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, 1994
_ 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, 1995, was 133,779,503.
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, 1994 and 1993 3-4
Condensed Consolidated Balance Sheets as of
December 31, 1994 and June 30, 1994 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
December 31, 1994 and 1993 6
Net Sales and Operating Income by Segment for the Six and
Three Months Ended December 31, 1994 and 1993 7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of Security-Holders 15-16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX
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
1994 1993
<S> <C> <C>
Net sales $3,144.3 $2,888.2
Cost of goods sold 1,616.4 1,419.9
Gross profit 1,527.9 1,468.3
Selling, general and administrative expenses 1,322.5 1,194.2
Interest expense - net 39.5 36.7
Foreign exchange loss - net 0.9 14.1
Income before income taxes and cumulative effect of
accounting change 165.0 223.3
Provision for income taxes 69.2 89.1
Income before cumulative effect of accounting change 95.8 134.2
Cumulative effect of accounting change - net of tax (4.1) ---
Net income 91.7 134.2
Preferred dividends - net of tax 2.0 2.0
Net Income Available for Common $ 89.7 $ 132.2
Per Common Share:
Income before cumulative effect of accounting change $0.70 $0.97
Cumulative effect of accounting change (0.03) ---
Net income $0.67 $0.97
Dividends declared $0.57 $0.53
Average Number of Common Shares
Outstanding (in thousands) 133,567 136,432
Reinvested Earnings:
Balance beginning of period $1,273.6 $1,190.1
Net income 91.7 134.2
Dividends (77.7) (72.5)
Common stock issued for stock purchase
and incentive plans --- (1.5)
Two-for-one stock split-up (420.0) ---
Balance end of period $ 867.6 $1,250.3
<FN>
See accompanying notes to the condensed consolidated financial statements.
PAGE 4
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
1994 1993
<S> <C> <C>
Net sales $1,507.9 $1,353.9
Cost of goods sold 791.2 670.1
Gross profit 716.7 683.8
Selling, general and administrative expenses 628.9 584.5
Interest expense - net 24.0 22.4
Foreign exchange loss - net 0.9 6.5
Income before income taxes 62.9 70.4
Provision for income taxes 28.5 27.6
Net income 34.4 42.8
Preferred dividends - net of tax 1.0 1.0
Net Income Available for Common $ 33.4 $ 41.8
Per Common Share:
Net income $0.25 $0.31
Dividends declared $0.285 $0.265
Average Number of Common Shares
Outstanding (in thousands) 133,569 134,818
Reinvested Earnings:
Balance beginning of period $1,291.9 $1,244.8
Net income 34.4 42.8
Dividends (39.1) (36.0)
Common stock issued for stock purchase and
incentive plans 0.4 (1.3)
Two-for-one stock split-up (420.0) ---
Balance end of period $ 867.6 $1,250.3
<FN>
See accompanying notes to the condensed consolidated financial statements.
PAGE 5
<CAPTION>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Dollars in Millions December 31 June 30
1994 1994
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $103.0 $140.4
Trade accounts receivable - net of allowances 546.0 509.4
Inventories:
Finished goods 332.7 266.5
Grains and raw materials 111.4 78.8
Packaging materials and supplies 37.3 40.2
Total inventories 481.4 385.5
Other current assets 226.5 218.3
Total Current Assets 1,356.9 1,253.6
Other receivables and investments 121.8 82.1
Property, plant and equipment 2,282.6 2,125.9
Less accumulated depreciation 949.5 911.7
Property - net 1,333.1 1,214.2
Intangible assets - net of amortization 561.9 493.4
Unallocated purchase costs 1,687.4 ---
Total Assets $5,061.1 $3,043.3
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt $1,886.6 $ 211.3
Current portion of long-term debt 45.1 45.4
Trade accounts payable 334.4 406.3
Other current liabilities 707.7 596.1
Total Current Liabilities 2,973.8 1,259.1
Long-term Debt 1,025.9 759.5
Other Liabilities 516.1 481.4
Deferred Income Taxes 75.6 82.2
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 (78.1) (80.8)
Treasury Preferred Stock, at cost, 58,473
share and 47,817 shares, respectively (4.9) (3.9)
Common Shareholders' Equity:
Common stock, $5 par value, authorized
400,000,000shares and 200,000,000 shares,
respectively; issued 167,978,792 shares 840.0 420.0
Reinvested earnings 867.6 1,273.6
Cumulative translation adjustment (90.0) (75.4)
Deferred compensation (133.1) (143.5)
Treasury common stock, at cost, 34,291,996
shares and 34,370,200 shares, respectively (1,031.8) (1,028.9)
Total Common Shareholders' Equity 452.7 445.8
Total Liabilities and Shareholders' Equity $5,061.1 $3,043.3
<FN>
See accompanying notes to the condensed consolidated financial statements.
