SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended December 31, 1993
_ Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 36-1655315
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower
P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file for such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES XX NO _____
The number of shares of Common Stock, $5.00 par value, outstanding as
of the close of business on January 31, 1994, was 66,946,126.
PAGE 2
THE QUAKER OATS COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Six and Three Months
Ended December 31, 1993 and 1992 3-4
Condensed Consolidated Balance Sheets as of
December 31, 1993 and June 30, 1993 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
December 31, 1993 and 1992 6
Net Sales and Operating Income by Segment for the
Six and Three Months Ended December 31, 1993 and 1992 7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-13
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote
of Security-Holders 14
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX
EXHIBIT 11
PAGE 3
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
<CAPTION>
Dollars in Millions
(Except Per
Share Data)
Six Months Ended
December 31
1993 1992
<S> <C> <C>
Net sales $2,888.2 $2,826.9
Cost of goods sold 1,421.6 1,418.0
Gross profit 1,466.6 1,408.9
Selling, general and administrative expenses 1,176.6 1,136.5
Interest expense - net 36.7 33.2
Other expense - net 30.0 43.3
Income before income taxes and cumulative effect of
accounting changes 223.3 195.9
Provision for income taxes 89.1 79.5
Income before cumulative effect of accounting changes 134.2 116.4
Cumulative effect of accounting changes - net of tax -- (115.5)
Net income 134.2 0.9
Preferred dividends - net of tax 2.0 2.1
Net Income Available for Common $ 132.2 $ (1.2)
Per Common Share:
Income before cumulative effect of accounting changes $ 1.94 $ 1.58
Cumulative effect of accounting changes -- (1.59)
Net income $ 1.94 $ (0.01)
Dividends declared $ 1.06 $ 0.96
Average Number of Common Shares
Outstanding (in thousands) 68,216 72,418
Reinvested Earnings:
Balance beginning of period $1,190.1 $1,162.3
Net income 134.2 0.9
Dividends (72.5) (70.5)
Common stock issued for stock purchase and incentive
plans (1.5) (1.5)
Balance end of period $1,250.3 $1,091.2
<FN>
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
PAGE 4
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
<CAPTION>
Dollars in Millions
(Except Per
Share Data)
Three Months Ended
December 31
1993 1992
<S> <C> <C>
Net sales $1,353.9 $1,332.7
Cost of goods sold 672.0 677.5
Gross profit 681.9 655.2
Selling, general and administrative expenses 576.6 553.8
Interest expense - net 22.4 15.3
Other expense (income) - net 12.5 (5.9)
Income before income taxes 70.4 92.0
Provision for income taxes 27.6 35.8
Net income 42.8 56.2
Preferred dividends - net of tax 1.0 1.0
Net Income Available for Common $ 41.8 $ 55.2
Per Common Share:
Net Income $ 0.63 $ 0.77
Dividends Declared $ 0.53 $ 0.48
Average Number of Common Shares
Outstanding (in thousands) 67,409 72,028
Reinvested Earnings:
Balance beginning of period $1,244.8 $1,071.2
Net income 42.8 56.2
Dividends (36.0) (34.7)
Common stock issued for stock purchase and incentive
plans (1.3) (1.5)
Balance end of period $1,250.3 $1,091.2
<FN>
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
PAGE 5
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
Dollars in Millions December 31 June 30
Assets 1993 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 75.7 $ 61.0
Trade accounts receivable - net of allowances 395.6 478.9
Inventories:
Finished goods 216.7 241.5
Grains and raw materials 69.9 73.1
Packaging materials and supplies 35.2 39.4
Total inventories 321.8 354.0
Other current assets 198.1 173.7
Total Current Assets 991.2 1,067.6
Other Receivables and Investments 86.2 88.8
Property, plant and equipment 2,100.4 2,059.2
Less accumulated depreciation 878.4 831.0
Property - Net 1,222.0 1,228.2
Intangible Assets - Net of Amortization 505.8 431.3
Total Assets $2,805.2 $2,815.9
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 285.0 $ 128.0
Current portion of long-term debt 53.9 48.9
Trade accounts payable 317.8 391.6
Other current liabilities 423.9 536.6
Total Current Liabilities 1,080.6 1,105.1
Long-term Debt 708.4 632.6
Other Liabilities 469.4 426.2
Deferred Income Taxes 96.3 89.5
Preferred Stock, no par value, authorized
1,750,000 shares; issued 1,282,051 of
$5.46 cumulative convertible shares
(liquidating preference $78 per share) 100.0 100.0
Deferred Compensation (83.5) (85.9)
Treasury Preferred Stock, at cost, 41,897 shares and
34,447 shares, respectively (3.4) (2.7)
