UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
[X] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1995 to December 31, 1995
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter.)
NEW JERSEY 36-1655315
(State of 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 offices) (Zip Code)
Registrant's telephone number, including area code (312) 222-7111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock ($5.00 Par Value) New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Stock Exchange, London
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
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 such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of the close of business on February 29, 1996 was
$4,647,911,193.75. The liquidation value of Series B ESOP Convertible
Preferred Stock, all of which is held in The Quaker Employee Stock Ownership
Plan, at the close of business on February 29, 1996 totaled $90,230,790, plus
related dividends. The number of shares of Common Stock, $5.00 par value,
outstanding as of the close of business on February 29, 1996 was 135,211,962.
DOCUMENTS INCORPORATED BY REFERENCE.
1. Portions of The Quaker Oats Company Notice of Annual Meeting and Proxy
Statement (Proxy Statement) dated April 1, 1996 (Part III of Form 10-K)
CROSS-REFERENCE TABLE OF CONTENTS
The Proxy Statement includes all information required in Part III of Form 10-K,
except as otherwise indicated in the following Cross-Reference Table. The
Cross-Reference Table identifies the source of information for each of the Form
10-K items included in Parts I, II and III. Only those sections of the the
Proxy Statement cited in the Cross-Reference Table of Contents are incorporated
in the Form 10-K and filed with the Securities and Exchange Commission.
10-K Item No. Source of Information
PART I.
Item 1. Business.
(a) General Development of Business Transition Report,
pages 31,50-51
(b) Financial Information About Transition Report,
Industry Segments pages 44-45
(c) Narrative Description of Business Transition Report,
pages 30-39, 46-
47, 63, 66, 70-71
(d) Financial Information About Foreign Transition Report,
and Domestic Operations and Export Sales pages 44-45
(e) Executive Officers of Registrant Transition Report,
pages 72-73
Item 2. Properties. Transition Report,
page 70
Item 3. Legal Proceedings. Transition Report,
page 65
Item 4. Submission of Matters to a Vote of
Security Holders. (Not Applicable)
PART II.
Item 5. Market for the Registrant's Common Transition Report,
Equity and Related Stockholder Matters. pages 47, 66, 74-76
Item 6. Selected Financial Data. Transition Report,
pages 46-47
Item 7. Management's Discussion and Analysis Transition Report,
of Financial Condition and Results pages 30-39
of Operations.
Item 8. Financial Statements and Supplementary Transition Report,
Data. pages 40-68
Item 9. Changes in and Disagreements with (Not Applicable)
Accountants on Accounting and
Financial Disclosure.
PART III.
Item 10. Directors and Executive Officers of Notice of Annual Meeting
the registrant. and Proxy Statement,
pages 9-11; Transition
Report, pages 72-73
Item 11. Executive Compensation. Notice of Annual Meeting
and Proxy Statement,
pages 15-24
Item 12. Security Ownership of Certain Notice of Annual Meeting
Beneficial Owners and Management. and Proxy Statement,
pages 13-15
Item 13. Certain Relationships and Related (Not Applicable)
Transactions.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements.
Consolidated financial statements of The Quaker Oats Company and its
subsidiaries are incorporated under Item 8 of this Form 10-K.
(a)(2) Financial Statement Schedules.
& (d) All required financial statement schedules are included in the
consolidated financial statements or notes thereto as incorporated
under Item 8 of this Form 10-K.
(a)(3) Exhibits - See Exhibit index attached hereto, which is
& (c) incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
By /s/WILLIAM D. SMITHBURG
William D. Smithburg, Chairman, President and
Chief Executive Officer
Date: March 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 13th day of March 1996, by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ WILLIAM D. SMITHBURG Chairman, President and
William D. Smithburg Chief Executive Officer
/s/ ROBERT S. THOMASON Senior Vice President Finance
Robert S. Thomason and Chief Financial Officer
/s/ THOMAS L. GETTINGS Vice President and Corporate
Thomas L. Gettings Controller
/s/ FRANK C. CARLUCCI Director
Frank C. Carlucci
/s/ SILAS S. CATHCART Director
Silas S. Cathcart
/s/ KENNETH I. CHENAULT Director
Kenneth I. Chenault
/s/JUDY C. LEWENT Director
Judy C. Lewent
/s/ VERNON R. LOUCKS, JR. Director
Vernon R. Loucks, Jr.
/s/ THOMAS C. MacAVOY Director
Thomas C. MacAvoy
/s/ LUTHER C. McKINNEY Director
Luther C. McKinney
/s/ WALTER J. SALMON Director
Walter J. Salmon
/s/ WILLIAM L. WEISS Director
William L. Weiss
EXHIBIT INDEX
PAPER (P),
ELECTRONIC (E)
OR INCORPORATED
EXHIBIT NO. DESCRIPTION BY REFERENCE (IBRF)
3(a) Restated Certificate of Incorporation
(as of November 9, 1994) IBRF
3(b) Bylaws of The Quaker Oats Company
(as amended January 11, 1995) IBRF
4 Registrant undertakes to furnish to the Commission,
upon request, a copy of any instrument defining the rights
of holders of long-term debt of the registrant and all of
its subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed IBRF
10(a)(1) 1984 Long-Term Incentive Plan (incorporated by reference
to Exhibit B of the Company's 1983 Proxy Statement, file
number 1-12) IBRF
10(a)(2) First Amendment to 1984 Long-Term Incentive Plan
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(b)(1) Deferred Compensation Plan for Directors of The Quaker
Oats Company as restated effective January 1, 1989
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1989, file number 1-12) IBRF
10(b)(2) First Amendment to the Deferred Compensation Plan for
Directors of The Quaker Oats Company (incorporated by
reference to the Company's Form 10-K for the fiscal year
ended June 30, 1992, file number 1-12) IBRF
10(c) Deferred Compensation Plan for Executives of The Quaker
Oats Company as restated effective March 1, 1996 E
10(d) Management Incentive Bonus Plan of The Quaker Oats Company
as amended September 8, 1993 (incorporated by reference to
the Company's Form 10-K for the fiscal year ended
June 30, 1994, file number 1-12) IBRF
10(e)(1) Directors' Stock Retirement Plan (incorporated by reference
to the Company's Form 10-K for the fiscal year ended
June 30, 1985, file number 1-12) IBRF
10(e)(2) First Amendment to Directors' Stock Retirement Plan
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(e)(3) Second Amendment to Directors' Stock Retirement Plan
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1995). IBRF
10(e)(4) Third Amendment to Directors' Stock Retirement Plan E
10(f)(1) Termination Benefits Agreement with William D. Smithburg,
first effective in the fiscal year ended June 30, 1995
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1995). IBRF
10(f)(2) Termination Benefits Agreement with Philip A. Marineau,
first effective in the fiscal year ended June 30, 1995
(incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1995). IBRF
10(f)(3) Termination Benefits Agreements with certain Executive
Officers, first effective in the fiscal year ended
June 30, 1995 or effective by filing date (incorporated
by reference to the Company's Form 10-K for the fiscal
year ended June 30, 1995). IBRF
10(f)(4) Termination Benefits Agreements with certain Executive
Officers, first effective for the transition period ended
December 31, 1995 E
10(f)(5) Agreement upon Separation of employment with
Philip A. Marineau first effective for the transition
period ended December 31, 1995. E
10(g)(1) The Quaker Supplemental Executive Retirement Program
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1989, file number 1-12) IBRF
10(g)(2) First Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1992,
file number 1-12) IBRF
EXHIBIT INDEX
PAPER (P),
ELECTRONIC (E)
OR INCORPORATED
EXHIBIT NO. DESCRIPTION BY REFERENCE (IBRF)
10(g)(3) Second Amendment to The Quaker Supplemental
Executive Retirement Program (incorporated by reference
to the Company's Form 10-K for the fiscal year ended
June 30, 1992, file number 1-12) IBRF
10(g)(4) Third Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1992,
file number 1-12) IBRF
10(g)(5) Fourth Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1992,
file number 1-12) IBRF
10(g)(6) Fifth Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1993,
file number 1-12) IBRF
10(g)(7) Sixth Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1993,
file number 1-12) IBRF
10(g)(8) Seventh Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1995,
file number 1-12) IBRF
10(g)(9) Eighth Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30, 1995,
file number 1-12) IBRF
10(g)(10) Ninth Amendment to The Quaker Supplemental Executive
Retirement Program (incorporated by reference to the Company's
Form 10-K for the fiscal year ended June 30, 1995, file
number 1-12) IBRF
10(h)(1) The Quaker Oats Company Benefits Protection Trust
(incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1989, file number 1-12) IBRF
10(h)(2) First Amendment to The Quaker Oats Company Benefits Protection
Trust (incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(h)(3) Second Amendment to The Quaker Oats Company Benefits Protection
Trust (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(i) The Quaker Eligible Earnings Adjustment Plan (incorporated by
reference to the Company's Form 10-K for the fiscal year ended
June 30, 1992, file number 1-12) IBRF
10(j) The Quaker Officers Severance Program, effective March 8, 1995
(incorporated by reference to the Company's Form 10-K for the
fiscal year ended June 30, 1995, file number 1-12) IBRF
10(k)(1) The Quaker Long Term Incentive Plan of 1990 (incorporated
by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1990, file number 1-12) IBRF
10(k)(2) First Amendment to The Quaker Long Term Incentive Plan of
1990 (incorporated by reference to the Company's From 10-K for
the fiscal year ended June 30, 1992, file number 1-12) IBRF
10(k)(3) Second Amendment to The Quaker Long Term Incentive Plan of
1990 (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1993, file number 1-12) IBRF
10(k)(4) Third Amendment to The Quaker Long Term Incentive Plan of
1990 (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1994, file number 1-12) IBRF
10(k)(5) Fourth Amendment to The Quaker Long Term Incentive Plan of 1990
EXHIBIT INDEX
PAPER (P),
ELECTRONIC (E)
OR INCORPORATED
EXHIBIT NO. DESCRIPTION BY REFERENCE (IBRF)
(incorporated by reference to the Company's Form 10-K for the
fiscal year ended June 30, 1995, file number 1-12) IBRF
10(k)(6) Fifth Amendment to The Quaker Long Term Incentive Plan of
1990 (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1995, file number 1-12) IBRF
10(l) The Quaker 415 Excess Benefit Plan (incorporated by reference to
the Company's Form 10-K for the fiscal year ended June 30, 1990,
file number 1-12) IBRF
10(m) Quaker Salaried Employees Compensation and Benefits Protection
Plan (incorporated by reference to the Company's Form 10-K for
the fiscal year ended June 30, 1990, file number 1-12) IBRF
11 Statement re Computation of Per Share Earnings E
12 Statement re Computation of Ratios E
13 Transition Report of The Quaker Oats Company for the transition
period from July 1, 1995 to December 31, 1995 E
21 List of Subsidiaries of the Registrant E
23 Consent of Auditors E
(b) Reports on Form 8-K
(b)(1) 8-K filed November 3, 1995 IBRF
EXHIBIT 21
State of Subsidiary
Incorporation
THE QUAKER OATS COMPANY
ACTIVE DOMESTIC SUBSIDIARIES AS OF 12/31/95
State of
Subsidiary Incorporation
Ardmore Farms, Inc. Pennsylvania
Arnie's Bagelicious Bagels, Inc. Nebraska
Continental Coffee Products Company Delaware
The Gatorade Company Delaware
Gatorade Puerto Rico Company Delaware
Golden Grain Company California
Grocery International Holdings, Inc. Delaware
Liqui-Dri Foods, Inc. Kentucky
Mr. Natural, Inc. Delaware
Pacific Snapple Distributors, Inc. California
QO Acquisition Corp. Delaware
QO Coffee Holdings, Inc. Delaware
Quaker Leasing Corp. Delaware
Quaker Oats Asia, Inc. Delaware
Quaker Oats Europe, Inc. Illinois
Quaker Oats Foreign Sales Corporation Barbados
Quaker Oats Holdings, Inc. Delaware
Quaker Oats Music, Inc. Delaware
Quaker Oats Phillippines, Inc. Delaware
Richardson Foods Corporation New York
Snapple Beverage Corp. Delaware
Snapple Caribbean Corp. Delaware
Snapple Distribution Corp. Delaware
Snapple Finance Corp. Delaware
Snapple International Corp. Delaware
Snapple-Tetley Tea Ventures Corp. Delaware
Snapple-Tetley Tea Ventures, L.P. Delaware
Snapple Worldwide Corp. Delaware
Southwest Snapple Holdings Corp. Delaware
Stokely-Van Camp, Inc. Indiana
ACTIVE FOREIGN SUBSIDIARIES AS OF 12/31/95
Subsidiary Country
Elaboradora Argentina de Cereales, S.A. Argentina
Quaker Oats Australia Limited Australia
The Gatorade Company of Australia Pty. Ltd. Australia
QUIC Ltd. Bermuda
Quaker Brasil Ltda. Brazil
The Quaker Oats Company of Canada Limited Canada
Beverages Gatorade (Chile) Ltda. Chile
Productos Quaker, S.A. Colombia
Quaker Oats Limited England
The Quaker Beverages GmbH Germany
Quaker-Chiari & Forti S.p.A. Italy
Quaker Oats Japan, Ltd. Japan
Quaker Products (Malaysia) Sdn. Bhd Malaysia
Quaker de Mexico, S.A. de C.V. Mexico
Productos Quaker Mexico S.A. de C.V. Mexico
Quaker Oats B.V. The Netherlands
QO Puerto Rico, Inc. Puerto Rico
Quaker Oats Iberia, S.A. Spain
Productos Quaker, C.A. Venezuela
DOMESTIC JOINT VENTURES
Rhone Poulenc The Quaker Oats Company 50%
Rhone Poulenc 50%
Snapple-Tetley Tea Ventures Corp. Snapple Beverage Corp. 50%
Tetley, Inc. 50%
DOMESTIC LIMITED PARTNERSHIPS
Rhode Island Beverage Snapple Beverage Corp. 49.5%
Parking Company L.P. Honickman Trust 49.5%
FOREIGN JOINT VENTURES
Standard Foods Singapore Pte. Ltd. The Quaker Oats Company 51%
(holding company for Chinese company - Standard Foods Taiwan 49%
Suzhou Standard Foods Co.)
Beverages Gatorade (Chile) Limitada Stokely-Van Camp, Inc. 99.9%
The Quaker Oats Company 0.1%
Shanghai Quaker Oats Beverages Co. Ltd. The Quaker Oats Company 80%
Shanghai Bomy Foodstuffs Co. Ltd. 10%
Chou Chin Industrial (H.K.) Ltd. 10%
P.T. AdeS Alfindo Putrasetia The Quaker Oats Company 90%
Indonesia Alfi Gunawan 10%
(President/Director)
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<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> DEC-31-1995 SEP-30-1995
<CASH> 93 174
<SECURITIES> 0 0
<RECEIVABLES> 425 516
<ALLOWANCES> 27 31
<INVENTORY> 307 372
<CURRENT-ASSETS> 1080 1319
<PP&E> 1946 1894
<DEPRECIATION> 778 756
<TOTAL-ASSETS> 4620 4824
<CURRENT-LIABILITIES> 1702 1845
<BONDS> 1052 1055
0 0
100 100
<COMMON> 840 840
<OTHER-SE> 157 236
<TOTAL-LIABILITY-AND-EQUITY> 4620 4824
<SALES> 2733 1554
<TOTAL-REVENUES> 2733 1554
<CGS> 1529 825
<TOTAL-COSTS> 1529 825
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 8 3
<INTEREST-EXPENSE> 58 29
<INCOME-PRETAX> 26 107
<INCOME-TAX> 12 45
<INCOME-CONTINUING> 14 62
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14 62
<EPS-PRIMARY> .09 .45
<EPS-DILUTED> .09 .44
</TABLE>
Exhibit 10 (c)
DEFERRED COMPENSATION PLAN
FOR EXECUTIVES OF THE QUAKER OATS COMPANY
1. PURPOSE
The purpose of this Deferred Compensation Plan (the "Plan") is to offer
certain senior-level employees (the "Executives") of The Quaker Oats
Company (the "Company") the opportunity to defer receipt of their salary
and bonus payments until termination of their service with the Company.
2. DEFINITIONS
a. "Beneficiary" shall mean the entity or person designated from time to
time in writing by a Participant to receive payments under the Plan
after the death of such Participant, or in the absence of an
effective designation or the event that such designated person shall
predecease such Participant, the Participant's estate.
b. "Bonus" shall mean the amount of money which the Executive shall be
awarded periodically under the Management Incentive Bonus program of
the Company.
c. "Cash Unit" shall mean a Deferred Amount and any interest carried
over for the deferral period, which shall be credited with interest,
as set forth in Section 5, during the period of deferral.
d. "Compensation" shall mean (i) the Salary and Bonus payments which the
Executive is eligible to receive from Company for services and (ii)
any amount credited under Section 4 of this Plan.
e. "Deferred Amount" shall mean an amount of Compensation deferred under
this Plan and carried during the deferral period as Cash Units.
f. "ESOP" shall mean The Quaker Employee Stock Ownership Plan.
g. "Participant" shall mean an Executive who has elected to participate
in this Plan.
h. "Salary" shall mean the annual base salary earned from the Company by
the Executive.
i. "Termination of Service" shall mean the termination (by death,
retirement or otherwise) of a Participant's service with the Company
as an employee.
3. DEFERRAL OF COMPENSATION
Each Executive may elect to have any portion of Salary earned for any year
and any portion of Bonus awarded in any year deferred under this Plan;
provided, however, that only Compensation in excess of the maximum amount
of earnings taxable under the Old-Age, Survivors, and Disability Insurance
program of the Federal Social Security Act, as it exists in each calendar
year, may be deferred under this Plan. Such election shall (subject to
the foregoing limitation) specify the percentage or amount of the
Participant's Salary and/or Bonus to be deferred under the Plan and shall
be executed by the Executive on a form prescribed by the Secretary of the
Company as follows: a) for Salary, prior to the beginning of the month in
which such Salary is earned; and b) for Bonus, prior to September 1st of
the year for which the Bonus is being awarded. An election, once made,
shall continue in effect until changed prospectively by the Participant;
provided, however, that an election with respect to Salary may be changed
no more than one time each month, effective as of the beginning of the
next month and an election with respect to a Bonus is irrevocable after
the September 1st referred to in the prior sentence.
4. ADDITIONAL CREDIT AMOUNTS
The Company may elect, at its option, to credit to each Participant's
account certain amounts, or the cash equivalent amounts of any in-kind
contributions, that would have been contributed to the Participant's
account under the ESOP, but for a Participant's participation in this
Plan. Such amounts, if credited, shall be credited as of the dates such
amounts would have otherwise been contributed to the Participant's account
under the ESOP. Amounts credited under this Plan pursuant to this section
shall not be made available in cash to the Participants, except pursuant
to this Plan. These amounts shall be in addition to the amounts described
in Section 3 above and shall be considered "Compensation" for purposes of
this Plan.
5. TREATMENT OF DEFERRED AMOUNTS
The Company shall establish on its books the necessary account to
accurately reflect the Company's liability to each Executive who has
deferred Compensation under this Plan. To this account shall be credited
Deferred Amounts and interest on Cash Units. Payments to the Participant
following Termination of Service shall be debited to the account. Rights
and interests under this Plan may not be assigned.
A Participant who has elected to defer Compensation shall have the amount
of such Compensation credited to the Participant's account as of the same
date that it would otherwise be payable to him. Cash Units (including
Deferred Amounts) shall earn interest from the date of credit to the date
of payment. Interest on Cash Units shall be credited to each
Participant's account as of the last calendar day of each month; the
intent of this being that interest on Cash Units shall be compounded
monthly. The interest rate credited on Cash Units shall be the rate for
the new issue Medium Term "A"-rated industrial bonds listed in the Salomon
Brothers Bond Market Roundup, or by such other recognized source as the
Treasurer of the Company may designate, for the week in which the
preceding month ends.
6. PAYMENT OF DEFERRED AMOUNTS
At the time an Executive first elects to defer Compensation under this
Plan, the Participant shall irrevocably specify, on a form prescribed by
the Secretary of the Company, the number of annual installments (not
exceeding 15) that the Participant desires to receive payment of the
Deferred Amount, and how soon after Termination of Service the Participant
wishes to have payment begin. Payments shall be made in the manner
elected by the Participant, except as provided in Section 7 below. A
Beneficiary shall also be designated on such form; and such Beneficiary
may be changed by the Participant at any time prior to Termination of
Service. If no effective election has been made at the time of
Termination of Service, payment of the entire deferred amount shall be
made to a Participant (or a Beneficiary, if the Participant shall have
died) six months after Termination of Service.
All payments of Deferred Amounts under this Plan shall be made in cash out
of the general assets of the Company, and shall constitute an unfunded
and unsecured promise to pay by the Company. The amount of each annual
installment payment to a Participant shall be determined by dividing the
Cash Units in the Participant's account by the number of installments
remaining to be paid.
7. ACCELERATION OF PAYMENTS
The Secretary of the Company is empowered to accelerate the payment of
Deferred Amounts to a Participant or to all Participants or to a
Beneficiary, whether before or after the Participant's Termination of
Service, for reasons of individual hardship, death, changes in the tax
laws or accounting principles, or other reasons which negate or diminish
the continued value of Deferred Amounts to Participants or to the Company.
8. WITHHOLDING
The Company may withhold taxes, and any other required amounts, including
the Hospital Insurance portion of the Federal Social Security Act, from
the payment of Deferred Amounts or other amounts paid to the Executive.
9. AMENDMENT OR TERMINATION
The Company reserves the right, at any time or from time to time, by
action of its Board of Directors or Executive Committee thereof, to amend
or modify, in whole or in part, or terminate the Plan. No amendment or
termination shall adversely affect any then existing Deferred Amounts or
rights under this Plan.
IN WITNESS WHEREOF, this Plan, as stated, is effective as of March 1, 1996,
and is executed by a duly authorized officer of the Company.