PAGE 6
<CAPTION>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Dollars in Millions
Six Months Ended
December 31
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 91.7 $ 134.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change 4.1 ---
Depreciation and amortization 90.6 88.8
Deferred income taxes (4.4) 8.4
Loss on disposition of property and equipment 4.0 6.8
Decrease in trade accounts receivable 28.4 45.0
(Increase) decrease in inventories (6.0) 18.8
(Increase) in other current assets (0.3) (29.2)
(Decrease) in trade accounts payable (86.2) (53.4)
(Decrease) in other current liabilities (16.7) (91.9)
Change in deferred compensation 13.1 12.0
Other items 34.4 49.2
Net Cash Provided by Operating Activities 152.7 188.7
Cash Flows from Investing Activities:
Additions to property, plant and equipment (119.3) (75.9)
Purchase of businesses (1,827.2) (89.6)
Change in other receivables and investments (1.4) (5.3)
Net Cash Used in Investing Activities (1,947.9) (170.8)
Cash Flows from Financing Activities:
Cash dividends (77.7) (72.5)
Change in short-term debt 1,594.0 157.0
Proceeds from short-term debt to be refinanced 300.0 ---
Proceeds from long-term debt 0.7 145.0
Reduction of long-term debt (50.5) (63.6)
Issuance of common treasury stock 14.0 5.0
Repurchases of common stock (22.5) (192.7)
Repurchases of preferred stock (1.0) (0.7)
Net Cash Provided by (Used in)
Financing Activities 1,757.0 (22.5)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 0.8 19.3
Net (Decrease) Increase in
Cash and Cash Equivalents (37.4) 14.7
Cash and Cash Equivalents - Beginning of Year 140.4 61.0
Cash and Cash Equivalents - End of Quarter $ 103.0 $ 75.7
<FN>
See accompanying notes to the condensed consolidated financial statements.
PAGE 7
<CAPTION>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NET SALES AND OPERATING INCOME BY SEGMENT
(UNAUDITED)
Dollars in
Millions
Net Sales Operating Income
Six Months Six Months
Ended Ended
December 31 December 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $2,202.7 $2,053.3 $208.1 $246.2
International Grocery Products 941.6 834.9 32.9 45.6
Total Sales/Operating Income $3,144.3 $2,888.2 241.0 291.8
Less: General corporate expenses 35.6 17.7
Interest expense - net 39.5 36.7
Foreign exchange loss - net 0.9 14.1
Income before income taxes and cumulative
effect of accounting change $165.0 $223.3
Three Months Three Months
Ended Ended
December 31 December 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $1,015.7 $ 925.3 $ 72.8 $ 84.6
International Grocery Products 492.2 428.6 25.4 25.1
Total Sales/Operating Income $1,507.9 $1,353.9 98.2 109.7
Less: General corporate expenses 10.4 10.4
Interest expense - net 24.0 22.4
Foreign exchange loss - net 0.9 6.5
Income before income taxes $ 62.9 $ 70.4
</TABLE>
PAGE 8
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1994
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 months
ended December 31, 1994 and 1993, the condensed consolidated balance
sheet as of December 31, 1994, and the condensed consolidated statements
of cash flows for the six months ended December 31, 1994 and 1993, 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, 1994 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, 1994.
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 appealed this judgment to the Court of Appeals
for the Seventh Circuit. On September 13, 1994, the Court of Appeals for
the Seventh Circuit rendered an opinion affirming in part and remanding
in part the District Court's judgment on remand of a $26.5 million
monetary award. The Court of Appeals has affirmed the lower court's award
of a reasonable royalty, but has again remanded the case to allow the
District Court to explain the basis for and calculation of its royalty
award. The Company's petition for a rehearing has been denied and the
parties are awaiting Judge Marshall's decision on remand. Management,
with advice from outside legal counsel, has determined that the Court of
Appeals' opinion appears to indicate a range of exposure between
$16 million and $27 million. The Company has recorded a reserve of
$18.4 million for this litigation in the first quarter of fiscal 1995.