Common Shareholders' Equity:
Common stock, $5 par value, authorized
200,000,000 shares; issued 83,989,396 shares 420.0 420.0
Reinvested earnings 1,250.3 1,190.1
Cumulative translation adjustment (68.9) (65.4)
Deferred compensation (144.4) (154.0)
Treasury common stock, at cost, 17,083,563
shares and 14,533,157 shares, respectively (1,019.6) (839.6)
Total Common Shareholders' Equity 437.4 551.1
Total Liabilities and Shareholders' Equity $2,805.2 $2,815.9
<FN>
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
PAGE 6
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Dollars in Millions
Six Months Ended
December 31
1993 1992
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $134.2 $ 0.9
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes -- 115.5
Depreciation and amortization 88.8 78.7
Deferred income taxes and other items 8.4 (21.1)
Restructuring charges and gains on divestitures - net -- 30.9
Loss on disposition of property and equipment 6.8 4.8
Decrease in trade accounts receivable 45.0 105.0
Decrease in inventories 18.8 41.6
(Increase) in other current assets (29.2) (47.8)
(Decrease) in trade accounts payable (53.4) (65.9)
(Decrease) in other current liabilities (91.9) (62.6)
Change in deferred compensation 12.0 8.4
Other items 49.2 51.9
Net Cash Provided by Operating Activities 188.7 240.3
Cash Flows from Investing Activities:
Additions to property, plant and equipment (75.9) (84.7)
Change in other receivables and investments (5.3) (8.2)
Purchase and sale of property and businesses - net (89.6) 25.8
Net Cash Used in Investing Activities (170.8) (67.1)
Cash Flows from Financing Activities:
Cash dividends (72.5) (70.5)
Increase in short-term debt 157.0 8.2
Proceeds from long-term debt 145.0 --
Reduction of long-term debt (63.6) (36.4)
Issuance of common treasury stock 5.0 9.7
Repurchases of common stock (192.7) (107.0)
Repurchases of preferred stock (0.7) (0.6)
Net Cash Used in Financing Activities (22.5) (196.6)
Effect of Exchange Rate Changes on Cash and Cash
Equivalents 19.3 10.0
Net Increase (Decrease) in Cash and Cash Equivalents 14.7 (13.4)
Cash and Cash Equivalents - Beginning of Year 61.0 95.2
Cash and Cash Equivalents - End of Quarter $ 75.7 $ 81.8
<FN>
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
PAGE 7
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
<CAPTION>
Dollars in Millions
Net Sales Operating Income
Six Months Six Months
Ended Ended
December 31 December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $2,053.3 $1,893.2 $246.2 $186.1
International
Grocery Products 834.9 933.7 45.6 59.5
Total Sales/
Operating Income $2,888.2 $2,826.9 $291.8 $245.6
Less: General corporate expenses 17.7 13.9
Interest expense - net 36.7 33.2
Foreign exchange loss - net 14.1 2.6
Income before income taxes and
cumulative effect of accounting changes $223.3 $195.9
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31 December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $ 925.3 $ 869.7 $ 84.6 $ 76.6
International
Grocery Products 428.6 463.0 25.1 39.5
Total Sales/
Operating Income $1,353.9 $1,332.7 $109.7 $116.1
Less: General corporate expenses 10.4 9.1
Interest expense - net 22.4 15.3
Foreign exchange loss (gain) - net 6.5 (0.3)
Income before income taxes $ 70.4 $ 92.0
</TABLE>
PAGE 8
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1993
Note 1 - Basis of Presentation
The condensed consolidated financial statements include The Quaker Oats
Company and its subsidiaries (the "Company"). The condensed consolidated
statements of income and reinvested earnings for the six and three-month
periods ended December 31, 1993 and 1992, the condensed consolidated
balance sheet as of December 31, 1993, and the condensed consolidated
statements of cash flows for the six-month periods ended December 31, 1993
and 1992, have been prepared by the Company without audit. In the opinion
of management, these financial statements include all adjustments necessary
to present fairly the financial position, results of operations and cash
flows as of December 31, 1993 and for all periods presented. All adjustments
made have been of a normal recurring nature, except for as described below.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures included are adequate and provide a fair presentation of interim
period results. Interim financial statements are not necessarily indicative
of the financial position or operating results for an entire year. It is
suggested that these interim financial statements be read in conjunction
with the audited financial statements and the notes thereto included in the
Company's annual report to shareholders for the fiscal year ended June 30,
1993.