THE QUAKER OATS COMPANY
March 13, 1996 By /S/Douglas J. Ralston
Its Senior Vice President
Exhibit 10 (e) (4)
THIRD AMENDMENT
TO THE
QUAKER OATS COMPANY
STOCK RETIREMENT PLAN FOR OUTSIDE DIRECTORS
WHEREAS, The Quaker Oats Company Stock Retirement Plan for Outside
Directors (the "Plan") was previously adopted, effective September 12, 1984 by
The Quaker Oats Company (the "Company"); and
WHEREAS, the Plan provides that the Board of Directors of the Company (the
"Board") has the power to amend the Plan; and
WHEREAS, the Plan has been previously amended and it is desirable to
further amend the Plan, and the Board has authorized adoption of this Amendment
to the Plan and authorized the officers of the Company to execute any documents
in connection herewith;
NOW, THEREFORE, the Plan is hereby amended effective as of March 1, 1996
by substituting the following language for the title of the Plan, including
substituting this language for "Stock Retirement Plan", where it appears in
Section 1 of the Plan:
"The Quaker Oats Company Stock Compensation Plan for Outside Directors"
IN WITNESS WHEREOF, this Amendment is executed by a duly authorized
officer of the Company.
THE QUAKER OATS COMPANY
March 13, 1996 By:/S/Douglas J. Ralston
Its Senior Vice President
Exhibit 10(f)(4)
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a
New Jersey corporation (the "Company"), and Jeffrey A. Atkins (the
"Executive"), dated this 7th day of February, 1996.
WITNESSETH THAT:
WHEREAS, the Company wishes to attract and retain well-
qualified executive and key personnel and to assure both itself
and the Executive of continuity of management in the event of any
actual or threatened change in control of the Company;
NOW, THEREFORE, it is hereby agreed by and between the
parties as follows:
1. Operation of Agreement. The "effective date of this
Agreement" shall be the date on which the Executive declares
it effective, by notice to the Company in writing, but only
if a change in control of the Company (as defined in Section
2) has occurred on or before the date of the notice.
2. Change in Control. A "change in control of the Company"
shall be deemed to have occurred if:
a. any "Person," which shall mean a "person" as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
voting securities; provided, however, that this paragraph
a. shall not apply to any Person who becomes such a
beneficial owner of such Company securities pursuant to an
agreement with the Company approved by the Company's Board
of Directors (the "Board"), entered into before such
Person has become such a beneficial owner of Company
securities representing 5% or more of the combined
voting power of the Company's then outstanding voting
securities;
b. during any period of 24 consecutive months (not
including any period prior to the execution of this
Agreement), individuals, who at the beginning of such
period constitute the Board, and any new director (other
than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction
described in paragraph a., c.(2) or d. of this Section)
whose election by the Board, or whose nomination for
election by the Company's stockholders, was approved by a
vote of at least two-thirds (2/3) of the directors before
the beginning of the period cease for any reason to
constitute at least a majority thereof;
c. the stockholders of the Company approve (1) a plan of
complete liquidation of the Company or (2) the sale or
disposition by the Company of all or substantially all of
the Company's assets unless the acquirer of the assets or
its directors shall meet the conditions for a merger or
consolidation in subparagraphs d.(1) or d.(2); or
d. the stockholders of the Company approve a merger or
consolidation of the Company with any other company other
than:
(1) such a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 70% of the
combined voting power of the Company's or such surviving
entity's outstanding voting securities immediately after
such merger or consolidation; or
(2) such a merger or consolidation which would
result in the directors of the Company who were directors
immediately prior thereto continuing to constitute at
least 50% of the directors of the surviving entity
immediately after such merger or consolidation.
In this paragraph d., "surviving entity" shall mean only an
entity in which all of the Company's stockholders immediately
before such merger or consolidation become stockholders by
the terms of such merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall include only individuals who were
directors of the Company at the beginning of the 24
consecutive month period preceding the date of such merger or
consolidation, or who were new directors (other than any
director designated by a Person who has entered into an
agreement with the Company to effect a transaction described
in paragraph a., c.(2), d.(1) or d.(2) of this Section) whose
election by the Board, or whose nomination for election by
the Company's stockholders, was approved by a vote of at
least two-thirds (2/3) of the directors before the beginning
of such period.
2
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, for the period
commencing on the effective date of this Agreement and ending
on the earlier to occur of the third anniversary of such
effective date or the 65th birthday of the Executive (the
"employment period"), to exercise such authorities and
powers, and perform such duties and functions, as are
commensurate with the authorities and powers being exercised,
and duties and functions being performed, by the Executive
immediately prior to the effective date of this Agreement,
which services shall be performed at the current location
where the Executive was employed immediately prior to the
effective date of this Agreement or at such other location
within a 30-mile radius of such current location. The
Executive shall not be required to accept any other location.
The Executive agrees that during the employment period he
shall devote his full business time exclusively to his
executive duties as described herein and perform such duties
faithfully and efficiently.
4. Compensation, Compensation Plans, Benefit Plans, Perquisites.
During the employment period and prior to termination
(as defined in Section 5) of the Executive, the Executive
shall be compensated as follows:
a. He shall receive an annual salary which is not less
than his annual salary immediately prior to the effective
date of this Agreement, with the opportunity for
increases, from time to time thereafter, which are in
accordance with the Company's regular practices.
b. He shall be eligible to participate on a reasonable
basis in bonus, stock option, restricted stock and other
incentive compensation plans, which shall provide benefits
comparable to those to which he was provided immediately
prior to the effective date of this Agreement.
c. He shall be eligible to participate on a reasonable
basis in tax-qualified employee benefit plans (including
but not limited to pension, profit sharing and employee
stock ownership plans), and supplemental nonqualified
employee benefit plans relating thereto, which shall
provide benefits comparable to those to which he was
provided immediately prior to the effective date of this
Agreement.
d. He shall be entitled to receive employee benefits
(including, but not limited to, medical and life insurance
benefits) and perquisites which are comparable to those to
which he was provided immediately prior to the effective
date of this Agreement.
5. Termination. "Termination" shall mean either (a) termination
by the Company of the employment of the Executive with the
Company for any reason other than death, physical or mental
incapacity, or cause (as defined below), or (b) resignation
of the Executive upon the occurrence of any of the following
events:
3
(1) a significant change in the nature or scope of the
Executive's authorities, powers, functions, or duties
from those described in Section 3;
(2) a reduction in total compensation from that provided
in Section 4;
(3) the breach by the Company of any other provision of
this Agreement; or
(4) a reasonable determination by the Executive that, as
a result of a change in control of the Company his
position is significantly affected so that he is unable
to exercise the authorities, powers, functions or duties
attached to his position as described in Section 3.
"Cause" means gross misconduct or willful and material breach
of this Agreement by the Executive. No act, or failure to
act, on the Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the action or
omission was in the best interest of the Company.
6. Confidentiality. The Executive agrees that during and after
the employment period, he will not divulge or appropriate to
his own use or the use of others any secret or confidential
information or knowledge pertaining to the business of the
Company, or any of its subsidiaries, obtained during his
employment by the Company or any of its subsidiaries.
7. Severance and Benefit Payments.
a. In the event of termination of the Executive during
the employment period, the Company shall pay the Executive
a lump-sum severance allowance equal to salary and bonus
payments for the following 24 calendar months at the rate
which he would have been entitled to receive in accordance
with Section 4. Such a severance allowance shall be
adjusted to include expected increases to the Executive's
salary and bonus for such period, but shall not be
adjusted on a present value basis.
b. In the event of termination of the Executive during
the employment period, the Company shall also pay the
Executive a lump-sum benefit payment in an amount
equivalent to (1) the benefits he would have accrued or
been allocated under any tax-qualified employee benefit
plan (including but not limited to pension, profit sharing
and employee stock ownership plans) and any nonqualified
supplemental benefit plan relating thereto, maintained by
the Company if he had remained in the employ of the
Company for 24 calendar months after his termination,
which benefits will be paid in addition to the benefits
provided under such plans, and (2) any other employee
benefits (including, but not limited to, coverage under
any medical and life insurance arrangements or programs)
4
to which he would have been entitled under all such
employee benefit plans, programs or arrangements
maintained by the Company if he had remained in the employ
of the Company for 24 calendar months after his
termination. Such a benefit payment shall be adjusted to
include expected increases to the Executive's salary,
bonus and other compensation having an effect on such
benefits for such period, but shall not be adjusted on a
present value basis.
c. The amount of the severance allowance and benefit
payment described in this Section shall be determined and
such payment shall be made as soon as it is reasonably
possible.
d. The severance allowance and benefit payment to be
provided pursuant to this Section 7 shall be in addition
to, and shall not be reduced by, any other amounts or
benefits provided by separate agreement with the
Executive, or plan or arrangement of the Company or its
subsidiaries, unless specifically stipulated in an
agreement which constitutes an amendment to this Agreement
as provided in Section 14.
8. Tax Reimbursement. If any payment to the Executive under
this Agreement or under any other compensation agreement,
plan or arrangement of the Company or its subsidiaries is
subject to an excise tax under section 4999 of the Internal
Revenue Code of 1986, as amended, (the "Code"), the Company
shall pay the Executive an additional amount which is equal
to the amount of such excise tax. The Company will provide
complete compensation and tax data on a timely basis to the
Executive and to an accounting firm or law firm designated by
the Executive in order to enable the Executive to determine
the extent to which any payments under this Agreement or
under any other compensation agreement, plan or arrangement
of the Company or its subsidiaries constitute "parachute
payments" or "excess parachute payments" under section 280G
of the Code. Any additional amount payable under this
Section 8 shall be due and paid no later than ten business
days after the other payment to which such additional payment
relates; provided, however, that if such additional amount
cannot be determined on or before such due date, the Company
shall pay an amount on the due date which it in good faith
estimates to be payable and shall pay the remainder of such
additional amount (together with interest at a rate equal to
120% of the applicable Federal rate determined under Section
1274(d) of the Code) as soon as such amount can be
determined, but no later than 30 days after the date on which
Executive becomes subject to the payment of the excise tax.
9. Mitigation and Set Off. The Executive shall not be required
to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise. The
Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts
owed to the Company by the Executive, any amounts earned by
the Executive in other employment after termination of his
employment with the Company, or any amounts which might have
been earned by the Executive in other employment had he
sought such other employment.
5
10. Arbitration of All Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof, except with respect to Section 8, shall be settled
by arbitration in the City of Chicago in accordance with the
laws of the State of Illinois by three arbitrators appointed
by the parties. If the parties cannot agree on the
appointment, one arbitrator shall be appointed by the Company
and one by the Executive, and the third shall be appointed by
the first two arbitrators. If the first two arbitrators
cannot agree on the appointment of a third arbitrator, then
the third arbitrator shall be appointed by the Chief Judge of
the United States Court of Appeals for the Seventh Circuit.
The arbitration shall be conducted in accordance with the
rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as
provided in this Section 10. Judgement upon the award
rendered by the arbitrators may be entered in any court
having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal
counsel or incur other costs and expenses in connection with
enforcement of his rights under this Agreement, Executive
shall be entitled to recover from the Company his reasonable
attorneys' fees and costs and expenses in connection with
enforcement of his rights (including the enforcement of any
arbitration award in court). Payment shall be made to the
Executive by the Company at the time these attorneys' fees
and costs and expenses are incurred by the Executive. If,
however, the arbitrators should later determine that under
the circumstances the Executive could have had no reasonable
expectation of prevailing on the merits at the time he
initiated the arbitration based on the information then
available to him, he shall repay any such payments to the
Company in accordance with the order of the arbitrators. Any
award of the arbitrators shall include interest at a rate or
rates considered just under the circumstances by the
arbitrators.
11. Notices. Any notices, requests, demands, and other
communications provided for by this Agreement shall be
sufficient if in writing and if sent by registered or
certified mail to the Executive at the last address he has
filed in writing with the Company or, in the case of the
Company, at its principal executive offices.
12. Non-Alienation. The Executive shall not have any right to
pledge, hypothecate, anticipate or in any way create a lien
upon any amounts provided under this Agreement; and no
benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary
acts, or by operation of law. Nothing in this paragraph
shall limit the Executive's rights or powers which his
executor or administrator would otherwise have.
13. Governing Law. The Agreement shall be construed and enforced
according to the Employee Retirement Income Security Act of
1974 ("ERISA"), and the laws of the State of Illinois, other
than its laws respecting choice of law, to the extent not pre-
empted by ERISA.
6
14. Amendment. This Agreement may be amended or cancelled by
mutual agreement of the parties in writing without the
consent of any other person and, so long as the Executive
lives, no person, other than the parties hereto, shall have
any rights under or interest in this Agreement or the subject
matter hereof.
15. Term. Unless the Executive has theretofore declared this
Agreement effective, pursuant to Section 1 of this Agreement,
this Agreement shall terminate (a) March 31, 1998 or (b) when
the Executive has been placed on inactive service by the
Company prior to a change in control of the Company.
16. Successors to the Company. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company.
17. Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of
this Agreement shall be unaffected thereby and shall remain
in full force and effect.
18. Prior Agreement. Any prior Executive Separation Agreement
between the Executive and the Company which has not yet
terminated pursuant to its terms, is cancelled by mutual
consent of the Executive and the Company pursuant to
execution of this Agreement, effective as of the day and year
first above written.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed
in its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Assistant Secretary, all as of the
day and year first above written.
S/JEFFREY A. ATKINS
JEFFREY A. ATKINS
THE QUAKER OATS COMPANY
By S/DOUGLAS J. RALSTON
ATTEST:
S/MARCIA S. LAZ
Assistant Secretary
7
Exhibit 10 (f)(4)
Schedule of Termination Benefit Agreements with Certain Executive Officers
The attached Termination Benefit Agreement is identical in all
material respects to the executive Termination Benefit Agreements
for those executive employees listed below and which have been
omitted from this filing:
Name Execution Date
A. Stephen Diamond February 7, 1996
Scott Gantwerker February 9, 1996
James E. LeGere January 31, 1996
Exhibit 10 (f) (5)
AGREEMENT UPON SEPARATION OF EMPLOYMENT
This Agreement Upon Separation Of Employment ("Agreement") is made and
entered into by and between Philip A. Marineau, his successors, heirs,
administrators, executors, personal representatives and assigns ("Marineau")
and The Quaker Oats Company, its officers, directors, shareholders, employees,
agents, assigns, subsidiaries, divisions, parents, affiliates and successors
("Quaker"), collectively "the parties." The Agreement shall become effective
seven (7) days after it is executed by Marineau.
1. Consideration to Marineau
A. Quaker shall treat Marineau's resignation as "involuntary" for
purposes of The Quaker Officers' Severance Program ("the Program") and The
Quaker Supplemental Executive Retirement Program ("the SERP"). This will
render him eligible for benefits under the Program and the SERP.
B. From December 1, 1996 through November 30, 1997, after severance
payments under the Program have expired, Quaker shall pay Marineau an amount
equal to one year of severance pay under the Program. These payments shall be
made in equal semi-monthly installments, and Marineau shall be credited with
inactive service time while he receives them. These payments are consideration
for the covenants in this Agreement, not ordinary severance pay, and are
something to which Marineau would not be entitled in the absence of this
Agreement.
Specifically, the payments due in December 1996 are part of the
consideration for Marineau's resignation (paragraph 2), waiver of potential
claims (paragraph 3), and miscellaneous agreements contained herein (para-
graph 4). The payments from January 1, 1997 through November 30, 1997 are
solely consideration for the restrictive covenants in paragraph 5 of this
Agreement.
If Marineau dies before November 30, 1997, then any payments that would
have been due to him under this provision were he still alive shall be paid to
his estate in a lump sum, within forty five (45) days of his death. In
addition, while receiving payments under this provision, Marineau also shall
receive the same benefits, such as insurance coverage, that are provided under
the Program.
C. The parties hereby amend the January 13, 1993 Restricted Shares Award
to Marineau, pursuant to which he was awarded 60,000 shares that contingently
vest on January 13, 1997. The number of shares and all other rules governing
the restricted shares shall remain the same, but the Restricted Period for
30,000 of the shares is hereby changed to November 30, 1997 (i.e., they will
not vest until then). The Restricted Period for the remaining 30,000 shares
will expire on January 13, 1997, as originally scheduled.
For purposes of the Restricted Shares Award, as amended, and for purposes
of any outstanding stock options issued to Marineau under the Long Term
Incentive Plan of 1990, Marineau shall be considered employed (on inactive
status) for so long as he receives severance pay under the Program or payments
under paragraph 1(B) of this Agreement. In the absence of this Agreement, none
of the restricted shares or outstanding options would vest, because Marineau's
employment would terminate before the current vesting date. Quaker's agreement
with respect to the restricted shares and options is made solely as
consideration for the restrictive covenants in paragraph 5 of this Agreement.
D. Marineau shall receive the outplacement services, club membership
dues and financial counseling benefits described in Ralston's October 23, 1995
letter, in accordance with Quaker's applicable policies and practice. In
addition, Quaker shall provide Marineau with a "bridge" to retiree medical
benefits, just as if he were covered by paragraph 5(b)(3) of the Quaker
Severance Pay Plan (the "Plan"). Further, as provided in the Plan's bridge
provision, if Marineau makes the COBRA payments necessary to continue his
benefits until he reaches age 55, then he shall be considered eligible for
benefits under the Retiree Health Incentive Plan. Quaker's provision of these
benefits is part of the consideration for Marineau's waiver of potential claims
(paragraph 3).
2. Resignation of Employment
Marineau already has resigned his position as President and Chief
Operating Officer of Quaker, and his position on Quaker's Board of Directors.
He hereby irrevocably resigns his employment with Quaker in any other
capacities, effective November 30, 1995, subject to the inactive status
provisions set forth in paragraph 1. Marineau understands and agrees that his
active employment relationship with Quaker, its parent companies, affiliates
and successors, will be permanently and irrevocably severed as of the effective
date of his resignation. Marineau agrees he shall not attempt to rescind his
resignation, nor apply or otherwise seek reinstatement or reemployment by
Quaker at any time, and that Quaker has no obligation, contractual or
otherwise, to rehire, reemploy or recall him in the future. Marineau further
stipulates that this agreement is sufficient cause for Quaker to deny any
request of rescission, rehire, reemployment or recall.
Marineau agrees that prior to the effective date of his resignation, he
will return all Quaker property, including but not limited to key, office pass,
credit cards, computers, office equipment, sales records and data. Marineau
further agrees that within sixty (60) days after his resignation date, he will
submit all outstanding expenses and clear all advances and his personal advance
account, if any.
3. Waiver & Release
A. Marineau waives, releases and discharges Quaker from any and all
claims and liabilities, demands, actions and causes of action, including
attorneys' fees and costs and participation in a class action lawsuit, whether
known or unknown, fixed or contingent, that he may have or claim to have
against Quaker as of the date of this Agreement. Marineau further covenants
not to file a lawsuit or participate in a class action lawsuit to assert such
claims. Without limitation, Marineau specifically waives all claims for back
pay, future pay or any other form of compensation or income, except as provided
below. This waver includes but is not limited to claims arising out of or in
any way related to Marineau's employment or termination of employment with
Quaker, including age discrimination claims under the Age Discrimination In
Employment Act (as amended), discrimination claims under Title VII of the Civil
Rights Act of 1964 (as amended) or the Americans with Disabilities Act, claims
for breach of contract, and any other statutory or common law cause of action
under state, federal or local law.
However, Marineau does not waive, release, discharge or covenant not to
sue for enforcement of any rights or claims that arise out of conduct or
omissions which occur entirely after the date this Agreement becomes effective.
In addition, he does not waive any rights he may have (as an employee on
inactive status until November 30, 1997 and as a former employee thereafter)
under any of Quaker's fringe benefit or incentive plans (e.g., its pension
plan, the Program, the SERP, the Long Term Incentive Plan of 1990, etc.), nor
does he waive his right to payment for unused vacation, if any, pursuant to
Quaker's vacation policy. Notwithstanding anything to the contrary in
paragraph 9, such benefits shall continue to be governed by separate ERISA
plans, existing contracts and/or Quaker policies (except that the Restricted
Share Award is hereby amended pursuant to paragraph 1(C)).
B. Quaker waives, releases and discharges Marineau from any and all
claims and liabilities, demands, actions and causes of action, including
attorneys' fees and costs, that it may have or claim to have against Marineau
as of the date this Agreement becomes effective; provided, this waiver, release
and discharge only apply to claims as to which Quaker's senior officers were
aware, on or before the effective date of this Agreement, of all material facts
necessary to establish Marineau's liability; and further provided, Quaker does
not waive, release, discharge or covenant not to sue for enforcement of any
rights or claims that arise out of conduct or omissions which occur entirely
after the date this Agreement becomes effective.
C. The parties stipulate that nothing contained in this Agreement shall
be construed as an admission by either of them of any liability, wrongdoing or
unlawful conduct. It is understood that both Quaker and Marineau deny any
liability, wrongdoing or unlawful conduct, and each is providing consideration
for this waiver and release solely in order to resolve any disputes between
them amicably and to avoid the expense of potential litigation.
4. Miscellaneous agreements
The covenants and agreements set forth in this paragraph shall remain in
effect until November 30, 1997:
A. Marineau shall provide accurate information or testimony or both in
connection with any legal matter if so requested by Quaker. He shall make
himself available upon request to provide such information and/or testimony, in
a formal and/or an informal setting in accordance with Quaker's request,
subject to reasonable accommodation of his schedule and reimbursement of
reasonable expenses, including reasonable and necessary attorney fees (if
independent legal counsel is reasonably necessary).
B. Marineau shall cooperate with media requests for interviews regarding
his termination and/or Quaker, unless directed otherwise by Quaker in a
particular instance. He shall not disparage The Quaker Oats Company, its
products, or any of its directors, officers or employees in these interviews,
nor in any other private or public setting; provided, if Marineau is compelled
to provide testimony under oath, such testimony shall be protected by the same
privilege that would apply to a defamation claim.
C. The Quaker Oats Company, and any officer or director acting on its
behalf, shall answer all reference inquiries directed to The Quaker Oats
Company regarding Marineau by stating only his positions held, compensation and
dates of employment. No additional information shall be provided unless
authorized in advance, in writing, by Marineau. Marineau agrees to direct all
requests for references to the highest ranking Human Resources officer within
Quaker.
