the amount of appreciation on part
of the Company's investment in IBC and establishes a minimum gain on these same
shares should the Company elect to settle the SAILS with IBC common stock.
Effective November 3, 1997, IBC's stock split 2-for-1 which is not reflected in
the aforementioned share amounts. Proceeds from the SAILS transaction of $466
million were used to pay down short-term debt. In 1997, the Company reduced
short-term obligations by $508.7 million.

     Simultaneous with the SAILS transaction, the Company sold 1.0 million
shares of its IBC stock back to IBC for $60.1 million. In accordance with the
Shareholder Agreement signed upon the closing of the sale of CBC to IBC, the
Company's investment in IBC must be reduced to no more than 14.9% of total
outstanding shares of IBC by July 2000. At September 30, 1997, the Company's
investment in IBC was $289.2 million compared to current market value of
$1,096.7 million.

     New debt issuances totaled $199.7 million in 1996 and $272.8 million in
1995, while payments on long-term debt totaled $355.3 million in 1996 and
$318.1 million in 1995. The Company also increased short-term obligations by
$203.2 million and $222.6 million in 1996 and 1995, respectively.

     The Company returned cash to its common shareholders during the three
years ended September 30, 1997 through common stock dividends and common stock
repurchases. These outflows totaled $122.4 million and $24.7 million in 1997
for dividends and stock repurchases, respectively, compared to $121.9 million
and $9.4 million in 1996 and $120.9 million and $15.3 million in 1995. As of
November 10, 1997, 1,130,400 shares of RAL Stock remained under the current
Board of Directors' authorization for the purchase of up to 3 million shares of
RAL Stock.

     To meet ongoing share redemption requirements of the ESOP, in 1997 and in
1996 the Company converted shares of its Series A 6.75% Preferred Stock
(Redeemable Preferred Stock) and simultaneously repurchased all RAL Stock
issued in the conversion for $30.4 million and $24.3 million, respectively. In
connection with the sale of CBC in 1995, the Company converted $69.0 million of
allocated and $57.0 million of unallocated Redeemable Preferred Stock into RAL
Stock and simultaneously repurchased substantially all RAL Stock issued in the
conversion.

Year 2000 Costs
 ...............

     Many computer systems process dates in application software and data
files based on two digits for the year of a transaction rather than a full four
digits. These systems are unable to properly process dates in the year 2000.
The Company has developed plans to address the impact of replacing or modifying
its key financial information and operational systems to deal with this issue.
Several new information technologies have been and are being installed to
achieve further productivity and cost improvements. These systems will be year
2000 compliant. The Company believes that all systems necessary to manage the
business effectively will be replaced, modified or upgraded before the year
2000. Because of the significant system replacement and business reengineering
expenditures currently underway, the Company believes the costs to modify
current systems to be year 2000 compliant will not be significant to the
Company's financial results.

Environmental Matters
 .....................

     The operations of the Company, like those of other companies engaged in
similar businesses, are subject to various federal, state, and local laws and
regulations intended to protect the public health and the environment,
including air and water quality, underground fuel storage tanks and waste
handling and disposal. The Company has received notices from the US
Environmental Protection Agency, state agencies, and/or private parties seeking
contribution, that it has been identified as a "potentially responsible
party" (PRP), under the Comprehensive Environmental Response, Compensation and
Liability Act, and may be required to share in the cost of cleanup with respect
to approximately 14 "Superfund" sites. The Company's ultimate liability in
connection with those sites may depend on many factors, including the volume of
material contributed to the site, the number of other PRP's and their financial
viability, and the remediation methods and technology to be used. While it is
difficult to quantify the potential financial impact of actions involving
environmental matters, particularly remediation costs at waste disposal sites
and future capital expenditures for environmental control equipment, in the
opinion of management, the ultimate liability arising from such environmental
matters, taking into account established accruals for estimated liabilities,
should not be material to the financial position of the Company, but could be
material to results of operations or cash flows for a particular quarter or
annual period.

Inflation
 .........

     Management recognizes that inflationary pressures may have an adverse
effect on the Company through higher asset replacement costs and related
depreciation and higher material costs. The Company tries to minimize these
effects through cost reductions and productivity improvements as well as price
increases to maintain reasonable profit margins. It is management's view,
however, that inflation has not had a significant impact on operations in the
three years ended September 30, 1997.

 ............................................................................ 19

<PAGE> 7
R A L S T O N  P U R I N A  C O M P A N Y

Financial Review (continued)
 ...............................................................................

Market Risk Sensitive Instruments and Positions
 ...............................................

     The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in
interest rates, foreign currency exchange rates, commodity prices and
marketable equity securities.

Interest Rates

     At September 30, 1997, the fair value of the Company's total debt is
estimated at $2,535.3 million using quoted market prices and yields obtained
through independent pricing sources for the same or similar types of borrowing
arrangements, taking into consideration the underlying terms of the debt, such
as the coupon rate, term to maturity, tax impact to investors and imbedded call
options. Such fair value exceeded the carrying value of debt at September 30,
1997 by $228.4 million. Market risk is estimated as the potential change in
fair value resulting from a hypothetical 10% adverse change in interest rates
and amounts to $75.0 million at September 30, 1997.

     The Company had $472.0 million variable rate debt outstanding at September
30, 1997. A hypothetical 10% adverse change in interest rates would have a $3.4
million unfavorable impact on the Company's earnings and cash flows. The
primary interest rate exposures on floating rate debt are with respect to US
and European interbank rates and short-term local currency rates in certain
Asian countries.

     Although the Company's SAILS are subject to a change in fair market value
due to interest rate risk, equity risk presents the more significant risk as
the value of these instruments are tied to the stock price of IBC. The effect
of the interest rate risk is included in the aforementioned discussion of the
fair value of the Company's total debt. See the discussion of these instruments
in the Investment in Interstate Bakeries Corporation and Long Term Debt notes
to the financial statements.

Foreign Currency Exchange Rates

     The Company employs a foreign currency hedging strategy to limit potential
losses in earnings or cash flows from adverse foreign currency exchange rate
movements. Foreign currency exposures arise from transactions, including firm
commitments and anticipated transactions, denominated in a currency other than
an entity's functional currency and from foreign denominated revenues and
profits translated into US dollars. The primary currencies to which the Company
is exposed include the British pound and other European currencies, the Mexican
peso, the Australian dollar and the Philippine peso. The Company is also
exposed to other South American and Asian currencies. Exposures are hedged with
foreign currency forward contracts, put and call options with maturity dates of
generally less than one year. Company policy allows foreign currency
transactions only for identifiable foreign currency exposures and, therefore,
the Company does not enter into foreign currency contracts for trading purposes
where the objective is to generate profits. The potential loss in fair value at
September 30, 1997 for such net currency positions resulting from a
hypothetical 10% adverse change in all foreign currency exchange rates is $6.6
million.

     The Company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the US dollar. As a result,
the Company does not generally hedge these net investments. However, the
Company uses capital structuring techniques to manage its net investment in
foreign currencies as considered necessary. Additionally, the Company attempts
to limit its US dollar net monetary liabilities in currencies of
hyperinflationary countries, primarily in Latin America. The net investment in
foreign subsidiaries and affiliates translated into dollars using the year end
exchange rates is $615.0 million at September 30, 1997. The potential loss in
value of the Company's net investment in foreign subsidiaries resulting from a
hypothetical 10% adverse change in quoted foreign currency exchange rates at
September 30, 1997 amounts to $55.9 million.

Commodity Prices

     The availability and price of agricultural commodities are subject to wide
fluctuations due to unpredictable factors such as weather conditions,
government regulations, economic climate or other unforeseen circumstances. To
reduce price risk caused by market fluctuations, the Company enters into
commodity futures contracts to buy commodities at fixed prices, thereby
minimizing the risk of decreased Company margins.

     A sensitivity analysis has been prepared to estimate the Company's
exposure to market risk of its agricultural commodities positions, excluding
inventory on hand and fixed price contracts. The fair value of the Company's
positions is a summation of the fair values calculated for each commodity by
valuing each net position at quoted futures prices. Market risk is estimated as
the potential loss in fair value resulting from a hypothetical 10% adverse
change in such prices. The results of this analysis are as follows for fiscal
1997:

<TABLE>
<CAPTION>
                                                                                        (IN MILLIONS)
                                                                                      FAIR        MARKET
                                                                                     VALUE         RISK
                                                                                     -----        ------
<S>                                                                                  <C>          <C>
Highest long position...........................................................     $118.5       $11.9

Average long position...........................................................       38.3         3.8

Lowest long position............................................................        --          --
</TABLE>

20 ............................................................................

<PAGE> 8
R A L S T O N  P U R I N A  C O M P A N Y


 ...............................................................................
Forward-looking information

     The above risk management discussion and the estimated amounts generated
from the sensitivity analyses for continuing operations are forward-looking
statements of market risk assuming certain adverse market conditions occur.
Actual results in the future may differ materially from these projected results
due to actual developments in the global financial markets. The analysis
methods used by the Company to assess and mitigate risks discussed above should
not be considered projections of future events or losses.

Restructuring Activities
 ........................

     In 1997, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per primary share by $111.4 million, $36.3 million and
$.36, respectively. These charges are primarily associated with the continued
rationalization of Battery Products' production capacity and business structure
and provide for the termination of 1,340 employees and the closing of 3 plants.
The total pre-tax charge for restructuring consisted of termination benefits of
$50.5 million, other cash exit costs of $11.0 million, and non-cash charges of
$49.9 million, primarily related to impairment losses on land, buildings and
machinery and equipment. The income tax benefits of $75.1 million recorded
during the year associated with current and past restructuring actions include
current tax benefits of $13.4 million and the recognition of capital loss
benefits of $61.7 million. During 1997, 80 employees were severed in connection
with this charge.

     These restructuring actions are expected to generate pre-tax cost savings
of $15 million in 1998 and ultimate annual savings of $35 million in fiscal
2000.

     In 1996, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per primary share by $12.4 million, $11.0 million and
$.11, respectively. These charges are associated with the closing of the
Company's European cereal operations and additional Battery Products'
restructuring. The total 1996 pre-tax charge for restructuring consisted of
termination benefits of $5.2 million, relating to the termination of
approximately 170 employees, other cash exit costs of $1.8 million and non-cash
charges of $5.4 million, primarily related to impairment losses on land,
buildings and machinery and equipment. As of September 30, 1997, substantially
all actions associated with this charge have been completed.

     Pre-tax cost savings from these restructuring actions have been or
are expected to be as follows: 1997--$4.7 million; and ultimate annual
reduction--$7.2 million.

     During 1995, the Company recorded additional provisions for restructuring
of its world-wide carbon zinc battery production capacity and certain
administrative functions as part of a plan initiated in 1994. This plan
provided for the closing of a total of ten plants and the severance of
approximately 2,600 employees. The 1995 provisions reduced pre-tax and
after-tax earnings from continuing operations by $90.8 million and $70.0
million, respectively. The total 1995 pre-tax charge for restructuring
consisted of termination benefits of $46.2 million, other cash exit costs of
$11.6 million and non-cash charges of $33.0 million, primarily related to
impairment losses on land, buildings and machinery and equipment. As of
September 30, 1997, substantially all actions associated with this charge have
been completed.

     As a result of the restructuring actions covered under the 1994 and 1995
provisions, pre-tax cost savings have been or are expected to be as follows:
1995--$9.1 million; 1996--$29.2 million; 1997--$44.9 million; and ultimate
annual reduction--$47.7 million.

     Activity related to the restructuring provisions discussed above is
summarized as follows:

<TABLE>
<CAPTION>
                                                                                        (IN MILLIONS)
                                                                                      1997         1996
                                                                                      ----         ----
<S>                                                                                  <C>          <C>
Reserve balance at beginning of year............................................     $ 22.4       $ 43.9

Provision recorded..............................................................      111.4         12.4

Portion of current period provision classified as property and other asset
  impairments...................................................................      (49.9)        (5.4)

Termination benefits paid.......................................................      (15.0)       (22.0)

Other cash exit costs incurred..................................................       (3.9)        (7.3)

Increase due to translation.....................................................        1.3           .8
                                                                                     ------       ------

Reserve balance at September 30.................................................     $ 66.3       $ 22.4
                                                                                     ======       ======
</TABLE>

     Restructuring actions represented by the September 30, 1997 reserve
balance are expected to be substantially completed in 1999, and the Company
expects to fund these costs from internal sources and available borrowing
capacity.

 ............................................................................ 21

<PAGE> 9
R A L S T O N  P U R I N A  C O M P A N Y

Financial Review (continued)
 ...............................................................................
Business Segment Information
 ............................

     Summarized financial information on a worldwide basis by continuing
business segment and for discontinued operations for the three years ended
September 30, 1997 is set forth below. The segments comprise the following:

Pet Products -- pet foods and cat box filler

     Pet Products is the world's largest producer of dry dog and dry and
soft-moist cat foods, the leading producer of soft-moist dog food in the United
States and the leading manufacturer and marketer of cat box filler in the
United States. Pet products are marketed primarily through a direct sales force
to grocery, mass merchandisers and specialty retailers, wholesalers and other
customers.

Battery Products -- alkaline, carbon zinc, miniatures, lithium and rechargeable
batteries, flashlights and other related products

     Battery Products is the world's leading manufacturer of dry cell batteries
and flashlights and a global leader in the dynamic business of providing
portable power. Battery Products' brands are recognized around the world and
are marketed and sold in more than 160 countries. Battery products are
marketed through a direct sales force to mass merchandisers, wholesalers and
other customers.