The condensed consolidated interim financial statements as of December 31,
1992, and for the six-month period then ended, have been restated for the
adoption, retroactive to July 1, 1992, of Financial Accounting Standards
Board (FASB) Statement #106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and Statement #109, "Accounting for Income
Taxes." The combined cumulative effect of adoption was an after-tax charge
of $115.5 million. The incremental effect of adopting FASB Statement #106
on December 31, 1992 six-month operating results was a pretax charge of
$7.4 million ($4.6 million after-tax or $.06 per share). Excluding the
cumulative effect, the adoption of FASB Statement #109 had no material
effect on results.
Certain previously reported amounts have been reclassified to conform to the
current presentation.
Note 2 - Litigation
On December 18, 1990, Judge Prentice H. Marshall of the United States
District Court for the Northern District of Illinois issued a memorandum
opinion stating that the Court would enter judgment against the Company
in favor of Sands, Taylor & Wood Co. The Court found that the use of the
words "thirst aid" in advertising Gatorade thirst quencher infringed the
Plaintiff's rights in the trademark THIRST-AID. On July 9, 1991, Judge
Marshall entered a judgment of $42.6 million, composed of $31.4 million
in principal, plus prejudgment interest of $10.6 million and fees, expenses
and costs of $0.6 million. The order enjoined use of the phrase "THIRST-AID"
in connection with the advertising or sale of Gatorade thirst quencher in the
United States. The Company subsequently appealed the judgment. On
September 2, 1992, the Court of Appeals for the Seventh Circuit vacated
the monetary award component of the District Court's judgment. The appellate
court affirmed the finding of infringement, but found that the monetary award
was an inequitable "windfall" to the Plaintiff. The case was remanded to the
District Court for further proceedings. The Company filed a request for
rehearing that was denied. The Company also filed a Petition for Certiorari
with the U.S. Supreme Court that was denied. On June 7, 1993, Judge
Marshall issued a judgment on remand of $26.5 million, composed of $20.7
million in principal, prejudgment interest of $5.4 million and fees, expenses
and costs of $0.4 million. The Company has appealed this judgment to the
Court of Appeals for the Seventh Circuit. The case will be argued on
February 24, 1994. Management, with advice from outside legal counsel,
has determined that the amount of liability that might ultimately exist in
this case will not be material.
PAGE 9
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1993
The Company is not a party to any pending legal proceedings that it believes
will have a material adverse effect on its financial position or results of
operations.
Note 3 - Other Expense
Included in other expense in fiscal 1993 was a $38.6 million restructuring
charge for the consolidation of production facilities at a U.S. pet foods
plant, a $17.4 million gain on the sale of two businesses in Italy and a
$9.7 million charge for cost reduction programs in Europe.
Note 4 - Acquisition
In August 1993, the Company purchased the Near East flavored rice business.
Pro forma information was not included because the effect of the acquisition
on current-year results was not material.
Note 5 - Long-term Debt and Financing Arrangements
During the first half of fiscal 1994, the Company issued $145.0 million of
medium-term notes. The medium-term notes were issued pursuant to an
August 1993 prospectus supplement filing with the Securities and Exchange
Commission for the intended issuance of $200.0 million of medium-term
notes, under a shelf registration covering $600.0 million of debt securities
filed with the Commission in fiscal 1990. In addition, in November 1993,
the Company replaced its then-existing revolving credit facilities with
$350.0 million of new revolving credit financing.
PAGE 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1993
Compared with Six Months Ended December 31, 1992
Consolidated net sales for the first six months of fiscal 1994 were $2.89
billion, up 2 percent from the first six months of fiscal 1993. Volumes
increased 4 percent versus the prior year. The increase in net sales
resulted from new product introductions and product mix improvements,
significantly offset by negative currency changes. Price increases had a
lesser effect on the net sales increase.
U.S. and Canadian Grocery Products sales increased 8 percent to $2.05
billion and volumes were up 6 percent. The increases were related primarily
to Gatorade thirst quencher and ready-to-eat cereals partly offset by
decreases in Food Service. International Grocery Products sales decreased
11 percent to $834.9 million, reflecting weaker European currencies in
relation to the U.S. dollar. Excluding the effect of European currency
changes, sales for the first six months of fiscal 1994 would have been $111.8
million higher than the reported amount. Volumes increased 1 percent as
increases in Gatorade thirst quencher in Latin America were mostly offset
by decreases in pet foods in Europe.