5. Prohibited Conduct During First Two Years Following Termination
A. Marineau covenants and agrees that from December 1, 1995 through
November 30, 1997, he shall not engage in any of the following activities
anywhere in the world:
i. Non-competition. Marineau shall not accept any employment,
consulting position or ownership interest which involves his Participation in
the management of a business entity that markets, sells, distributes or
produces Covered Products, unless that business entity's sole involvement with
Covered Products is that it makes retail sales or consumes Covered Products,
without competing in any way against Quaker.
a. "Participation" shall be construed broadly to include,
without limitation: (1) holding a position in which he directly manages such a
business entity; (2) holding a position in which anyone else who directly
manages such a business entity is in Marineau's reporting chain or chain-of-
command (regardless of the number of reporting levels between them); (3)
providing input, advice, guidance, or suggestions regarding the management of
such a business entity to anyone responsible therefor; (4) providing a
testimonial on behalf of such a business entity or the product it produces; or
(5) doing anything else that clearly falls within a common sense definition of
the term "participate" as used in the present context.
b. "Covered Products" mean any product which falls into one or
more of the following categories, so long as Quaker is producing, marketing,
distributing, selling or licensing such product anywhere in the world: non-
carbonated beverages other than dairy or alcoholic beverages, including without
limitation sports drinks, premium iced tea and juice drinks; hot cereals;
pancake mixes; grain-based snacks (which do not include potato chips); value-
added rice products; pancake syrup; value-added pasta products; ready-to-eat
cereals; dry pasta products; items Quaker produces for the food service market;
and frozen waffles, pancakes and french toast.
ii. Raiding Employees. Marineau shall not in any way, directly or
indirectly (including through someone else acting on Marineau's recommendation,
suggestion, identification or advice), facilitate or solicit any existing
Quaker employee to leave the employment of Quaker or to accept any position
with any other company or corporation. For purposes of this provision, the
following definitions apply:
a. "Existing Quaker employee" means someone: (1) who is
employed by Quaker on the date when Marineau's Quaker employment terminates;
(2) who is still employed by Quaker as of the date when the facilitating act or
solicitation takes place; and (3) who holds a manager, director or officer
level position at Quaker (or an equivalent position based on job duties and/or
Hay points, regardless of the employee's title).
b. The terms "solicit" and "facilitate" shall be given the
ordinary, common sense meaning appropriate in the present context.
iii. Non-disclosure. Marineau shall not use or disclose to anyone
any confidential information regarding Quaker. For purposes of this provision,
the term "confidential information" shall be construed as broadly as Illinois
law permits and shall include all non-public information Marineau acquired by
virtue of his positions with Quaker which might be of any value to a competitor
or which might cause any economic loss (directly or via loss of an opportunity)
or substantial embarrassment to Quaker or its customers, distributors or
suppliers if disclosed. Examples of such confidential information include,
without limitation, non-public information about Quaker's customers, suppliers,
distributors and potential acquisition targets; its business operations and
structure; its product lines, formulas and pricing; its processes, machines and
inventions; its research and know-how; its financial data; and its plans and
strategies.
B. In the event of a breach or threatened breach of any term of this
paragraph by Marineau, Quaker shall be entitled to an injunction compelling
specific performance, restraining any future violations and/or requiring
affirmative acts to undo or minimize the harm to Quaker, in addition to damages
for any actual breach that occurs. The parties stipulate and represent that
breach of any provision of this paragraph would cause irreparable injury to
Quaker, for which there would be no adequate remedy at law, due among other
reasons to the inherent difficulty of determining the precise causation for
loss of customers, confidential information and/or employees and of determining
the amount and ongoing effects of such losses.
C. In the event Marineau breaches any term of this paragraph, Quaker
shall have the option of seeking injunctive relief or terminating all remaining
payments due under paragraph 1(B) of this Agreement, except payments due in
December 1996 (which cannot be terminated). Terminating payments due under
paragraph 1(B) would have the effect of terminating Marineau's inactive
employment status and, accordingly, would prevent the restricted shares and
stock options discussed in paragraph 1(C) from vesting.
D. In the event Quaker elects to pursue injunctive relief, then the
following rules shall apply:
i. While litigation over the requested injunction is pending,
Quaker may, in its discretion, withhold payments otherwise due to Marineau
pursuant to paragraph 1(B), except that payments due in December 1996 cannot be
withheld. Marineau's employment shall be terminated (i.e., he will cease to be
considered employed on inactive status) as soon as Quaker sends notice that it
intends to terminate remaining payments under paragraph 1(B), which means that
outstanding restricted shares and stock options would not vest.
ii. If , at the conclusion of the litigation, Quaker successfully
obtains full injunctive enforcement of all provisions in this paragraph 5 that
it attempts to enforce, then Quaker shall pay Marineau all amounts otherwise
due under paragraph 1(B) that were withheld, shall resume making all payments
required under paragraph 1(B), and shall retroactively restore Marineau's
status as an inactive employee on all dates for which payments were withheld
(which may result in retroactive vesting of the restricted shares and/or
options).
iii. If, at the conclusion of the litigation, Quaker obtains some,
but not all, of the injunctive relief it seeks under this paragraph, then
Quaker shall make an election. It may either accept the injunction and proceed
as specified in subparagraph (ii) above, or it may elect to voluntarily vacate
and/or not enforce the injunction, in which event it shall have no obligation
to resume paying Marineau under paragraph 1(B), nor to pay withheld amounts,
nor to retroactively restore his inactive employment status.
iv. If a court entirely declines to enforce paragraph 5 of this
Agreement or holds it invalid or void, then Quaker shall have no further
obligation to pay Marineau under paragraph 1(B), including sums withheld while
litigation was pending, and shall not retroactively reinstate his inactive
employment status.
v. If a court holds that the provisions of paragraph 5 are
enforcible, but further finds that Marineau did not breach any of them, then
Quaker shall pay Marineau all amounts otherwise due under paragraph 1(B) that
were withheld, shall resume making all payment required under paragraph 1(B),
and shall retroactively reinstate his inactive employment status.
vi. If Marineau's inactive employment status is retroactively
reinstated and that reinstatement results in the vesting of restricted shares
or stock options, he shall have no claim against Quaker for any change in the
value of said shares or options between the date when the shares/options would
have vested but for the withholding and the date when the retroactive
reinstatement occurs.
vii. For purposes of this paragraph, litigation shall not be deemed
to have concluded until all potential appeals by all parties are waived or
exhausted.
E. Recitals: Employee stipulates and represents that the following
facts are true, and further understands and agrees that they are material
representations upon which Quaker is relying in entering into this Agreement:
i. Marineau has been the President and Chief Operating Officer of
Quaker for several years, and was a key executive before then. In these
positions, he participated in forming and/or was informed about the details of
operational plans and strategic long range plans for Quaker as a whole and each
of its operating units. Without limitation, he has detailed knowledge
regarding business plans, new product development, merger and acquisition
plans, pricing structure for all of Quaker's products, marketing plans, sales
plans, distribution plans, supply chain plans, plans to realign business units
within Quaker, and plans to integrate Snapple into Quaker. This is: (1)
information Marineau gained by virtue of his employment at Quaker; (2) highly
confidential and secret information from which Quaker derives economic value,
actual or potential, from its not being generally known to other persons
outside Quaker who could obtain economic value from its disclosure or use; (3)
information known within Quaker only to key employees and those who need to
know it to perform their jobs; (4) information regarding which Quaker has taken
reasonable measures to preserve its confidentiality; (5) information that could
not easily be duplicated by others, and which Quaker required considerable time
and effort to develop; and (6) information which is likely to remain valuable
and secret for at least two years.
ii. By virtue of his employment at Quaker, Marineau has developed
personal and business relationships with existing Quaker employees, which he
otherwise would not have had. By virtue of his position, he also has acquired
knowledge as to which existing Quaker employees are critical to Quaker's
success and future plans, and which ones have skills or contacts that would be
valuable to a competitor.
6. Advance Determination of Permitted/Prohibited Conduct
Marineau may request an advance written determination from Quaker's
highest ranking human resources officer as to whether taking a proposed action
or job would, in Quaker's opinion, constitute a breach of this Agreement. In
that event, and provided that Marineau discloses in writing all material facts
about the proposed action or job, the advance written determination shall be
made as soon as practicable in the circumstances, without any unreasonable
delay or withholding; PROVIDED, that if circumstances materially change after
the advance determination is made (e.g., if the duties of a job change after
Marineau accepts it), the determination may be reconsidered and
revised/reversed upon thirty days advance written notice to Marineau.
7. Independence of SERP
No definition contained in this Agreement, nor any determination made by
Quaker or a court in construing this Agreement, in advance or after-the-fact,
shall limit, bind or in any way constrain the Compensation Committee in making
determinations under The Quaker Supplemental Executive Retirement Program ("the
SERP").
8. Choice of Law And Forum; Attorney Fees
A. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, without giving effect to choice of law
principles.
B. In the event of any litigation over this Agreement or an alleged
breach thereof, Marineau consents to submit to the personal jurisdiction of any
court, state or federal, in the State of Illinois. The parties agree that the
Illinois courts, state or federal, shall be the exclusive jurisdiction for any
litigation over this Agreement or an alleged breach thereof.
C. In the event either party breaches this Agreement, in addition to any
damages, injunction, or other relief awarded by a court, the party in violation
of this Agreement shall reimburse the other party for its litigation costs and
expenses including reasonable attorney fees.
9. Full Agreement
This written document contains the entire understanding and agreement of
the parties on the subject matter set forth herein, and supercedes any prior
agreement relating to these matters. No promises or inducements have been made
other than those reflected herein, and no party is relying on any statement or
representation by any person except those set forth herein, including without
limitation oral or written summaries of this Agreement.
This Agreement cannot be modified or altered except by a subsequent
written agreement signed by the parties; and only Quaker's highest ranking
Human Resources officer or his direct superior shall have authority to sign
such an amendment on behalf of Quaker.
Without limitation, nothing in this document shall eliminate or reduce
Marineau's obligation to comply with the Quaker Code of Ethics, to the extent
that certain provisions in the Code (such as non-disclosure rules) remain
applicable to employees after termination. Likewise, nothing in this document
shall eliminate or reduce Quaker's obligation to indemnify Marineau in certain
situations, pursuant to Quaker's by-laws or applicable law.
10. Severability
Each term of this Agreement is deemed severable, in whole or in part, and
if any provision of this Agreement or its application in any circumstance is
found to be illegal, unlawful or unenforceable, the remaining terms and
provisions shall not be affected thereby and shall remain in full force and
effect, except as expressly provided below.
Unless Quaker consents, the provisions in paragraph 5 of this Agreement
are not severable from each other or from the provisions designated as
consideration for the covenants in paragraph 5. If any provision or aspect of
paragraph 5 is held invalid, illegal, unlawful or unenforceable, then there is
no consideration for payments under paragraph 1(B) covering January 1, 1997
through November 30, 1997, nor for treating Marineau as employed on inactive
status during that time period; PROVIDED, if any provision in paragraph 5 is
invalid or broader than the law allows, a court is authorized to award the
broadest injunctive relief permitted by law, and Quaker shall thereafter make
its election pursuant to paragraph 5(D)(iii) -- if Quaker elects to accept the
limited injunctive relief, then it shall consent to sever the invalid
provision(s). Quaker's consent to sever one or more provisions in paragraph 5
may be given at any time: before, during, or after litigation, in Quaker's
sole discretion.
The Quaker Oats Company
/sic/D. Ralston
By its Senior Vice President
MARINEAU HAS BEEN ADVISED IN WRITING, VIA THIS NOTICE, TO CONSULT WITH AN
ATTORNEY BEFORE SIGNING THIS AGREEMENT. HE ACKNOWLEDGES THAT HE RECEIVED IT ON
October 23, 1995, AND THAT SINCE THAT TIME HE HAS REVIEWED IT; CONSULTED WITH
AN ATTORNEY, AND NEGOTIATED SEVERAL CHANGES WITH QUAKER. MARINEAU FURTHER
ACKNOWLEDGES THAT THIS AGREEMENT WAS RE-TYPED AND RE-SIGNED BY QUAKER TO
INCORPORATE THE CHANGES HE NEGOTIATED, RATHER THAN INSERTING THE CHANGES IN THE
ORIGINAL DOCUMENT BY HAND OR ADDING AN ADDENDUM TO THE ORIGINAL DOCUMENT.
MARINEAU UNDERSTANDS THAT HE HAS TWENTY EIGHT (28) DAYS FROM October 23, 1995
TO CONSIDER AND DECIDE WHETHER TO SIGN THE AGREEMENT. MARINEAU FURTHER
UNDERSTANDS THAT HE MAY RESCIND THE AGREEMENT WITHIN SEVEN (7) DAYS AFTER
SIGNING IT. MARINEAU AFFIRMS THAT HE HAS CAREFULLY READ AND FULLY UNDERSTANDS
ALL PROVISIONS OF THIS AGREEMENT, THAT THE CONSIDERATION HE IS RECEIVING IS
FAIR AND ADEQUATE, AND THAT HE HAS NOT BEEN THREATENED OR COERCED INTO SIGNING
IT.
/sic/November 20, 1995 /sic/Philip A. Marineau
Philip A. Marineau
EXHIBIT 11
THE QUAKER OATS COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Calculation of Fully Diluted Earnings Per Share
Dec 31, June 30, June 30,
1995 (1) 1995 1994
Dollars in Millions (Except Per ShareData)
Income Before Cumulative Effect of
Accounting Changes $13.7 $ 806.1 $ 231.5
Less: ESOP Convertible Preferred Stock
Dividends (2.0) -- --
Less: Adjustments attributable to
conversion of ESOP Convertible
Preferred Stock -- (1.1) (1.5)
Income Before Cumulative Effect of
Accounting Changes Used for
Fully Diluted Calculation 11.7 805.0 230.0
Cumulative Effect of Accounting Change -
net of tax -- (4.1) --
Net Income Used for Fully Diluted Calculation $11.7 $ 800.9 $ 230.0
Shares in Thousands
Average Number of Common Shares Outstanding 134,355 133,763 135,236
Plus Dilutive Securities:
Stock Options 1,321 1,575 1,716
ESOP Convertible Preferred Stock -- 2,631 2,676
Average Shares Outstanding Used for
Fully Diluted Calculation 135,676 137,969 139,628
Fully Diluted Earnings Per Share Before
Cumulative Effect of Accounting Changes $0.09 $5.83 $1.65
Fully Diluted Cumulative Effect of
Accounting Change -- (0.03) --
Fully Diluted Earnings Per Share $0.09 $5.80 $1.65
(1) The computation of fully diluted earnings per share should
not give effect to common stock equivalents for any period in
which their inclusion would have the effect of increasing the
earnings per share amout otherwise computed. Therefore, ESOP
Convertible Preferred Stock should be excluded from the
computation of fully diluted earnings per share for December 31,
1995.
EXHIBIT 12
THE QUAKER OATS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Year Ended
Dec. 31, 1995 Jun 30, 1995
Earnings:
Income from Continuing Operations
Before Income Taxes and Cumulative
Effect of Accounting Changes $25.6 $1,359.9
Add Fixed Charges, net of capitalized interest 64.4 132.4
Earnings $90.0 $1,492.3
Fixed Charges :
Interest on Indebtedness $62.1 $ 122.7
Portion of rents representative of the
interest factor 5.6 11.7
Fixed Charges $67.7 $ 134.4
Ratio of Earnings to Fixed Charges (a) 1.33 11.10
(a) For purposes of computing the ratio of earnings to fixed
charges, earnings represent income from continuing operations
before income taxes and cumulative effect of accounting changes
plus fixed charges (net of capitalized interest). Fixed charges
represent interest (whether expensed or capitalized) and one-
third (the portion deemed representative of the interest factor)
of rents.
Exhibit 13.1
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
Transition Period Ended December 31, 1995 Compared to
Prior Period Ended December 31, 1994
Transition Period Summary
This report discusses the six-month transition period ended December 31, 1995
("transition period"), as the Company changes from a June 30 fiscal-year end to
a fiscal year aligned with the calendar year beginning January 1, 1996.
Presentation
The comparisons of the results for the six months ended December 31, 1995 to
those of the six months ended December 31, 1994 ("prior period") are affected
by the significant changes the Company has made in its portfolio of businesses
since November 1994. Specifically, the Company acquired Adria pasta and
Snapple beverages in November and December 1994, respectively. The Company
also divested the following businesses between March and June 1995: U.S. and
Canadian pet food, U.S. bean and chili, European pet food, Mexican chocolate
and Dutch honey. Because of these major transactions, comparative six-month
financial results are more difficult to analyze. To aid in the analysis, this
discussion will compare financial results as reported, then break out the
impact of divested businesses, discuss the effect of significant acquisitions
and compare "ongoing" business results. Ongoing business results will exclude
the impact of acquisitions and divestitures on both periods' financial results
and the restructuring charges on the transition period's results. The
following table illustrates the impact that the portfolio changes and
restructuring charges had on sales and operating income:
Dollars in Millions Net Sales Operating Income
Transition Prior Transition Prior
Period Period Period Period
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/95 12/31/94
U.S. and Canadian Grocery Products:
Ongoing businesses $1,888.7 $1,823.0 $ 219.2 $ 185.8
Acquired businesses 276.9 25.0 (49.2) (0.2)
Divested businesses -- 354.7 -- 22.5
Restructuring charge -- -- (24.4) --
Total $2,165.6 $2,202.7 $ 145.6 $ 208.1
International Grocery Products:
Ongoing businesses $ 505.5 $ 464.8 $ (7.4) $ 8.0
Acquired businesses 62.0 9.0 (16.1) (0.3)
Divested businesses -- 467.8 -- 25.2
Restructuring charge -- -- (16.4) --
Total $ 567.5 $ 941.6 $ (39.9) $ 32.9
Total Company:
Ongoing businesses $2,394.2 $2,287.8 $ 211.8 $ 193.8
Acquired businesses 338.9 34.0 (65.3) (0.5)
Divested businesses -- 822.5 -- 47.7
Restructuring charges -- -- (40.8) --
Total $2,733.1 $3,144.3 $ 105.7 $ 241.0
Note: Operating income includes certain allocations of overhead
expenses.
"Ongoing businesses": includes the results of all of the Company's
businesses not reported as either acquired or divested businesses.
"Acquired businesses": includes Adria pasta and Snapple
beverages business results since dates of acquisition.
"Divested businesses": includes prior period business results for
the following businesses: U.S. and Canadian pet food and U.S.
bean and chili (U.S. and Canadian Grocery Products), and European pet
food, Mexican chocolate, and Dutch honey (International Grocery
Products).
30
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
The Snapple Acquisition
The acquisition of Snapple beverages in December 1994 for a tender-offer price
of $1.7 billion was the largest in the Company's history. Its first-year
performance fell significantly short of expectations. Since its acquisition,
the Company has worked to upgrade Snapple beverages' manufacturing standards,
integrate its order-entry and accounting systems, improve the efficiency and
effectiveness of its advertising and merchandising (A&M) programs and improve
distributor communications. However, combined with increased competition,
these activities were neither sufficient nor prompt enough to allow Snapple
beverages to achieve profitable growth in the calendar 1995 beverage season.
Snapple beverages operated at a loss of $85.2 million during the transition
period. The Snapple beverage operating loss includes a restructuring charge of
$24.4 million to reduce excess contract manufacturing capacity, and an
inventory charge of $19.1 million for excess and obsolete ingredients, labels,
packaging and finished product.
In regard to key financial ratios, the inclusion of Snapple beverages lowers
the Company's overall gross profit margin because of its external manufacturing
and distribution networks. However, because of the shared nature of its
merchandising expenses, the Snapple beverage business also had an A&M-to-sales
ratio that is lower than the Company-wide historical average.
Improving the financial results of the Snapple beverage business is the
greatest challenge facing the Company. This will require achieving significant
profitable sales growth. Achieving such growth is dependent on successful
execution of new marketing and distribution strategies and is critical to the
future success and value of the Snapple beverage business. The acquisition of
Snapple beverages added $1.8 billion in intangible assets to the Company's
balance sheet as of December 31, 1995. The Company has evaluated the
recoverability of Snapple beverages' long-lived assets, including intangible
assets, as of December 31, 1995 using its best estimates of undiscounted future
cash flows, and believes that the net carrying value of $1.9 billion is
consistent with the Company's accounting policies and the requirements of
Financial Accounting Standards Board (FASB) Statement #121 as outlined in the
section entitled "Current and Pending Accounting Changes" in this Management's
Discussion and Analysis. The estimate of future cash flows is subject to
change and management's intention is to periodically assess the recoverability
of long-lived assets using a consistent methodology.
Operating Results
Consolidated net sales during the transition period were $2.73 billion, down 13
percent from the prior period, primarily due to the absence of sales from
divested businesses which contributed $822.5 million during the prior period.
Sales from Snapple beverages (acquired on December 6, 1994) contributed $298.1
million in sales during the transition period as compared to $25.0 million in
the prior period. Ongoing business sales (excluding divested and acquired
businesses from the comparison) of $2.39 billion increased 5 percent due
primarily to substantial increases in Worldwide Gatorade thirst quencher and
Brazilian foods. These increases more than offset declines in European
cereals, U.S. ready-to-eat cereals and frozen foods. Price increases did not
have a significant impact on sales.
U.S. and Canadian Grocery Products sales decreased 2 percent to $2.17 billion.
Excluding divested business sales from the comparison, sales increased 17
percent. This growth was driven mainly by the addition of Snapple beverages.
For ongoing businesses, sales increased 4 percent on a volume increase of 6
percent due primarily to increases in Gatorade thirst quencher sales and volume
of 17 percent and 15 percent, respectively. The increase in Gatorade thirst
quencher is due to new packaging, new flavors and warmer weather. Sales also
increased in Canadian foods, Golden Grain, grain-based snacks and hot cereals,
but were partially offset by declines in ready-to-eat cereals and frozen foods.
While sales increased during the period in the hot cereal business, private-
label competition increased and is expected to continue.
