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 September 30, 1995
_ 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 X NO _____
The number of shares of Common Stock, $5.00 par value, outstanding as
of the close of business on October 31, 1995, was 134,310,498.
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 Three Months
Ended September 30, 1995 and 1994 3
Condensed Consolidated Balance Sheets as of
September 30, 1995 and June 30, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
September 30, 1995 and 1994 5
Net Sales and Operating Income by Segment for the
Three Months Ended September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 11 17
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS (UNAUDITED)
Dollars in Millions
(Except Per
Share Data)
Three Months Ended
September 30
1995 1994
Net sales $1,553.6 $1,636.4
Cost of goods sold 825.0 825.2
Gross profit 728.6 811.2
Selling, general and
administrative expenses 592.5 693.6
Interest (income) (1.4) (1.9)
Interest expense 28.7 17.4
Foreign exchange loss - net 1.8 -
Income before income taxes
and cumulative effect of
accounting change 107.0 102.1
Provision for income taxes 45.5 40.7
Income before cumulative effect
of accounting change 61.5 61.4
Cumulative effect of accounting change - (4.1)
Net income 61.5 57.3
Preferred dividends - net of tax 1.0 1.0
Net Income Available for Common $ 60.5 $ 56.3
Per Common Share:
Income before cumulative
effect of accounting change $ 0.45 $ 0.45
Cumulative effect of
accounting change - (0.03)
Net income $ 0.45 $ 0.42
Dividends declared $ 0.285 $ 0.285
Average Number of Common Shares
Outstanding (in thousands) 134,238 133,534
Reinvested Earnings:
Balance beginning of period $1,499.3 $1,273.6
Net income 61.5 57.3
Dividends (39.3) (38.6)
Common stock issued for stock
purchase and incentive plans (0.5) (0.4)
Balance end of period $1,521.0 $1,291.9
See accompanying notes to the condensed consolidated financial statements.
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Dollars in Millions September 30 June 30
1995 1995
Assets
Current Assets:
Cash and cash equivalents $ 173.9 $ 101.8
Trade accounts receivable -
net of allowances 485.1 546.8
Inventories:
Finished goods 245.9 267.4
Grains and raw materials 83.8 94.4
Packaging materials and supplies 42.6 44.2
Total inventories 372.3 406.0
Other current assets 287.5 262.0
Total Current Assets 1,318.8 1,316.6
Property, plant and equipment 1,893.6 1,843.7
Less accumulated depreciation 756.4 730.3
Property - net 1,137.2 1,113.4
Intangible assets - net of amortization 2,292.0 2,311.1
Other Assets 75.9 85.8
Total Assets $ 4,823.9 $ 4,826.9
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $ 539.4 $ 510.1
Current portion of long-term debt 69.2 38.8
Trade accounts payable 432.5 423.8
Other current liabilities 804.3 840.2
Total Current Liabilities 1,845.4 1,812.9
Long-term Debt 1,054.7 1,103.1
Other Liabilities 512.7 530.0
Deferred Income Taxes 234.9 233.3
Preferred Stock, Series B, no par
value, authorized 1,750,000
shares; issued 1,282,051 of
$5.46 cumulative convertible
shares (liquidating preference
of $78 per share) 100.0 100.0
Deferred Compensation (71.7) (74.9)
Treasury Preferred Stock, at cost,
92,393 shares and
81,194 shares, respectively (9.3) (6.3)
Common Shareholders' Equity:
Common stock, $5 par value,
authorized 400,000,000
shares; issued 167,978,792 shares 840.0 840.0
Reinvested earnings 1,521.0 1,499.3
Cumulative translation adjustment (71.4) (61.4)
Deferred compensation (118.9) (132.2)
Treasury common stock, at cost,
33,683,317 shares and 33,797,063
shares, respectively (1,013.5) (1,016.9)
Total Common Shareholders' Equity 1,157.2 1,128.8
Total Liabilities and
Shareholders' Equity $ 4,823.9 $ 4,826.9
See accompanying notes to the condensed consolidated financial statements.