Discontinued Segments

Soy Protein Products -- dietary soy protein, fiber food ingredients and polymer
products

     Soy Protein Products is the world's leading producer and marketer of
high-quality dietary isolated soy protein and fiber food ingredients, and a
leading marketer of polymer products worldwide. Principal markets served
include food, meat, paper/paperboard and animal feed industries. Food protein
and industrial polymer products are marketed through a direct sales force.

Agricultural Products (International) -- animal feeds

     Agricultural Products is one of the world's largest producers and
marketers of formula animal feeds and operates 73 manufacturing plants.
Agricultural products are marketed through a worldwide network of 3,300
independent dealers, as well as an independent and a direct sales force.

Divested Business

Bakery Products -- bread and sweet baked goods (sold as of July 22, 1995)

     Pet Products includes restructuring provisions of $15.5 million in 1997
and $8.4 million in 1996. Battery Products includes restructuring provisions of
$95.9 million in 1997, $4.0 million in 1996 and $90.8 million in 1995.
Comments, amounts and percentages in the remaining Business Segment discussion
exclude the effects of restructuring provisions.

Pet Products
 ............

     Sales for the Pet Products segment increased 9.0% in 1997 and 12.2% in
1996 on higher domestic and international pet food volume and pricing. The 1996
increase also reflected the inclusion of a full year's sales of Golden Cat,
acquired in April 1995.

     Operating profit for the Pet Products segment was flat in 1997 as
increased sales were offset by higher ingredient costs, higher promotion
support and start-up expenses. In 1996, operating profit increased 3.7% on the
inclusion of a full year's results of Golden Cat. In addition, higher pet food
volume and pricing were offset by higher ingredient and advertising and
promotion costs. Gross profit margins increased slightly in 1997 after
declining significantly in 1996, reflecting the higher ingredient costs.

     The domestic pet food and cat box filler industry is well developed and
non-cyclical with strong cash flows. In addition, the international pet food
market presents opportunities for growth for Pet Products. The improvement in
pet ownership trends in recent years is supporting volume growth in the
industry. The competitive environment continues to be challenging, particularly
as manufacturers consolidate. Consolidation of the retail industry, growth of
the mass merchandiser and category-dominant retailer segments and an increase
in store-branded product have resulted, and will continue to result, in
significant changes in the product distribution pattern and marketing practices
of the Company. Increased profitability depends on maintaining brand loyalty,
developing higher performance capabilities and on the successful development of
mutually beneficial trading relationships with our customers.

22 ............................................................................

<PAGE> 10
R A L S T O N  P U R I N A  C O M P A N Y


 ...............................................................................
Battery Products
 ................

     Sales for the Battery Products segment were flat in 1997. Worldwide
branded alkaline volumes increased, particularly in North America and Asia
Pacific. These increases were offset by volume declines and unfavorable
exchange rates in Europe and the continued decline in carbon zinc sales. The
impact of the consolidation of the retail trade and increased competitive
pressures also negatively impacted results for the year. Sales for the Battery
Products' segment increased slightly in 1996 on higher volumes in the Asia
Pacific region and higher alkaline volume and prices and favorable mix in the
United States. These gains were nearly offset by sales declines in Europe and
South and Central America and by decreased sales of rechargeable batteries to
Original Equipment Manufacturer (OEM) customers.

     Battery Products' operating profit was flat in 1997. Increased worldwide
alkaline volumes and improved results in the Asia Pacific region were offset by
an unfavorable package mix in the United States, decreased earnings in Europe,
decreased OEM rechargeable sales in the Asia Pacific region and start-up costs
associated with the lithium-ion rechargeable battery. Margins were flat in
1997. Operating profit increased 4.8% in 1996 on strong performances in Asia
Pacific and in the United States, partially offset by lower rechargeable sales
to the OEM market segment, declines in Europe due to poor economic conditions
and higher information systems development costs. Margin percentages in Europe
and Pan Am improved in 1996 reflecting benefits from the 1995 plant closings.

     The Battery Products business faces intense competition. There has been a
shift within primary battery products from carbon zinc batteries to alkaline
batteries. As such, the Company has recorded provisions related to
restructuring its world-wide battery production capacity and certain
administrative functions in each of the last three years. Alkaline batteries
are now the dominant primary battery in all world areas with the exception of
Asia and Africa. The rechargeable battery products business is experiencing
rapid technological evolution, particularly within the lithium area. These
emerging rechargeable technologies are expected to play a predominant role in
the future of the rechargeable battery business. The Company continues to
review its battery production capacity and its business structure in light of
pervasive global trends, including the evolution of technology. (See
Restructuring Activities discussion in this section.)

Discontinued Operations
 .......................

Soy Protein Products and Agricultural Products

     Results of discontinued operations increased 14.5% in 1997 as decreased
operating profit for Soy Protein Products and Agricultural Products was more
than offset by lower translation and exchange losses and lower taxes. Results
of discontinued operations were flat in 1996 as operating profit in the Soy
Protein Products segment was flat and increased operating profit in the
Agricultural Products segment was offset by higher translation and exchange
losses and higher taxes.

 ............................................................................ 23

<PAGE> 11
R A L S T O N  P U R I N A  C O M P A N Y

Business Segment Information
 ...............................................................................

     Export sales and sales between geographic segments were immaterial. One
single mass merchandiser accounted for 11.9%, 10.5% and 6.7% of total sales in
fiscal years 1997, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
IN MILLIONS                                                       1997          1996          1995
-----------                                                       ----          ----          ----
<S>                                                             <C>           <C>           <C>
SALES
Pet Products................................................    $2,308.9      $2,118.4      $1,888.8
Battery Products............................................     2,177.9       2,183.5       2,168.4
                                                                --------      --------      --------
                                                                 4,486.8       4,301.9       4,057.2
Divested Business<Fa>.......................................         --            --        1,588.2
                                                                --------      --------      --------
            Total...........................................    $4,486.8      $4,301.9      $5,645.4
                                                                ========      ========      ========
OPERATING PROFIT
Pet Products
    Operating profit before amortization....................    $  384.2 <Fb> $  392.9 <Fb> $  381.7
    Amortization of goodwill and other intangibles..........       (11.5)        (11.8)         (6.2)
                                                                --------      --------      --------
                                                                   372.7         381.1         375.5
                                                                --------      --------      --------
Battery Products
    Operating profit before amortization....................       244.3 <Fc>    347.5 <Fc>    248.7 <Fc>
    Amortization of goodwill and other intangibles..........       (32.8)        (41.2)        (43.4)
                                                                --------      --------      --------
                                                                   211.5         306.3         205.3
                                                                --------      --------      --------
                                                                   584.2         687.4         580.8
Divested Business<Fa>.......................................         --            --            7.1
                                                                --------      --------      --------
            Total...........................................       584.2         687.4         587.9
Unallocated Corporate and Miscellaneous Expenses............       (48.2)        (49.4)        (38.8)
Interest Expense............................................      (174.3)       (190.3)       (199.8)
Gain on Sale of CBC.........................................         --            --           50.3
Gain on Sale of IBC Stock...................................        23.2           --            --
                                                                --------      --------      --------
            Earnings from Continuing Operations before
              Income Taxes, Equity Earnings and
              Extraordinary Item............................    $  384.9      $  447.7      $  399.6
                                                                ========      ========      ========

<FN>
---------

<Fa>     Effective July 22, 1995, the Company sold CBC. The Company's sales and earnings reflect the operations of CBC through
         that date.

<Fb>     Includes restructuring provisions of $15.5 in 1997 and $8.4 in 1996.

<Fc>     Includes restructuring provisions of $95.9 in 1997, $4.0 in 1996 and $90.8 in 1995.
</TABLE>

24 ............................................................................

<PAGE> 12

R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
<TABLE>
<CAPTION>
IN MILLIONS                                                        1997         1996         1995
-----------                                                        ----         ----         ----
<S>                                                              <C>          <C>          <C>
ASSETS AT YEAR END
Pet Products................................................     $ 1,077.2    $   984.9    $   940.4
Battery Products............................................       2,026.1      2,107.8      2,098.9
                                                                 ---------    ---------    ---------
            Subtotal........................................       3,103.3      3,092.7      3,039.3
Investment in Discontinued Operations<Fa>...................         592.3        587.1        469.8
Corporate...................................................       1,046.2        843.2        801.7
                                                                 ---------    ---------    ---------
            Total...........................................     $ 4,741.8    $ 4,523.0    $ 4,310.8
                                                                 =========    =========    =========
DEPRECIATION AND AMORTIZATION EXPENSE
Pet Products................................................     $    58.9    $    55.2    $    47.6
Battery Products............................................         117.0        126.2        128.0
Divested Business<Fb>.......................................           --           --          65.9
                                                                 ---------    ---------    ---------
            Subtotal........................................         175.9        181.4        241.5
Corporate...................................................          13.1         12.4          7.9
                                                                 ---------    ---------    ---------
            Total...........................................     $   189.0    $   193.8    $   249.4
                                                                 =========    =========    =========
PROPERTY ADDITIONS
Pet Products................................................     $   135.2    $    73.2    $    66.6
Battery Products............................................         141.9        150.2        100.7
Divested Business<Fb>.......................................           --           --          49.8
                                                                 ---------    ---------    ---------
            Subtotal........................................         277.1        223.4        217.1
Corporate...................................................           5.8          5.4         18.1
                                                                 ---------    ---------    ---------
            Total...........................................     $   282.9    $   228.8    $   235.2
                                                                 =========    =========    =========

<FN>
---------

<Fa>     See Discontinued Operations in the Notes to Financial Statements.

<Fb>     See Note (a) on page 24.
</TABLE>

 ............................................................................ 25


<PAGE> 13

R A L S T O N  P U R I N A  C O M P A N Y

Business Segment Information
 ...............................................................................

Geographic Segment Information
 ..............................

     Financial information by geographic location for the past three years is
set forth below.

<TABLE>
<CAPTION>
IN MILLIONS                                                                  1997         1996         1995
-----------                                                                  ----         ----         ----
<S>                                                                        <C>          <C>          <C>
SALES
    United States.....................................................     $2,950.8     $2,757.5     $4,125.2 <Fa>
    Europe............................................................        519.4        572.5        591.0
    South & Central America...........................................        320.9        290.8        285.6
    Asia Pacific......................................................        534.7        529.6        499.7
    Other.............................................................        161.0        151.5        143.9
                                                                           --------     --------     --------
        Total.........................................................     $4,486.8     $4,301.9     $5,645.4
                                                                           ========     ========     ========
OPERATING PROFIT<Fb>
    United States.....................................................     $  531.1     $  555.8     $  537.7 <Fa>
    Europe............................................................        (56.9)         7.5         (9.2)
    South & Central America...........................................         17.8         22.2         (2.8)
    Asia Pacific......................................................         84.3         91.7         55.9
    Other.............................................................          7.9         10.2          6.3
                                                                           --------     --------     --------
        Total.........................................................     $  584.2     $  687.4     $  587.9
                                                                           ========     ========     ========
ASSETS
    United States.....................................................     $1,936.4     $1,847.1     $1,803.5
    Europe............................................................        563.8        666.0        701.5
    South & Central America...........................................        200.8        166.1        157.1
    Asia Pacific......................................................        337.0        350.3        311.6
    Other.............................................................         65.3         63.2         65.6
                                                                           --------     --------     --------
        Total.........................................................     $3,103.3     $3,092.7     $3,039.3
                                                                           ========     ========     ========

<FN>
---------

<Fa>     See Note (a) on page 24.

<Fb>     Includes restructuring provisions of:

<CAPTION>
        AREA                                                                        1997                 1996               1995
        ----                                                                        ----                 ----               ----
<S>                                                                                <C>                  <C>                <C>
United States..............................................................        $25.1                $ 1.5              $10.7
Europe.....................................................................         63.0                 12.6               34.4
South & Central America....................................................          3.5                   --               28.8
Asia Pacific...............................................................         15.3                   --               16.9
Other......................................................................          4.5                 (1.7)                --
</TABLE>

26 ............................................................................

<PAGE> 14
R A L S T O N  P U R I N A  C O M P A N Y

Responsibility for Financial Statements
 ...............................................................................

     The preparation and integrity of the financial statements of Ralston
Purina Company are the responsibility of its management. These statements have
been prepared in conformance with generally accepted accounting principles, and
in the opinion of management, fairly present the Company's financial position,
results of operations and cash flows.

     The Company maintains accounting and internal control systems which it
believes are adequate to provide reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition and that the
financial records are reliable for preparing financial statements. The
selection and training of qualified personnel, the establishment and
communication of accounting and administrative policies and procedures, and an
extensive program of internal audits are important elements of these control
systems.

     The report of Price Waterhouse LLP, independent accountants, on their
audits of the accompanying financial statements is shown below. This report
states that the audits were made in accordance with generally accepted auditing
standards. These standards include a study and evaluation of internal control
for the purpose of establishing a basis for reliance thereon relative to the
scope of their audits of the financial statements.

     The Board of Directors, through its Audit Committee consisting solely of
nonmanagement directors, meets periodically with management, internal audit and
the independent accountants to discuss audit and financial reporting matters.
To assure independence, Price Waterhouse LLP has direct access to the Audit
Committee.

Report of Independent Accountants
 ...............................................................................