No amount had previously been recorded for this matter.
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.
PAGE 9
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1994
Note 3 - Acquisitions and Divestitures
On December 6, 1994, the Company purchased Snapple Beverage Corp. for
$1.7 billion. The acquisition was accounted for as a purchase and the
results of Snapple are included in the consolidated financial statements
since the date of acquisition. The excess purchase price over the fair
value of assets acquired is being amortized over 40 years by the
straight-line method. The allocation of the purchase price is based
on preliminary estimates and assumptions. The allocation and amortization
period are subject to revision once appraisals, evaluations and other
studies of the fair value of Snapple's assets and liabilities are completed.
The following pro forma results present combined historical financial
information as if Snapple was acquired at the beginning of each period.
Dollars in Millions
(Unaudited) Six Months Ended
December 31
1994 1993
Net sales $3,415.9 $3,208.8
Income before cumulative effect
of accounting change $62.2 $139.6
Net income $58.1 $139.6
Per share:
Income before cumulative effect of
accounting change $0.45 $1.01
Net income $0.42 $1.01
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been completed at the beginning of
each period, nor are they necessarily indicative of future consolidated results.
In November 1994, the Company purchased the Adria pasta business in Brazil.
Pro forma information for Adria is not included above because it is not
significant. In December 1994, the Company signed an agreement to sell
its Mexican chocolate business to Nescalin S. A. de C.V., a subsidiary of
Nestle S.A. The sale is subject to certain conditions including
regulatory approval by the Mexican government. The transaction is expected
to be finalized by the end of the fiscal year.
Note 4 - Two-for-one Stock Split-up
On September 14, 1994, the Board of Directors declared a two-for-one
stock split-up, subject to the adoption by shareholders of a proposed
charter amendment which would increase the authorized shares of common
stock from 200 million to 400 million. The authorized share increase was
approved and shareholders of record on November 9, 1994, received an
additional share of common stock for each share held. All per share
information has been retroactively restated. 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 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 will
not have a material effect on operating results or cash flows in fiscal
1995 or in future years.
PAGE 10
THE QUAKER OATS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1994
Note 6 - Short-term Debt to be Refinanced
The condensed consolidated balance sheet as of December 31, 1994 includes
the reclassification of $300.0 million of short-term borrowings to
long-term debt, reflecting the Company's intent and ability to refinance
this debt on a long-term basis.
Note 7 - Subsequent Events
On February 3, 1995, the Company announced a definitive agreement to
sell its European pet foods business to Dalgety PLC for $700.0 million. On
February 6, 1995, the Company announced a definitive agreement to sell its
U.S. and Canadian pet food businesses to H. J. Heinz Company for
$725.0 million. Both transactions are subject to certain conditions
including the receipt of appropriate regulatory approval. On
January 31, 1995, the Company purchased the assets of Nile Spice Foods, Inc.
PAGE 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended December 31, 1994 Compared with
Six Months Ended December 31, 1993
Operating Results
Consolidated net sales for the first six months of fiscal 1995 were $3.14
billion, up 9 percent from the first six months of fiscal 1994. The
increase in net sales reflects a 6 percent worldwide increase in volume,
including acquisitions, and a favorable impact of translating European
currencies into U.S. dollars. Price increases did not have a
significant impact on sales.
U.S. and Canadian Grocery Products sales increased 7 percent to $2.20
billion on a volume increase of 4 percent. Sales and volume growth were
mainly driven by increases in food service, ready-to-eat cereals,
grain-based snacks and the acquisition of Snapple in December 1994.
International Grocery Products sales increased 13 percent to $941.6 million,
due in part to the favorable effect of stronger European currencies.
Volume increased 9 percent, mainly in Brazil and for Gatorade thirst
quencher throughout Latin America. Brazilian volume increases were due
to the positive effects of the new economic plan and the acquisition of
the Adria pasta business in November 1994.