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Dollars in
Millions
Three Months Ended
September 30
1995 1994
Cash Flows from Operating Activities:
Net income $ 61.5 $ 57.3
Adjustments to reconcile
net income to net cash provided
by operating activities:
Cumulative effect of
accounting change - 4.1
Depreciation and amortization 49.7 43.2
Deferred income taxes 1.3 (6.8)
Loss on disposition of
property and equipment 4.5 6.5
Decrease in trade accounts receivable 60.0 1.4
Decrease (increase) in inventories 33.2 (9.1)
(Increase) in other current assets (25.9) (9.6)
Increase (decrease) in trade
accounts payable 9.5 (23.2)
(Decrease) increase in other
current liabilities (34.6) 58.3
Change in deferred compensation 16.5 14.1
Other items (14.3) 18.9
Net Cash Provided by
Operating Activities 161.4 155.1
Cash Flows from Investing Activities:
Additions to property, plant
and equipment (55.5) (44.6)
Business acquisition - (14.0)
Change in other assets 7.3 (0.6)
Net Cash Used in Investing Activities (48.2) (59.2)
Cash Flows from Financing Activities:
Cash dividends (39.3) (38.6)
Change in short-term debt 30.0 43.2
Proceeds from long-term debt - 0.7
Reduction of long-term debt (17.7) (38.5)
Issuance of common treasury stock 1.4 9.6
Repurchases of common stock - (22.5)
Repurchases of preferred stock (3.0) (0.8)
Net Cash Used in Financing Activities (28.6) (46.9)
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (12.5) (4.7)
Net Increase in Cash and Cash Equivalents 72.1 44.3
Cash and Cash Equivalents -
Beginning of Year 101.8 140.4
Cash and Cash Equivalents -
End of Quarter $173.9 $184.7
See accompanying notes to the condensed consolidated financial statements.
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
Dollars in Millions
Net Sales Operating Income
Three Months Three Months
Ended Ended
September 30 September 30
1995 1994 1995 1994
U.S. and Canadian Grocery Products $1,280.9 $1,187.0 $156.7 $135.3
International Grocery Products 272.7 449.4 (7.9) 7.5
Total Sales/Operating Income $1,553.6 $1,636.4 $148.8 $142.8
Less: General corporate expenses 12.7 25.2
Interest expense - net 27.3 15.5
Foreign exchange loss - net 1.8 -
Income before income taxes and
cumulative effect of accounting change $107.0 $102.1
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
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 three months ended September 30, 1995
and 1994, the condensed consolidated balance sheet as of September 30, 1995,
and the condensed consolidated statements of cash flows for the three months
ended September 30, 1995 and 1994, 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 September 30, 1995 and for all periods
presented. All adjustments made have been of a normal recurring nature.
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, 1995.
Note 2 - Litigation
The case entitled Sands, Taylor & Wood v. The Quaker Oats Company, which dealt
with Quaker's use of the words "thirst aid" in advertising Gatorade thirst
quencher, was settled while the case was pending before the U.S. Court of
Appeals for the Seventh Circuit. Quaker did not incur any additional charge to
earnings in connection with this settlement.
The Company is not a party to any other pending legal proceedings or
environmental clean-up actions that it believes will have a material adverse
effect on its financial position or results of operations.
Note 3 - Two-for-one Stock Split-up
On November 9, 1994, shareholders of record received an additional share of
common stock for each share held, pursuant to a two-for-one stock split-up
approved by the Board of Directors. All per share information has been
retroactively restated. Authorized shares have been increased from 200 million
to 400 million, pursuant to shareholder approval on November 9, 1994. As a
result of the increase in issued shares, common stock has been increased and
reinvested earnings has been decreased by $420.0 million.
Note 4 - Revolving Credit Facilities
The Company's revolving credit facilities now consist of a $600.0 million
annually extendible five-year revolving credit facility and a $900.0 million
364-day annually extendible revolving credit facility which may, at the
Company's option, be converted into a two-year term loan. The Company is
currently in the process of extending the 364-day credit facility for an
additional year.
Note 5 - Accounting Change
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of adoption was
a $6.8 million pretax charge, or $4.1 million after-tax, in the first quarter
of fiscal 1995. The adoption of this statement did not have a material effect
on operating results or cash flows in fiscal 1995 nor is it expected to have a
material effect in future years.