International Grocery Products sales decreased 40 percent to $567.5 million,
mainly due to the absence of sales from divested businesses, which totaled
$467.8 million during the prior period. Excluding divested business results
from the comparison, sales increased 20 percent. The newly acquired Adria pasta
and Snapple beverage businesses added $53.0 million in sales compared to the
prior period. Sales from ongoing businesses increased 9 percent compared to
31
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
the prior period due to increases in: Brazil, reflecting an improved economy in
that country; Italian products, which was sold in January 1996; and
Asia/Pacific grain-based foods. European and Mexican foods and Mexican
Gatorade thirst quencher experienced declines. Overall, however, international
Gatorade thirst quencher sales increased 13 percent. Transition period sales
from the Mexican business would have been approximately $28 million higher if
they had been translated into U.S. dollars using the prior period foreign
currency exchange rates. With the exception of Mexico, foreign currency
exchange rate fluctuations did not significantly impact sales.
Gross profit margin was 44.0 percent compared to 48.6 percent in the prior
period primarily due to product mix changes resulting from the portfolio
changes, particularly due to the inclusion of Snapple beverages and an
inventory charge of $19.1 million pertaining to that business. Raw coffee
bean price and manufacturing cost increases reduced the gross profit
margin in the food service business. In addition, for other ongoing businesses,
costs increased for oats, wheat and packaging.
Selling, general and administrative (SG&A) expenses declined $244.4 million, or
18 percent due mainly to a 24 percent decrease in A&M expenses. A&M expenses
were 24.1 percent of sales in the transition period, down from 27.7 percent in
the prior period. The Company anticipates making changes in its future A&M
programs with the intention of increasing profitability. The Company spent
just over $200 million in A&M to support divested businesses in the prior
period. During the transition period, increased efficiency in A&M spending for
ongoing businesses offset increases to support Snapple beverages and the
continued expansion of grain-based foods and beverages in the Asia/Pacific
region. SG&A in the prior period included a charge of $18.4 million for
estimated litigation costs related to a 1984 trademark lawsuit, which was
settled during the transition period. See Note 18 to the consolidated
financial statements for further discussion.
Consolidated operating income was $105.7 million compared to $241.0 million
last year. Divested businesses contributed $47.7 million of operating income
in the prior period. Acquired businesses reported an operating loss of $89.7
million in the transition period, including the $24.4 million restructuring
charge to reduce Snapple beverages' contract manufacturing capacity. Operating
income from ongoing businesses increased 9 percent to $211.8 million compared
to $193.8 million in the prior period.
U.S. and Canadian Grocery Products' operating income was $145.6 million versus
$208.1 million in the prior period. The decrease reflects the operating loss
from Snapple beverages, the restructuring charge associated with that business,
and the absence of $22.5 million of operating income from divested businesses.
Ongoing U.S. and Canadian Grocery Products businesses reported an increase in
operating income of 18 percent. This increase reflects significant
improvements in Gatorade thirst quencher, ready-to-eat cereals, Aunt Jemima and
frozen foods.
International Grocery Products reported an operating loss of $39.9 million
compared with operating income of $32.9 million in the prior period. Divested
businesses contributed operating income of $25.2 million in the prior period.
Transition period results also include a restructuring charge of $16.4 million.
Operating losses were incurred by the Adria pasta and the international
Gatorade thirst quencher businesses and to underwrite the expansion of the
recently acquired Snapple beverage business. Excluding the restructuring
charge and the impact of recently divested and acquired businesses,
International Grocery Products reported an operating loss of $7.4 million
versus $8.0 million in operating income in the prior period. The decline in
ongoing businesses' operating income is primarily due to the underwriting costs
associated with the expansion of the Asia/Pacific grain-based food and beverage
businesses as well as declines in the Italian products business.
Restructuring Charges
The Company's cost-reduction and realignment activities announced in fiscal
1995 and 1994 are proceeding as planned. The programs announced during the
transition period and during fiscal 1995 are intended to address the changes in
the Company's portfolio and to allow the Company to respond quickly and
effectively to the needs of trade customers and consumers. The Company will
continue to focus on worldwide efficiencies and customer service processes with
the intent of lowering costs and more effectively utilizing human and financial
resources.
32
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
Restructuring charges of $40.8 million were recorded in the quarter ended
December 31, 1995. As described in Note 3 to the consolidated financial
statements, these charges included $24.4 million related to reducing the amount
of contract manufacturing capacity in Snapple beverages' supply chain system.
The remaining $16.4 million restructuring charge is for realignment of the
European beverage and Asia/Pacific grain-based food businesses. These
restructuring actions will result in the elimination of about 80 positions and
allow the Company to focus on the more attractive growth areas in Southern
Europe and China. Anticipated cash expenses totaling $35.1 million were for
costs related to the reduction of Snapple beverages' contract manufacturing
capacity, severance to terminated employees in Europe and Asia/Pacific, and
European beverage A&M contract cancellation fees. Non-cash asset write-offs
related to consolidation of office facilities in the European beverage and
Asia/Pacific grain-based food businesses totaled $5.7 million. Estimated
savings from the transition period restructuring activities are expected to be
about $15 million annually beginning in 1996. Approximately 90 percent of these
savings will be in cash. See the Fiscal 1995 Compared with Fiscal 1994 section
for discussion of fiscal 1995 restructuring charges.
Interest, Foreign Exchange and Income Taxes
Net financing costs (net interest expense and foreign exchange losses) were
$59.3 million, an increase of $18.9 million versus the prior period. This
increase is primarily due to increased interest expense resulting from
borrowings related to the Company's fiscal 1995 acquisitions.
With the divestiture of the European pet food business and the January 1996
divestiture of the Italian products business, the Company's exposure to
European foreign currency fluctuations is significantly reduced. The majority
of the Company's international business is now in Latin American countries like
Brazil, where hedging opportunities are more limited. The Company finances
these businesses with equity, local currency borrowings, U.S. dollar-
denominated debt, parent company loans or a combination of all four. The mix
of financing in hyper-inflationary countries has an impact on the level of
interest expense as well as the resulting foreign exchange translation gains or
losses incurred when foreign balance sheets are converted into U.S. dollars.
The effective tax rate for the transition period ended December 31, 1995 was
46.5 percent compared to 41.9 percent in the prior period. The increase in the
effective tax rate is due primarily to the lower income tax rate for the
restructuring charges and the magnitude of the restructuring charges in
relation to net income. Excluding the income tax effect of transition period
restructuring charges, the effective tax rate for the transition period was
42.5 percent. 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.
Fiscal 1995 Compared with Fiscal 1994
See Note 2 to the consolidated financial statements for sales and operating
income from the businesses divested in fiscal 1995 through the divestiture
dates.
Operating Results
Consolidated net sales for fiscal 1995 were $6.37 billion, up 7 percent from
fiscal 1994. The increase in net sales reflects a 10 percent worldwide
increase in volume, including acquisitions and divestitures, and a favorable
impact of translating European currencies into U.S. dollars. Sales for fiscal
1995 would have been $96.7 million lower if European exchange rates had
remained stable with the prior year. Price increases did not have a
significant impact on sales. Businesses divested during the year contributed
$1.32 billion in sales.
U.S. and Canadian Grocery Products sales increased 9 percent to $4.62 billion
on a volume increase of 12 percent. Sales and volume growth were driven mainly
by the acquisition of Snapple beverages in December 1994 and by increases in
Gatorade thirst quencher, food service and grain-based snacks, partly reduced
by decreases in hot cereals and the divestitures of the pet food and bean and
chili businesses, which were completed in March 1995 and in June 1995,
33
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
respectively. Gatorade thirst quencher volume grew 7 percent despite the fact
that two major soft drink competitors broadened the distribution of their
sports beverages throughout the United States, which is currently Gatorade
thirst quencher's largest market. Hot cereals sales were 10 percent lower than
in the prior year primarily due to continued volume weakness caused by warm
winter weather and increased competition from private-label products.
International Grocery Products sales increased 2 percent to $1.74 billion.
Volume increased 6 percent, primarily in Gatorade thirst quencher throughout
Asia/Pacific and Latin America. Volume also increased in Brazil due to the
November 1994 acquisition of the Adria pasta business and the positive effects
of the new economic plan in that country. These increases more than offset
declines due to the divestitures of the European pet food and Mexican chocolate
businesses in the fourth quarter of fiscal 1995.
Gross profit margins decreased to 46.9 percent from 50.9 percent in the prior
year primarily due to the inclusion of the Snapple beverage business. Because
of its use of external manufacturing and distribution networks, Snapple
beverages' gross profit margin was inherently lower than the Company's
historical average. In addition, packaging costs in the United States reduced
Gatorade thirst quencher gross profit margin while raw coffee bean price and
manufacturing cost increases reduced the gross profit margin in the food
service business.
SG&A expenses rose 7 percent to $2.60 billion due mainly to a 6 percent
increase in A&M expenses. A&M expenses were 26.3 percent of net sales in
fiscal 1995, down slightly from 26.6 percent in fiscal 1994. Significant
spending increases occurred within the U.S. Gatorade thirst quencher business
as the Company focused on growing in a highly competitive market, and in the
cereal, Aunt Jemima, Golden Grain and frozen food businesses where
merchandising spending increased. As a result, profits declined in each of
these product lines. SG&A expenses for fiscal 1995 included a provision of
$29.0 million for estimated costs related to a 1984 trademark lawsuit involving
Gatorade thirst quencher advertising.
Consolidated operating income was $1.55 billion compared to $537.2 million in
the prior year. Excluding gains on divestitures and restructuring charges in
both years, operating income was $456.0 million compared to $645.8 million. On
that same basis, U.S. and Canadian Grocery Products operating income was $417.6
million versus $543.8 million in fiscal 1994. The decrease of 23 percent
reflects significant profit declines due to the divestitures of the pet food
and bean and chili businesses and due to significant spending increases as
discussed above. These profit declines were partially offset by the increase
in operating income in grain-based snacks.
International Grocery Products operating income was $575.6 million compared to
$106.3 million in fiscal 1994. Excluding gains on divestitures and
restructuring charges in both years, operating income decreased to $38.4
million from $102.0 million in the prior year. The decrease was mainly due to
lower operating income in Brazil, which was primarily caused by the effects of
reduced inflation and currency changes. However, net financing costs in that
country declined to a level that more than offset the decline in operating
income. In addition, operating income declined due to the divestitures of the
European pet food and Mexican chocolate businesses as well as due to declines
in the Italian products business and in the Asia/Pacific region where the
Company is expanding Gatorade thirst quencher and grain-based products.
Operating losses decreased significantly in European Gatorade thirst quencher
compared to the prior year as funding increased for expansion of that business
into the Asia/Pacific region.
Gains on Divestitures
In fiscal 1995, the Company realized gains on divestitures of: $513.0 million
on the sale of the North American pet food business; $487.2 million on the sale
of the European pet food business; $91.2 million on the sale of the U.S. bean
and chili businesses; $74.5 million on the sale of the Mexican chocolate
business; and $4.9 million on the sale of the Dutch honey business.
See the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal
1994 gains on divestitures.
34
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
Restructuring Charges
In fiscal 1995, the Company announced cost-reduction and realignment activities
in order to address the changes in its portfolio and to allow it to quickly
and effectively respond to the needs of trade customers and consumers. As
described in Note 3 to the consolidated financial statements, these changes
primarily included the realignment of the corporate, shared services and
business unit structures, the European cereal business and the U.S.
distribution center network. As a result, the Company recorded restructuring
charges of $76.5 million in the fourth quarter. Restructuring charges
associated with the cost-reduction and realignment activities included $41.0
million in cash expenses for severance and termination benefits for the
elimination of approximately 850 positions. Non-cash asset write-offs related
to European cereals manufacturing, the U.S. distribution center network and
other assets were $19.0 million. Cash expenses for losses on headquarters and
distribution center leases and other associated costs were $16.5 million.
Estimated savings from the fiscal 1995 cost-reduction and realignment
activities are expected to be about $50 million annually beginning in calendar
1996. Approximately 90 percent of the annual savings will be in cash.
See the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal
1994 restructuring charges.
Interest, Foreign Exchange and Income Taxes
Net financing costs were $114.9 million, a decrease of $1.0 million versus the
prior year. This reduction resulted mainly from lower net financing costs in
Brazil compared to the prior year, which more than offset the increase in
interest expense resulting from borrowing related to the Company's significant
acquisition activities. See Note 7 to the consolidated financial statements for
further discussion of foreign currency hedging.
The effective tax rate for fiscal 1995 was 40.7 percent compared to 38.9
percent in fiscal 1994. Excluding the effects of certain gains on divestitures
and restructuring charges from the prior year, the effective tax rate for
fiscal 1994 was 39.4 percent. The increase resulted mainly from non-deductible
amortization of intangibles. A valuation allowance has been provided for that
portion of the deferred tax assets that is not expected to be realized.
Fiscal 1994 Compared with Fiscal 1993
See Note 2 to the consolidated financial statements for sales and operating
income from the businesses divested in fiscal 1995 through the divestiture
dates.
Operating Results
Consolidated net sales for fiscal 1994 were $5.95 billion, up 4 percent from
fiscal 1993. The increase in net sales reflected a 4 percent worldwide
increase in volume and an improved product mix. Significantly offsetting
higher sales was the negative impact of translating European sales into U.S.
dollars. Sales for fiscal 1994 would have been $140.1 million higher if
European exchange rates had remained stable with the prior year. Price
increases did not have a significant impact on sales.
U.S. and Canadian Grocery Products sales increased 8 percent to $4.25 billion
on a volume increase of 6 percent. Volume growth for Gatorade thirst quencher,
ready-to-eat cereals, grain-based snacks and Golden Grain products more than
offset decreases in food service volume. International Grocery Products sales
decreased 5 percent to $1.70 billion, although overall volume increased 1
percent. Weaker European currencies and lower volume of European pet foods,
cereals and Italian products contributed to the decline.
Gross profit margins increased to 50.9 percent from 49.9 percent in the prior
year primarily due to an improved product mix and cost-containment initiatives
in the United States, which more than offset commodity and distribution cost
increases. SG&A expenses rose 5 percent to $2.43 billion due mainly to an 8
percent increase in A&M expenses. A&M expenses were 26.6 percent of net sales
in fiscal 1994, up from 25.7 percent in fiscal 1993.
35
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
Consolidated operating income was $537.2 million in fiscal 1994 versus $575.2
million in fiscal 1993. Excluding gains on divestitures and restructuring
charges in both years, operating income was $645.8 million versus $595.7
million. On that same basis, U.S. and Canadian Grocery Products fiscal 1994
operating income was $543.8 million versus $485.6 million in fiscal 1993. The
12 percent increase reflected increases from Gatorade thirst quencher, ready-to-
eat cereals and Aunt Jemima partially offset by decreases in food service.
International Grocery Products fiscal 1994 operating income decreased to $102.0
million versus $110.1 million in fiscal 1993, excluding gains on divestitures
and restructuring charges in both years. European operating income declined
$14.9 million mainly due to volume declines in the pet food and cereal
businesses. Latin American and Asia/Pacific operating income increased $6.8
million primarily due to volume increases in Mexico and the hyper-inflationary
effects of translating Brazil's results into U.S. dollars. The operating
income improvement in Brazil was more than offset by higher net financing costs
in that country.
Gains on Divestitures
In fiscal 1994, the Company realized a $9.8 million gain on the sale of a
Venezuelan detergent additive business. In fiscal 1993, the Company realized a
$17.4 million gain on the sale of two Italian businesses and a $10.4 million
gain on the sale of a business in the United Kingdom.
Restructuring Charges
In fiscal 1994, the Company recorded restructuring charges totaling $118.4
million to eliminate positions at its headquarters and research and development
facilities, to realign its U.S. sales force, to consolidate manufacturing in
its bean and chili, rice cake and Aunt Jemima syrup product lines and to close
a Canadian pet food facility, as well as to pursue other cost-reduction
initiatives. These changes eliminated approximately 1,500 positions, resulting
in severance and termination expenses totaling $44.7 million. Charges
associated with plant consolidations and sales office closures totaled $38.3
million, of which 80 percent represented asset write-offs. Product-line
discontinuations resulted in charges of $35.4 million, of which 90 percent
represented asset write-offs. Cash outlays related to severance, termination
benefits and other expenses occurred mostly in fiscal 1995 and were funded
through operating cash flows. Savings realized were consistent with
expectations and cash outlays and asset write-offs have been consistent with
amounts originally provided.
In fiscal 1993, operating income included a charge of $38.6 million for the
consolidation of production facilities at a U.S. pet food plant and a charge of
$9.7 million for European cost-reduction programs. With the divestitures of
the North American and European pet food businesses during fiscal 1995, there
are no remaining reserves and no recurring savings to be realized from these
restructuring activities.
See Note 3 to the consolidated financial statements for further discussion of
restructuring charges.
Interest, Foreign Exchange and Income Taxes
Net interest expense of $89.7 million increased $34.6 million versus the prior
year. An increase of $22.1 million came from higher levels of local currency
borrowing in Brazil at significantly higher interest rates. In addition, the
Company issued $200.0 million of medium-term notes and increased commercial
paper borrowings during the year, which accounted for most of the remaining
increase in interest expense. The foreign exchange loss increased $11.1
million from the prior year, primarily reflecting small losses on European
currency hedges in fiscal 1994 versus gains in fiscal 1993.
The effective tax rate for fiscal 1994 was 38.9 percent compared to 38.7
percent in fiscal 1993. Excluding the effects of gains on divestitures and
restructuring charges in both years, the effective tax rate increased to 39.4
percent from 38.4 percent. The higher U.S. statutory tax rate, including the
legislated retroactive adjustment to January 1, 1993, caused the overall rate
to increase.
36
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
Liquidity and Capital Resources
Short-term and long-term debt (total debt) increased $111.8 million during the
transition period to $1.76 billion at December 31, 1995. Total debt increased
$635.8 million to $1.65 billion from June 30, 1994 to June 30, 1995 and
increased $206.7 million to $1.02 billion from June 30, 1993 to June 30, 1994.
On December 6, 1994, the Company acquired Snapple Beverage Corp. for a tender
offer price of $1.7 billion. The acquisition was initially financed with
commercial paper borrowings. During fiscal 1995, the Company divested
businesses for approximately $1.7 billion. The after-tax proceeds on the
fiscal 1995 divestitures of $1.25 billion were used to reduce the commercial
paper borrowings. The total debt-to-total capitalization ratio was 61.7
percent, 59.0 percent, 68.8 percent and 59.0 percent as of December 31,1995 and
as of June 30, 1995, 1994 and 1993, 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 increase in debt, substantial change in the mix of the Company's portfolio
to businesses with greater seasonality, and disappointing net income from
acquired and ongoing businesses and Snapple beverages' poor performance 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 debt rating of A3 in October 1995.
Standard & Poor's (S&P) removed the Company from "watch" status and lowered the
long-term debt and commercial paper ratings from A to A- and from A1 to A2,
respectively, in February 1996. The new ratings and removal from "watch" status
reflect the Company's leading market positions and strong cash flows generated
by its grain-based food and Gatorade thirst quencher businesses, offset by the
increased concentration of sales and earnings in beverages which increased
overall Company business risk. S&P assigned the Company a negative ratings
outlook, which reflects uncertainties relating to the Company's ability to
significantly improve overall financial results, particularly in the Snapple
beverage business, given its weak performance in calendar 1995. Fitch's
removed the Company from "review" status and lowered the long-term debt and
commercial paper ratings from A to A- and from F1 to F2, respectively, in March
1996. The new ratings and removal from "review" status reflects the challenges
of integrating Snapple beverages and generating historical operating cash flow
margin levels.
Net cash provided by operating activities was $84.3 million and $152.7 million
for the six months ended December 31, 1995 and 1994, respectively. The decrease
in net cash provided by operating activities in the transition period as
compared to the prior period is due to lower net income and changes in
working capital items, primarily current liabilities, which reflects the
remaining tax payments related to the gains from the fiscal 1995 divestitures,
and accounts payable. Net cash provided by operating activities was $475.5
million, $450.8 million and $558.2 million during fiscal 1995, 1994 and 1993,
respectively. The decrease in net cash provided by operating activities in
fiscal 1994 compared to fiscal 1993 resulted mainly from changes in working
capital items, primarily accounts receivable and inventories. The Company
used cash flow from operating activities and debt financing to cover transition
period capital expenditures and cash dividends. The Company used cash flow
from operating activities, cash proceeds from the divestitures and debt
financing to cover fiscal 1995 capital expenditures, cash dividends and the
purchase of Snapple Beverage Corp. Capital expenditures for the transition
period and for fiscal 1995, 1994 and 1993 were $145.0 million, $275.5 million,
$175.1 million and $172.3 million, respectively. During the transition period,
the Company had proceeds from investing activities related to the disposition
of assets and payments for business acquisitions of $25.3 million and $8.0
million, respectively. The Company expects that its future capital expenditures
and cash dividends will be financed through a combination of cash flow from
operating activities and debt financing. Capital expenditures are expected to
continue at current levels in the near term as the Company has plans to invest
in the worldwide expansion of production capacity for beverages in the United
States and for grain-based products in the United States and China.
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 December 31, 1995, the Company has
issued $331.0 million in medium-term notes.
37
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
The consolidated balance sheet as of December 31, 1995 included the reclass-
ification of $69.0 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.
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 10 million
share repurchase program announced in August 1993. The Company has not been
active in its share repurchase program since August 1994.
Current and Pending Accounting Changes
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 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. See Note 13 to the consolidated financial statements for further
discussion.
Included in the net income of fiscal 1993 was the cumulative effect of adopting
FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and FASB Statement #109, "Accounting for Income Taxes." The
combined cumulative effect of adoption was an after-tax charge of $115.5
million. See Notes 13 and 17 to the consolidated financial statements for
further discussion.
During the transition period, the Company adopted FASB Statement #121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement requires that long-lived assets, including
certain identifiable intangibles and goodwill related to those assets to be
held and used, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. This Statement requires that a forecast of undiscounted future
operating cash flows, including disposal value if any, produced by the asset be
compared to its carrying amount to determine whether an impairment exists. If
an asset is determined to be impaired, the loss is measured based on quoted
market prices in active markets, if available. If quoted market prices are not
available, the estimate of fair value should be based on the best information
available, including considering prices for similar assets and the results of
valuation techniques to the extent available.