Gross profit margins increased to 50.8 percent from 49.8 percent in the prior
year primarily due to product mix improvement and, to a lesser extent, price
increases. Although commodity costs have increased, the increases have been
offset by cost containment initiatives. Selling, general and administrative
(SG&A) expenses rose 4 percent to $1.18 billion and increased slightly as
a percentage of sales, mainly due to increases in advertising and
merchandising (A&M) expenses. A&M expenses were 27 percent of sales,
slightly higher than in the prior year. Cost of goods sold and SG&A expenses
for the first six months of fiscal 1993 were restated by $4.0 million and
$3.4 million, respectively, for the adoption, retroactive to July 1, 1992,
of FASB Statement #106.
Consolidated operating income was $291.8 million in the first six months of
fiscal 1994 compared to $245.6 million in the first six months of fiscal
1993. U.S. and Canadian Grocery Products operating income was $246.2
million compared to $186.1 million last year. Fiscal 1993 operating income
included a $38.6 million restructuring charge for the consolidation of
production facilities at a U.S. pet foods plant. Excluding the restructuring
charge, U.S. and Canadian Grocery Products operating income increased
$21.5 million, or 10 percent, due primarily to volume increases in Gatorade
thirst quencher partly offset by volume decreases in Food Service.
International Grocery Products operating income decreased to $45.6 million
from $59.5 million last year. Fiscal 1993 operating income included a $17.4
million gain on the sale of two businesses in Italy and a $9.7 million charge
for cost reduction programs in Europe. Excluding these items, operating
income decreased $6.2 million, or 12 percent. The decrease was mainly a
result of lower pet food volumes in Europe, reflecting the continuing weak
European economy and the retail trade's tight management of inventories.
The Company continues to focus on supply chain and other worldwide
efficiency initiatives in order to meet the competitive needs of the business
environment. In the pursuit of greater shareholder value, these continuous
improvement initiatives could lead to future charges.
Gatorade thirst quencher continues to represent one of the Company's key
profitable growth opportunities. The attractiveness of the category has drawn
a number of competitors.
PAGE 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest expense of $36.7 million increased $3.5 million from the prior
year stemming primarily from the issuance of $145.0 million of medium-term
notes and increased commercial paper borrowings in the U.S. Foreign exchange
losses increased to $14.1 million from $2.6 million last year. The change
resulted primarily from higher foreign currency losses in Brazil, where
devaluation of the local currency continued to accelerate, and lower foreign
exchange hedge gains in Europe. Changes in the net financing costs for
Brazil were partially offset by higher operating income in that country.
Through various hedging strategies, the Company will continue to attempt to
mitigate the effects of foreign exchange fluctuations on its financial
results, except in areas like Brazil where hedging opportunities are limited
and costly.
The effective tax rate for the first six months of fiscal 1994 was 39.9
percent compared to 40.6 percent in the first six months of fiscal 1993.
Excluding the tax effect of the pet foods restructuring charge, the prior
year's effective tax rate was 38.8 percent. The higher U.S. corporate
statutory tax rate and a retroactive adjustment to January 1, 1993, required
by the new tax legislation, caused the increase in the fiscal 1994 effective
rate. The Company has evaluated its deferred tax assets and believes future
taxable income will be sufficient to realize these assets. For those
deferred tax assets that are not expected to be realized under the `more
likely than not' criteria of FASB Statement #109, a valuation allowance has
been provided.
Net income for the first six months of fiscal 1994 was $134.2 million versus
$0.9 million last year, which included a charge of $115.5 million for the
after-tax cumulative effect of adopting both FASB Statement #106 and
Statement #109.
Three Months Ended December 31, 1993
Compared with Three Months Ended December 31, 1992
Consolidated net sales for the second quarter of fiscal 1994 were $1.35
billion, up 2 percent from the prior year. Volumes increased 1 percent
compared to 1993. The increase in net sales resulted from new product
introductions and product mix improvements, significantly offset by negative
currency changes. Price increases had a lesser effect on the net sales
increase.