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
Note 6 - Short-term Debt to be Refinanced
In April 1995, the Company filed a prospectus supplement with the Securities
and Exchange Commission for the intended issuance of $400.0 million of medium-
term notes, under a shelf registration covering $600.0 million of debt
securities filed in fiscal 1990. As of September 30, 1995 the Company has
issued $284.0 million in medium-term notes. The condensed consolidated balance
sheet as of September 30, 1995 includes the reclassification of $116.0 million
of short-term debt to long-term debt, reflecting the Company's intent and
ability to refinance this debt on a long-term basis in the near future.
Note 7 - Fiscal-Year Change
On May 10, 1995, the Board of Directors approved a change in the Company's
fiscal year end from June 30 to December 31, effective the calendar year
beginning January 1, 1996. The Company is currently in a six-month fiscal
transition period that precedes the start of the new calendar-year cycle. The
Company will file a Form 10-K no later than March 30, 1996 covering the six-
month transition period from July 1, 1995 through December 31, 1995.
Note 8 - Subsequent Events
Philip A. Marineau resigned as President and Chief Operating Officer of the
Company on October 23, 1995. The Chairman and Chief Executive Officer, William
D. Smithburg, has assumed the operating management of the entire business
portfolio.
On November 1, 1995, the Company filed suit against Borden, Inc. in Federal
District Court in New York, alleging that Borden made material
misrepresentations and committed fraud in connection with Quaker's 1994 $100
million acquisition of a Brazilian pasta business. The Company seeks to
rescind the transaction and collect damages.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared with
Three Months Ended September 30, 1994
Portfolio Restructuring
During the fiscal year ended June 30, 1995 the Company significantly changed
its portfolio of businesses through acquisitions and divestitures. This
resulted in changes in the Company's financial and organizational structure
which affect comparisons of sales, gross margins, advertising and merchandising
expense, interest expense and net income in the current quarter to the first
quarter of fiscal 1995.
In addition, the acquisitions and divestitures change the quarterly mix of
earnings, resulting in a greater percentage of the Company's sales and earnings
being contributed by its beverage brands, Gatorade thirst quencher and Snapple.
The portfolio changes increase the seasonality of the Company's earnings,
putting a higher proportion of earnings in the April through September period
when the consumption of beverage products is greatest.
To capture the results of a full beverage season in a single fiscal year
period, the Company is changing its fiscal year to align with the calendar
year, beginning January 1, 1996. The Company is currently in a six-month
transition period that precedes the start of the new calendar-year cycle.
On a comparative basis, sales have declined due to the absence of businesses
which were divested during fiscal 1995 but had reported results during the
first quarter of fiscal 1995. Gross profit margins in the first quarter of the
transition period are lower than last year primarily due to the inclusion of
the Snapple beverages business which was not acquired until December 1994.
Going forward the Company's gross profit margin will be lower than historical
levels because the Snapple beverage business has an inherently lower gross
profit margin than the Company's historical average because of its use of
external manufacturing and distribution networks.
The Company's cost-reduction and realignment activities announced in fiscal
1995 and 1994 are proceeding as planned. The programs announced during fiscal
1995 were intended to address the changes in the Company's portfolio and to
allow the Company to quickly and effectively respond to the needs of trade
customers and consumers. Savings realized from the fiscal 1995 programs are
expected to be about $50 million annually beginning in calendar 1996 and
approximately 90 percent of the annual savings will be in cash. Savings from
the fiscal 1994 activities have been in line with expectations. Reserve
balances for these cost-reduction and realignment activities are considered
adequate to cover committed restructuring actions. The Company will continue
to focus on worldwide efficiency and customer service processes with the intent
of lowering costs and more effectively utilizing human and financial resources.
The following table illustrates operating results for the current year compared
to the prior year, both before and after taking into account the businesses
divested and the significant acquisitions during fiscal 1995:
Percent Increase (Decrease)
From Prior Year
Total (Excluding
Total Divested Businesses
(Excluding and Acquired
Total (As Divested Snapple and
Total Company: Total Reported) Businesses) Adria Businesses)
Sales $1,553.6 (5%) 25% 7%
Operating Income $ 148.8 4% 21% 25%
U.S. and Canadian
Grocery Products:
Sales $1,280.9 8% 27% 8%
Operating Income $ 156.7 16% 24% 25%
International Grocery
Products:
Sales $ 272.7 (39%) 18% 5%
Operating Income $ (7.9) * * *
(NOTE: Operating income includes certain allocations of overhead expenses.)