To the Shareholders and Board of Directors of
  Ralston Purina Company

     In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of earnings, of shareholders equity and of cash
flows present fairly, in all material respects, the financial position of
Ralston Purina Company and its subsidiaries at September 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

St. Louis, Missouri

November 4, 1997, except the Discontinued Operations note which is as of
December 3, 1997

 ............................................................................ 27

<PAGE> 15
R A L S T O N  P U R I N A  C O M P A N Y

<TABLE>
Consolidated Statement of Earnings
 ................................................................................................................

                                           Year ended September 30

<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA)                                               1997         1996         1995
-----------------------------------                                               ----         ----         ----
<S>                                                                             <C>          <C>          <C>
Net Sales..................................................................     $4,486.8     $4,301.9     $5,645.4
                                                                                --------     --------     --------
Costs and Expenses
    Cost of products sold..................................................      2,281.9      2,206.0      2,880.6
    Selling, general and administrative....................................        918.6        864.8      1,549.0
    Advertising and promotion..............................................        646.6        571.6        578.7
    Interest...............................................................        174.3        190.3        199.8
    Provisions for restructuring...........................................        111.4         12.4         90.8
    Gain on sale of IBC stock..............................................        (23.2)         --           --
    Gain on sale of CBC....................................................          --           --         (50.3)
    Other (income)/expense, net............................................         (7.7)         9.1         (2.8)
                                                                                --------     --------     --------
                                                                                 4,101.9      3,854.2      5,245.8
                                                                                --------     --------     --------
Earnings from Continuing Operations before Income Taxes, Equity Earnings
  and Extraordinary Item...................................................        384.9        447.7        399.6
Income Taxes...............................................................        (70.0)      (162.9)      (167.8)
                                                                                --------     --------     --------
Earnings from Continuing Operations before Equity Earnings and
  Extraordinary Item.......................................................        314.9        284.8        231.8
Equity Earnings, Net of Taxes..............................................         34.0         11.6          0.9
                                                                                --------     --------     --------
Earnings from Continuing Operations before Extraordinary Item..............        348.9        296.4        232.7
Net Earnings from Discontinued Operations..................................         74.8         65.3         67.4
                                                                                --------     --------     --------
Earnings before Extraordinary Item.........................................        423.7        361.7        300.1
Extraordinary Item--Loss on Early Retirement of Debt.......................          --          (2.1)        (3.7)
                                                                                --------     --------     --------
Net Earnings...............................................................        423.7        359.6        296.4
Preferred Stock Dividend, Net of Taxes.....................................        (13.1)       (14.1)       (18.8)
                                                                                --------     --------     --------
Earnings Available to Common Shareholders..................................     $  410.6     $  345.5     $  277.6
                                                                                ========     ========     ========
Earnings Per Share of RAL stock (Pro forma in 1995 assuming one class of
  common stock, unaudited):
    Primary
        Earnings from continuing operations................................     $   3.29     $   2.77     $   2.10
        Earnings from discontinued operations..............................         0.73         0.64         0.66
        Extraordinary item.................................................          --         (0.02)       (0.04)
                                                                                --------     --------     --------
        Net Earnings.......................................................     $   4.02     $   3.39     $   2.72
                                                                                ========     ========     ========
    Fully Diluted
        Earnings from continuing operations................................     $   3.13     $   2.64     $   2.05
        Earnings from discontinued operations..............................         0.67         0.59         0.61
        Extraordinary item.................................................          --         (0.02)       (0.03)
                                                                                --------     --------     --------
        Net Earnings.......................................................     $   3.80     $   3.21     $   2.63
                                                                                ========     ========     ========
Earnings Per Share of RAL stock (Based on RPG Group earnings through May
  15, 1995 and consolidated Ralston Purina Company earnings thereafter):
    Primary
        Earnings from continuing operations................................                               $   2.22
        Earnings from discontinued operations..............................                                   0.67
        Extraordinary item.................................................                                  (0.04)
                                                                                                          --------
        Net Earnings.......................................................                               $   2.85
                                                                                                          ========
    Fully Diluted
        Earnings from continuing operations................................                               $   2.15
        Earnings from discontinued operations..............................                                   0.62
        Extraordinary item.................................................                                  (0.03)
                                                                                                          --------
        Net Earnings.......................................................                               $   2.74
                                                                                                          ========
------------------------------------------------------------------------------------------------------------------

Loss per share of CBG Stock (Through May 15, 1995):
    Primary and Fully Diluted
        Net Loss...........................................................                                 $(0.45)

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

28 ............................................................................

<PAGE> 16
R A L S T O N  P U R I N A  C O M P A N Y

<TABLE>
Consolidated Balance Sheet
 ..........................................................................................................

                                             September 30

<CAPTION>
(IN MILLIONS)                                                                        1997             1996
-------------                                                                        ----             ----
<S>                                                                                <C>              <C>
ASSETS
Current Assets
    Cash and cash equivalents...................................................   $  109.1         $   62.3
    Receivables, less allowance for doubtful accounts...........................      675.2            662.2
    Inventories.................................................................      604.8            628.2
    Other current assets........................................................      116.4            120.0
                                                                                   --------         --------
        Total Current Assets....................................................    1,505.5          1,472.7
Investments and Other Assets....................................................    1,530.3          1,412.3
Investment in Discontinued Operations...........................................      592.3            587.1
Property at Cost
    Land........................................................................       38.6             37.6
    Buildings...................................................................      371.6            368.2
    Machinery and Equipment.....................................................    1,546.1          1,518.1
    Construction in Progress....................................................      204.3            133.7
                                                                                   --------         --------
                                                                                    2,160.6          2,057.6
        Accumulated depreciation................................................    1,046.9          1,006.7
                                                                                   --------         --------
                                                                                    1,113.7          1,050.9
                                                                                   --------         --------
            Total...............................................................   $4,741.8         $4,523.0
                                                                                   ========         ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
    Current maturities of long-term debt........................................   $  106.2         $   98.0
    Notes payable...............................................................      340.3            881.9
    Accounts payable and accrued liabilities....................................      705.0            661.0
    Dividends payable...........................................................       35.8             36.0
    Income taxes................................................................       28.5             26.1
                                                                                   --------         --------
        Total Current Liabilities...............................................    1,215.8          1,703.0
Long-Term Debt..................................................................    1,860.4          1,437.0
Other Liabilities...............................................................      507.4            481.1
Redeemable Preferred Stock--Series A 6.75%, $1 par value, issued 2,750,636 and
  2,919,209 shares in 1997 and 1996, respectively...............................      304.9            323.5
Unearned ESOP Compensation......................................................      (63.8)          (110.6)
Shareholders Equity
    Preferred stock, $1 par value, none outstanding
    Common stock--$.10 par value, issued 114,694,666 and 114,688,225 shares in
     1997 and 1996, respectively................................................       11.5             11.5
    Capital in excess of par value..............................................      320.0            217.3
    Retained earnings...........................................................    1,566.7          1,302.9
    Cumulative translation adjustment...........................................     (129.8)           (66.6)
    Common stock in treasury, at cost, 8,116,407 and 8,739,872 shares in 1997
     and 1996, respectively.....................................................     (466.7)          (482.3)
    Unearned portion of restricted stock........................................       (3.4)            (4.2)
    Value of 4,307,214 and 4,228,314 shares of common stock held in Grantor
     Trust in 1997 and 1996, respectively.......................................     (381.2)          (289.6)
                                                                                   --------         --------
        Total Shareholders Equity...............................................      917.1            689.0
                                                                                   --------         --------
            Total...............................................................   $4,741.8         $4,523.0
                                                                                   ========         ========

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

 ............................................................................ 29

<PAGE> 17

R A L S T O N  P U R I N A  C O M P A N Y

<TABLE>
Consolidated Statement of Cash Flows
 .............................................................................................................

                                        Year ended September 30

<CAPTION>
(IN MILLIONS)                                                                    1997        1996        1995
-------------                                                                    ----        ----        ----
<S>                                                                             <C>         <C>         <C>
Cash Flow from Operations
    Net earnings...........................................................     $ 423.7     $ 359.6     $ 296.4
    Adjustments to reconcile net earnings to net cash flow provided by
      operations
        Net earnings from discontinued operations..........................       (74.8)      (65.3)      (67.4)
        Extraordinary item.................................................         --          2.1         3.7
        Non-cash restructuring charges.....................................        49.9         5.4        33.0
        Depreciation and amortization......................................       189.0       193.8       249.4
        Deferred income tax provision......................................      (115.5)       (1.8)      (21.3)
        Gain on sale of CBC................................................         --          --        (50.3)
        Gain on sale of IBC stock..........................................       (23.2)        --          --
        Changes in assets and liabilities used in operations
            Increase in accounts receivable................................       (39.9)      (25.0)      (46.9)
            Increase in inventories........................................        (9.0)       (9.7)      (28.5)
            Decrease in other current assets...............................         4.0         1.2        15.0
            Increase (decrease) in accounts payable and accrued
              liabilities..................................................        63.8       (50.1)      (34.8)
            Increase in other current liabilities..........................        15.3        25.6        18.8
        Other, net.........................................................       (32.2)         .3        17.1
                                                                                -------     -------     -------
            Cash flow from continuing operations...........................       451.1       436.1       384.2
            Cash flow from discontinued operations.........................       156.5        28.3        89.5
                                                                                -------     -------     -------
              Net cash flow from operations................................       607.6       464.4       473.7
                                                                                -------     -------     -------
Cash Flow from Investing Activities
    Property additions.....................................................      (282.9)     (228.8)     (235.2)
    Proceeds from the sale of property.....................................        10.4        18.4        10.3
    Proceeds from sale of IBC stock........................................        60.1         --          --
    Proceeds from the sale of CBC..........................................         --          --        220.0
    Acquisitions of businesses.............................................         --          --       (358.0)
    Other, net.............................................................       (11.0)       (3.4)       (9.5)
                                                                                -------     -------     -------
            Cash used by investing activities - continuing operations......      (223.4)     (213.8)     (372.4)
            Cash used by investing activities - discontinued operations....      (114.3)      (93.7)      (55.6)
                                                                                -------     -------     -------
              Net cash used by investing activities........................      (337.7)     (307.5)     (428.0)
                                                                                -------     -------     -------
Cash Flow from Financing Activities
    Proceeds from sale of long-term debt...................................       541.1       199.7       272.8
    Principal payments on long-term debt, including current maturities.....       (63.5)     (355.3)     (318.1)
    Net increase (decrease) in notes payable...............................      (508.7)      203.2       222.6
    Treasury stock purchases...............................................       (24.7)       (9.4)      (15.3)
    Dividends paid.........................................................      (143.9)     (145.0)     (153.8)
    Stock repurchases in connection with the ESOP..........................       (30.4)      (24.3)     (126.0)
    Other, net.............................................................        13.1        (3.8)       (8.8)
                                                                                -------     -------     -------
              Net cash used by financing activities........................      (217.0)     (134.9)     (126.6)
                                                                                -------     -------     -------
Effect of Exchange Rate Changes on Cash....................................        (6.1)       (4.0)       (0.8)
                                                                                -------     -------     -------
Net Increase (Decrease) in Cash and Cash Equivalents.......................        46.8        18.0       (81.7)
Cash and Cash Equivalents, Beginning of Period.............................        62.3        44.3       126.0
                                                                                -------     -------     -------
Cash and Cash Equivalents, End of Period...................................     $ 109.1     $  62.3     $  44.3
                                                                                =======     =======     =======

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

30 ............................................................................

<PAGE> 18
R A L S T O N  P U R I N A  C O M P A N Y

<TABLE>
Consolidated Statement of Shareholders Equity
 ...........................................................................................................................

                                          Three years ended September 30, 1997

<CAPTION>
                                                                    NUMBER OF SHARES                       AMOUNT
                                                                     (IN THOUSANDS)                     (IN MILLIONS)
                                                               --------------------------        --------------------------
                                                               1997       1996       1995        1997       1996       1995
                                                               ----       ----       ----        ----       ----       ----
<S>                                                           <C>        <C>        <C>         <C>        <C>        <C>
Common Stocks:
    RAL Stock:
        Balance at beginning of year........................  114,688    114,687    114,685     $  11.5    $  11.5    $  11.5
             Common stock issued on conversion of
              debentures....................................        7          1          2
                                                              -------    -------    -------     -------    -------    -------
        Balance at end of year..............................  114,695    114,688    114,687     $  11.5    $  11.5    $  11.5
                                                              =======    =======    =======     =======    =======    =======
    CBG Stock:
        Balance at beginning of year........................                         20,857                           $   2.1
             Common stock issued on conversion of
              debentures....................................                              1
             Exchange of CBG Stock for RAL Stock............                        (20,858)                             (2.1)
                                                                                    -------                           -------
        Balance at end of year..............................                            --                            $   --
                                                                                    =======                           =======
Common Stocks in Treasury:
    RAL Stock:
        Balance at beginning of year........................   (8,740)    (8,831)   (10,620)    $(482.3)   $(481.7)   $(577.4)
             Shares issued in connection with CBG Stock
              exchange......................................                          1,816                              98.7
             Activity under stock plans.....................      932        237        210        49.1       11.7       12.6
             Treasury stock purchased.......................     (308)      (146)      (300)      (24.7)      (9.4)     (15.3)
             Shares issued in connection with preferred
              stock redemption/conversion...................      386        391      2,319        21.7       21.4      125.7
             Share repurchases in connection with the
              ESOP..........................................     (386)      (391)    (2,256)      (30.5)     (24.3)    (126.0)
                                                              -------    -------    -------     -------    -------    -------
        Balance at end of year..............................   (8,116)    (8,740)    (8,831)    $(466.7)   $(482.3)   $(481.7)
                                                              =======    =======    =======     =======    =======    =======
    CBG Stock:
        Balance at beginning of year........................                           (270)                          $  (2.6)
             Activity under stock plans.....................                              2
             Cancellation of shares.........................                            268                               2.6
                                                                                    -------                           -------
        Balance at end of year..............................                            --                            $   --
                                                                                    =======                           =======
Grantor Trust:
        Balance at beginning of year........................   (4,228)    (4,135)    (4,033)    $(289.6)   $(239.3)   $(166.9)
             Shares purchased...............................      (79)       (93)      (102)       (6.4)      (6.0)      (5.0)
             Market value adjustment........................                                      (85.2)     (44.3)     (67.4)
                                                              -------    -------    -------     -------    -------    -------
        Balance at end of year..............................   (4,307)    (4,228)    (4,135)    $(381.2)   $(289.6)   $(239.3)
                                                              =======    =======    =======     =======    =======    =======

 ............................................................................ 31

<PAGE> 19
<CAPTION>
R A L S T O N  P U R I N A  C O M P A N Y

Consolidated Statement of Shareholders Equity (continued)
 .........................................................................................................................