FASB Statement #121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of that are not covered by APB Opinion
No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," be reported at the lower of the asset's carrying
amount or its fair value less cost to sell. The Company reports an asset to be
disposed of at the lower of its carrying amount or its estimated net realizable
value.
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this Statement no later than
December 31, 1996. This Statement encourages companies to recognize expense
for stock options at an estimated fair value based on an option pricing model.
If expense is not recognized for stock options, pro forma footnote disclosure
is required of what net income and earnings per share would have been under the
Statement's approach to valuing and expensing stock options. Certain other new
disclosures will be required. The Company will implement the provisions of
this Statement in 1996, but has decided that it will not recognize the expense
related to stock options in the financial statements. The impact of this new
Statement has not yet been completely evaluated.
Subsequent Event
On December 6, 1995, the Company announced a definitive agreement to sell its
Italian products business. The transaction was completed on January 15, 1996.
38
The Quaker Oats Company and Subsidiaries
Management's Discussion and Analysis
On March 12, 1996, the Company announced its intention to sell its North
American frozen foods business, which includes Aunt Jemima frozen breakfast
products and Celeste frozen pizza products. The combined sales of the Aunt
Jemima frozen products and Celeste frozen pizza businesses are approximately
$175 million. The planned divestiture does not include the Aunt Jemima syrup,
corn product and pancake mix businesses.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements, within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis, in the accompanying Chairman's Letter to Shareholders, and in the
other sections of this transition period report.
Total Company results may differ materially from those in the forward-looking
statements. Forward-looking statements are based on management's current views
and assumptions, and involve risks and uncertainties that could significantly
affect expected results. For example, operating results may be affected by
external factors such as: actions of competitors; changes in laws and
regulations, including changes in accounting standards; distributor relations;
customer demand; effectiveness of spending or programs; consumer perception of
health-related issues; fluctuations in the cost and availability of supply-
chain resources; and foreign economic conditions, including currency rate
fluctuations.
The Company's expected earnings improvement in 1996 is based on its analysis of
current financial and operating conditions, which it reviews and updates
quarterly through its planning process. This process includes an assessment of
current operating conditions and the competitive environment, as well as the
projected outcome of supply-chain management programs, the effectiveness of a
change in its advertising and merchandising support, and new marketing and
promotional programs. Specifically for the Snapple business, the likelihood of
significant improvement in 1996 depends in part on the success of the Company's
new operating procedures, promotional programs, packaging and advertising, as
well as the streamlining of its manufacturing structure and removal of excess
inventories.
39
Exhibit 13.2
The Quaker Oats Company and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Dollars in Millions (Except Per Share Data)
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
1995 1994 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales $2,733.1 $3,144.3 $6,365.2 $5,955.0 $5,730.6
Cost of goods sold 1,529.3 1,616.4 3,381.5 2,926.2 2,870.0
Gross profit 1,203.8 1,527.9 2,983.7 3,028.8 2,860.6
Selling, general and
administrative expenses 1,078.1 1,322.5 2,603.2 2,425.6 2,302.3
Restructuring charges and
gains on divestitures - net 40.8 -- (1,094.3) 108.6 20.5
Interest expense 57.9 43.3 117.0 98.6 65.6
Interest income (3.7) (3.8) (6.3) (8.9) (10.5)
Foreign exchange loss net 5.1 0.9 4.2 26.2 15.1
Income Before Income Taxes
and Cumulative Effect
of Accounting Changes 25.6 165.0 1,359.9 378.7 467.6
Provision for income taxes 11.9 69.2 553.8 147.2 180.8
Income Before Cumulative Effect
of Accounting Changes 13.7 95.8 806.1 231.5 286.8
Cumulative effect of
accounting changes
net of tax -- (4.1) (4.1) -- (115.5)
Net Income 13.7 91.7 802.0 231.5 171.3
Preferred dividends - net 2.0 2.0 4.0 4.0 4.2
of tax
Net Income Available for $ 11.7 $89.7 $798.0 $227.5 $167.1
Common
Per Common Share:
Income Before Cumulative
Effect of Accounting Changes $ 0.09 $ 0.70 $ 6.00 $ 1.68 $ 1.96
Cumulative effect of
accounting changes -- (0.03) (0.03) -- (0.79)
Net Income $ 0.09 $ 0.67 $ 5.97 $ 1.68 $ 1.17
Dividends declared $ 0.57 $ 0.57 $ 1.14 $ 1.06 $ 0.96
Average Number of Common
Shares Outstanding 134,355 133,567 133,763 135,236 143,948
in thousands)
<FN>
See accompanying notes to the consolidated financial statements.
40
The Quaker Oats Company and subsiudiaries
Consolidated Balance Sheets
<CAPTION>
Dollars in Millions
December 31, June 30,
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 93.2 $ 101.8 $140.4 $ 61.0
Trade accounts receivable - net 398.3 546.8 509.4 478.9
of allowances
Inventories
Finished goods 203.6 267.4 266.5 241.5
Grains and raw materials 69.7 94.4 78.8 73.1
Packaging materials and supplies 33.4 44.2 40.2 39.4
Total inventories 306.7 406.0 385.5 354.0
Other current assets 281.9 262.0 218.3 173.7
Total Current Assets 1,080.1 1,316.6 1,253.6 1,067.6
Property, Plant and Equipment
Land 26.0 25.0 30.6 28.7
Buildings and improvements 398.4 376.0 455.0 441.5
Machinery and equipment 1,521.6 1,442.7 1,640.3 1,589.0
Property, plant and equipment 1,946.0 1,843.7 2,125.9 2,059.2
Less accumulated depreciation 778.2 730.3 911.7 831.0
Property - Net 1,167.8 1,113.4 1,214.2 1,228.2
Intangible Assets - Net of
Amortization 2,309.2 2,311.1 493.4 431.3
Other Assets 63.3 85.8 82.1 88.8
Total Assets $4,620.4 $4,826.9 $3,043.3 $2,815.9
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $ 643.4 $ 510.1 $ 211.3 $ 128.0
Current portion of long-term debt 68.6 38.8 45.4 48.9
Trade accounts payable 298.4 423.8 406.3 391.6
Accrued payroll, benefits and 105.1 123.8 158.9 161.3
bonus
Accrued advertising and 150.9 165.0 149.6 130.6
merchandising
Income taxes payable 65.4 180.1 40.6 33.7
Other accrued liabilities 369.9 371.3 247.0 211.0
Total Current Liabilities 1,701.7 1,812.9 1,259.1 1,105.1
Long-term Debt 1,051.8 1,103.1 759.5 632.6
Other Liabilities 536.3 530.0 481.4 426.2
Deferred Income Taxes 233.6 233.3 82.2 89.5
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) 100.0 100.0 100.0 100.0
Deferred Compensation (71.7) (74.9) (80.8) (85.9)
Treasury Preferred Stock, at cost,
122,562 shares, 81,194 shares,
47,817 shares and 34,447 shares,
respectively (10.6) (6.3) (3.9) (2.7)
Common Shareholders' Equity
Common stock, $5 par value, authorized
400 million, 400 million, 200
million and 200 million shares,
respectively 840.0 840.0 420.0 420.0
Reinvested earnings 1,433.6 1,499.3 1,273.6 1,190.1
Cumulative translation adjustment (77.8) (61.4) (75.4) (65.4)
Deferred compensation (118.1) (132.2) (143.5) (154.0)
Treasury common stock, at cost (998.4) (1,016.9) (1,028.8) (839.6)
Total Common Shareholders' 1,079.3 1,128.8 445.8 551.1
Equity
Total Liabilities and Shareholders'
Equity $4,620.4 $4,826.9 $3,043.3 $2,815.9
<FN>
See accompanying notes to the consolidated financial statements.
41
The Quaker Oats Company and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Dollars in Millions
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
1995 1994 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 13.7 $ 91.7 $ 802.0 $ 231.5 $ 171.3
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of accounting
changes -- 4.1 4.1 -- 115.5
Depreciation and amortization 103.2 90.6 191.4 171.2 156.9
Deferred income taxes 0.3 (4.4) 17.8 (7.7) (46.4)
Gains on divestitures - net of
tax of $476.2 in fiscal 1995 -- -- (694.6) (9.8) (27.8)
Restructuring charges 40.8 -- 76.5 118.4 48.3
Loss on disposition of property
and equipment 9.4 4.0 22.0 15.0 23.8
Decrease (increase) in trade
accounts receivable 142.9 28.4 (70.8) (77.7) 59.1
Decrease (increase) in inventories 95.3 (6.0) (56.5) (67.6) 41.9
(Increase) in other current assets (22.9) (0.3) (53.4) (56.3) (25.8)
(Decrease) increase in trade
accounts payable (120.3) (86.2) 83.9 44.1 (7.6)
(Decrease) increase in other
current liabilities (185.8) (16.7) 52.1 6.6 (6.4)
Change in deferred compensation 17.3 13.1 17.2 15.6 11.0
Other items (9.6) 34.4 83.8 67.5 44.4
Net Cash Provided by Operating
Activities 84.3 152.7 475.5 450.8 558.2
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (145.0) (119.3) (275.5) (175.1) (172.3)
Business acquisitions (8.0) (1,827.2) (1,876.5) (96.3) (40.4)
Business divestitures - net of tax
of $476.2 in fiscal 1995 -
and asset dispositions 25.3 -- 1,253.4 14.2 41.6
Change in other assets 6.8 (1.4) (4.0) (6.4) (25.6)
Net Cash Used in Investing
Activities (120.9) (1,947.9) (902.6) (263.6) (196.7)
Cash Flows from Financing Activities:
Cash dividends (77.7) (77.7) (154.8) (144.6) (140.3)
Change in short-term debt 134.1 1,594.0 216.4 83.3 67.0
Proceeds from long-term debt -- 0.7 213.3 222.2 0.5
Reduction of long-term debt (21.2) (50.5) (89.3) (100.6) (59.0)
Proceeds from short-term debt
to be refinanced -- 300.0 188.0 -- --
Issuance of common treasury stock 11.4 14.0 23.0 11.8 23.3
Repurchases of common stock -- (22.5) (22.5) (214.9) (323.1)
Repurchases of preferred stock (4.3) (1.0) (2.4) (1.2) (1.1)
Net Cash Provided by (Used) in
Financing Activities 42.3 1,757.0 371.7 (144.0) (432.7)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (14.3) 0.8 16.8 36.2 37.0
Net (Decrease) Increase in Cash and
Cash Equivalents (8.6) (37.4) (38.6) 79.4 (34.2)
Cash and Cash Equivalents - Beginning
of Period 101.8 140.4 140.4 61.0 95.2
Cash and Cash Equivalents - End of
Period $ 93.2 $ 103.0 $ 101.8 $ 140.4 $ 61.0
<FN>
See accompanying notes to the consolidated financial statements.
42
The Quaker Oats Company and Subsidiaries
Consolidated Statements of Common Shareholders' Equity
<CAPTION>
Dollars in Millions
Common Additional Cumulative Deferred Treasury
Stock Issued Common Shares Paid-In Reinvested Translation Compensa- Common Stock
Shares Amount Outstanding Capital Earnings Adjustment tion Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
June 30, 1992 83,989,396 $420.0 73,403,305 $ 2.9 $1,162.3 $(24.5) $(160.4) 10,586,091 $ (558.2) $ 842.1
Net income 171.3 171.3
Cash dividends
declared on
common stock (136.1) (136.1)
Cash dividends
declared on
preferred
stock (4.2) (4.2)
Common stock
issued for
stock purchase
and incentive
plans 805,434 (8.4) (3.2) (805,434) 41.7 30.1
Repurchases of
common stock (4,752,500) 4,752,500 (323.1) (323.1)
Foreign currency
adjustments
(net of
allocated
income tax
provisions of
$(12.6) (40.9) (40.9)
Deferred
compensation 6.4 6.4
Other 5.5 5.5
Balance as of
June 30, 1993 83,989,396 420.0 69,456,239 -- 1,190.1 (65.4) (154.0) 14,533,157 (839.6) 551.1
Net income 231.5 231.5
Cash dividends
declared on
common stock (140.6) (140.6)
Cash dividends
declared on
on preferred
stock (4.0) (4.0)
Common stock
issued for
stock purchase
and incentive
plans 439,142 (1.3) (3.4) (439,142) 25.6 20.9
Repurchases of
common stock (3,091,085) 3,091,085 (214.9) (214.9)
Foreign currency
adjustments
(net of
allocated
income tax
benefits of
$1.4) (10.0) (10.0)
Deferred
compensation 10.5 10.5
Other 1.3 1.3
Balance as of
June 30, 1994 83,989,396 420.0 66,804,296 -- 1,273.6 (75.4) (143.5) 17,185,100 (1,028.9) 445.8
Net income 802.0 802.0
Cash dividends
declared on
common stock (150.8) (150.8)
Cash dividends
declared on
preferred
stock (4.0) (4.0)
Common stock
issued for
stock purchase
and incentive
plans 1,151,137 (2.2) (1.5) (1,151,137) 34.5 30.8
Repurchases of
common stock (578,000) 578,000 (22.5) (22.5)
Two-for-one stock
split-up 83,989,396 420.0 66,804,296 (420.0) 17,185,100 --
Foreign currency
adjustments
(net of
allocated
income tax
benefits of
$3.8) 14.0 14.0
Deferred
compensation 11.3 11.3
Other 2.2 2.2
Balance as of
June 30, 1995 167,978,792 840.0 134,181,729 -- 1,499.3 (61.4) (132.2) 33,797,063 (1,016.9) 1,128.8
Net income 13.7 13.7
Cash dividends
declared on
common stock (75.7) (75.7)
Cash dividends
declared on
preferred
stock (2.0) (2.0)
Common stock
issued for
stock purchase
and incentive
plans 624,326 (1.8) (1.7) (624,326) 18.5 15.0
Foreign currency
adjustments(net
of allocated
income tax
provisions
of $(0.3) (16.4) (16.4)
Deferred
compensation 14.1 14.1
Other 1.8 1.8
Balance as of
December 31,
1995 167,978,792 $840.0 134,806,055 $ -- $1,433.6 $(77.8) $(118.1) 33,172,737 $ (998.4) $1,079.3
<FN>
See accompanying notes to the consolidated financial statements.
43
The Quaker Oats Company and Subsidiaries
Geographic Segment Information
<CAPTION>
Dollars in Millions (Except Per Share Data) Net Sales
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
1995 1994 1995 1994 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $2,165.6 $2,202.7 $4,624.2 $4,252.7 $3,930.3 $3,842.3 $3,860.2
Europe 213.3 634.5 1,106.1 1,164.3 1,335.8 1,354.5 1,326.4
Latin America and Pacific 354.2 307.1 634.9 538.0 464.5 379.6 304.6
International
Grocery Products 567.5 941.6 1,741.0 1,702.3 1,800.3 1,734.1 1,631.0
Net Sales and Operating
Income from Continuing
Operations $2,733.1 $3,144.3 $6,365.2 $5,955.0 $5,730.6 $5,576.4 $5,491.2
Less: General corporate
expenses(e)
Interest expense - net
Foreign exchange loss
(gain) - net
Income from continuing
operations before
income taxes and
cumulative effect
of accounting
changes
Provision for
income taxes
Income from continuing
operations before
cumulative effect of
accounting changes
Income from continuing
operations per common
share before cumulative
effect of accounting
changes(f)
The Quaker Oats Company and Subsidiaries
Geographic Segment Information
<CAPTION>
Operating Income (Loss) (a)(b)(c)(d)
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
1995 1994 1995 1994 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. and Canadian
Grocery Products $145.6 $208.1 $ 974.7 $430.9 $447.0 $435.0 $429.0
Europe (34.4) 12.3 482.7 17.5 52.2 41.2 68.3
Latin America and Pacific (5.5) 20.6 92.9 88.8 76.0 64.0 35.7
International
Grocery Products (39.9) 32.9 575.6 106.3 128.2 105.2 104.0
Net Sales and Operating
Income from Continuing
Operations 105.7 241.0 1,550.3 537.2 575.2 540.2 533.0
Less: General corporate
expenses(e) 20.8 35.6 75.5 42.6 37.4 38.2 40.4
Interest expense - net 54.2 39.5 110.7 89.7 55.1 67.4 86.2
Foreign exchange loss
(gain) - net 5.1 0.9 4.2 26.2 15.1 13.1 (5.1)
Income from continuing
operations before
income taxes and
cumulative effect
of accounting
changes 25.6 165.0 1,359.9 378.7 467.6 421.5 411.5
Provision for
income taxes 11.9 69.2 553.8 147.2 180.8 173.9 175.7
Income from continuing
operations before
cumulative effect of
accounting changes $ 13.7 $ 95.8 $ 806.1 $231.5 $286.8 $247.6 $235.8
Income from continuing
operations per common
share before cumulative
effect of accounting
changes(f) $ 0.09 $ 0.70 $ 6.00 $ 1.68 $ 1.96 $ 1.63 $ 1.53
<FN>
(a)The 1995 transition period results include pretax restructuring charges of
$40.8 million, or $.18 per share, for the Snapple beverage supply chain cost
reductions and for realignment activities in Europe and Asia/Pacific.
Restructuring charges were included in operating income as follows: $24.4
million in the United States and Canada; $14.1 million in Europe; and $2.3
million in Latin America and Pacific.
(b)Fiscal 1995 results include: pretax gains of $604.2 million, or $2.81 per
share, for the sale of U.S. and Canadian businesses; $492.1 million, or $2.06
per share, for the sale of European businesses; and $74.5 million, or $.33 per
share, for the sale of a Latin American business. Fiscal 1995 results also
include pretax restructuring charges of $76.5 million, or $.35 per share, for
cost-reduction and realignment activities. Restructuring charges were included
in operating income as follows: $47.1 million in the United States and Canada;
$25.3 million in Europe; and $4.1 million in Latin America and Pacific.
(c)Fiscal 1994 results include pretax restructuring charges of $118.4 million,
or $.55 per share, for work force reductions, plant consolidations and product
discontinuations and a pretax gain of $9.8 million, or $.07 per share, for the
sale of a business in Venezuela. Restructuring charges were included in
operating income as follows: $112.9 million in the United States and Canada;
$1.7 million in Europe; and $3.8 million in Latin America and Pacific.
(d)See Management's Discussion and Analysis for further discussion of
gains on divestitures and restructuring charges from fiscal 1993
through the transition period ended December 31, 1995.
(e)Prior period general corporate expenses include a provision of $18.4
million, or $.08 per share, for estimated litigation costs. Fiscal
1995 general corporate expenses include a provision of $29.0 million,
or $.13 per share, for estimated litigation costs.
(f)Per share data reflect the fiscal 1995 two-for-one stock split-up.
44
The Quaker Oats Company and Subsidiaries
Geographic Segment Information
<CAPTION>
Dollars in Millions
Transition Period Fiscal Year
Ended December 31, Ended June 30,
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Identifiable Assets
U.S. and Canadian Grocery Products $3,731.6 $3,917.5 $1,999.4 $1,877.3
Europe 222.7 255.0 576.5 562.9
Latin America and Pacific 409.6 369.9 209.4 182.4
International Grocery Products 632.3 624.9 785.9 745.3
Total Operating Businesses 4,363.9 4,542.4 2,785.3 2,622.6
Corporate(a) 256.5 284.5 258.0 193.3
Total Assets $4,620.4 $4,826.9 $3,043.3 $2,815.9
Capital Expenditures
U.S. and Canadian Grocery Products $ 117.3 $ 193.1 $ 123.9 $ 107.2
International Grocery Products 27.7 69.6 51.2 65.1
Total Operating Businesses 145.0 262.7 175.1 172.3
Corporate -- 12.8 -- --
Total Capital Expenditures $ 145.0 $ 275.5 $ 175.1 $ 172.3
Depreciation and Amortization
U.S. and Canadian Grocery Products $ 86.4 $ 155.3 $ 131.6 $ 117.6
International Grocery Products 16.3 35.0 38.5 38.2
Total Operating Businesses 102.7 190.3 170.1 155.8
Corporate 0.5 1.1 1.1 1.1
Total Depreciation and Amortization $ 103.2 $ 191.4 $ 171.2 $ 156.9
<FN>
(a)Includes corporate cash and cash equivalents, certain other current assets,
property and miscellaneous other assets.
45
The Quaker Oats Company and Subsidiaries
Five-Year Selected Financial Data
<CAPTION>
Dollars in Millions (Except Per Share Data)
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, Ended December 31, Ended June 30,
1995 1994 1995 1994 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results(a)(b)(c)(d)(e)(f)
Net sales $ 2,733.1 $ 3,144.3 $6,365.2 $5,955.0 $5,730.6 $5,576.4 $5,491.2
Gross profit 1,203.8 1,527.9 2,983.7 3,028.8 2,860.6 2,745.3 2,652.7
Income from continuing operations
before income taxes and cumulative
effect of accounting changes 25.6 165.0 1,359.9 378.7 467.6 421.5 411.5
Provision for income taxes 11.9 69.2 553.8 147.2 180.8 173.9 175.7
Income from continuing operations
before cumulative effect
of accounting changes 13.7 95.8 806.1 231.5 286.8 247.6 235.8
Loss from discontinued operations -
net of tax -- -- -- -- -- -- (30.0)
Cumulative effect of accounting
changes - net of tax -- (4.1) (4.1) -- (115.5) -- --
Net income $ 13.7 $ 91.7 $ 802.0 $ 231.5 $ 171.3 $ 247.6 $ 205.8
Per common share:
Income from continuing operations
before cumulative effect
of accounting changes $ 0.09 $ 0.70 $ 6.00 $ 1.68 $ 1.96 $ 1.63 $ 1.53
Loss from discontinued operations -- -- -- -- -- -- (0.20)
Cumulative effect of accounting
changes -- (0.03) (0.03) -- (0.79) -- --
Net income $ 0.09 $ 0.67 $ 5.97 $ 1.68 $ 1.17 $ 1.63 $ 1.33
Dividends declared:
Common stock $ 75.7 $ 75.7 $ 150.8 $ 140.6 $ 136.1 $ 128.6 $ 118.7
Per common share $ 0.57 $ 0.57 $ 1.14 $ 1.06 $ 0.96 $ 0.86 $ 0.78
Convertible preferred and
redeemable preference stock $ 2.0 $ 2.0 $ 4.0 $ 4.0 $ 4.2 $ 4.2 $ 4.3
Average number of common shares
outstanding (in thousands) 134,355 133,567 133,763 135,236 143,948 149,762 151,808
<FN>
(a)The 1995 transition period results include pretax restructuring charges of
$40.8 million, or $.18 per share, for the Snapple beverage supply chain cost
reductions and for realignment activities in Europe and Asia/Pacific.