(*) Operating income from divested businesses in the first quarter of fiscal
1995 was $10.4 million as compared to total International Grocery Products
operating income of $7.5 million.
Looking forward, operating income is expected to decline in the second quarter
of the transition period as compared to the first quarter due to the seasonal
nature of the worldwide beverage sales.
First Quarter Operating Results
Consolidated net sales for the first quarter of the six-month transition period
ended December 31,1995 were $1.55 billion, down 5 percent from the first
quarter of fiscal 1995, primarily due to the absence of sales from divested
businesses which contributed approximately $400 million during the first
quarter of fiscal 1995. Sales from the Snapple beverage business (acquired in
December 1994) contributed $202 million in sales in the current year first
quarter. First-quarter sales excluding divested and acquired businesses from
the comparison as shown above increased 7 percent. This increase is due
primarily to increases in Gatorade thirst quencher, Golden Grain products,
Latin American foods, and the North American grain-based snacks and cereals
businesses. Price increases did not have a significant impact on sales.
First Quarter Operating Results (Continued)
The acquisition of Snapple beverages was the largest in the Company's history.
Its performance to date has fallen short of expectations. While Snapple
beverage sales have improved 6 percent compared to the prior year (under prior
ownership), sales in recent months have not met the Company's expectations.
The brand has experienced intense competition in teas and operated at a loss in
the quarter.
Since the December acquisition, the Company has worked to upgrade Snapple
beverage manufacturing standards, integrate order-entry and accounting systems
and improve the efficiency and effectiveness of advertising and merchandising
(A&M) programs and improve distributor communications. These activities were
neither sufficient nor quick enough to allow Snapple beverages to make a strong
start in the calendar 1995 beverage season. Future growth of Snapple beverages
is still the greatest challenge facing the Company, and achieving the calendar
1996 plan for significant sales growth is critical to the future success and
value of the Snapple beverage business.
U.S. and Canadian Grocery Products sales increased 8 percent to $1.28 billion
on a volume increase of 19 percent. Excluding sales from the Snapple beverages
business in the current quarter and sales from the divested North American pet
food and U.S. bean and chili businesses in the first quarter of fiscal 1995,
sales and volume increased 8 percent and 10 percent, respectively. Sales and
volume growth were mainly driven by an increase of 19 percent in North American
Gatorade thirst quencher sales. The increase in Gatorade thirst quencher is
due to new packaging and flavor innovations and warmer weather as compared to
the prior year's July-to-September period. Sales increases in the Golden
Grain, food service, grain-based snacks and ready-to-eat and hot cereals
businesses were partially offset by declines in the frozen food and Aunt Jemima
syrup and mix businesses.
International Grocery Products sales decreased 39 percent to $272.7 million on
a volume decline of 34 percent due largely to the absence of sales from
divested businesses, which totaled $219.2 million in the first quarter of
fiscal 1995. This decline was partially offset by sales from newly acquired
businesses. Excluding sales from the divested European pet food, Dutch honey
and Mexican chocolates businesses and sales from Snapple beverages and Adria
pasta, sales increased 5 percent. The increase in sales and volume is
primarily due to increases in International Gatorade thirst quencher, Pacific
grain-based products and Latin American foods.
Gross profit margin was 46.9 percent compared to 49.6 percent in the prior
year primarily due to product mix changes resulting from the portfolio
restructuring and commodity cost increases. In addition to the impact of the
inclusion of the Snapple beverage business, higher worldwide paper and plastic
costs and raw coffee bean prices reduced gross profit margin.