                                     Three years ended September 30, 1997

                                                                                                  AMOUNT
                                                                                              (IN MILLIONS)
                                                                                 ----------------------------------------
                                                                                 1997              1996              1995
                                                                                 ----              ----              ----
<S>                                                                            <C>               <C>               <C>
Capital in Excess of Par Value:
        Balance at beginning of year.......................................    $  217.3          $  169.6          $  108.7
             Effect of exchange of CBG Stock for RAL Stock.................                                            (5.8)
             Effect of preferred stock conversion..........................                                            (3.2)
             Activity under stock plans....................................        17.5               3.4               2.5
             Market value adjustment of grantor trust......................        85.2              44.3              67.4
                                                                               --------          --------          --------
        Balance at end of year.............................................    $  320.0          $  217.3          $  169.6
                                                                               ========          ========          ========
Retained Earnings:
        Balance at beginning of year.......................................    $1,302.9          $1,089.7          $1,043.2
             Net earnings..................................................       423.7             359.6             296.4
             Effect of exchange of CBG Stock for RAL Stock.................                                           (93.8)
             Effect of preferred stock conversion..........................        (3.0)             (2.5)            (10.4)
             Activity under stock plans....................................       (21.1)             (7.7)             (5.3)
             Dividends declared on preferred stock, net of taxes...........       (13.1)            (14.1)            (18.8)
             Dividends declared on RAL Stock...............................      (122.7)           (122.1)           (121.6)
                                                                               --------          --------          --------
        Balance at end of year.............................................    $1,566.7          $1,302.9          $1,089.7
                                                                               ========          ========          ========
Unearned Portion of Restricted Stock:
        Balance at beginning of year.......................................    $   (4.2)         $   (5.3)         $   (4.3)
             Activity under stock plans....................................         (.3)                               (1.2)
             Market value adjustment on restricted stock...................                                             (.5)
             Amortization of restricted stock..............................         1.1               1.1                .7
                                                                               --------          --------          --------
        Balance at end of year.............................................    $   (3.4)         $   (4.2)         $   (5.3)
                                                                               ========          ========          ========
Cumulative Translation Adjustment:
        Balance at beginning of year.......................................    $  (66.6)         $  (50.3)         $  (58.7)
             Translation adjustments.......................................       (63.2)            (16.3)              8.4
                                                                               --------          --------          --------
        Balance at end of year.............................................    $ (129.8)         $  (66.6)         $  (50.3)
                                                                               ========          ========          ========

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

32 ............................................................................

<PAGE> 20
R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements
 ...............................................................................
                                    (Dollars in millions except per share data)

Summary of Accounting Policies
 ..............................

     Ralston Purina Company's (the Company) significant accounting policies,
which conform to generally accepted accounting principles and are applied on a
consistent basis among years, except as indicated, are described below:

Principles of Consolidation -- The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions are eliminated. Investments in affiliated
companies, 20% through 50%-owned, are carried at equity.

Foreign Currency Translation -- Financial statements of foreign operations
where the local currency is the functional currency are translated using
exchange rates in effect at period end for assets and liabilities and average
exchange rates during the period for results of operations. Related translation
adjustments are reported as a separate component of shareholders equity. For
foreign operations where the U.S. dollar is the functional currency and for
countries which are considered highly inflationary, translation practices
differ in that inventories, properties, accumulated depreciation and
depreciation accounts are translated at historical rates of exchange and
related translation adjustments are included in earnings. Gains and losses from
foreign currency transactions are generally included in earnings.

Financial Instruments -- The Company uses financial and commodities derivatives
in the management of foreign currency, commodities pricing and interest rate
risks that are inherent to its business operations. Such instruments are not
held or issued for trading purposes.

     The Company uses foreign exchange (F/X) instruments, including currency
forwards, futures and options, to reduce transaction and translation exposures
resulting from its foreign currency activities. F/X instruments used are
selected based on their risk reduction attributes and the related market
conditions. Such instruments are marked-to-market, and the terms generally do
not exceed twelve months. Realized and unrealized gains and losses from
instruments qualifying as hedges are deferred as part of the cost basis of the
asset or liability being hedged and are recognized in the statement of earnings
in the same period as the underlying transaction. Realized and unrealized gains
or losses from F/X instruments used as economic hedges but not qualifying for
hedge accounting are recognized currently in the statement of earnings. Cash
flows from F/X instruments are classified in the same category in the statement
of cash flows as the underlying activities. F/X instruments are generally not
disposed of prior to the settlement date; however, if an F/X instrument and the
underlying hedged transaction were disposed of prior to the settlement date,
any gain or loss would be recognized immediately in the statement of earnings.

     The Company uses commodities hedging instruments, including futures and
options, to reduce the risk of price fluctuations related to future raw
materials requirements for commodities such as corn, wheat and soybean meal.
The terms of such instruments generally do not exceed twelve months, and depend
on the commodity and other market factors. The instruments are
marked-to-market, and the gains and losses are deferred. Deferred gains and
losses are subsequently recorded as cost of products sold in the statement of
earnings when the inventory is sold. If the inventory is not acquired and the
hedge is disposed of, the deferred gain or loss is recognized immediately in
cost of products sold.

     The Company uses interest rate swap and cap agreements in the management
of interest rate exposure. The interest rate differential to be paid or
received is normally accrued as interest rates change, and is recognized as a
component of interest expense over the life of the agreements. If an agreement
and the underlying hedged transaction were terminated prior to the maturity
date, any accrued rate differential would be recognized immediately as interest
expense in the statement of earnings.

Cash Equivalents for purposes of the statement of cash flows are considered to
be all highly liquid investments with a maturity of three months or less when
purchased.

Inventories are valued generally at the lower of cost or market, with cost
being determined using average cost or the first-in, first-out (FIFO) method.

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

Depreciation is generally provided on the straight-line basis by charges to
costs or expenses at rates based on the estimated useful lives of the
properties. Estimated useful lives range from 3 to 25 years for machinery and
equipment and 10 to 50 years for buildings.

Goodwill and Other Intangible Assets, which are included in Investments and
Other Assets, represent the excess of cost over the net tangible assets of
acquired businesses and are amortized over estimated periods of related benefit
ranging from 7 to 40 years.

     Subsequent to acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of an intangible asset may warrant revision or that the remaining
balance of an intangible asset may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of
intangible assets from expected future operating cash flows on an undiscounted
basis. In the opinion of management, no such impairment existed as of September
30, 1997 and 1996.

 ............................................................................ 33

<PAGE> 21
R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

Stock Appreciation Income Linked Securities (SAILS) -- SAILS debt was initially
recorded on the balance sheet at the principal amount of the issuance. At each
subsequent balance sheet date, the SAILS will be marked to the cash value of
the underlying IBC shares for which the SAILS may be exchanged. Any changes in
value will be recorded in earnings each period.

Advertising Costs -- The Company expenses advertising costs as incurred.

Research and Development costs are expensed as incurred and were $70.4, $65.3
and $62.6 in 1997, 1996 and 1995, respectively.

Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Income Taxes -- Deferred income taxes are recognized for the effect of
temporary differences between financial and tax reporting. No additional U.S.
taxes have been provided on earnings of foreign subsidiaries expected to be
reinvested indefinitely. Additional income taxes are provided, however, on
planned repatriations of foreign earnings after taking into account tax-exempt
earnings and applicable foreign tax credits.

Earnings per Share -- Primary earnings per share are based on the average
number of shares outstanding during the period for which earnings per share are
reported. The average number of shares of RAL Stock outstanding was 102,058,000
and 101,776,000 for the years ended September 30, 1997 and 1996, respectively.

     As discussed in the CBG Stock Exchange note to the financial statements,
on May 15, 1995, the Company exchanged all outstanding shares of
Ralston-Continental Baking Group Common Stock (CBG Stock) for shares of
Ralston-Ralston Purina Group Common Stock (RAL Stock), which remains the
Company's sole outstanding class of common stock. The average number of shares
of RAL Stock outstanding for the year ended September 30, 1995 was 100,700,000.
For the period October 1, 1994 through May 15, 1995, the average number of
shares of CBG Stock outstanding was 20,589,000.

     The 1995 pro forma earnings per share are based on the assumption that the
CBG Stock exchange had occurred as of the beginning of the period. The average
number of shares of RAL Stock assumed outstanding was 101,850,000 in 1995. The
pro forma earnings per share are not necessarily indicative of the results that
would have occurred had the RAL Stock been the sole class of common stock
outstanding during the period.

     Fully diluted earnings per share assumes the conversion of the Series A
6.75% Preferred Stock (Redeemable Preferred Stock) and other dilutive
securities into common stock. For purposes of calculating fully diluted
earnings per share, net earnings have been adjusted for the additional
contribution to the ESOP portion of the Company's Savings Investment Plan and
its related trust (ESOP) that would have been required had the Redeemable
Preferred Stock been converted as of the beginning of the period.

Accounting for Stock-Based Compensation -- The Company accounts for stock
options using the intrinsic value method as prescribed by Accounting Principles
Board Opinion No. 25 (APB25). Pro forma disclosures required under Statement of
Financial Accounting Standards No. 123 (SFAS 123), as if the Company had
adopted the fair value based method of accounting for stock options, are
presented in the Notes to Financial Statements.

Other -- Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", was issued in February 1997. Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", were issued in June 1997. The Company
expects the impact of adoption of these statements to be immaterial.

Business Segment Information
 ............................

     The Business Segment Information and Geographic Segment Information
sections, appearing on pages 24 through 26 herein, are an integral part of
these financial statements.

Discontinued Operations
 .......................

     In December 1997, the Company reached agreement to sell its Soy Protein
Products operations to E. I. Du Pont de Nemours and Company (DuPont) for
approximately $1.5 billion comprised of DuPont common stock and the assumption
of certain liabilities. The amount received will be recorded in the first
quarter of fiscal 1998, and will result in a gain for the Company. The Soy
Protein Products business is the world's leading producer and marketer of
high-quality dietary isolated protein and fiber food ingredients, and a leading
marketer of polymer products worldwide. In addition, the Company has made
significant progress in its efforts to separate its Agricultural Products
business in a tax-free spin-off to shareholders. The spin-off is expected to be
completed during the second quarter of fiscal 1998 after receipt of a favorable
tax ruling from the Internal Revenue Service and approval by the Board of
Directors. The Agricultural Products business is one of the world's largest
producers and marketers of formula feeds outside the United States.

     The Soy Protein Products and Agricultural Products segments are accounted
for as discontinued operations, and accordingly, amounts in the financial
statements and related notes for all periods shown have been restated to
reflect discontinued operations accounting. Summarized results of these
businesses are shown separately as Discontinued

34 ............................................................................

<PAGE> 22
R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
                                    (Dollars in millions except per share data)

Operations in the accompanying consolidated financial statements. The
Investment in Discontinued Operations is primarily comprised of accounts
receivable, inventory, fixed assets and accounts payable. Operating results of
these businesses are as follows:

<TABLE>
<CAPTION>
                                                                                       1997          1996          1995
                                                                                       ----          ----          ----

<S>                                                                                  <C>           <C>           <C>
Net Sales.......................................................................     $1,983.8      $1,812.4      $1,526.2
                                                                                     ========      ========      ========
Earnings before income taxes....................................................     $  116.3      $  114.6      $  114.6

Income taxes....................................................................         41.5          49.3          47.2
                                                                                     --------      --------      --------

Net Earnings from discontinued operations.......................................     $   74.8      $   65.3      $   67.4
                                                                                     ========      ========      ========
</TABLE>

Acquisitions
 ............

     On April 7, 1995, the Company purchased the assets of Golden Cat
Corporation, the leading manufacturer and marketer of branded cat box filler in
the United States and Canada for $340. Also in the third quarter of 1995, the
Company acquired the assets of a Mexican pet food company for $18.

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

CBG Stock Exchange
 ..................

     On May 15, 1995, the Company exchanged each outstanding share of CBG
Stock for .0886 shares of RAL Stock as permitted by the Company's Restated
Articles of Incorporation (Articles). The exchange represented a 15% premium to
the relative trading values of the CBG Stock and RAL Stock for the period March
31 through April 6, 1995, as provided in the Articles.

Divestitures
 ............