Gross profit margin decreased to 48.6 percent from 50.8 percent in the
prior year primarily due to product mix changes and commodity cost
increases. Selling, general and administrative (SG&A) expenses rose 11
percent to $1.32 billion due mainly to a 13 percent increase in
advertising and merchandising (A&M) expenses. A&M expenses were
27.7 percent of net sales in the first six months of fiscal 1995, up from
26.7 percent in the first six months of fiscal 1994. SG&A expenses for
the first six months of fiscal 1995 included a provision of $18.4 million
for estimated litigation costs related to a 1984 trademark lawsuit
involving Gatorade thirst quencher advertising. (See Note 2 to
the condensed consolidated financial statements for a detailed discussion.)
Consolidated operating income was $241.0 million compared to $291.8
million last year. U.S. and Canadian Grocery Products operating income
was $208.1 million versus $246.2 million in fiscal 1994. The decrease
reflects significant increases in A&M expenses across most businesses,
particularly for Gatorade thirst quencher in a period of competitive
expansion of the category. Gatorade thirst quencher volume increased
2 percent compared to the prior year's strong first six months.
International Grocery Products operating income decreased to $32.9
million versus $45.6 million in the prior year. The decrease was mainly
due to increased A&M expenses across many businesses and decreased
operating income in Brazil, which was more than offset by reduced financing
costs in that country. In December, the Company signed an agreement to
sell its Mexican chocolate business. The sale is subject to certain
conditions including regulatory approval by the Mexican government. The
transaction is expected to be finalized by the end of the fiscal year. The
recent devaluation of the Mexican peso may have an impact on the
Company's foreign currency expense. The effect is not expected to be
material to annual results.
The Company's reengineering programs announced in May 1994 are proceeding
as planned. The Company will continue to focus on worldwide efficiency
initiatives to improve its manufacturing, marketing, logistics and
customer service processes while lowering costs and to more effectively
utilize human and financial resources. These continuous improvement
initiatives may lead to charges in future periods.
PAGE 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest, Foreign Exchange and Income Taxes
Net financing costs decreased $10.4 million, mainly resulting from reduced
inflation in Brazil. Increases in interest expense as a result of the
Snapple acquisition partially offset the improvements in Brazil. Through
various hedging strategies, the Company will continue to try to mitigate
the effects of foreign exchange fluctuations on its financial results,
except in certain countries and in certain currencies where hedging
opportunities are limited and costly.
The effective tax rate for the first six months of fiscal 1995 was 41.9
percent as compared to 39.9 percent in fiscal 1994. The increase results
from non-deductible goodwill amortization related to the Snapple
acquisition. The Company has evaluated its deferred tax assets and
believes that future taxable income will be sufficient to realize these
assets. A valuation allowance has been provided for the deferred tax
assets not expected to be realized.
Three Months Ended December 31, 1994 Compared with
Three Months Ended December 31, 1993
Operating Results
Consolidated net sales for the second quarter of fiscal 1995 were $1.51
billion, up 11 percent from the second quarter of fiscal 1994, primarily
due to volume increases, the acquisitions of Snapple and Adria and a
favorable impact of translating European currencies into U.S. dollars.
Volume increased 10 percent. Price increases did not have a significant
impact on sales.
U.S. and Canadian Grocery Products sales increased 10 percent to $1.02
billion on a volume increase of 8 percent. The increases resulted mainly
from food service and ready-to-eat cereal growth and the inclusion of
Snapple. International Grocery Products sales increased 15 percent to
$492.2 million, partly due to stronger European currencies. Volume
increased 12 percent led by Latin American Gatorade thirst quencher and
Brazilian grocery products, the latter due to the positive effects of the
new economic plan and the inclusion of Adria.
Gross profit margin decreased to 47.5 percent from 50.5 percent in the
prior year mainly resulting from product mix changes and commodity cost
increases. SG&A expenses increased 8 percent to $628.9 million due
mainly to a 10 percent increase in A&M expenses. A&M expenses were
27.0 percent of sales, a slight decrease from last year.
Consolidated operating income was $98.2 million compared to $109.7
million last year. U.S. and Canadian Grocery Products operating income
was $72.8 million versus $84.6 million in fiscal 1994. The decrease
reflects increases in A&M expenses across most businesses. International
Grocery Products operating income increased to $25.4 million compared
to $25.1 million in the prior year. The increase results from
improvements in pet foods and cereals operating income in Europe
offset by decreased operating income in Brazil, which was more than offset
by reduced financing costs in that country.
PAGE 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Effect of Acquisitions and Divestitures
Interest expense and goodwill amortization will increase significantly
in a period of seasonally low operating income for Snapple, which is
expected to result in lower third quarter earnings than in the prior year.