Selling, general and administrative (SG&A) expenses declined 15 percent to
$592.5 million due mainly to an 18 percent decrease in A&M expenses. The
decrease in A&M spending is primarily due to a reduction in overall spending
related to divested businesses and increased efficiency of spending for
Gatorade thirst quencher. These declines were partially offset by increases in
spending to improve sales in the hot cereals and Snapple businesses. A&M
expenses were 24.6 percent of sales in the first quarter, down from 28.3
percent in the first quarter of fiscal 1995. The reduction in the ratio of A&M
expenses to sales is due to the aforementioned efficiency of spending for
Gatorade thirst quencher and an inherently lower ratio within the Snapple
beverage business as compared to the Company's historical average. In
addition, SG&A expenses for the first quarter of fiscal 1995 include a charge
of $18.4 million for estimated litigation costs related to a 1984 trademark
lawsuit. (See Note 2 to the condensed consolidated financial statements for a
further discussion.)
First Quarter Operating Results (Continued)
Consolidated operating income was $148.8 million compared to $142.8 million
last year. U.S. and Canadian Grocery Products operating income was $156.7
million versus $135.3 million in fiscal 1995. This increase reflects the
increased profitability generated by higher Gatorade thirst quencher sales
partially offset by the absence of operating income from the divested
businesses. International Grocery Products had an operating loss of $7.9
million as compared to the prior year first-quarter operating income of $7.5
million. This decline is primarily due to the lack of operating income
contribution from the divested businesses and underwriting costs for the
expansion of Gatorade thirst quencher, Snapple beverages and Pacific grain-
based foods.
Interest, Foreign Exchange and Income Taxes
Net financing costs (net interest expense and foreign exchange losses) were
$29.1 million, an increase of $13.6 million versus the prior year. This
increase is primarily due to increased interest expense for the fiscal 1995
acquisitions. With the divestiture of the European pet foods and Dutch honey
businesses, the European business and related exposure to fluctuations in
European currency is significantly reduced. A significant portion of the
Company's international business is now in Latin American countries like
Brazil, where hedging opportunities are limited and costly. The Company
finances foreign businesses with equity, local currency borrowings, U.S.
denominated debt or a combination of all three. The mix of financing in hyper-
inflationary countries has an impact on the level of interest expense as well
as the resulting foreign translation gains or losses incurred when foreign
balance sheets are converted into U.S. dollars.
The effective tax rate for the first quarter was 42.5 percent compared to 39.9
percent in the prior year. The increase resulted mainly from non-deductible
amortization of intangibles. The Company has evaluated its deferred tax assets
and believes that future taxable income will be sufficient to realize a
majority of these assets. A valuation allowance has been provided for the
deferred tax assets that are not expected to be realized.
Liquidity and Capital Resources
Short-term and long-term debt (total debt) as of September 30, 1995 was $1.66
billion, an increase of $11 million from June 30, 1995. The total debt-to-
total capitalization ratio was 58.6 percent and 59.0 percent as of September
30, 1995 and June 30, 1995, respectively.
The Company's revolving credit facilities now consist of a $600.0 million
annually extendible five-year revolving credit facility and a $900.0 million
364-day annually extendible revolving credit facility which may, at the
Company's option, be converted into a two-year term loan. The Company is
currently in the process of extending the 364-day credit facility for an
additional year.
The increase in debt, substantial change in the mix of the Company's portfolio
to businesses with greater seasonality, and disappointing operating income from
ongoing businesses reduced the Company's free cash flow during fiscal 1995. As
a result, the credit rating agencies placed the Company's credit rating on
"watch" or "review" in July 1995. Moody's confirmed the Company's long-term
debt credit rating of A3 in October 1995. The Company's other long-term debt
and commercial paper ratings, which continue to be on "watch", are as follows:
Standard & Poor's, A and A1 and Fitch's, A and F1.
Liquidity and Capital Resources (Continued)
Net cash provided by operating activities was $161.4 million and $155.1 million
for the first quarter of the transition period and fiscal 1995, respectively.
The increase in net cash provided by operating activities resulted mainly from
changes in working capital items. Capital expenditures for the first quarter
of the transition period and fiscal 1995 were $55.5 million and $44.6 million,
respectively. The increase in capital expenditures is due to investment in the
expansion of the worldwide production capacity for beverages and for grain-
based products in the U.S. and Canada. The Company expects that its future
capital expenditures and cash dividends will be financed primarily from cash
flow from operating activities, supplemented by debt financing.