     Effective July 22, 1995, the Company sold its Continental Baking Company
(CBC) subsidiary to Interstate Bakeries Corporation (IBC) and its wholly owned
subsidiary, Interstate Brands Corporation, for $220.0 in cash and 16,923,077
shares of common stock of IBC (the IBC Stock). The Company recorded a pre-tax
and after-tax gain on the sale of CBC of $50.3 and $42.0, respectively, or $.41
per pro forma primary share. Due to the Company's continuing ownership interest
in IBC, an additional $18.5 after-tax gain was deferred. The Company's earnings
and cash flows reflect the operations of CBC through July 22, 1995.

Investment in Interstate Bakeries Corporation
 .............................................

     The Company's equity investments in affiliated companies includes a 43.5%
interest in IBC at September 30, 1997. The Company accounts for its investment
in IBC by the equity method of accounting. The carrying value of this
investment was $289.2 and $286.9 at September 30, 1997 and 1996, respectively.
The market value of the Company's investment in IBC was $1,096.7 and $617.7 at
September 30, 1997 and 1996, respectively. As of the July 1995 sale of CBC, the
market value of the IBC shares received exceeded the underlying net assets of
IBC by $95.2. This excess is included in the carrying value of the Company's
investment in IBC, and is amortized over 30 years and adjusted for changes in
our equity ownership. Cash dividends received from IBC were $9.1 and $8.5 in
1997 and 1996, respectively. In July 1997, the Company sold one million shares
of its IBC stock back to IBC for $60.1 and recognized a pre-tax gain of $23.2,
or $15.1 after tax.

     Terms of a shareholder agreement provide that, with certain limited
exceptions, the Company will not acquire any additional shares of IBC stock for
a period of six years from the July 1995 closing of the sale of CBC. The
agreement also provides that within five years of closing, the Company's
ownership of IBC stock will be reduced to no more than 14.9% of the total
outstanding shares. The Company has registration rights with respect to the IBC
stock, but the shareholder agreement provides that, with certain limited
exceptions, the Company may not sell any of the IBC stock without first
offering the securities to IBC. IBC also has the right, during the fifth year
following closing, to acquire any of the IBC stock then held by the Company at
a price equal to 110% of its then current market price. The shareholder
agreement provides that the Company will vote the shares of IBC stock in
accordance with the recommendation of IBC's Board of Directors with respect to
shareholder proposals and nominations to that Board, and with respect to other
proposals, in proportion to the votes of all other shareholders; provided,
however, that the Company may vote as it deems appropriate with respect to
proposals for the merger of IBC, the sale of all IBC assets, or the issuance of
any other class of voting stock of IBC. The Company has one representative on
the IBC Board.

 ............................................................................ 35

<PAGE> 23

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

     In July 1997, the Company issued $480 million of Stock Appreciation Income
Linked Securities (SAILS) consisting of 7% exchangeable notes due August 1,
2000. At maturity, the notes are mandatorily exchangeable into a number of
shares of IBC common stock owned by the Company or, cash, at the Company's
option. The number of shares or the amount of cash will be based on the average
market price of IBC stock on the 20 trading days prior to maturity on August 1,
2000 (the "IBC Maturity Price"). If the IBC Maturity Price is greater than or
equal to $75.5638, the SAILS will be exchanged at maturity into 6.35 million
shares of IBC stock. If the IBC Maturity Price is $61.9375 or less, the SAILS
will be exchangeable into 7.75 million shares of IBC stock. If the IBC Maturity
Price is between $61.9375 and $75.5638, the SAILS will be exchangeable into a
number of shares of IBC stock between 7.75 million and 6.35 million,
respectively, based on an exchange ratio. If the SAILS are redeemed for cash,
the amount of cash will be equal to the number of IBC shares exchangeable under
the terms of the SAILS times the IBC Maturity Price. This transaction
effectively limits the amount of appreciation on part of the Company's
investment in IBC and locks in a minimum gain at the issuance price of
$61.9375. Effective November 3, 1997, IBC's stock split 2-for-1 which is not
reflected in the aforementioned share amounts.

     Presented below is summary financial information of IBC:

<TABLE>
<CAPTION>
                                                                         AUGUST 23,       AUGUST 24,
                                                                            1997             1996
                                                                         ----------       ----------
<S>                                                                      <C>              <C>
Current assets........................................................    $  328.1         $  331.3
Noncurrent assets.....................................................     1,157.0          1,160.7
                                                                          --------         --------
    Total assets......................................................    $1,485.1         $1,492.0
                                                                          ========         ========
Current liabilities...................................................    $  356.4         $  371.2
Noncurrent liabilities................................................       624.9            644.8
Stockholders equity...................................................       503.8            476.0
                                                                          --------         --------
    Total liabilities and stockholders equity.........................    $1,485.1         $1,492.0
                                                                          ========         ========

<CAPTION>
                                                                          52 WEEKS         52 WEEKS         12 WEEKS
                                                                           ENDED            ENDED            ENDED
                                                                         AUGUST 23,       AUGUST 24,       AUGUST 26,
                                                                            1997             1996             1995
                                                                         ----------       ----------       ----------
<S>                                                                      <C>              <C>              <C>
Net sales.............................................................    $3,222.5         $3,160.4          $471.4
Cost of products sold.................................................     1,554.3          1,586.0           241.3
                                                                          --------         --------          ------
Gross profit..........................................................    $1,668.2         $1,574.4          $230.1
                                                                          ========         ========          ======
Net income............................................................    $  108.4         $   37.4          $  5.7
                                                                          ========         ========          ======
Company equity income, net of taxes (1995 amount represents July 23
  through August 26, 1995)............................................    $   34.0         $   11.6          $   .9
                                                                          ========         ========          ======
</TABLE>

Restructuring Activities
 ........................

     In 1997, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per primary share by $111.4, $36.3 and $.36,
respectively. These charges are primarily associated with the continued
rationalization of Battery Products' production capacity and business structure
and provide for the termination of 1,340 employees and the closing of 3 plants.
The total pre-tax charge for restructuring consisted of termination benefits of
$50.5, other cash exit costs of $11.0, and non-cash charges of $49.9, primarily
related to impairment losses on land, buildings and machinery and equipment.
The income tax benefits of $75.1 recorded during the year associated with
current and past restructuring actions include current tax benefits of $13.4
and the recognition of capital loss benefits of $61.7. During 1997, 80
employees were severed in connection with this charge.

     In 1996, the Company recorded provisions for restructuring which reduced
pre-tax and after-tax earnings from continuing operations and earnings from
continuing operations per primary share by $12.4, $11.0 and $.11, respectively.
These charges are associated with the closing of the Company's European cereal
operations and additional Battery Products' restructuring. The total 1996
pre-tax charge for restructuring consisted of termination benefits of $5.2,
relating to the termination of approximately 170 employees, other cash exit
costs of $1.8 and non-cash charges of $5.4, primarily related to impairment
losses on land, buildings and machinery and equipment. As of September 30,
1997, substantially all actions associated with this charge have been
completed.

     During 1995, the Company recorded additional provisions for restructuring
of its world-wide carbon zinc battery production capacity and certain
administrative functions as part of a plan initiated in 1994. This plan
provided for the closing of a total of ten plants and the severance of
approximately 2,600 employees. The 1995 provisions reduced pre-tax

36 ............................................................................

<PAGE> 24

R A L S T O N  P U R I N A  C O M P A N Y

 ..............................................................................
                                    (Dollars in millions except per share data)

and after-tax earnings from continuing operations by $90.8 and $70.0,
respectively. The total 1995 pre-tax charge for restructuring consisted of
termination benefits of $46.2, other cash exit costs of $11.6 and non-cash
charges of $33.0, primarily related to impairment losses on land, buildings and
machinery and equipment. As of September 30, 1997, substantially all actions
associated with this charge have been completed.

     Activity related to the restructuring provisions discussed above is
summarized as follows:

<TABLE>
<CAPTION>
                                                                                 1997         1996
                                                                                 ----         ----
<S>                                                                             <C>          <C>
Reserve balance at beginning of year.......................................     $ 22.4       $ 43.9
Provision recorded.........................................................      111.4         12.4
Portion of current period provision classified as property and other asset
  impairments..............................................................      (49.9)        (5.4)
Termination benefits paid..................................................      (15.0)       (22.0)
Other cash exit costs incurred.............................................       (3.9)        (7.3)
Increase due to translation................................................        1.3           .8
                                                                                ------       ------
Reserve balance at September 30............................................     $ 66.3       $ 22.4
                                                                                ======       ======
</TABLE>

     Restructuring actions represented by the September 30, 1997 reserve
balance are expected to be substantially completed in 1999.

Income Taxes
 ............

     The provisions for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                               1997                              1996                              1995
                                   ----------------------------      ----------------------------      ----------------------------
                                   CONTINUING                        CONTINUING                        CONTINUING
                                   OPERATIONS      CONSOLIDATED      OPERATIONS      CONSOLIDATED      OPERATIONS      CONSOLIDATED
                                   ----------      ------------      ----------      ------------      ----------      ------------
<S>                                <C>             <C>               <C>             <C>               <C>             <C>
Currently payable
    United States.............       $ 136.8          $ 151.1          $135.3           $153.5           $144.1           $159.0
    State.....................          12.2             14.5            10.1             12.2             14.3             16.2
    Foreign...................          36.5             61.0            19.3             48.6             30.7             46.1
                                     -------          -------          ------           ------           ------           ------
        Total current.........         185.5            226.6           164.7            214.3            189.1            221.3
                                     -------          -------          ------           ------           ------           ------
Deferred
    United States.............        (114.4)          (100.7)           (9.1)            (5.2)           (10.1)            (8.5)
    State.....................          (1.2)            (1.2)            --               --              (1.7)            (1.7)
    Foreign...................           0.1              1.1             7.3              4.4             (9.5)             2.1
                                     -------          -------          ------           ------           ------           ------
        Total deferred........        (115.5)          (100.8)           (1.8)            (0.8)           (21.3)            (8.1)
                                     -------          -------          ------           ------           ------           ------
Income taxes..................       $  70.0          $ 125.8          $162.9           $213.5           $167.8           $213.2
                                     =======          =======          ======           ======           ======           ======
</TABLE>

     Components of consolidated income taxes:

<TABLE>
<CAPTION>
                                                                  1997         1996         1995
                                                                  ----         ----         ----
<S>                                                              <C>          <C>          <C>
Continuing operations.......................................     $ 70.0       $162.9       $167.8

Discontinued operations.....................................       41.5         49.3         47.2

Equity earnings.............................................       14.3          2.6           .5

Extraordinary item..........................................        --          (1.3)        (2.3)
                                                                 ------       ------       ------

                                                                 $125.8       $213.5       $213.2
                                                                 ======       ======       ======
</TABLE>

     The source of pre-tax earnings follows:

<TABLE>
<CAPTION>
                                               1997                              1996                              1995
                                   ----------------------------      ----------------------------      ----------------------------
                                   CONTINUING                        CONTINUING                        CONTINUING
                                   OPERATIONS      CONSOLIDATED      OPERATIONS      CONSOLIDATED      OPERATIONS      CONSOLIDATED
                                   ----------      ------------      ----------      ------------      ----------      ------------
<S>                                <C>             <C>               <C>             <C>               <C>             <C>
United States.................       $352.4           $464.3           $367.4           $453.0           $401.1           $460.8
Foreign.......................         32.5             85.2             80.3            120.1             (1.5)            48.8
                                     ------           ------           ------           ------           ------           ------
Pre-tax earnings..............       $384.9           $549.5           $447.7           $573.1           $399.6           $509.6
                                     ======           ======           ======           ======           ======           ======
</TABLE>

 ............................................................................ 37

<PAGE> 25

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

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

<TABLE>
<CAPTION>
                                                  1997                  1996                  1995
                                           ------------------     -----------------     -----------------
<S>                                        <C>          <C>       <C>          <C>      <C>          <C>
Computed tax at federal statutory
  rate..................................   $134.7        35.0%    $156.7       35.0%    $139.9       35.0%
State income taxes, net of federal tax
  benefit...............................      7.1         1.8        6.6        1.5        8.2        2.1
Foreign tax in excess of (less than)
  domestic rate.........................     25.2         6.5       (1.5)       (.3)      21.7        5.4
Taxes on repatriation of foreign
  earnings..............................     13.1         3.4       21.6        4.8       15.9        4.0
Taxes on gain on sale of CBC less than
  domestic rate.........................      --          --         --         --       (10.3)      (2.6)
Foreign tax credit refunds..............    (34.7)       (9.0)       --         --         --         --
Recognition of capital losses related to
  prior restructuring actions...........    (61.7)      (16.0)       --         --         --         --
Non-taxable investment income...........    (10.6)       (2.7)      (7.5)      (1.7)      (8.3)      (2.1)
Other, net..............................     (3.1)        (.8)     (13.0)      (2.9)        .7         .2
                                           ------       -----     ------       ----     ------       ----
                                           $ 70.0        18.2%    $162.9       36.4%    $167.8       42.0%
                                           ======       =====     ======       ====     ======       ====
</TABLE>

     In 1997, the Company recognized capital loss benefits of $61.7 related to
past restructuring actions. These benefits will be used to partially offset
taxes due upon the disposition of IBC shares. In addition, the Company changed
its method of computing foreign tax credits. The Company recognized tax
benefits of $34.7 related to foreign tax credit refund claims for 1993 through
1996.

     The effective rate for discontinued operations is higher than the federal
statutory rate due to foreign taxes in excess of the domestic rate and taxes on
repatriation of foreign earnings.