(b)Fiscal 1995 results include pretax gains of $1.17 billion, or $5.20 per share,
for business divestitures and pretax restructuring charges of $76.5 million, or
$.35 per share, for cost-reduction and realignment activities.
(c)Fiscal 1994 results include pretax restructuring charges of $118.4 million, or
$.55 per share, for work force reductions, plant consolidations and product
discontinuations and a pretax gain of $9.8 million, or $.07 per share, for the
sale of a business in Venezuela.
(d)See Management's Discussion and Analysis for further discussion of gains on
divestitures and restructuring charges from fiscal 1993 through the transition
period.
(e)See Notes 1, 13 and 17 to the consolidated financial statements for discussion
of the fiscal 1995 and fiscal 1993 accounting changes.
(f)Per share data and average number of common shares outstanding reflect the
fiscal 1995 two-for-one stock split-up.
46
The Quaker Oats Company and Subsidiaries
Five-Year Selected Financial Data
<CAPTION>
Dollars in Millions (Except Per Share Data)
Transition Period Fiscal Year
Ended December 31, Ended June 30,
1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Financial Statistics
Current ratio 0.6 0.7 1.0 1.0 1.2 1.3
Working capital $ (621.6) $ (496.3) $ (5.5) $ (37.5) $ 168.7 $ 317.8
Property, plant and equipment
- net $1,167.8 $1,113.4 $1,214.2 $1,228.2 $1,273.3 $1,232.7
Depreciation expense $ 59.2 $ 125.4 $ 133.3 $ 129.9 $ 129.7 $ 125.2
Total assets $4,620.4 $4,826.9 $3,043.3 $2,815.9 $3,039.9 $3,060.5
Long-term debt $1,051.8 $1,103.1 $ 759.5 $ 632.6 $ 688.7 $ 701.2
Convertible preferred stock
(net of deferred compensation
and redeemable preference
stock $ 17.7 $ 18.8 $ 15.3 $ 11.4 $ 7.9 $ 4.8
Common shareholders' equity $1,079.3 $1,128.8 $ 445.8 $ 551.1 $ 842.1 $ 901.0
Net cash provided by
operating activities $ 84.3 $ 475.5 $ 450.8 $ 558.2 $ 581.3 $ 543.2
Operating return on assets (a) 2.4%(b) 42.3% 19.9% 21.1% 18.9% 18.8%
Gross profit as a percentage
of sales 44.0% 46.9% 50.9% 49.9% 49.2% 48.3%
Advertising and merchandising
as a percentage of sales 24.1% 26.3% 26.6% 25.7% 26.0% 25.6%
Income from continuing operations
before cumulative effect of
accounting changes as a
percentage of sales 0.5% 12.7% 3.9% 5.0% 4.4% 4.3%
Total debt-to-total capitalization
ratio(c) 61.7% 59.0% 68.8% 59.0% 48.7% 47.4%
Common dividends as a percentage
of income available for common
shares (excluding cumulative
effect of accounting changes) 633.3% 19.0% 63.1% 48.9% 52.9% 58.9%
Number of common shareholders 30,353 29,148 28,197 33,154 33,580 33,603
Number of employees worldwide 16,100 17,300 20,000 20,200 21,100 20,900
Market price range of common stock
-- High(d) $37 3/8 $42 1/2 $41 $38 1/2 $37 7/8 $32 7/16
-- Low(d) $30 3/4 $29 3/4 $30 15/16 $28 1/16 $25 1/8 $20 7/8
<FN>
(a)Operating income divided by average identifiable assets of U.S. and
Canadian and International Grocery Products.
(b)Transition period reflects only six months of results.
(c)Total debt divided by total debt plus total shareholders' equity
including convertible preferred stock (net of deferred compensation) and
redeemable preference stock.
(d)Per share data reflect the fiscal 1995 two-for-one stock split-up.
47
</TABLE>
Exhibit 13.3
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include The
Quaker Oats Company and all of its subsidiaries (the Company).
All significant intercompany transactions have been eliminated.
Businesses acquired are included in the results of operations
since their acquisition dates. Businesses divested are included
in the results of operations until their divestiture dates.
Fiscal-Year Change - To capture the results of a full beverage
season in a single fiscal-year period, the Company changed its
fiscal year to align with the calendar year, beginning January 1,
1996. The six-month transition period of July 1, 1995 through
December 31, 1995 ("transition period") precedes the start of the
new fiscal year. The unaudited financial information for the six
months ended December 31, 1994 ("prior period") is presented for
comparative purposes and includes any adjustments (consisting of
normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation.
Foreign Currency Translation - Assets and liabilities of the
Company's foreign subsidiaries, other than those located in
highly inflationary countries, are translated at current exchange
rates, while income and expense are translated at average rates
for the period. For entities in highly inflationary countries, a
combination of current and historical rates is used to determine
foreign currency gains and losses resulting from financial
statement translation. Translation gains and losses are reported
as a component of common shareholders' equity, except for those
associated with highly inflationary countries, which are reported
directly in the consolidated income statements.
Futures, Swaps, Options, Caps and Forward Contracts - The Company
enters into a variety of futures, swaps, options, caps and
forward contracts in its management of foreign currency,
commodity price and interest rate exposures. Realized and
unrealized gains and losses on purchased foreign currency
options, currency swaps and foreign exchange forward contracts
that are effective as net investment hedges are recognized as a
component of common shareholders' equity. Realized and
unrealized gains and losses on purchased foreign currency options
that hedge exchange rate exposure on future raw material
purchases are deferred in inventory and subsequently included in
cost of goods sold as the inventory is sold. Realized and
unrealized gains and losses on commodity options and futures
contracts that hedge commodity price exposure are deferred in
inventory and subsequently included in cost of goods sold as the
inventory is sold. Expenses associated with interest rate swap
and cap agreements that hedge interest rate exposure are deferred
and recognized as a component of interest expense over the term
of each agreement. Other realized and unrealized gains and losses
on financial instruments are recognized currently in the
consolidated income statements.
Cash and Cash Equivalents - Cash equivalents are composed of all
highly liquid investments with an original maturity of three
months or less. As a result of the Company's cash management
system, checks issued but not presented to the banks for payment
may create negative book cash balances. Such negative balances
are included in trade accounts payable and amounted to $64.7
million as of December 31, 1995 and $102.6 million, $53.0 million
and $45.9 million as of June 30, 1995, 1994 and 1993,
respectively.
Inventories - Inventories are valued at the lower of cost or
market, using various cost methods, and include the cost of raw
materials, labor and overhead. The percentages of inventories
valued using each of the methods were as follows:
As of
December 31, As of June 30,
1995 1995 1994 1993
Last-in, first-out (LIFO) 49% 46% 60% 53%
Average quarterly cost 44% 47% 30% 35%
First-in, first-out (FIFO) 7% 7% 10% 12%
If the LIFO method of valuing these inventories was not used,
total inventories would have been $12.2 million, $10.5 million,
$19.6 million and $17.2 million higher than reported as of
December 31, 1995 and as of June 30, 1995, 1994 and 1993,
respectively.
48
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Property and Depreciation - Property, plant and equipment are
carried at cost and depreciated on a straight-line basis over
their estimated useful lives. Useful lives range from five to 50
years for buildings and improvements and from three to 17 years
for machinery and equipment.
Intangibles - Intangible assets consist principally of excess
purchase price over net tangible assets of businesses acquired
(goodwill) and trademarks. Goodwill is amortized on a straight-
line basis over periods not exceeding 40 years.
Intangible assets, net of amortization and their estimated useful
lives consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful As of December 31, As of June 30,
Dollar in millions Lives (In Years) 1995 1995 1994 1993
<S> <C> <C> <C> <C>
Goodwill 10 to 40 $1,893.2 $1,869.9 $615.2 $528.0
Trademarks and other 2 to 40 588.4 576.8 13.7 29.5
Intangible assets 2,481.6 2,446.7 628.9 557.5
Less accumulated amortization 172.4 135.6 135.5 126.2
Intangible assets - net of amortization $2,309.2 $2,311.1 $493.4 $431.3
</TABLE>
The carrying value of goodwill as of December 31, 1995 includes
certain purchase price adjustments related to the Snapple
beverage acquisition. These adjustments were not significant.
Software Costs - The Company defers significant software
development project costs. Software costs of $0.8 million, $5.3
million and $5.0 million were deferred during the twelve months
ended June 30, 1995, 1994 and 1993, respectively. No software
costs were deferred during the transition period. Amounts
deferred are amortized over a three-year period beginning with a
project's completion. Net deferred software costs as of December
31, 1995 were $4.2 million.
Current and Pending Accounting Changes - During the transition
period, the Company adopted FASB Statement #121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement requires that long-lived assets,
including certain identifiable intangibles and goodwill related
to those assets to be held and used, be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. This
Statement requires that a forecast of undiscounted future
operating cash flows, including disposal value if any, produced
by the asset be compared to its carrying amount to determine
whether an impairment exists. If an asset is determined to be
impaired, the loss is measured based on quoted market prices in
active markets, if available. If quoted market prices are not
available, the estimate of fair value should be based on the best
information available, including considering prices for similar
assets and the results of valuation techniques to the extent
available.
FASB Statement #121 also requires that long-lived assets and
certain identifiable intangibles to be disposed of that are not
covered by APB Opinion No. 30, "Reporting Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," be reported at the lower of the asset's carrying
amount or its fair value less cost to sell. The Company reports
an asset to be disposed of at the lower of its carrying amount or
its estimated net realizable value.
The Company has evaluated the recoverability of Snapple
beverages' long-lived assets, including intangible assets, as of
December 31, 1995 using its best estimates of undiscounted future
cash flows, and believes that the net carrying value of $1.9
billion is consistent with the Company's accounting policies and
the requirements of this Statement. The estimate of future cash
flows is subject to change and management's intention is to
periodically assess the recoverability of long-lived assets using
a consistent methodology.
In October 1995, the FASB issued Statement #123, "Accounting for
Stock-Based Compensation." The Company is required to adopt this
Statement no later than December 31, 1996. The Statement
encourages companies to recognize expense for stock options at an
49
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
estimated fair value based on an option pricing model. If
expense is not recognized for stock options, pro forma footnote
disclosure is required of what net income and earnings per share
would have been under the Statement's approach of valuing and
expensing stock options. Certain other new disclosures will be
required. The Company will implement the provisions of this
Statement in 1996, but has decided that it will not recognize the
expense related to stock options in the financial statements.
The impact of this Statement has not yet been completely
evaluated.
Income Taxes - The Company uses an asset and liability approach
to financial accounting and reporting for income taxes. Deferred
income taxes are provided when tax laws and financial accounting
standards differ with respect to the amount of income for a year
and the bases of assets and liabilities. Federal income taxes
have been provided on $138.3 million of the $224.0 million of
unremitted earnings from foreign subsidiaries. Taxes are not
provided on earnings expected to be indefinitely reinvested.
Estimates and Assumptions - The preparation of financial
statements in conformity with Generally Accepted Accounting
Principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
Acquisitions and Divestitures
The Company has made significant changes in its business
portfolio with the fiscal 1995 acquisition and divestiture
activities.
On December 6, 1994, the Company purchased Snapple Beverage Corp.
for a tender-offer price of $1.7 billion. The acquisition was
accounted for as a purchase and the results of Snapple beverages
are included in the consolidated financial statements since the
date of acquisition. The acquisition was initially financed with
commercial paper borrowings. The after-tax proceeds on the
fiscal 1995 divestitures of $1.25 billion were used to reduce the
commercial paper borrowings.
The following table presents unaudited pro forma combined
historical results as if Snapple Beverage Corp. was acquired at
the beginning of fiscal 1994. The pro forma results are not
necessarily indicative of what actually would have occurred if
the acquisition had been completed as of the beginning of fiscal
1994, nor are they necessarily indicative of future consolidated
results.
Pro Forma Results (Unaudited)
Fiscal Year Ended June 30,
Dollars in Millions (Except Per Share Data) 1995 1994
Net Sales $6,636.8 $6,652.6
Income before cumulative effect of
accounting change $ 767.4 $ 208.1
Income per common share before
cumulative effect of accounting change $ 5.71 $ 1.51
In fiscal 1995, the Company also purchased the Adria pasta
business in Brazil, the Southern Foods oat milling business in
Australia, and the Nile Spice variety meals-in-a-cup and Arnie's
bagel businesses in the United States. In fiscal 1994, the
Company purchased the Near East flavored rice business and three
small food service businesses. In fiscal 1993, the Company
purchased the Chico-San rice cake business. Pro forma
information for all these acquisitions was not material in the
aggregate.
On March 14, 1995, the Company completed the sale of its North
American pet food business to H.J. Heinz Company for $725.0
million and realized a gain of $513.0 million. On April 24,
1995, the Company completed the sale of its European pet food
50
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
business to Dalgety PLC for $700.0 million and realized a gain of
$487.2 million. Other divestitures in fiscal 1995 included the
Dutch honey business in February 1995, the Mexican chocolate
business in May 1995 and the U.S. bean and chili businesses in
June 1995. The Company realized gains on these divestitures of
$4.9 million, $74.5 million and $91.2 million, respectively.
The following table presents sales and operating income from the
businesses divested in fiscal 1995 through the divestiture dates.
Operating income includes certain allocations of overhead
expenses and excludes gains on divestitures and restructuring
charges in all fiscal years.
Fiscal Year Ended June 30,
Dollars in Millions 1995 1994 1993
Sales:
U.S. and Canadian Grocery Products $ 554.6 $ 757.3 $ 720.8
International Grocery Products 760.4 876.0 969.8
Sales from divested businesses $1,315.0 $1,633.3 $1,690.6
Operating income:
U.S. and Canadian Grocery Products $ 39.3 $ 54.2 $ 55.6
International Grocery Products 34.1 50.6 63.7
Operating income from divested businesses $ 73.4 $ 104.8 $ 119.3
In fiscal 1994, the Company realized a $9.8 million gain on the
sale of a business in Venezuela. In fiscal 1993, the Company
realized a $17.4 million gain on the sale of two Italian
businesses and a $10.4 million gain on the sale of a business in
the United Kingdom. Sales and operating income from these
businesses were not material.
Note 3
Restructuring Charges
During the transition period ended December 31, 1995, the Company
recorded restructuring charges of $40.8 million. These charges
included $24.4 million to reduce the amount of contract
manufacturing capacity in Snapple beverages' supply chain system
and $16.4 million to realign the European beverage and
Asia/Pacific grain-based food businesses. The realignment in
Europe and Asia/Pacific will result in the elimination of about
80 positions and allow the Company to focus on the more
attractive growth areas in Southern Europe for beverages and
China for foods. Estimated savings from all restructuring
activities are expected to be about $15 million annually
beginning in 1996. Approximately 90 percent of the annual
savings will be in cash.
In fiscal 1995, the Company recorded restructuring charges of
$76.5 million for cost-reduction and realignment activities in
order to address the changes in its business portfolio and to
allow it to quickly and effectively respond to the needs of trade
customers and consumers. These changes resulted in the
elimination of approximately 850 positions and primarily included
the realignment of the corporate, shared services and business
unit structures, the European cereal business and the U.S.
distribution center network. Estimated savings from these
activities are expected to be about $50 million annually
beginning in 1996. Approximately 90 percent of the annual
savings will be in cash.
In fiscal 1994, the Company recorded restructuring charges of
$118.4 million to eliminate positions at the headquarters and
research and development facilities, a combination and
realignment of the U.S. sales force, manufacturing consolidations
for the bean and chili, rice cake and Aunt Jemima syrup
businesses and the closing of a Canadian pet food facility and
refocusing of the Canadian business, as well as other cost-
reduction initiatives. Approximately 1,500 positions have been
eliminated as a result of these initiatives. In fiscal 1993, the
Company recorded restructuring charges of $48.3 million to
consolidate production facilities at a U.S. pet food plant and to
implement European cost-reduction programs. Savings realized
from fiscal 1994 and 1993 restructuring activities have been in
line with expectations. The 1994 restructuring reserve balances
are considered adequate to cover committed restructuring actions.
51
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
With the divestitures of the North American and European pet food
businesses during fiscal 1995, there are no remaining reserves
and no recurring savings to be realized from the pet food
restructuring activities.
Restructuring provisions were determined based on estimates
prepared at the time the restructuring actions were approved by
management and the Board of Directors. The cost of completing
the restructuring programs is expected to approximate the
original estimates.
The restructuring charges and utilization to date were as
follows:
<TABLE>
<CAPTION>
Dollars in Millions As of December 31, 1995
Amounts Charged Amounts Remaining
Cash Non-Cash Total Utilized Reserve
<S> <C> <C> <C> <C> <C>
Transition Period Ended December 31, 1995
Loss on reduction of contract
manufacturing capacity $ 22.5 $ 1.9 $ 24.4 $ 0.9 $ 23.5
Severance and termination benefits 7.8 -- 7.8 0.6 7.2
Asset write-offs to consolidate facilities 0.1 3.8 3.9 0.4 3.5
Contract cancellation fees and other 4.7 -- 4.7 0.1 4.6
Subtotal 35.1 5.7 40.8 2.0 38.8
Fiscal 1995
Severance and termination benefits 41.0 -- 41.0 16.4 24.6
Asset write-offs to consolidate facilities -- 19.0 19.0 12.6 6.4
Loss on leases and other 16.5 -- 16.5 1.1 15.4
Subtotal 57.5 19.0 76.5 30.1 46.4
Fiscal 1994
Severance and termination benefits 44.7 -- 44.7 41.1 3.6
Asset write-offs and loss on leases 7.6 30.7 38.3 33.1 5.2
Product-line discontinuations 3.3 32.1 35.4 35.4 --
Subtotal 55.6 62.8 118.4 109.6 8.8
Fiscal 1993
Severance and termination benfits 27.6 -- 27.6 27.6 --
Asset write-offs to consolidate facilities -- 20.7 20.7 20.7 --
Subtotal 27.6 20.7 48.3 48.3 --
Totals $175.8 $108.2 $284.0 $190.0 $ 94.0
Operating income excluding restructuring charges and gains on divestitures in
all periods was as follows:
<CAPTION>
Dollars in Millions
Transition Period Ended Fiscal Year
December 31, Ended June 30,
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Operating income as reported $ 105.7 $1,550.3 $ 537.2 $ 575.2
Restructuring charges:
U.S. and Canadian Grocery Products 24.4 47.1 112.9 38.6
International Grocery Products 16.4 29.4 5.5 9.7
Subtotal 40.8 76.5 118.4 48.3
Gains on divestitures:
U.S. and Canadian Grocery Products -- (604.2) -- --
International Grocery Products -- (566.6) (9.8) (27.8)
Subtotal -- (1,170.8) (9.8) (27.8)
Operating income excluding charges and gains $ 146.5 $ 456.0 $ 645.8 $ 595.7
</TABLE>
52
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 4
Trade Accounts Receivable Allowances
<TABLE>
<CAPTION>
As of December 31, As of June 30,
Dollars in Millions 1995 1995 1994 1993
<S> <C> <C> <C> <C>
Balance at beginning of period $ 26.8 $ 17.5 $ 15.0 $ 16.6
Provision for doubtful accounts 7.9 11.2 7.5 5.7
Provision for discounts and allowances 11.6 19.4 16.6 13.8
Write-offs of doubtful accounts -
net of recoveries (4.0) (6.1) (5.2) (4.4)
Discounts and allowances taken (15.3) (15.6) (13.9) (13.9)
Effect of acquisitions and divestitures -- 1.4 -- --
Effect of exchange rate changes (0.2) (1.0) (2.5) (2.8)
Balance at end of period $ 26.8 $ 26.8 $ 17.5 $15.0
</TABLE>
Note 5
Revolving Credit Facilities and Short-term Debt
The Company has revolving credit facilities totaling $1.5 billion
with various banks that support its commercial paper borrowings
and are also available for direct borrowings. The facilities
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. As of December
31, 1995, no direct borrowings were outstanding. Under the
revolving credit facilities, the Company and certain domestic
subsidiaries must maintain certain financial ratios.
The Company had an Adjusted Principal Revolving Credit Agreement
(Agreement) through December 29, 1995, at which time the Company
terminated the Agreement. The Company borrowed the predetermined
amount available each quarter during the transition period.
Short-term debt consists primarily of commercial paper borrowings
in the United States and notes payable to banks in foreign
countries. Commercial paper borrowings outstanding as of
December 31, 1995 and June 30, 1995, 1994 and 1993 were $693.0
million, $676.9 million, $78.4 million and $142.4 million,
respectively. Notes payable to banks were $19.4 million, $21.2
million, $132.9 million and $35.6 million as of December 31, 1995
and June 30, 1995, 1994 and 1993, respectively. See Note 6 for
discussion of reclassification of short-term debt to long-term
debt. Weighted average interest rates on all short-term debt
outstanding as of December 31, 1995 and June 30, 1995, 1994 and
1993 were 6.4 percent, 6.7 percent, 6.1 percent and 4.4 percent,
respectively. Nominal interest rates in highly inflationary
countries have been adjusted for currency devaluation to express
interest rates in U.S. dollar terms.