U.S. and Canadian Grocery Products sales increased 6 percent to $925.3
million and volumes increased 3 percent, primarily due to increases in
Gatorade thirst quencher, ready-to-eat cereals, Van Camp's bean products,
Golden Grain rice and pasta products, and Aunt Jemima mixes and syrups,
partially reduced by decreases in Food Service. International Grocery
Products sales decreased 7 percent to $428.6 million, reflecting weaker
European currencies in relation to the U.S. dollar. Volumes decreased 2
percent, as increases in Gatorade thirst quencher in Latin America were
more than offset by lower pet food volumes in Europe.
Gross profit margins for the quarter increased to 50.4 percent from 49.2
percent in the prior year primarily due to product mix improvement.
SG&A expenses rose 4 percent to $576.6 million and were higher as a
percentage of sales due to higher A&M and general operating expenses.
A&M expenses were 27 percent of sales, slightly higher than in the prior
year. Cost of goods sold and SG&A expenses for the second quarter of
fiscal 1993 were restated by $2.0 million and $1.7 million, respectively, for
the adoption of FASB Statement #106.
Consolidated operating income for the second quarter was $109.7 million
compared to $116.1 million in fiscal 1993. U.S. and Canadian Grocery
Products operating income was $84.6 million compared to $76.6 million last
year, due primarily to improvements in Gatorade thirst quencher, Aunt
Jemima products, Golden Grain products and ready-to-eat cereals partly
reduced by decreases in Food Service.
PAGE 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
International Grocery Products operating income for the second quarter
decreased to $25.1 million from $39.5 million in the prior year. Fiscal 1993
operating income included a $17.4 million gain on the sale of two businesses
in Italy and a $9.7 million charge for cost reduction programs in Europe.
Excluding these items, operating income for the quarter decreased by $6.7
million, or 21 percent, primarily resulting from lower pet food volumes in
Europe.
Net interest expense for the second quarter of $22.4 million increased $7.1
million from the prior year. Foreign exchange losses were $6.5 million
compared to gains of $0.3 million last year. The $13.9 million increase in
net financing costs (interest expense and foreign exchange) for the quarter
was primarily due to higher net financing costs in Brazil, lower foreign
exchange hedge gains in Europe and the issuance of $145.0 million of
medium-term notes in the U.S. Changes in the net financing costs for
Brazil were partially offset by higher operating income in that country.
The effective tax rate was 39.2 percent for the second quarter versus 38.9
percent last year primarily due to the increase in the U.S. corporate
statutory tax rate.
Liquidity and Capital Resources
The ability to generate funds internally remains one of the Company's
significant financial strengths. Net cash provided by operating activities
of $188.7 million and $240.3 million for the six months ended December 31,
1993 and 1992, respectively, was well in excess of the Company's dividends
and capital expenditures. The decrease in net cash provided by operating
activities resulted mainly from changes in working capital items, primarily
accounts receivable. The Company has now reached a more optimal level
of accounts receivable and future decreases will not be as significant.
Capital expenditures for the first six months of fiscal 1994 and 1993 were
$75.9 million and $84.7 million, respectively, with no material individual
commitments outstanding. The Company anticipates that cash flows from
operating activities in fiscal 1994 will exceed working capital requirements,
dividends and capital expenditures.
In August 1993, the Company announced its intent to repurchase, from time
to time, five million shares of its outstanding common stock through open
market purchases and privately negotiated transactions. As of December 31,
1993, 2.7 million shares had been repurchased for $187.4 million.
Short-term and long-term debt (total debt) as of December 31, 1993, increased
$237.8 million from June 30, 1993. The total debt-to-total capitalization
ratio (total debt divided by total debt plus total equity including preferred
stock, net of deferred compensation) was 69.9 percent and 59.0 percent as
of December 31, 1993 and June 30, 1993, respectively. The increase in debt
resulted primarily from the issuance of $145.0 million of medium-term notes
and increased commercial paper borrowings. The medium-term notes were
issued pursuant to an August 1993 prospectus supplement filing with the
Securities and Exchange Commission for the intended issuance of $200.0
million of medium-term notes, under a shelf registration covering $600.0
million of debt securities filed with the Commission in fiscal 1990. One
of the Company's financial objectives is to generate economic value through
the use of leverage, while maintaining a solid financial position through
strong operating cash flows.
Commercial paper has been the Company's primary source of short-term
financing. In November 1993, the Company replaced its then-existing
revolving credit facilities with $350.0 million of new revolving credit
financing. The available levels of borrowings are adequate to meet the
Company's working capital needs.