     The deferred tax assets and deferred tax liabilities recorded on the
balance sheet as of September 30, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                                      1997        1996
                                                                                      ----        ----
<S>                                                                                  <C>         <C>
Deferred Tax Liabilities:
    Depreciation and property differences.......................................     $(114.0)    $(121.1)
    Pension plans...............................................................       (84.9)      (72.2)
    Other.......................................................................       (39.3)      (48.9)
                                                                                     -------     -------
        Gross deferred tax liabilities..........................................      (238.2)     (242.2)
                                                                                     -------     -------
Deferred Tax Assets:
    Postretirement benefits other than pensions.................................       201.3       177.1
    Accrued liabilities.........................................................        82.3        72.0
    Tax loss carryforwards and tax credits......................................        46.9        55.2
    Self-insurance reserves.....................................................         6.0         5.8
    Recognized capital losses...................................................        58.5         --
    Intangible assets...........................................................        31.9        34.7
    Other.......................................................................        19.0         3.9
                                                                                     -------     -------
        Gross deferred tax assets...............................................       445.9       348.7
                                                                                     -------     -------
    Valuation allowance.........................................................       (81.5)      (58.4)
                                                                                     -------     -------
    Net deferred tax assets.....................................................     $ 126.2     $  48.1
                                                                                     =======     =======
</TABLE>

     Total net deferred tax assets shown above include current and noncurrent
elements.

     Tax loss carryforwards and tax credits totaling $4.2 expired in 1997.
Future expiration of tax loss carryforwards and credits, if not utilized, are
as follows: 1998, $2.8; 1999, $2.1; 2000, $5.3; 2001, $4.5; 2002, $6.9;
thereafter or no expiration, $25.3. The valuation allowance is primarily
attributed to certain accrued liabilities, tax loss carryforwards and tax
credits outside the U.S. The valuation allowance increased in 1997 by $23.1,
primarily due to restructuring provisions recorded in the current year for
which no tax benefits are expected to be realized.

38 ............................................................................

<PAGE> 26

R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
                                    (Dollars in millions except per share data)

     At September 30, 1997, $122 of foreign subsidiary net earnings were
considered permanently invested in those businesses. Accordingly, U.S. income
taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.

Incentive Compensation
 ......................

     The Company's 1996 Incentive Stock Plan (1996 Plan) was adopted in
February, 1996, and replaced the 1988 Incentive Stock Plan (1988 Plan). Awards
may be granted to officers and key employees. No additional awards may be
granted under the 1988 Plan, or the 1982 Incentive Stock Plan, both of which
will continue in existence until granted shares are exercised or terminated. A
maximum of 5 million shares of RAL Stock was approved to be issued under the
1996 Plan. At September 30, 1997, 1996 and 1995, respectively, there were 2.9
million, 3.1 million and 4.1 million shares available for future awards.

     Options under the 1996 and 1988 Plan generally consist of two types of
grants. The first type are based on stock price or peer group performance
hurdles and generally vest in three tranches. The second type is fixed and
vests generally over five years. Each award generally has a maximum term of 10
years. The exercise price of each option is equal to the market price of RAL
Stock on the date of grant. The peer group performance and the 1995 stock price
performance option awards were modified on March 20, 1997. As a result, all of
the peer group and stock price performance options vest at year nine,
regardless of these hurdles.

     Restricted stock awards may also be issued under the 1996 Plan.
Restrictions on shares of restricted stock issued to eligible employees lapse
over various periods, provided continued employment and, in certain cases,
minimum stock price requirements are met. 4,000 and 31,500 restricted stock
shares were granted in 1997 and 1995, respectively. No shares were granted in
1996. The weighted-average fair value for restricted stock granted in FY97 is
$84.03.

     The Company continues to apply APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation. Accordingly,
charges to earnings for stock-based compensation were $13.8, $3.2, and $.7 in
1997, 1996 and 1995, respectively. Had compensation cost for stock-based
compensation been determined based on the fair value method set forth under
SFAS No. 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated in the table below. The modification
of options noted above had an immaterial effect on pro forma calculations. The
pro forma results shown below reflect only the impact of options granted in
1996 and 1997. Since options in 1996 were granted at the end of the year, pro
forma impact for 1996 is immaterial. Pro forma amounts are for disclosure
purposes only and do not include options granted prior to fiscal year 1996, and
therefore may not be representative of future calculations.

<TABLE>
<CAPTION>
                                                                               1997
                                                                               ----
<S>                                                                           <C>
    Net Earnings:
        As reported........................................................   $423.7
        Pro forma..........................................................   $417.9
    Primary Earnings Per Share:
        As reported........................................................   $ 4.02
        Pro forma..........................................................   $ 3.97
    Fully Diluted Earnings Per Share:
        As reported........................................................   $ 3.80
        Pro forma..........................................................   $ 3.75
</TABLE>

     The weighted average fair value for options granted in 1997 and 1996 was
$29.06 and $22.40, respectively. This was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                                                1997       1996
                                                                                ----       ----
<S>                                                                           <C>        <C>
Risk-free interest rate....................................................       6.3%       6.7%
Expected life of option....................................................    8 years    8 years
Expected volatility of RAL Stock...........................................      20.0%      20.0%
Expected dividend yield on RAL Stock.......................................      1.33%      1.75%
</TABLE>

 ............................................................................ 39

<PAGE> 27

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

     A summary of nonqualified RAL Stock options outstanding is as follows
(shares in millions):

<TABLE>
<CAPTION>
                                                   1997                      1996                    1995<F1>
                                           --------------------      --------------------      --------------------
                                                       WEIGHTED                  WEIGHTED                  WEIGHTED
                                                       AVERAGE                   AVERAGE                   AVERAGE
                                                       EXERCISE                  EXERCISE                  EXERCISE
                                           SHARES       PRICE        SHARES       PRICE        SHARES       PRICE
                                           ------      --------      ------      --------      ------      --------
<S>                                        <C>         <C>           <C>         <C>           <C>         <C>
Outstanding beginning of year...........    6.72        $51.47        5.25        $44.85        3.81        $39.53
Granted.................................     .02         82.90        1.93         67.25        1.90         54.21
Exercised...............................   (1.03)        35.05        (.38)        34.82        (.37)        36.48
Cancelled...............................    (.06)        64.09        (.08)        76.73        (.09)        51.52
                                           -----                      ----                      ----
Outstanding end of year.................    5.65         54.44        6.72         51.47        5.25         44.85
                                           =====                      ====                      ====
Exercisable on September 30,............     .82         46.47         .97         36.77        1.01         38.44
                                           =====                      ====                      ====
</TABLE>

     Information about RAL Stock options at September 30, 1997 is summarized
below (shares in millions):

<TABLE>
<CAPTION>
                                                     OUTSTANDING STOCK OPTIONS               EXERCISABLE STOCK OPTIONS
                                           ----------------------------------------------    --------------------------
                                                     WEIGHTED-AVERAGE
                                                        REMAINING
                RANGE OF                             CONTRACTUAL LIFE    WEIGHTED-AVERAGE              WEIGHTED-AVERAGE
            EXERCISE PRICES                SHARES        (YEARS)          EXERCISE PRICE     SHARES     EXERCISE PRICE
            ---------------                ------    ----------------    ----------------    ------    ----------------
<S>                                        <C>       <C>                 <C>                 <C>       <C>
$31.71-48.38............................    2.48            4.5               $ 40.62          .68          $ 40.30
$58.00-76.13............................    3.06            8.6                 63.81          .09            60.63
$98.76-132.63...........................     .11            3.5                104.13          .05           104.90
                                            ----
                                                                                               ---
$31.71-132.63...........................    5.65            6.7                 54.44          .82            46.47
                                            ====                                               ===

<FN>

<F1> As a result of the exchange of CBG Stock for shares of RAL Stock on May 15, 1995, each outstanding option to acquire
     CBG Stock was converted, pursuant to existing antidilution provisions, into an option to acquire RAL Stock. In the
     conversion, both the number of options and the exercise price were adjusted based upon the exchange ratio of .0886
     share of RAL Stock per share of CBG Stock. Each outstanding restricted CBG Stock award was exchanged for restricted RAL
     Stock based upon the same exchange ratio. CBG shares have been restated to RAL shares at October 1, 1994 for
     comparative purposes only.
</TABLE>

Pension Plans
 .............

     The Company has several noncontributory defined benefit pension plans
covering substantially all regular employees in the United States not
participating in a multiemployer pension plan and certain employees in other
countries. The plans provide retirement benefits based on years of service and
earnings. It is the Company's practice to fund pension liabilities in the
United States in accordance with the minimum and maximum limits imposed by the
Employee Retirement Income Security Act of 1974 (ERISA) and federal income tax
laws. In prior years, the Company also contributed to jointly administered
multiemployer defined benefit pension plans covering certain CBC union
employees.

     Certain foreign pension arrangements, which include various retirement and
termination benefit plans, some of which are required by local law or
coordinated with government-sponsored plans, are not material in the aggregate
and are not included in these disclosures.

40 ............................................................................

<PAGE> 28

R A L S T O N  P U R I N A  C O M P A N Y

 ..............................................................................
                                    (Dollars in millions except per share data)

     Pension cost and other retirement savings plan costs included the
following components:

<TABLE>
<CAPTION>
                                                                  1997        1996        1995
                                                                  ----        ----        ----
<S>                                                              <C>         <C>         <C>
Defined benefit plans
    Service cost for benefits earned during the year........     $  21.6     $  20.0     $  26.7
    Interest cost on projected benefit obligation...........        65.8        63.1        62.7
    Return on plan assets...................................      (351.9)     (165.8)     (218.6)
    Net amortization and deferral...........................       238.7        62.3       123.9
                                                                 -------     -------     -------
Total defined benefit plans.................................       (25.8)      (20.4)       (5.3)
Multiemployer plans.........................................         --          --         46.9
Defined contribution plans..................................        20.3        20.5        26.8
                                                                 -------     -------     -------
        Total...............................................     $  (5.5)    $    .1     $  68.4
                                                                 =======     =======     =======
</TABLE>

     The following table presents the funded status of the Company's principal
defined benefit plans and amounts recognized in the balance sheet at September
30:

<TABLE>
<CAPTION>
                                                                                  1997         1996
                                                                                  ----         ----
<S>                                                                             <C>          <C>
Actuarial present value of:
    Vested benefits........................................................     $ (790.0)    $ (730.1)
    Nonvested benefits.....................................................        (32.5)       (28.8)
                                                                                --------     --------
    Accumulated benefit obligation.........................................       (822.5)      (758.9)
    Effect of future salary increases......................................       (118.1)      (115.5)
                                                                                --------     --------
    Projected benefit obligation...........................................       (940.6)      (874.4)
Plan assets at fair value..................................................      1,645.8      1,345.5
                                                                                --------     --------
Plan assets in excess of projected benefit obligation......................        705.2        471.1
Unrecognized net gain......................................................       (481.3)      (273.4)
Unrecognized prior service cost............................................          5.0          5.9
Unrecognized net asset at transition, net of amortization..................         (8.9)       (12.9)
                                                                                --------     --------
Prepaid pension cost included in Investments and Other Assets..............     $  220.0     $  190.7
                                                                                ========     ========
</TABLE>

     The assumptions used in determining the information above, which reflect
weighted averages for the component plans, were as follows:

<TABLE>
<CAPTION>
                                                                           1997     1996
                                                                           ----     ----
<S>                                                                        <C>      <C>
Discount rate.........................................................      7.8%     7.8%
Rate of increase of future compensation levels........................      5.4%     5.5%
Long-term rate of return on assets....................................      9.0%     8.9%
</TABLE>

     Assets of the plans consist primarily of listed common stocks and bonds,
including 1,731,005 shares of RAL Stock with a market value of $153.2 at
September 30, 1997.

     Substantially all U.S. regular employees are eligible to participate in
the Company-sponsored leveraged ESOP. The Company makes a matching contribution
of up to 100% of the participant's contribution based on specified limits of
the participant's salary. The cost of the ESOP is recognized as incurred and
was $18.2 for 1997, $18.3 for 1996 and $24.6 for 1995.

 ............................................................................ 41

<PAGE> 29

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

Postretirement Benefits Other Than Pensions
 ...........................................

     The Company currently provides health care and life insurance benefits
for certain groups of retired employees who meet specified age and years of
service requirements. The Company also sponsors plans whereby certain
management employees may defer compensation in exchange for cash benefits after
retirement.