The divestitures of the pet food businesses (see Subsequent Events below)
and the Mexican chocolate business will most likely occur in the fourth
quarter.
Interest, Foreign Exchange and Income Taxes
Net financing costs decreased $4.0 million, primarily due to reduced
inflation in Brazil. Partially offsetting the improvements in Brazil were
increases in interest expense as a result of the Snapple acquisition.
The effective tax rate in the second quarter was 45.3 percent versus 39.2
percent in the second quarter of fiscal 1994. The increase in the
effective tax rate was mainly due to a catch-up adjustment in the quarter
because of non-deductible goodwill amortization related to the Snapple
acquisition.
Liquidity and Capital Resources
On December 6, 1994, the Company acquired Snapple Beverage Corp.
for $1.7 billion. The acquisition was financed with commercial paper
borrowings, which are supported by three revolving credit facilities
entered into as of November 30, 1994. The three revolving credit
facilities consist of a $600.0 million five-year annually extendable
revolving credit facility, a $1.2 billion 364-day annually extendable
revolving credit facility which may, at the Company's option, be
converted into a two-year term loan, and a $600.0 million 364-day
annually extendable revolving credit facility. The consolidated balance
sheet as of December 31, 1994 includes the reclassification of $300.0
million of short-term borrowings to long-term debt, reflecting the
Company's intent and ability to refinance this debt on a long-term basis.
Short-term and long-term debt (total debt) as of December 31, 1994
was $2.96 billion, up $1.94 billion from June 30, 1994, due to the
Snapple acquisition. The total debt-to-total capitalization ratio was 86.3
percent and 68.8 percent as of December 31, 1994 and June 30, 1994,
respectively.
Net cash provided by operating activities was $152.7 million and $188.7
million for the first six months of fiscal 1995 and 1994, respectively.
The decrease between years results mainly from lower net income.
In the near-term, the Company will have a significant increase in
interest expense related to the Snapple acquisition as well as investing
in the growth of the business, both of which will decrease cash flow
from operations. If the sales of the pet food businesses (see Subsequent
Events below) and the Mexican chocolate business occur as currently
scheduled, including the receipt of appropriate regulatory approvals,
the cash proceeds from the sales of approximately $1 billion will result in
a reduction of outstanding debt and related interest expense. However,
the cash proceeds may not be received until late fiscal 1995 or later.
Net cash flow from operating activities for fiscal 1995 is expected to
exceed dividends and capital expenditures. Capital expenditures for
the first six months of fiscal 1995 and 1994 were $119.3 million and
$75.9 million, respectively, with no material individual commitments
outstanding.
PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
During the first quarter of fiscal 1995, 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 share information has been restated for the November 1994
two-for-one stock split-up.)
Accounting Change
Effective July 1, 1994, the Company adopted 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 fiscal 1995 or in future years.
Subsequent Events
On February 3, 1995, the Company announced a definitive agreement
to sell its European pet food business to Dalgety PLC for $700.0 million.
On February 6, 1995, the Company announced a definitive agreement to
sell its U.S. and Canadian pet food businesses to H. J. Heinz Company for
$725.0 million. Both transactions are subject to certain conditions
including the receipt of appropriate regulatory approval.
PAGE 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Note 2 in Part I is incorporated by reference herein.
Item 4 Submission of Matters to a Vote of Security-Holders.
(a) The Company's Annual Meeting of Shareholders was held on November 9, 1994.
Represented at the Meeting, either in person or by proxy, were 61,397,055
voting shares, of a total 68,043,459 voting shares outstanding. The
matters voted upon at the Meeting are described in (c) below.
(c)(i) To elect four directors in Class II to serve for three-year terms
expiring in November 1997 or until their successors are elected and
qualified. All nominees are named below.
- Judy C. Lewent
Votes For Election - 60,355,387
Votes Withheld - 1,041,668
- Philip A. Marineau
Votes For Election - 60,271,793
Votes Withheld - 1,125,262
- Luther C. McKinney
Votes For Election - 60,309,943
Votes Withheld - 1,087,112
- Gertrude G. Michelson
Votes For Election - 60,220,592
Votes Withheld - 1,176,463
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 LLP
as independent public accountants for the Company for fiscal 1995.