PAGE 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pension and Other Postretirement Benefits
The Company is currently assessing its actuarial assumptions for pension and
other postretirement benefits as a result of the general decline in interest
rates. These assumptions are used to measure plan assets and obligations for
pension and other postretirement benefits. The Company is currently
determining the impact, if any, that changes in the assumptions would have
on its financial position and annual employee benefits expense.
Pending Accounting Changes
In November 1992, the FASB issued Statement #112, "Employers' Accounting
for Postemployment Benefits." The Company has not yet adopted this
statement, which must be implemented no later than fiscal 1995. The Company
is currently determining the impact this statement will have on its financial
position.
PAGE 14
PART II - OTHER INFORMATION
4. Submission of matters to a vote of security-holders.
(a) The Company's Annual Meeting of Shareholders was held on
November 10, 1993. Represented at the Meeting, either in person
or by proxy, were 63,761,164 voting shares, of a total 69,880,057
voting shares outstanding. The matters voted upon at the Meeting are
described in (c) below.
(c) (i) To elect three directors in Class I to serve for three-year terms
expiring in November 1996 or until their successors are elected
and qualified. All nominees are named below.
- Kenneth I. Chenault
Votes For Election - 63,208,517
Votes Withheld - 552,647
- Thomas C. MacAvoy
Votes For Election - 63,213,243
Votes Withheld - 547,921
- Walter J. Salmon
Votes For Election - 63,063,695
Votes Withheld - 697,469
There were no votes against, abstentions or broker non-votes
with respect to the election of any nominee named above.
(ii) To ratify the Board of Directors' appointment of Arthur
Andersen & Co. as independent public accountants for the
Company for fiscal 1994.
Votes For Proposal - 63,050,267
Votes Against Proposal - 334,854
Votes Abstaining - 376,043
Broker Non-Votes - 0
Votes Withheld - 0
(iii) To amend The Quaker Long Term Incentive Plan of 1990 to
preserve the Company's tax deduction for all stock options
granted under the Plan.
Votes For Proposal - 59,012,217
Votes Against Proposal - 3,521,367
Votes Abstaining - 1,216,549
Broker Non-Votes - 11,031
Votes Withheld - 0
(iv) To consider a shareholder proposal concerning annual election
of directors.
Votes For Proposal - 17,592,340
Votes Against Proposal - 40,259,080
Votes Abstaining - 1,674,319
Broker Non-Votes - 4,235,425
Votes Withheld - 0
PAGE 15
6(a). See Exhibit 11.
Note 2 in Part I is incorporated by reference herein for Item I in
Part II. All other items in Part II are either inapplicable to the Company
during the quarter ended December 31, 1993, the answer is negative
or a response has been previously reported and an additional report
of the information need not be made, pursuant to the Instructions to Part
II.
PAGE 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Quaker Oats Company
(Registrant)
Date February 11, 1994 Terry G. Westbrook
Terry G. Westbrook
Senior Vice President - Finance and
Principal Financial Officer
Date February 11, 1994 Thomas L. Gettings
Thomas L. Gettings
Vice President and
Corporate Controller
EXHIBIT INDEX
Exhibit Paper (P) or
Number Description Electronic (E)
(11) Statement Re Computation E
of Per Share Earnings
<TABLE>
<CAPTION>
EXHIBIT 11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
December 31
1993 1992
Calculation of Fully Diluted Earnings Per Share
<S> <C> <C>
Dollars in Millions (Except Per Share Data)
Income Before Cumulative Effect of Accounting Changes $134.2 $116.4
Less: Adjustments attributable to conversion of ESOP Convertible
Preferred Stock (0.7) (1.0)
Income Before Cumulative Effect of Accounting Changes Used for
Fully Diluted Calculation 133.5 115.4
Cumulative Effect of Accounting Changes - Net of Tax -- (115.5)
Net Income Used for Fully Diluted Calculation $133.5 $(0.1)
Shares in Thousands
Average Number of Common Shares Outstanding 68,216 72,418
Plus Dilutive Securities:
Stock Options 940 1,057
ESOP Convertible Preferred Stock 1,342 1,357
Average Shares Outstanding Used for Fully Diluted
Calculation 70,498 74,832
Fully Diluted Earnings Per Share Before Cumulative Effect of
Accounting Changes $1.89 $1.54
Fully Diluted Cumulative Effect of Accounting Changes -- (1.54)
Fully Diluted Earnings Per Share $1.89 $0.00
</TABLE>