53
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 6
Long-Term Debt
As of
December 31, As of June 30,
Dollars in Millions 1995 1995 1994 1993
7.76% Senior ESOP notes due through 2001 $ 71.7 $ 74.9 $ 80.8 $ 85.9
8.0% Senior ESOP notes due through 2001 115.6 125.7 133.9 140.3
8.75% ESOP installment loan due
through 1995 -- 2.9 5.5 7.9
7.55%-7.9% Series A medium-term notes
due through 2000 56.7 56.7 71.8 86.8
8.45%-9.34% Series B medium-term notes
due through 2019 216.1 216.4 229.6 248.0
6.5%-7.48% Series C medium-term notes
due through 2024 200.0 200.0 200.0 --
6.45%-7.78% Series D medium-term notes
due through 2025 331.0 212.0 -- --
6.63% deutsche mark swap due 1997 19.4 20.2 17.5 16.3
5.7%-10.75% Industrial Revenue Bonds
due through 2009, tax-exempt 33.4 34.4 34.4 35.6
Non-interest bearing installment note
due 2014 5.4 5.1 4.5 4.0
Short-term debt to be refinanced 69.0 188.0 -- 50.0
Other 2.1 5.6 26.9 6.7
Subtotal 1,120.4 1,141.9 804.9 681.5
Less current portion of long-term debt 68.6 38.8 45.4 48.9
Long-term debt $1,051.8 $1,103.1 $759.5 $632.6
All maturity dates presented refer to calendar years.
Aggregate required payments for long-term debt maturing over the next
five calendar years are as follows:
Dollars in Millions 1996 1997 1998 1999 2000
Required payments $68.6 $52.3 $107.7 $93.9 $80.7
During fiscal 1994, the Company issued $200.0 million of Series C
medium-term notes bearing interest rates ranging from 6.5 percent
to 7.48 percent per annum with maturities from 10 to 30 years.
The debt was issued under a $600.0 million shelf registration
filed with the SEC in January 1990. In April 1995, the Company
filed a prospectus supplement with the SEC for the issuance of an
additional $400.0 million of medium-term notes under the 1990
shelf registration. As of December 31, 1995, the Company has
issued $331.0 million of Series D medium-term notes bearing
interest ranging from 6.45 percent to 7.78 percent per annum with
maturities from three to 30 years. The Company intends to issue
the remaining $69.0 million of medium-term notes in the near
future. As a result, the consolidated balance sheet as of
December 31, 1995 included the reclassification of $69.0 million
of short-term debt to long-term debt. The consolidated balance
sheets as of June 30, 1995 and 1993 included the reclassification
of $188.0 million and $50.0 million, respectively, of short-term
debt to long-term debt, reflecting the Company's intent and
ability to refinance this debt on a long-term basis.
The non-interest bearing installment note for $55.5 million has
an unamortized discount of $50.1 million, $50.4 million, $51.0
million and $51.5 million as of December 31, 1995 and June 30,
1995, 1994 and 1993, respectively, based on an imputed interest
rate of 13 percent.
54
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 7
Financial Instruments
Financial instruments are primarily used to fund working capital
requirements and to reduce the impact of foreign currency rate,
commodity price and interest rate fluctuations. The main
financial instruments used are foreign exchange forward
contracts, purchased foreign currency options, commodity options
and futures contracts, interest rate swap and cap agreements and
short-term and long-term debt instruments.
The foreign currency hedge instruments are used to reduce the
risk that the U.S. dollar value of the net investment and cash
flows of foreign operations will be reduced as exchange rates
fluctuate. Similarly, commodity hedge instruments are used to
reduce the risk that raw material purchases will be adversely
affected as commodity prices change. Interest rate swap and cap
agreements are used to reduce the risk that interest costs will
be increased as interest rates change. While the hedge
instruments are subject to the risk of loss from exchange rate,
commodity price or interest rate changes, the losses would
generally be offset by expected gains on translation of the net
investments, higher operating results, lower costs of the
purchases being hedged or lower interest costs. The Company uses
financial instruments for purposes other than trading and does
not use these instruments with the objective of earning financial
gains on the exchange rate, commodity price or interest rate
fluctuations alone, nor does it utilize instruments in
currencies, commodities or interest for which there are no
underlying exposures. Management believes that its use of
financial instruments to reduce risk is in the Company's best
interest.
The counterparties to the Company's financial instruments are
major financial institutions. The Company continually evaluates
the creditworthiness of the counterparties and has never
experienced, nor does it anticipate, nonperformance by any of its
counterparties.
Balance Sheet Hedges - The Company utilizes net investment hedges
and foreign currency swaps to hedge balance sheet exposures.
Net Investment Hedges - The Company's significant net
investments, net hedges and net exposures in foreign currencies
subject to the hedging program as of December 31, 1995 were as
follows:
Dollars in Millions
Currency Net Invetment Net Hedge Net Exposure
British pound $21.0 $ 4.7 $16.3
Canadian dollar $54.8 $14.3 $40.5
Dutch guilder $11.7 $11.7 --
Deutsche mark $16.4 $16.4 --
Italian lira $43.3 $40.4 $ 2.9
The Company actively monitors the net exposures and adjusts the
hedge amounts as appropriate. The net hedges are stated above on
an after-tax basis. The net exposures are subject to gain or
loss if foreign currency exchange rates fluctuate. On a
consolidated basis, the gain or loss would be recognized as an
increase or decrease in the cumulative translation adjustment
account in the consolidated balance sheet, but future reported
income would not be affected. In some countries, mainly in Latin
America, foreign currency hedge instruments are not available or
are cost prohibitive. The exposures in these countries are
addressed through managing net asset positions and borrowing or
investing in a combination of local currency and U.S. dollars.
As of December 31, 1995 and June 30, 1995, 1994 and 1993, the
Company had net foreign exchange forward contracts to sell $74.7
million, $72.2 million, $142.5 million and $225.5 million,
respectively, of primarily European and Canadian currencies to
hedge its net investments. These contracts will mature in 1996,
except for contracts to sell $7.8 million in British pounds in
1997. Unrealized (losses) gains as of December 31, 1995 and June
30, 1995, 1994 and 1993 were $(1.0) million, $(9.9) million,
$(4.0) million and $10.3 million, respectively. The carrying
value of these contracts approximates fair value.
55
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Foreign Currency Swaps - In fiscal 1988, the Company swapped
$15.0 million of long-term debt for 27.9 million in deutsche mark
(DM) denominated long-term debt, effectively hedging part of the
German net investment. The DM swap agreement requires the
Company to re-exchange 27.9 million DM for $15.0 million in
August 1997 and to make semiannual interest payments of 0.9
million DM through August 1997. The DM swap was included in long-
term debt as of December 31, 1995 and June 30, 1995, 1994 and
1993 for $19.4 million, $20.2 million, $17.5 million and $16.3
million, respectively. The long-term debt is marked to market as
the U.S. dollar/DM exchange rate changes. Due to the sale of the
European pet food business in fiscal 1995, the net investment in
Germany has been reduced to the point where the DM swap is no
longer effective as a net investment hedge, requiring any mark to
market adjustment to be charged or credited to the consolidated
income statement.
To offset this charge or credit, the Company entered into a
foreign exchange forward contract and the net effect on the
consolidated income statements for the transition period and for
fiscal 1995 was not material. The interest payments are subject
to exchange rate fluctuations, but the effect on the Company's
consolidated income statements was not material.
Income Statement Hedges - The Company uses foreign currency
options and forwards, commodity options and futures, and interest
rate hedges to offset gains and losses which are recognized in
the income statement.
Foreign Currency Hedges - The Company uses foreign currency
options and forwards to offset the impact of foreign currency
fluctuations recognized in the operating results of the Company's
international businesses. Included in the consolidated income
statements were (losses) gains from foreign currency hedge
instruments of $(2.0) million, $(2.8) million, $1.1 million and
$6.2 million in the transition period and in fiscal 1995, 1994
and 1993, respectively.
When necessary, the Company has used options to hedge currency
fluctuations on certain anticipated purchases denominated in
foreign currencies, primarily related to the Italian products
business. In the event of unfavorable currency fluctuations, the
options were exercised resulting in gains which offset the higher
cost of the purchases. As of June 30, 1995, 1994 and 1993, the
Company had options to sell Italian lire and purchase U.S.
dollars for $57.9 million, $77.0 million and $91.2 million,
respectively. These options were sold in the transition period.
Deferred unrecognized losses related to these options were $6.3
million, $9.0 million and $6.9 million as of June 30, 1995, 1994
and 1993. The fair values of outstanding purchased foreign
currency options as of June 30, 1995, 1994 and 1993, based on
broker quotes, were $2.0 million, $2.7 million and $3.3 million,
respectively.
In December 1995, the Company purchased a foreign currency option
to protect the anticipated proceeds to be received from the sale
of the Italian products business against exchange losses. See
Note 20 for further discussion of this subsequent event. The
option was sold on January 16, 1996 in conjunction with the
completion of the sale transaction.
Commodity Options and Futures - The Company uses commodity
options and futures contracts to reduce its exposure to commodity
price changes. The Company regularly hedges purchases of oats,
corn, corn syrup, wheat, coffee beans and orange juice
concentrate. Of the $1.5 billion in cost of goods sold,
approximately $100 million to $150 million is in commodities that
may be hedged. The Company's strategy is typically to hedge
certain production requirements for various periods up to twelve
months. As of December 31, 1995, and June 30, 1995,
approximately 54 percent and 33 percent of hedgeable production
requirements for the next twelve months were hedged,
respectively. Deferred unrecognized (losses) gains related to
commodity options and futures contracts as of December 31, 1995,
and June 30, 1995, 1994 and 1993 were $(0.4) million, $(0.1)
million, $(4.4) million and $0.4 million, respectively. Realized
gains (losses) charged to cost of goods sold in the transition
period and in fiscal 1995, 1994 and 1993 were $2.0 million,
$(5.9) million, $(0.2) million and $(1.9) million, respectively.
The fair values of these commodity instruments as of December 31,
1995 and June 30, 1995, 1994 and 1993, based on quotes from
brokers, were net losses of $0.2 million and $4.3 million, net
gains of $7.3 million and net losses of $1.0 million,
respectively.
Interest Rate Hedges - The Company actively monitors its interest
rate exposure. In fiscal 1995, the Company entered into interest
rate swap agreements with a notional value of $150.0 million.
The swap agreements were used to hedge fixed interest rate risk.
Included in the consolidated balance sheets as of December 31,
1995 and June 30, 1995 were $10.8 million and $9.9 million,
respectively, of prepaid interest expense as settlement of all
the interest rate swap agreements. Prepaid interest expense will
be recognized in the consolidated income statements on a straight-
line basis over the life of the swap agreements, which range from
56
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
three to 10 years. The carrying value of the settled interest
rate swap agreements approximates fair value. In fiscal 1995, the
Company entered into interest rate cap agreements with a notional
value of $600.0 million to hedge floating interest rate risk. As
of December 31, 1995 and June 30, 1995, there were no interest
rate cap agreements in place and no deferred prepaid interest
related to these agreements. Included in interest expense was
$0.9 million related to the interest rate swap agreements and
$1.1 million related to the interest rate swap and cap agreements
in the transition period and in fiscal 1995, respectively.
Debt Instruments - The carrying value of cash and cash
equivalents and short-term debt approximates fair value because
of the short-term maturity of the instruments. The fair value of
long-term debt was $1.10 billion, $1.16 billion, $779.7 million
and $730.7 million as of December 31, 1995 and June 30, 1995,
1994 and 1993, respectively, and was based on market prices for
the same or similar issues or on the current rates offered to the
Company for similar debt of the same maturities. The carrying
value of long-term debt as of December 31, 1995 and June 30,
1995, 1994 and 1993 was $1.05 billion, $1.10 billion, $759.5
million and $632.6 million, respectively.
Note 8
Capital Stock
In fiscal 1995, 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. Per share
data and average number of common shares outstanding have 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. In November 1994,
shareholders approved an increase in authorized shares from 200
million to 400 million.
During fiscal 1995, 0.6 million shares of the Company's
outstanding common stock were repurchased for $22.5 million under
a 10 million share repurchase program announced in August 1993.
The Company is authorized to issue 10 million shares of preferred
stock in series, with terms fixed by resolution of the Board of
Directors. One million shares of Series A Junior Participating
Preferred Stock have been reserved for issuance in connection
with the Shareholder Rights Plan (see Note 11).
An additional 1,750,000 shares of Series B Employee Stock
Ownership Plan (ESOP) Convertible Preferred Stock (Series B
Stock) have been reserved for issuance in connection with the
Company's ESOP. As of December 31, 1995, 1,282,051 shares of the
Series B Stock had been issued and are each convertible into
2.1576 shares of the Company's common stock. The Series B Stock
will be issued only for the ESOP and will not be traded on the
open market.
The Company is also authorized to issue one million shares of
redeemable preference stock, none of which had been issued as of
December 31, 1995.
Note 9
Deferred Compensation
The ESOP was established to issue debt and to use the proceeds of
such debt to acquire shares of the Company's stock for future
allocation to ESOP participants. The ESOP borrowings are
included as long-term debt on the Company's consolidated balance
sheets. See Note 6 for further detail on the ESOP notes.
Deferred compensation of $189.8 million as of December 31, 1995
primarily represents the Company's payment of future compensation
expense related to the ESOP. As the Company makes annual
contributions to the ESOP, these contributions, along with the
dividends accumulated on the common and preferred stock held by
the ESOP, are used to repay the outstanding loans. As the loans
are repaid, common and preferred stock are allocated to ESOP
participants and deferred compensation is reduced by the amount
of the principal payments on the loans.
57
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
The following table presents the ESOP loan payments:
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Principal payments $ 16.2 $ 16.7 $ 13.9 $ 11.6
Interest payments 8.2 16.9 18.4 19.4
Total ESOP payments $ 24.4 $ 33.6 $ 32.3 $ 31.0
As of December 31, 1995, 5,180,854 shares of common stock and
422,679 shares of preferred stock were held in the accounts of
ESOP participants.
Note 10
Employee Stock Option and Award Plans
In fiscal 1990, the Company's shareholders approved the adoption
of The Quaker Long Term Incentive Plan of 1990 (Plan). The
purpose of the Plan is to promote the interests of the Company
and its shareholders by providing the officers and other key
employees with additional incentive and the opportunity through
stock ownership to increase their proprietary interest in the
Company and their personal interest in its continued success.
The Plan provides for benefits to be awarded in a variety of
ways, with stock options being used most frequently. Twenty-six
million shares of common stock have been authorized for grant
under the Plan. Previously, stock options were issued under the
1984 Long-Term Incentive Plan, which expired by its terms on
December 31, 1990.
Stock options may be granted for the purchase of common stock at
a price not less than the fair market value on the date of grant.
Portions of the fiscal 1992 and 1993 option awards were granted
at exercise prices higher than the fair market value on the date
of grant. Options are generally exercisable after one or more
years and expire no later than 10 years from the date of grant.
As of December 31, 1995, 661 persons held such options. Changes
in stock options outstanding are summarized as follows:
Option Price
Shares (Per Share)
Balance as of June 30, 1992 4,557,528 $ 9.83-88.36
Granted 1,602,646 $ 63.56-79.45
Exercised (780,724) $ 9.83-70.69
Expired or terminated (83,303) $ 9.83-88.36
Balance as of June 30, 1993 5,296,147 $ 14.03-88.36
Granted 1,448,265 $ 68.88-69.06
Exercised (312,042) $ 14.03-70.69
Expired or terminated (141,635) $ 26.42-88.36
Balance as of June 30, 1994 6,290,735 $ 17.53-88.36
Adjustment due to two-for-one
stock split-up 6,290,735 $ 8.77-44.18
Granted 2,978,450 $ 33.53-40.35
Exercised (906,714) $ 8.77-39.73
Expired or terminated (1,083,665) $ 8.77-44.18
Balance as of June 30, 1995 13,569,541 $ 13.21-44.18
Granted 4,038,115 $ 33.13-33.31
Exercised (523,305) $ 13.21-35.35
Expired or terminated (359,537) $ 19.40-44.18
Balance as of December 31, 1995 16,724,814 $ 13.21-44.18
As of December 31, 1995, options for 10,150,528 shares were
exercisable and the average per share option price of unexercised
options expiring during the period January 1996 to September 2005
was $34.00.
58
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Under the Plan, restricted stock awards grant shares of the
Company's common stock to key officers and employees. These
shares are subject to a restriction period from the date of
grant, during which they may not be sold, assigned, pledged or
otherwise encumbered. The number of shares of the Company's
common stock awarded was 25,646, 49,000, 23,200 and 70,800 in the
transition period and in fiscal 1995, 1994 and 1993,
respectively. The fiscal 1995 awards reflect the fiscal 1995 two-
for-one stock split-up. Restrictions on these awards lapse after
a period of time designated by the Compensation Committee of the
Board of Directors.
Note 11
Shareholder Rights Plan
The Company's Shareholder Rights Plan, adopted July 9, 1986 and
amended July 12, 1989, is designed to deter coercive or unfair
takeover tactics and to prevent a person or group from gaining
control of the Company without offering a fair price to all
shareholders.
Under the terms of the Shareholder Rights Plan, all common
shareholders own one-quarter of a "Right" entitling them to
purchase from the Company one one-hundredth of a share of Series
A Junior Participating Preferred Stock at an exercise price of
$300. The Rights become exercisable: (1) 10 days after a public
announcement that a person or group has acquired shares
representing 20 percent or more of the voting power of the
Company's capital stock; (2) 10 business days following
commencement of a tender offer for more than 20 percent of such
voting power; or (3) 10 business days after a holder of at least
15 percent of such voting power is determined to be an adverse
person by the Board of Directors. The time periods can be
extended by the Company.
Unless the Board of Directors has made a determination that any
person is an adverse person, the Company can redeem the Rights
for $0.05 per Right at any time prior to their becoming
exercisable. The Rights will expire on
July 30, 1996, unless redeemed earlier by the Company.
If after the Rights become exercisable the Company is involved in
a merger or other business combination at any time when there is
a holder of 20 percent or more of the Company's stock, the Rights
will then entitle holders, upon exercise of the Rights, to
receive shares of common stock of the acquiring company with a
market value equal to twice the exercise price of each Right.
Alternatively, if a 20 percent holder acquires the Company by
means of a reverse merger in which the Company and its stock
survive, or if any person acquires 20 percent or more of the
Company's voting power or acquires 15 percent of the Company's
voting power and is determined by the Board of Directors to be an
adverse person, each Right not owned by such 20 percent
shareholder or adverse person would, upon exercise of the Right,
entitle the holder to common stock of the Company (or in certain
circumstances other consideration) having a market value equal to
twice the exercise price of the Right. The Rights described in
this paragraph shall not apply to an acquisition, merger or
consolidation which is determined by a majority of the Company's
independent directors, after consulting one or more investment
banking firms, to be fair and otherwise in the best interest of
the Company and its shareholders.
Note 12
Pension Plans
The Company has various pension plans covering substantially all U.S. employees
and certain foreign employees. Plan benefits are based on compensation paid to
employees and their years of service. Company policy is to make contributions
to its U.S. plans within the maximum amount deductible for Federal income tax
purposes. Plan assets consist primarily of equity securities and government,
corporate and other fixed-income obligations.
59
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
The components of net pension costs for defined plans were as follows:
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Service cost (benefits earned
during the year) $ 26.6 $ 53.8 $ 46.0 $ 41.5
Interest cost on projected
benefit obligation 33.5 59.5 55.6 51.9
Actual return on plan assets (36.1) (65.8) (64.2) (64.8)
Net amortization and deferral (3.6) (7.4) (8.8) (8.5)
Multi-employer plans 0.2 0.4 0.3 0.2
Net pension costs $ 20.6 $ 40.5 $ 28.9 $ 20.3
Reconciliation of the funded status of the Company's U.S. defined plans to the
(accrued) prepaid pension costs were as follows:
<TABLE>
<CAPTION>
Overfunded Underfunded
As of As of As of As of
December 31, June 30, December 31, June 30,
Dollars in Millions 1995 1995 1994 1993 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vested benefits $ 658.7 $ 551.4 $ 505.9 $ 459.5 $ 59.3 $ 52.5 $ 52.0 $ 47.3
Non-vested benefits 15.4 11.8 10.8 10.1 1.5 1.2 1.1 0.2
Accumulated benefit obligation 674.1 563.2 516.7 469.6 60.8 53.7 53.1 47.5
Effect of projected future
salary increases 75.3 56.7 64.0 62.0 13.9 12.7 4.7 8.9
Projected benefit obligation 749.4 619.9 580.7 531.6 74.7 66.4 57.8 56.4
Plan assets at market value 783.7 673.0 640.9 637.5 27.1 24.7 22.0 23.3
Projected benefit obligation
less (greater) than plan assets 34.3 53.1 60.2 105.9 (47.6) (41.7) (35.8) (33.1)
Unrecognized net (gain) loss (64.3) (69.5) (40.6) (59.6) 1.7 (2.6) (4.0) (4.2)
Unrecognized prior service cost 19.0 20.4 6.9 8.1 5.2 5.7 4.9 5.6
Unrecognized net (asset)
liability at transition (22.1) (28.1) (40.7) (52.9) 1.5 1.8 3.5 4.2
(Accrued) prepaid pension costs $ (33.1) $ (24.1) $ (14.2) $ 1.5 $ (39.2) $ (36.8) $ (31.4) $ (27.5)
Assumptions (reflecting averages across all plans): Weighted average discount rate: 7.25%.
Rate of future compensation increases: 4.5%. Long-term rate of return on plan assets: 8.75%.
60
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Reconciliations of the funded status of the company's foreign defined plans to the prepaid (accrued)
pension costs were as follows:
<CAPTION>
Overfunded Underfunded
As of As of As of As of
December 31, June 30, December 31, June 30,
Dollars in Millions 1995 1995 1994 1993 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vested benefits $ 78.2 $ 83.9 $ 79.7 $ 89.8 $ 21.0 $ 18.6 $ 19.6 $ 18.7
Non-vested benefits 0.1 0.4 14.5 -- 2.2 3.1 4.8 4.5
Accumulated benefit obligation 78.3 84.3 94.2 89.8 23.2 21.7 24.4 23.2
Effect of projected future
salary increases 24.4 25.5 18.9 18.8 0.8 1.4 3.6 3.4
Projected benefit obligation 102.7 109.8 113.1 108.6 24.0 23.1 28.0 26.6
Plan assets at market value 114.6 120.0 127.6 113.0 -- -- -- --
Projected benefit obligation
less (greater) than plan assets 11.9 10.2 14.5 4.4 (24.0) (23.1) (28.0) (26.6)
Unrecognized net (gain) loss (3.5) 1.3 (4.3) 13.4 0.2 (0.2) (0.3) (0.2)
Unrecognized prior service cost 3.9 2.1 2.8 3.1 -- 0.8 0.8 0.8
Unrecognized net (asset)
at transition (7.9) (8.6) (4.2) (13.5) (0.1) (0.2) -- (0.2)
Prepaid (accrued) pension costs $ 4.4 $ 5.0 $ 8.8 $ 7.4 $ (23.9) $ (22.7) $ (27.5) $(26.2)
Assumptions (reflecting averages across all plans): Weighted average discount rate: 8.0%.