     The net periodic costs for postretirement benefits included the following
components for the year ended September 30:

<TABLE>
<CAPTION>
                                    1997                     1996                     1995
                            ---------------------    ---------------------    ---------------------
                            MEDICAL        OTHER     MEDICAL        OTHER     MEDICAL        OTHER
                            -------        ------    -------        ------    -------        ------
<S>                         <C>            <C>       <C>            <C>       <C>            <C>
Service cost.............    $  .5         $  2.5     $  .6         $  3.2     $ 1.0         $  3.5
Interest cost............      8.5           18.5       8.1           17.4      12.4           16.5
Net amortization.........     (1.6)           --       (1.8)           --        (.8)           --
                             -----         ------     -----         ------     -----         ------
                             $ 7.4         $ 21.0     $ 6.9         $ 20.6     $12.6         $ 20.0
                             =====         ======     =====         ======     =====         ======
</TABLE>

     The following table presents the status of the Company's postretirement
benefit plans at September 30:

<TABLE>
<CAPTION>
                                                                          1997                        1996
                                                                 ----------------------      ----------------------
                                                                 MEDICAL          OTHER      MEDICAL          OTHER
                                                                 -------          -----      -------          -----
<S>                                                              <C>              <C>        <C>              <C>
Accumulated benefit obligation
    Retirees................................................      $ 68.1          $201.8      $ 66.8          $154.1
    Fully eligible plan participants........................        31.0            28.3        33.5            57.8
    Other active plan participants..........................         7.2            30.0        10.1            28.8
                                                                  ------          ------      ------          ------
Accumulated benefit obligation..............................       106.3           260.1       110.4           240.7
Fair value of plan assets...................................         5.1             --          5.1             --
                                                                  ------          ------      ------          ------
Accumulated benefit obligation in excess of plan assets.....       101.2           260.1       105.3           240.7
Unrecognized experience gain (loss).........................        36.2           (23.1)       28.2           (12.4)
Unrecognized prior service gain.............................         8.8             --          9.4             --
                                                                  ------          ------      ------          ------
Accrued postretirement benefit liability....................       146.2           237.0       142.9           228.3
Less current portion........................................        (4.0)          (13.9)       (3.7)          (12.0)
                                                                  ------          ------      ------          ------
Non-current portion included in Other Liabilities...........      $142.2          $223.1      $139.2          $216.3
                                                                  ======          ======      ======          ======
</TABLE>

     The discount rate used in determining the information above was 7.9% in
1997 and 1996. The assumed health care cost trend rate for participants under
age 65 is 8% for 1998, declining 1% per year to 6% in 2000 and thereafter. For
participants age 65 and over, the trend rate is 6% in 1998 and thereafter.

     If the assumed health care cost trend rate increased by 1 percentage
point, the accumulated benefit obligation as of September 30, 1997 would
increase by approximately $11.5 and expense would increase by $1.3 annually.

     Coincident with the adoption of the ESOP in January of 1989, the Company
began phasing out its subsidy of medical benefits for future retirees. In
addition, retiree contributions are adjusted periodically and it is expected
that such adjustments will continue in the future.

Notes Payable
 .............

     Notes payable at September 30, 1997 and 1996 consisted of notes payable
to financial institutions and had a weighted average interest rate of 7% and 6%
at September 30, 1997 and 1996, respectively.

     At September 30, 1997, total unused lines of credit were $429.0.

42 ............................................................................

<PAGE> 30

R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
                                    (Dollars in millions except per share data)

Long-Term Debt
 ..............

     The detail of long-term debt as of September 30 follows:

<TABLE>
<CAPTION>
                                                                             1997         1996
                                                                             ----         ----
<S>                                                                        <C>          <C>
Debentures
    9 1/4% due 2009...................................................     $  181.0     $  181.0
    9.30% due 2021....................................................        200.0        200.0
    8 5/8% due 2022...................................................        250.0        250.0
    8 1/8% due 2023...................................................        175.0        175.0
    7 7/8% due 2025...................................................        225.0        225.0
    7 3/4% due 2015...................................................        175.0        175.0
Other Debt
    ESOP loan guarantee (through 1998)................................         63.8        110.6
    Medium-term Notes, 8.52% to 10.18%................................         49.4         84.5
    SAILS, 7%.........................................................        480.0          --
    LIBOR + 15 basis points, or 5.8375% at September 30, 1997.........         50.0          --
Industrial revenue bonds, 4.5% to 12.75%..............................         29.1         29.1
Other.................................................................         88.3        104.8
                                                                           --------     --------
                                                                            1,966.6      1,535.0
    Less current portion..............................................       (106.2)       (98.0)
                                                                           --------     --------
                                                                           $1,860.4     $1,437.0
                                                                           ========     ========
</TABLE>

     Aggregate maturities on all long-term debt, exclusive of debentures held
in treasury, are $41.8, $545.6, $6.6 and $11.5 for the years ending September
30, 1999 through 2002, respectively. These aggregate maturities do not include
the future maturities of the ESOP loan guarantee.

     To fund its purchase of the Company's Redeemable Preferred Stock, the
trust for the Company-sponsored ESOP borrowed $500.0 principal amount in
ten-year 8.25% notes (ESOP loan). The ESOP loan is unconditionally guaranteed
by the Company and is included in the Company's consolidated balance sheet as
long-term debt, along with corresponding unearned ESOP compensation. In
connection with the sale of CBC in 1995, approximately $56.7 of the ESOP loan
was assigned to the Company's Employee Stock Ownership Plan for Continental
Baking Company Employees (CBC ESOP) which utilized the proceeds of unallocated
Redeemable Preferred Stock held in that plan to prepay such portion of the ESOP
loan. Both the remaining long-term debt and the unearned ESOP compensation will
be reduced as employee and employer contributions to the ESOP are used to
reduce the outstanding ESOP loan. During 1997 and 1996, the ESOP incurred $8.2
and $12.2, respectively, of interest expense on the ESOP loan.

     In July 1997, the Company issued $480 of SAILS consisting of 7%
exchangeable notes due August 1, 2000. At maturity, the notes are mandatorily
exchangeable into a number of shares of IBC common stock owned by the Company
or, cash, at the Company's option. Approximately 7.7 million notes were issued.
Net proceeds of $466 from the transaction were primarily used to reduce
short-term debt. SAILS debt was initially recorded on the balance sheet at the
principal amount of the issuance. At each subsequent balance sheet date, the
SAILS are marked to the cash value of the underlying IBC shares for which the
SAILS may be exchanged. Any change in value is recorded in earnings each
period. At September 30, 1997, the Company's SAILS debt was $480.0, which
includes no change in the market value of the IBC common stock that is
exchangeable into SAILS. Effective November 3, 1997, IBC's stock split 2-for-1
which is not reflected in the aforementioned share amounts. (Please see the
"Investment in Interstate Bakeries Corporation Note" for more information on
SAILS.)

Redeemable Preferred Stock
 ..........................

     At September 30, 1997, the Company had 10,600,000 shares of $1 par value
preferred stock authorized, of which 4,600,000 shares were authorized as Series
A 6.75% Preferred Stock (Redeemable Preferred Stock). Redeemable Preferred
Stock has a guaranteed minimum value of $110.83 per share and is convertible
into the Company's $.10 par value RAL Stock at the ratio of 2.29 shares of RAL
Stock for each share of Redeemable Preferred Stock. The shares have a
preference in liquidation and each share has one voting right. Dividends are
cumulative, compounded and payable semi-annually. In accordance with financial
reporting requirements of the Securities and Exchange Commission, the
Redeemable Preferred Stock has been classified outside of permanent equity.

 ............................................................................ 43

<PAGE> 31

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ..............................................................................
                                    (Dollars in millions except per share data)

     Approximately 168,573 shares of its Redeemable Preferred Stock in 1997 and
227,000 shares in 1996 were redeemed or converted to meet ongoing share
redemption requirements of the ESOP. In addition, as a result of the 1995 sale
of CBC, 1,012,503 shares of Redeemable Preferred Stock were converted into
shares of RAL Stock. Following the above described redemptions and conversions,
2,750,636 shares of Redeemable Preferred Stock remained issued and outstanding
and continued to be held by the ESOP at September 30, 1997. Of these shares,
approximately 2,174,600 shares have been allocated to participant accounts at
September 30, 1997.

     Redeemable Preferred Stock shares are held, on behalf of the ESOP, by the
ESOP's trustee and are allocated to individual participants' accounts based on
the amount of employee and employer matching contributions to the ESOP.
Dividends on unallocated Redeemable Preferred Stock are used to fund the debt
service requirements of the ESOP. The trustee, as holder of Redeemable
Preferred Stock, may convert its shares into RAL Stock at any time, or may
require the Company to redeem the Redeemable Preferred Stock shares, under
certain limited circumstances, at the guaranteed minimum value, in cash or in
shares of RAL Stock. The Company may elect to redeem the Redeemable Preferred
Stock, under limited circumstances, in cash or in shares of RAL Stock.

Shareholders Equity
 ...................

     From July 30, 1993 through May 15, 1995, the Company had two classes of
common stock, RAL Stock and CBG Stock. The CBG Stock was intended to reflect
the performance of the CBG Group, which consisted of the Company's bakery
products business. The RAL Stock was intended to reflect the performance of the
RPG Group, which consisted of the Company's other businesses.

     On May 15, 1995, the Company exchanged each outstanding share of CBG Stock
for .0886 shares of RAL Stock, now the Company's sole outstanding class of
common stock. The exchange represented a 15% premium to the relative trading
values of the CBG Stock and the RAL Stock for the period March 31 through April
6, 1995, as provided in the Company's Articles.

     On February 1, 1996, shareholders approved the amendment of the Company's
Restated Articles of Incorporation to reduce the number of authorized shares of
common stock from 730,600,000 to 610,600,000 (reflecting the elimination of the
authorization to issue 120,000,000 shares of CBG Stock), redesignate the
Company's Ralston-Ralston Purina Group Common Stock as Ralston Purina Common
Stock, and eliminate various provisions relating to CBG Stock. The amendments
did not change the voting power or other rights of holders of RAL Stock nor the
rights of the Company with respect to the outstanding RAL Stock.

     On March 28, 1996, the Board of Directors declared a dividend distribution
of one share purchase right ("Right") for each outstanding share of RAL
Stock. The Rights were intended to replace the previously issued share purchase
rights which were initially distributed in January of 1986 and which expired on
March 28, 1996.

     Each Right entitles a shareholder of RAL Stock to purchase an additional
share of RAL Stock at an exercise price of $200 per share, subject to
antidilution adjustments. The Rights, however, only become exercisable at the
time a person or group acquires, or commences a public tender for, shares of
RAL Stock representing 20% or more of the RAL Stock then outstanding (except
pursuant to a tender or exchange offer which is for all outstanding shares of
RAL Stock at a price and on terms which a majority of the Board of Directors
determines to be adequate and in the best interests of shareholders). If an
acquiring person or group acquires shares representing 20% or more of the RAL
Stock then outstanding, the exercise price will be further adjusted so that a
holder of a Right (other than the acquiring person or group) may purchase a
share of RAL Stock at one-third of its then market price. In the event that the
Company merges with, or transfers 50% or more of its assets or earnings power
to, any person or group after the Rights become exercisable, holders of Rights
may purchase, at the exercise price, common stock of the acquiring entity
having a value equal to twice the exercise price. The Rights can be redeemed by
the Board of Directors at $.01 per Right, only up to the date a person or group
acquires shares representing 20% or more of the RAL Stock then outstanding.
Also, following the acquisition by a person or group of beneficial ownership of
shares representing 20% but less than 50% of the RAL Stock then outstanding,
the Board may exchange each Right for one share of RAL Stock. The terms of the
Rights may be amended by the Board of Directors at any time prior to the
acquisition by a person or group of beneficial ownership of shares representing
20% of the RAL Stock then outstanding, including an amendment to lower such
threshold to not less than the greater of (i) any percentage greater than the
largest percentage then held by any shareholder, or (ii) 10%. The Rights expire
on March 28, 2006. At September 30, 1997, 122,925,172 shares of RAL Stock have
been reserved for issuance upon exercise of the Rights.

     At September 30, 1997, there were 6,298,956 shares of RAL Stock reserved
for conversion of Redeemable Preferred Stock, 13,637 shares of RAL Stock
reserved for conversion of the 5 3/4% subordinated debentures and 10,034,320
shares of RAL Stock reserved under various employee incentive compensation and
benefit plans.

Grantor Trust
 .............

     On September 15, 1994, the Company established the Ralston Purina Company
Grantor Trust (the Trust) to provide a source of funds to assist the Company in
meeting its obligations under various employee benefit plans and programs. The
Trust supports certain employee benefit plans and does not change those plans
or the amounts of stock expected to be issued for those plans. However, payment
of certain benefits would be accelerated if minimum funding requirements of the
Trust are not met.

44 ............................................................................

<PAGE> 32

R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
                                    (Dollars in millions except per share data)

     For financial reporting purposes, the Trust is consolidated with the
Company. The fair market value of the shares held by the Trust is shown as a
reduction to shareholders equity. Any dividend transactions between the Company
and the Trust are eliminated, and the difference between the fair value of the
shares on the date of contribution to the Trust, plus the fair value of shares
on the date of purchase by the Trust, and the fair value of the shares at
September 30 is included in consolidated additional paid-in capital. RAL Stock
held in the Trust is not considered outstanding in the computation of earnings
per share. The Trust held 4,307,214 and 4,228,314 shares of RAL Stock at a fair
market value of $381.2 and $289.6 at September 30, 1997 and 1996, respectively.

     The Trustee, an independent party, is responsible for voting the shares of
RAL Stock held in the Trust.

Commitments and Contingencies
 .............................

Legal and Environmental Matters -- The Company is a party to a number of legal
proceedings in various state, federal and foreign jurisdictions. These
proceedings are in varying stages and many may proceed for protracted periods
of time. Some proceedings involve highly complex questions of fact and law.

     The operations of the Company, like those of other companies engaged in
similar businesses, are subject to various federal, state, and local laws and
regulations intended to protect the public health and the environment,
including regulations related to air and water quality, underground fuel
storage tanks and waste handling and disposal. The Company has received notices
from the U.S. Environmental Protection Agency, state agencies, and/or private
parties seeking contribution, that it has been identified as a "potentially
responsible party" (PRP), under the Comprehensive Environmental Response,
Compensation and Liability Act, and may be required to share in the cost of
cleanup with respect to 14 "Superfund" sites. The Company's ultimate
liability in connection with those sites may depend on many factors, including
the volume of material contributed to the site, the number of other PRP's and
their financial viability, and the remediation methods and technology to be
used.