In April 1995, the Company filed a prospectus supplement with the Securities
and Exchange Commission (SEC) for the intended issuance of $400.0 million of
medium-term notes, under a shelf-registration covering $600.0 million of debt
securities filed in fiscal 1990. As of September 30, 1995 the Company has
issued $284.0 million in medium-term notes. The consolidated balance sheet as
of September 30, 1995 includes the reclassification of $116.0 million of short-
term debt to long-term debt, reflecting the Company's intent and ability to
refinance the short term debt as long term in the near future.
During the first quarter of the last fiscal year, 0.6 million shares of the
Company's outstanding common stock were repurchased for $22.5 million under a
ten million share repurchase program announced in August 1993. The Company has
not been active in its share repurchase program since August 1994.
Accounting Change
Effective July 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement #112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect of adoption was a $4.1 million after-tax
charge in the first quarter of fiscal 1995. The adoption of this statement
will not have a material effect on operating results or cash flows in future
years.
Subsequent Events
Philip A. Marineau resigned as President and Chief Operating Officer of the
Company on October 23, 1995. The Chairman and Chief Executive Officer, William
D. Smithburg, has assumed the operating management of the entire business
portfolio.
On November 1, 1995, the Company filed suit against Borden, Inc. in Federal
District Court in New York, alleging that Borden made material
misrepresentations and committed fraud in connection with Quaker's 1994 $100
million acquisition of a Brazilian pasta business. The Company seeks to
rescind the transaction and collect damages.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Note 2 in Part I is incorporated by reference herein.
Item 5 Other Information
Note 8 in Part I is incorporated by reference herein.
Item 6 Exhibits and Reports on Form 8-K
Item 6(a) See Exhibit 11.
Item 6(b) Reports on Form 8-K
Form 8-K was filed on November 3, 1995, to announce the resignation
of Philip A. Marineau, President and Chief Operating Officer, and a
lawsuit filed against Borden, Inc.
All other items in Part II are either inapplicable to the Company
during the quarter ended September 30, 1995, 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.
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 November 9, 1995 s/ Robert S. Thomason
Robert S. Thomason
Senior Vice President - Finance and
Chief Financial Officer
Date November 9, 1995 s/ 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
(27) Financial Data Schedule E
(submitted to the Securities
and Exchange Commission
in electronic format)
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<PERIOD-END> SEP-30-1995
<CASH> 174
<SECURITIES> 0
<RECEIVABLES> 516
<ALLOWANCES> 31
<INVENTORY> 372
<CURRENT-ASSETS> 1319
<PP&E> 1894
<DEPRECIATION> 756
<TOTAL-ASSETS> 4824
<CURRENT-LIABILITIES> 1845
<BONDS> 1055
<COMMON> 840
0
100
<OTHER-SE> 236
<TOTAL-LIABILITY-AND-EQUITY> 4824
<SALES> 1554
<TOTAL-REVENUES> 1554
<CGS> 825
<TOTAL-COSTS> 825
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 107
<INCOME-TAX> 45
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
EXHIBIT 11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Calculation of Fully Diluted Earnings Per Share
September 30
Dollars in Millions (Except Per Share Data) 1995 1994
Income Before Cumulative Effect of
Accounting Change $ 61.5 $ 61.4
Less: Adjustments Attributable to
Conversion of ESOP Convertible
Preferred Stock (0.3) (0.3)
Income Before Cumulative Effect of
Accounting Change Used
for Fully Diluted Calculation 61.2 61.1
Cumulative Effect of Accounting Change -
Net of Tax - (4.1)
Net Income Used for Fully Diluted Calculation $61.2 $57.0
Shares in Thousands
Average Number of Common Shares Outstanding 134,238 133,534
Plus Dilutive Securities:
Stock Options 1,284 2,344
ESOP Convertible Preferred Stock 2,581 2,654
Average Shares Outstanding
Used for Fully Diluted Calculation 138,103 138,532
Fully Diluted Earnings per Share
Before Cumulative Effect of
Accounting Change $0.44 $0.44
Fully Diluted Cumulative Effect of
Accounting Change - (0.03)
Fully Diluted Earnings Per Share $0.44 $0.41