Votes For Proposal - 60,406,634
Votes Against Proposal - 523,411
Votes Abstaining - 467,010
Broker Non-Votes - 0
Votes Withheld - 0
(iii) To amend The Quaker Long Term Incentive Plan of 1990 to increase by
4.0 million shares the number of shares which may be granted under the
Plan.
Votes For Proposal - 42,892,244
Votes Against Proposal - 10,980,792
Votes Abstaining - 878,142
Broker Non-Votes - 6,645,877
Votes Withheld - 0
PAGE 16
PART II - OTHER INFORMATION
(continued)
Item 4 (continued)
(iv) To amend The Quaker Long Term Incentive Plan of 1990 to permit stock
option exercises for up to five years following retirement or death.
Votes for Proposal - 48,571,435
Votes Against Proposal - 11,965,298
Votes Abstaining - 858,821
Broker Non-Votes - 1,501
Votes Withheld - 0
(v) To amend the Company's restated Certificate of Incorporation to
increase by 200 million the number of authorized shares of common stock.
Votes for Proposal - 55,641,162
Votes Against Proposal - 5,133,494
Votes Abstaining - 620,898
Broker Non-Votes - 1,501
Votes Withheld - 0
(vi) To consider a shareholder proposal concerning annual election of
directors.
Votes for Proposal - 14,556,593
Votes Against Proposal - 39,169,040
Votes Abstaining - 1,029,040
Broker Non-Votes - 6,642,382
Votes Withheld - 0
Item 5 Other Information
The Company hereby amends its Current Report on Form 8-K filed
December 19, 1994 to include required financial statements and pro forma
information for the Snapple Beverage Corp. acquisition. See Exhibit 99
to this Form 10-Q.
Note 7 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) A report on Form 8-K was filed on December 19, 1994, reporting
the acquisition of Snapple Beverage Corp.
All other items in Part II are either inapplicable to the Company during
the quarter ended December 31, 1994, 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 17
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 14, 1995 Terry G. Westbrook
Terry G. Westbrook
Senior Vice President and
Chief Financial Officer
Date February 14, 1995 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)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1994 JUN-30-1994
<PERIOD-END> SEP-30-1994 DEC-31-1994
<CASH> 185 103
<SECURITIES> 0 0
<RECEIVABLES> 537 568
<ALLOWANCES> 23 22
<INVENTORY> 398 481
<CURRENT-ASSETS> 1326 1357
<PP&E> 2158 2283
<DEPRECIATION> 934 950
<TOTAL-ASSETS> 3133 5061
<CURRENT-LIABILITIES> 1348 2974
<BONDS> 722 1026
<COMMON> 420 840
0 0
100 100
<OTHER-SE> (35) (470)
<TOTAL-LIABILITY-AND-EQUITY> 3133 5061
<SALES> 1636 3144
<TOTAL-REVENUES> 1636 3144
<CGS> 825 1616
<TOTAL-COSTS> 825 1616
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2 4
<INTEREST-EXPENSE> 18 44
<INCOME-PRETAX> 102 165
<INCOME-TAX> 41 69
<INCOME-CONTINUING> 61 99
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 4 4
<NET-INCOME> 57 92
<EPS-PRIMARY> .84 .67
<EPS-DILUTED> .82 .66
</TABLE>
EXHIBIT (11)
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Calculation of Fully Diluted Earnings Per Share
Dollars in Millions (Except Per Share Data)
Income Before Cumulative Effect of Accounting Change $ 95.8 $ 134.2
Less: Adjustments attributable to conversion of
ESOP Convertible Preferred Stock (0.6) (0.7)
Income Before Cumulative Effect of Accounting Change
Used for Fully Diluted Calculation 95.2 133.5
Cumulative Effect of Accounting Change - Net of Tax (4.1) ---
Net Income Used for Fully Diluted Calculation $ 91.1 $ 133.5
Shares in Thousands
Average Number of Common Shares Outstanding 133,567 136,432
Plus Dilutive Securities:
Stock Options 1,853 1,880
ESOP Convertible Preferred Stock 2,648 2,684
Average Shares Outstanding Used for Fully
Diluted Calculation 138,068 140,996
Fully Diluted Earnings Per Share Before Cumulative
Effect of Accounting Change $0.69 $0.95
Fully Diluted Cumulative Effect of Accounting Change (0.03) ----
Fully Diluted Earnings Per Share $0.66 $0.95
</TABLE>