     In the opinion of management, based on the information presently known,
the ultimate liability for all such matters, together with the liability for
all other pending legal proceedings, asserted legal claims and known potential
legal claims which are probable of assertion, taking into account established
accruals of $10.4 for estimated liabilities, should not be material to the
financial position of the Company, but could be material to results of
operations or cash flows for a particular quarter or annual period.

Other Commitments -- At September 30, 1997, the Company had third party
guarantees outstanding in the aggregate amount of approximately $86.1. These
guarantees relate primarily to workers compensation claims associated with CBC
prior to the sale, and revenue bonds for various facilities.

     Future minimum rental commitments under noncancellable operating leases in
effect as of September 30, 1997 were: 1998--$9.8, 1999--$8.8, 2000--$6.4,
2001--$4.6, 2002--$3.9 and thereafter--$20.4.

     Total rental expense for all operating leases was $36.7 in 1997, $38.7 in
1996 and $59.9 in 1995, of which $20.1 in 1995 related to CBC operations.

Financial Instruments and Risk Management
 .........................................

Foreign Currency Contracts -- The Company enters into foreign exchange forward
contracts and options to mitigate the Company's economic exposure to changes in
exchange rates. The Company views these exposures as arising from three major
areas: (a) non-U.S. dollar cash flows to the U.S. from foreign subsidiaries
expected within a year or less, (b) cash flows to a foreign country in a
currency other than the subsidiary's functional currency, and (c) future cash
flows at the operating margin level. The level of such actions is dependent on
seasonality of the Company's activities and on specific market conditions
involving various currencies.

 ............................................................................ 45

<PAGE> 33

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

     The tables below summarize by instrument and by major currency the
contractual amounts of the Company's forward exchange contracts and purchased
currency options in U.S. dollar equivalents at year end. These contractual
amounts represent transaction volume outstanding, and do not represent the
amount of the Company's exposure to credit or market loss. Foreign currency
contracts are generally for one year or less.

<TABLE>
<CAPTION>
INSTRUMENT                                                        1997             1996
                                                                  ----             ----
<S>                                                              <C>              <C>
    Forwards................................................     $330.4           $293.0
    Options.................................................       19.6             11.5
CURRENCY
    French franc............................................      101.3            156.8
    Swiss franc.............................................       93.0             70.4
    British pound...........................................       55.3              7.2
    Belgian franc...........................................       26.1              8.0
    German mark.............................................       21.8             15.9
    Indonesian rupiah.......................................       13.5             10.5
    Other currencies........................................       39.0             35.7
</TABLE>

Interest Rate Swap Agreements -- The Company utilizes interest rate swap
agreements to reduce exposure to changes in interest rates and manage the mix
of fixed and variable rate debt. The swaps mature in fiscal 1998.

     The Company had $33.7 and $41.6 notional amount of interest rate swap
agreements outstanding at September 30, 1997 and 1996, respectively. The
underlying debt of these swaps is included in Notes Payable. These agreements
effectively convert Swiss franc variable rate debt into fixed rate debt and had
a weighted average pay rate of 4.2% in 1997 and 1996.

Concentration of Credit Risk -- The counterparties to foreign currency
contracts and interest rate swap agreements consist of a number of major
international financial institutions and are generally institutions with which
the Company maintains lines of credit. The Company does not enter into foreign
exchange contracts through brokers nor does it trade foreign exchange contracts
on any other exchange or over the counter markets. Risk of currency positions
and mark-to-market valuation of positions are strictly monitored at all times.
The Company continually monitors the credit ratings of its counterparties both
internally and by using outside rating agencies. The Company has implemented
policies which limit the amount of agreements it enters into with any one
party. While nonperformance by these counterparties exposes the Company to
potential credit losses, such losses are not anticipated due to the control
features mentioned.

     Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers, generally short payment terms and
their dispersion across geographic areas.

Fair Value of Financial Instruments -- The Company's financial instruments
include cash and cash equivalents, short- and long-term debt, Redeemable
Preferred Stock, foreign currency contracts and interest rate swap agreements.
As of September 30, 1997 and 1996, the fair value of debt was $2,535.3 and
$2,512.4, respectively, compared to its carrying value of $2,306.9 and
$2,416.9, respectively. The fair value of the Company's long-term debt has been
estimated using quoted market prices and yields obtained through independent
pricing sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt, such as the coupon rate,
term to maturity, tax impact to investors and imbedded call options.

     Redeemable Preferred Stock had a fair value of $557.5 and $457.9 at
September 30, 1997 and 1996, respectively, compared to its carrying value of
$304.9 and $323.5, respectively. The fair value is based upon the greater of
the fair market value of RAL Stock into which the Redeemable Preferred Stock
may be converted or the guaranteed minimum value.

     Due to the nature of cash equivalents and short-term borrowings, including
current notes payable, carrying amounts on the balance sheet approximate fair
value.

     The fair value of foreign currency contracts and interest rate management
agreements is the amount that the Company would receive or pay to terminate the
specific agreements, considering first, quoted market prices of comparable
agreements, or in the absence of quoted market prices, such factors as interest
rates, currency exchange rates and remaining maturities. Based on these
considerations, the calculated fair values of foreign currency contracts and
interest rate management agreements outstanding at September 30, 1997 and 1996
were not material.

46 ............................................................................

<PAGE> 34

R A L S T O N  P U R I N A  C O M P A N Y

 ...............................................................................
                                    (Dollars in millions except per share data)

Other Income and Expense
 ........................

      Other (income)/expense, net consists of the following:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED SEPTEMBER 30,
                                                                       --------------------------------------
                                                                       1997             1996             1995
                                                                       ----             ----             ----
<S>                                                                   <C>              <C>              <C>
Translation and exchange loss....................................      $ 6.0            $12.4            $11.1
Investment income................................................       (4.3)            (4.2)            (3.8)
Return on other investments......................................       (8.3)            (1.7)            (9.0)
Miscellaneous (income)/expense...................................       (1.1)             2.6             (1.1)
                                                                       -----            -----            -----
                                                                       $(7.7)           $ 9.1            $(2.8)
                                                                       =====            =====            =====
</TABLE>

Supplemental Balance Sheet Information
 ......................................

<TABLE>
<CAPTION>
                                                                                             SEPTEMBER 30,
                                                                                        -----------------------
                                                                                        1997               1996
                                                                                        ----               ----
<S>                                                                                   <C>                <C>
Receivables (current)--
    Trade.......................................................................      $  635.8           $  638.3
    Notes and other.............................................................          64.2               50.6
    Allowance for doubtful accounts.............................................         (24.8)             (26.7)
                                                                                      --------           --------
                                                                                      $  675.2           $  662.2
                                                                                      ========           ========
Inventories--
    Raw materials and supplies..................................................      $  119.7           $  123.4
    Work in process.............................................................         115.8              123.6
    Finished products...........................................................         369.3              381.2
                                                                                      --------           --------
                                                                                      $  604.8           $  628.2
                                                                                      ========           ========
Other Current Assets--
    Prepaid expenses............................................................      $   54.7           $   63.6
    Deferred income tax benefits................................................          61.7               56.4
                                                                                      --------           --------
                                                                                      $  116.4           $  120.0
                                                                                      ========           ========
Investments and Other Assets--
    Goodwill (net of accumulated amortization: 1997--$111.3 and 1996--$95.7)....      $  446.5           $  478.3
    Other intangible assets (net of accumulated amortization: 1997--$332.9 and
     1996--$309.5)..............................................................         236.4              259.4
    Equity investments in affiliated companies..................................         299.9              295.2
    Deferred charges and other assets...........................................         547.5              379.4
                                                                                      --------           --------
                                                                                      $1,530.3           $1,412.3
                                                                                      ========           ========
Accounts Payable and Accrued Liabilities--
    Trade accounts payable......................................................      $  264.0           $  293.5
    Incentive compensation, salaries and vacations..............................          63.3               94.6
    Accrued interest............................................................          42.9               39.9
    Restructuring reserves......................................................          66.3               22.4
    Other.......................................................................         268.5              210.6
                                                                                      --------           --------
                                                                                      $  705.0           $  661.0
                                                                                      ========           ========
Other Liabilities--
    Postretirement medical benefits.............................................      $  142.2           $  139.2
    Other postretirement benefits...............................................         223.1              216.3
    Minority interests..........................................................           6.5                9.4
    Other.......................................................................         135.6              116.2
                                                                                      --------           --------
                                                                                      $  507.4           $  481.1
                                                                                      ========           ========
</TABLE>

 ............................................................................ 47

<PAGE> 35

R A L S T O N  P U R I N A  C O M P A N Y

Notes to Financial Statements (continued)
 ...............................................................................
                                    (Dollars in millions except per share data)

Supplemental Cash Flow Statement Information
 ............................................

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED SEPTEMBER 30,
                                                                             ------------------------------------------
                                                                             1997               1996               1995
                                                                             ----               ----               ----
<S>                                                                         <C>                <C>                <C>

Interest paid.........................................................      $154.2             $166.7             $182.4

Income taxes paid.....................................................       166.7              168.9              183.0
</TABLE>

Allowance for Doubtful Accounts
 ...............................

<TABLE>
<CAPTION>
                                                                            1997              1996               1995
                                                                            ----              ----               ----
<S>                                                                         <C>               <C>                <C>

Balance, beginning of year............................................      $26.7             $25.5              $24.7

Provision charged to expense..........................................        3.1               6.2                7.1

Writeoffs, less recoveries............................................       (5.0)             (5.0)              (6.3)
                                                                            -----             -----              -----

Balance, end of year..................................................      $24.8             $26.7              $25.5
                                                                            =====             =====              =====
</TABLE>

48 ............................................................................

<PAGE> 36

R A L S T O N  P U R I N A  C O M P A N Y

<TABLE>
Quarterly Financial Information
 ....................................................................................................................................

                                                            (UNAUDITED)
                                            (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)

<CAPTION>
FISCAL 1997                                           FIRST             SECOND           THIRD<Fa>         FOURTH<Fa>
-----------                                           -----             ------           ---------         ----------
<S>                                                  <C>               <C>               <C>               <C>
Net sales.........................................   $1,260.5          $1,048.4          $1,041.8          $1,136.1
Gross profit......................................      615.1             518.0             518.1             553.7
Earnings from continuing operations...............      114.3              59.0              80.2              95.4
Earnings from discontinued operations.............       23.1              17.7              20.5              13.5
Net earnings......................................      137.4              76.7             100.7             108.9
Earnings per share of RAL Stock
    Primary
        Earnings from continuing operations.......       1.09               .55               .76               .90
        Earnings from discontinued operations.....        .23               .17               .20               .13
        Net earnings..............................       1.32               .72               .96              1.03
    Fully diluted
        Earnings from continuing operations.......       1.02               .53               .73               .87
        Earnings from discontinued operations.....        .21               .16               .18               .12
        Net earnings..............................       1.23               .69               .91               .99
    Dividends paid per share......................        .30               .30               .30               .30
Market price range of RAL Stock.........                   78-               87 3/8-           87 1/4-           94 5/16-
                                                           65 1/2            71 1/8            74 3/4            80 1/16

<FN>

<Fa>   Earnings from continuing operations and earnings per share in 1997 were reduced due to provisions for restructuring and
       increased due to income tax benefits on income tax claims and a gain on the sale of IBC stock by the following amounts:

<CAPTION>
                                                       EARNINGS FROM
                                                        CONTINUING      PRIMARY       FULLY
                                                        OPERATIONS        EPS      DILUTED EPS
                                                       -------------    -------    -----------
<S>                                                        <C>
Third Quarter
    Restructuring.................................         $29.1         $(.28)      $(.27)
    Income tax benefits...........................          34.7           .34         .32
Fourth Quarter
    Restructuring.................................           7.2         $(.07)      $(.06)
    Gain on sale of stock.........................          15.1           .15         .14

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

FISCAL 1996                                            FIRST             SECOND           THIRD            FOURTH<Fa>
-----------                                            -----             ------           -----            ----------
<S>                                                  <C>                 <C>             <C>                <C>
Net sales.........................................   $1,217.6            $993.9          $1,001.7           $1,088.7
Gross profit......................................      608.3             480.4             483.7              523.5
Earnings from continuing operations before
  extraordinary item..............................      110.4              43.7              67.0               75.3
Earnings from discontinued operations.............       18.1              15.4              17.3               14.5
Net earnings......................................      128.5              59.1              82.2               89.8
Earnings per share of RAL Stock
    Primary
        Earnings from continuing operations before
          extraordinary item......................       1.05               .40               .62                .71
        Earnings from discontinued operations.....        .18               .15               .17                .14
        Net earnings..............................       1.23               .55               .77                .85
    Fully diluted
        Earnings from continuing operations before
          extraordinary item......................        .99               .38               .60                .67
        Earnings from discontinued operations.....        .16               .14               .15                .13
        Net earnings..............................       1.15               .52               .73                .80
    Dividends paid per share......................        .30               .30               .30                .30
Market price range of RAL Stock.........                   67-               69-               67 3/4-            68 7/8-
                                                           57 1/4            57 7/8            56                 57 3/4

<FN>

<Fa>   Earnings from continuing operations before the extraordinary item in the fourth quarter were reduced by $11.0 or $.11 and
       $.10 per primary and fully diluted share, respectively, due to restructuring charges.
</TABLE>

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