Rate of future compensation increases: 5.9%. Long-term rate of return on plan assets: 8.1%.
</TABLE>
Unrecognized prior service cost is being amortized over periods ranging from 10
to 18 years.
The foreign pension plans included unfunded termination indemnity reserves of
$15.4 million, $14.0 million, $14.1 million and $14.1 million as of
December 31, 1995 and June 30, 1995, 1994 and 1993, respectively.
Note 13
Postretirement Benefits Other Than Pensions and Other
Postemployment Benefits
The Company has various postretirement health care plans covering
substantially all U.S. employees and certain foreign employees.
The plans provide for the payment of certain health care and life
insurance benefits for retired employees who meet certain service-
related eligibility requirements. The Company funds only the
plans' annual cash requirements.
Effective July 1, 1992, the Company adopted FASB Statement #106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Statement requires that the expected cost of
these benefits be charged to expense during the years that the
employees render service. The Statement was adopted through a
cumulative pretax charge of $205.5 million, or $125.4 million
after-tax, which represents the accumulated postretirement
benefit obligation for years prior to fiscal 1993. Cash
expenditures are not affected by this accounting change.
The components of postretirement benefit costs were as follows:
Transition
Period Fiscal Year
Ended December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Service cost (benefits
earned during the year) $ 3.3 $ 7.2 $ 7.0 $ 6.2
Interest cost on projected
benefit obligation 9.6 19.6 18.4 18.3
Amortization 0.1 0.1 0.1 --
Total postretirement benefit
costs $ 13.0 $ 26.9 $ 25.5 $ 24.5
61
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
The Company's unfunded accumulated postretirement benefit
obligations and accrued postretirement benefit costs were as
follows:
As of December 31, As of June 30,
Dollars in Millions 1995 1995 1994 1993
Current retirees $ 136.4 $ 132.0 $ 122.1 $ 122.5
Current active employees -
fully eligible 15.8 13.4 12.5 12.0
Current active employees -
not fully eligible 113.6 94.4 115.2 100.0
Accumulated postretirement -
benefit obligation 265.8 239.8 249.8 234.5
Unrecognized net (loss) gain (5.5) 7.7 (12.5) (11.1)
Unrecognized prior service cost (2.3) (1.9) (2.0) --
Accrued postretirement
benefit costs $ 258.0 $ 245.6 $ 235.3 $ 223.4
Assumptions:
Weighted average discount rate: 7.25%
Health care trend rates (varies by plan): Calendar Calendar
1996 2006 and Beyond
Pre-age 65 9-13% 4-6%
Age 65 and over 8-13% 4-6%
If the health care trend rates were increased one percentage
point, the current-period postretirement benefit costs would have
been $2.0 million higher and the accumulated postretirement
benefit obligation as of December 31, 1995 would have been $36.6
million higher.
Effective July 1, 1994, the Company adopted FASB Statement #112,
"Employers' Accounting for Postemployment Benefits." The
Statement requires that the expected cost of other postemployment
benefits be charged to expense during the years that employees
render services. 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 the Statement did not
have a material effect on operating results or cash flows in the
transition period or in fiscal 1995, nor is it expected to have a
material effect in future years.
Note 14
Lease and Other Commitments
Certain equipment and operating properties are rented under non-
cancelable operating leases. Total rental expense under
operating leases was $16.8 million, $35.2 million, $33.1 million
and $34.3 million for the transition period ended December 31,
1995 and the twelve months ended June 30, 1995, 1994 and 1993,
respectively. The following is a schedule of future minimum
annual rentals (calendar-year basis) on non-cancelable operating
leases, primarily for sales offices, distribution centers and
corporate headquarters, in effect as of December 31, 1995.
Dollars in Millions 1996 1997 1998 1999 2000 Thereafter Total
Total payments $30.5 $27.8 $26.6 $20.8 $19.9 $94.6 $220.2
The Company enters into executory contracts to promote various
products. As of December 31, 1995, future commitments under
these contracts amounted to $57.1 million.
62
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 15
Supplementary Income Statement Information
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Advertising, media and production $ 141.0 $ 292.9 $ 295.3 $ 282.0
Merchandising 518.5 1,382.7 1,291.5 1,193.0
Total advertising and
merchandising $ 659.5 $1,675.6 $1,586.8 $1,475.0
Depreciation expense $ 59.2 $ 125.4 $ 133.3 $ 129.9
Amortization of intangibles $ 42.8 $ 63.8 $ 33.9 $ 26.3
Research and development $ 16.2 $ 52.2 $ 56.3 $ 52.4
Note 16
Interest Expense
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Interest expense $ 61.2 $ 119.0 $ 99.9 $ 66.1
Interest expense capitalized - net (3.3) (2.0) (1.3) (0.5)
Subtotal 57.9 117.0 98.6 65.6
Interest income (3.7) (6.3) (8.9) (10.5)
Interest expense - net $ 54.2 $ 110.7 $ 89.7 $ 55.1
Interest paid in the transition period ended December 31, 1995
and the twelve months ended June 30, 1995, 1994 and 1993 was
$51.5 million, $115.9 million, $72.0 million and $74.3 million,
respectively.
Note 17
Income Taxes
The Company uses an asset and liability approach to financial
accounting and reporting for income taxes in accordance with FASB
Statement #109, "Accounting for Income Taxes." The Statement was
adopted effective July 1, 1992 and the cumulative effect of
adoption was to increase fiscal 1993 net income by $9.9 million.
Provisions for income taxes on income before cumulative effect of
accounting changes were as follows:
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Currently payable:
Federal $ 7.0 $382.4 $140.1 $129.2
Foreign 19.8 122.3 23.4 25.0
State 1.7 64.7 30.3 29.7
Total currently payable 28.5 569.4 193.8 183.9
Deferred - net:
Federal 4.9 (26.3) (34.0) (6.7)
Foreign (22.1) 13.0 (13.3) 2.7
State 0.6 (2.3) 0.7 0.9
Total deferred - net (16.6) (15.6) (46.6) (3.1)
Provision for income taxes $ 11.9 $553.8 $147.2 $180.8
63
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
The components of the deferred income tax benefit were as
follows:
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Accelerated tax depreciation $ 4.5 $ (26.0) $ 11.2 $ 15.0
Postretirement benefits (3.7) (2.2) (8.2) (5.8)
Accrued expenses including
restructuring charges 9.6 (1.8) (36.9) (8.6)
Loss carryforwards (1.9) 0.5 (8.3) (2.2)
Foreign gain deferral (24.3) 24.3 -- --
Other (0.8) (10.4) (4.4) (1.5)
Benefit for deferred
income taxes $(16.6) $ (15.6) $ (46.6) $ (3.1)
Total income tax provisions (benefits) were allocated as follows:
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
Continuing operations $ 11.9 $ 553.8 $ 147.2 $ 180.8
Cumulative effect of
accounting changes $ -- $ (2.7) $ -- $ (90.0)
Items charged directly to
common shareholders' equity $ (3.7) $ (9.8) $ (8.1) $ 2.6
The sources of pretax income before cumulative effect of
accounting changes were as follows:
Transition Period Fiscal Year
Ended December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
U.S. sources $ 41.7 $1,029.4 $ 365.8 $ 389.3
Foreign sources (16.1) 330.5 12.9 78.3
Income before income taxes
and cumulative effect of
accounting changes $ 25.6 $1,359.9 $ 378.7 $ 467.6
Reconciliations of the statutory Federal income tax rates to the
effective income tax rates were as follows:
<TABLE>
<CAPTION>
Transition
Period Fiscal Year
Ended December 31, Ended June 30,
Dollars in Millions 1995 1995 1994 1993
% of % of % of % of
Pretax Pretax Pretax Pretax
Amount Income Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C>
Tax provision based on the
Federal statutory rate $ 9.0 35.0% $ 476.0 35.0% $ 132.5 35.0% $ 159.0 34.0%
State and local income
taxes - net of Federal
income tax benefit 1.5 5.9 40.6 3.0 18.4 4.8 19.7 4.2
Repatriation of foreign
earnings (0.8) (3.1) 7.9 0.6 (9.6) (2.5) (2.4) (0.5)
Foreign tax rate differential 3.3 12.9 19.6 1.4 9.0 2.4 1.7 0.4
Miscellaneous items (1.1) (4.2) 9.7 0.7 (3.1) (0.8) 2.8 0.6
Provision for income taxes $ 11.9 46.5% $ 553.8 40.7% $ 147.2 38.9% $ 180.8 38.7%
64
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Deferred tax assets and deferred tax liabilities were as follows:
<CAPTION>
As of
December 31, As of June 30,
Dollars in Millions 1995 1995 1994 1993
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization $ 58.8 $ 405.6 $ 59.7 $ 395.2 $ 21.1 $ 219.3 $ 14.5 $ 211.0
Postretirement
benefits 100.9 -- 97.2 -- 94.1 -- 85.9 --
Other benefit plans 59.8 20.2 54.9 15.6 52.4 11.5 42.0 13.5
Accrued expenses including
restructuring charges 147.9 10.4 155.1 17.7 112.9 21.7 59.1 4.1
Loss carryforwards 13.5 -- 8.7 -- 24.3 -- 20.8 --
Other 15.9 22.8 15.2 48.5 18.1 33.5 21.8 34.6
Subtotal 396.8 459.0 390.8 477.0 322.9 286.0 244.1 263.2
Valuation allowance (20.0) -- (18.7) -- (28.1) -- (18.1) --
Total $ 376.8 $ 459.0 $ 372.1 $ 477.0 $ 294.8 $ 286.0 $ 226.0 $ 263.2
</TABLE>
As of December 31, 1995, the Company had $40.3 million of
operating and capital loss carryforwards available to reduce
future taxable income of certain international subsidiaries.
These loss carryforwards must be utilized within the carryforward
periods of these international jurisdictions. The majority of
loss carryforwards expire in five years. A valuation allowance
has been provided for a portion of the deferred tax assets
related to the loss carryforwards.
Included in other current assets were deferred tax assets of
$151.4 million, $128.4 million, $91.0 million and $52.3 million
as of December 31, 1995 and June 30, 1995, 1994 and 1993,
respectively. Income taxes paid during the transition period
ended December 31, 1995 and the twelve months ended June 30,
1995, 1994 and 1993 were $116.8 million, $367.1 million, $163.9
million and $213.3 million, respectively.
Note 18
Litigation
The case entitled Sands, Taylor & Wood v. The Quaker Oats Company,
which dealt with the Company's use of the words "thirst aid" in
advertising Gatorade thirst quencher, was settled in September 1995
while the case was pending before the U.S. Court of Appeals for the
Seventh Circuit. The Company did not incur any additional charge
above the amount previously recorded in connection with this
settlement.
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
the Company's November 1994 acquisition of a Brazilian pasta
business for $100 million. The Company seeks to rescind the
transaction and collect damages.
The Company is also a party to a number of lawsuits and claims,
which it is vigorously defending. Such matters arise out of the
normal course of business and relate to the Company's recent
acquisition activity and other issues. Certain of these actions
seek damages in large amounts. While the results of litigation
cannot be predicted with certainty, management believes that the
final outcome of such litigation will not have a material adverse
effect on the Company's consolidated financial position or results
of operations. Changes in assumptions, as well as actual
experience, could cause the estimates made by management to change.
65
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note 19
Quarterly Financial Data (Unaudited)
Dollars in Millions (Except Per Share Data)
1995 Transition Period First Second
Quarter Quarter (a)
Net sales $ 1,553.6 $ 1,179.5
Cost of goods sold 825.0 704.3
Gross profit $ 728.6 $ 475.2
Net income (loss) $ 61.5 $ (47.8)
Per common share:
Net income (loss) $ 0.45 $ (0.36)
Cash dividends declared $ 0.285 $ 0.285
Market price range:
High $ 36 $ 37 3/8
Low $ 30 3/4 $ 31 1/8
(a) Includes pretax restructuring charges of $40.8 million ($24.5
million after-tax or $.18 per share) for the Snapple beverage
supply chain cost reductions and for realignment activities in
Europe and Asia/Pacific.
Dollars in Millions (Except Per Share Data)
First Second Third Fourth
Fiscal 1995 Quarter(a) Quarter Quarter(b) Quarter(c)
Net sales $1,636.4 $1,507.9 $1,633.5 $1,587.4
Cost of goods sold 825.2 791.2 871.0 894.1
Gross profit $ 811.2 $ 716.7 $ 762.5 $ 693.3
Income before cumulative
effect of accounting
change $ 61.4 $ 34.4 $ 366.1 $ 344.2
Net income $ 57.3 $ 34.4 $ 366.1 $ 344.2
Per common share:
Income before cumulative
effect of accounting
change $ 0.45 $ 0.25 $ 2.73 $ 2.57
Net income $ 0.42 $ 0.25 $ 2.73 $ 2.57
Cash dividends declared $ 0.285 $ 0.285 $ 0.285 $ 0.285
Market price range:
High $ 42 1/2 $ 38 3/4 $ 36 1/2 $ 37 1/2
Low $35 3/16 $ 29 3/4 $ 30 1/4 $ 32 1/8
(a) Includes an $18.4 million pretax provision ($11.0 million after-
tax or $.08 per share) for estimated litigation costs. First
quarter per share data have been restated to reflect the fiscal
1995 two-for-one stock split-up.
(b) Includes a $513.0 million pretax gain ($322.2 million after-tax
or $2.41 per share) for the sale of the North American pet food
business and a $4.9 million pretax gain ($2.8 million after-tax or
$.02 per share) for the sale of the Dutch honey business.
(c) Includes a $487.2 million pretax gain ($272.6 million after-tax
or $2.04 per share) for the sale of the European pet food business;
a $74.5 million pretax gain ($43.9 million after-tax or $.33 per
share) for the sale of the Mexican chocolate business; a $91.2
million pretax gain ($53.1 million after-tax or $.40 per share) for
the sale of the U.S. bean and chili businesses; pretax
restructuring charges of $76.5 million ($46.1 million after-tax or
$.35 per share) for cost-reduction and realignment activities; and
an additional $10.6 million pretax provision ($6.2 million after-
tax or $.05 per share) for estimated litigation costs.
66
The Quaker Oats Company and Subsidiaries
Notes to the Consolidated Financial Statements
Dollars in Millions (Except Per Share Data)
First Second Third Fourth
Fiscal 1994 (a) Quarter Quarter Quarter Quarter(b)
Net sales $ 1,534.3 $1,353.9 $1,449.2 $1,617.6
Cost of goods sold 749.8 670.1 701.5 804.8
Gross profit $ 784.5 $ 683.8 $ 747.7 $ 812.8
Net income $ 91.4 $ 42.8 $ 73.8 $ 23.5
Per common share:
Net income $ 0.66 $ 0.31 $ 0.54 $ 0.17
Cash dividends declared $ 0.265 $ 0.265 $ 0.265 $ 0.265
Market price range:
High $37 15/16 $ 38 1/8 $35 9/16 $ 41
Low $ 31 1/4 $33 1/16 $30 5/16 $ 31
(a) Per share data reflect the fiscal 1995 two-for-one stock split-up.
(b) Includes pretax restructuring charges of $118.4 million ($72.8
million after-tax or $.55 per share) for work force reductions,
plant consolidations and product discontinuations and a $9.8
million pretax gain (or $.07 per share) for the sale of a business
in Venezuela.
Note 20
Subsequent Event
On December 6, 1995, the Company announced a definitive agreement
to sell its Italian products business. The transaction was
completed on January 15, 1996.
On March 12, 1996, the Company announced its intention to sell its
North American frozen foods business, which includes Aunt Jemima
frozen breakfast products and Celeste frozen pizza products. The
combined sales of the Aunt Jemima frozen products and Celeste
frozen pizza businesses are approximately $175 million. The
planned divestiture does not include the Aunt Jemima syrup, corn
product and pancake mix businesses.
67
The Quaker Oats Company and Subsidiaries
Report of Independent Auditors
To the Shareholders of The Quaker Oats Company:
We have audited the accompanying consolidated balance sheets of The
Quaker Oats Company (a New Jersey corporation) and subsidiaries as
of December 31, 1995 and June 30, 1995, 1994 and 1993, and the related
consolidated statements of income, common shareholders' equity and
cash flows for the six month period ended December 31, 1995 and
years ended June 30, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The
Quaker Oats Company and subsidiaries as of December 31, 1995 and June
30, 1995, 1994 and 1993, and the results of their operations and
their cash flows for the six month period ended December 31, 1995
and years ended June 30, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
As indicated in Note 13, effective July 1, 1992, the Company
changed their accounting for postretirement benefits other than
pensions and effective July 1, 1994, the Company changed their
accounting for postemployment benefits. As indicated in Note 17,
effective July 1, 1992, the Company changed their accounting for
income taxes.
Chicago, Illinois
February 2, 1996
(Except with respect to the matter discussed in Note 20, as to
which the date is March 12, 1996)
68
The Quaker Oats Company and Subsidiaries
Report of Management
Management is responsible for the preparation and integrity of the
Company's financial statements. The financial statements have been
prepared in accordance with generally accepted accounting
principles and necessarily include some amounts that are based on
management's estimates and judgment.
To fulfill its responsibility, management's goal is to maintain
strong systems of internal controls, supported by formal policies
and procedures that are communicated throughout the Company.
Management regularly evaluates its systems of internal controls
with an eye toward improvement. As a result of its major business
portfolio and organizational changes, some of the Company's
internal control systems did not operate as effectively as before
the changes. Management is not aware of any material control
weaknesses and is taking action to improve its internal control
systems.
Our independent public accountants, Arthur Andersen LLP, have
audited the financial statements and have rendered an opinion as to
the statements' fairness in all material respects. During the
audit, they obtain an understanding of the Company's internal
control systems and perform tests and other procedures to the
extent required by generally accepted auditing standards.
The Board of Directors pursues its oversight role with respect to
the Company's financial statements through the Audit Committee,
which is composed solely of non-management directors. The Audit
Committee meets periodically with the independent public
accountants, internal auditors and management to assure that all
are properly discharging their responsibilities. The Audit
Committee approves the scope of the annual audit and reviews the
recommendations the independent public accountants have for
improving internal accounting controls. The Board of Directors, on
recommendation of the Audit Committee, engages the independent
public accountants, subject to shareholder approval.
Both Arthur Andersen LLP and the internal auditors have
unrestricted access to the Audit Committee.
69
The Quaker Oats Company and Subsidiaries
Additional 10-K Information
Description of Property
As of December 31, 1995, the Company operated 56 manufacturing
plants in 19 states and 14 foreign countries and owned or leased
distribution centers and sales offices in 22 states and 23 foreign
countries. The number of locations utilized by each segment of the
business was as follows:
Owned and Owned and Leased Owned and
Leased Mfg. Distribution Leased Sales
Locations Centers Offices
Geographic Segment U.S. Foreign U.S. Foreign U.S. Foreign
U.S. and Canadian Grocery
Products 30 4 11 -- 39 5
International Grocery
Products -- 22 -- 18 -- 44
Total 30 26 11 18 39 49
The Company owns a research and development laboratory in
Barrington, Illinois. The corporate offices are maintained in
leased space in downtown Chicago, Illinois. Management believes
manufacturing, distribution and office space owned and leased are
suitable and adequate for the business and productive capacity is
appropriately utilized.
Trademarks
The Company and its subsidiaries own a number of trademarks and are
not aware of any circumstances that could adversely affect the
continued use of these trademarks. Among the most important of the
domestic trademarks owned by the Company are Quaker, Cap'n Crunch,
Quaker Toasted Oatmeal, Life, Quaker 100% Natural and Quaker
Oatmeal Squares for breakfast cereals; Gatorade for thirst-
quenching beverages; Snapple and Made From the Best Stuff on Earth
for teas and juice drinks; Quaker and Quaker Chewy for grain-based
snacks; Rice-A-Roni and Near East for value-added rice and grain
products; Pasta Roni for value-added pasta; Nile Spice for variety
meals-in-a-cup; Golden Grain and Mission for pasta; Quaker and Aunt
Jemima for mixes, syrups and corn goods; Aunt Jemima and Celeste
for frozen foods; Ardmore Farms for citrus and fruit juices;
Continental, Maryland Club and Continental WB for coffee; and Mrs.
Richardson's for ice cream toppings. Many of the grocery product
trademarks owned by the Company in the United States are registered
in foreign countries in which the Company does substantial
business. Internationally, key trademarks owned include the
following: Quaker, Cruesli, Honey Monster, Sugar Puffs and Scott's
for breakfast cereals, Cuore for edible oils (sold in January 1996
in conjunction with the Italian products divestiture); Coqueiro for
fish; Toddy and ToddYnho for chocolate beverages; and Adria for
pasta products.
U.S. and Canadian Grocery Products Description
The Company is a major participant in the competitive packaged food
and beverage industry in the United States and Canada and is a
leading manufacturer of sports beverages, premium iced tea and
single-serve juice drinks, hot cereals, pancake mixes, grain-based
snacks, cornmeal, hominy grits and value-added rice products. In
addition, the Company is the second-largest manufacturer of syrups
and value-added pasta products and is among the five largest
manufacturers of ready-to-eat cereals and dry pasta products. The
Company competes with a significant number of both large and small
companies on the basis of price, value, quality and convenience,
among other attributes. The Company's grocery products are
purchased by consumers through a wide range of food distributors.
The Company utilizes both its own and broker sales forces and has
distribution centers throughout the country, each of which carries
an inventory of most of the Company's grocery products. In
addition, the Company markets a line of over 400 items for the food
service market, including Quaker hot and ready-to-eat cereals; Aunt
Jemima frozen breakfast products and mixes; Continental coffees;
Ardmore Farms single-serve fruit juices; Gatorade thirst quencher;
a specialty line of custom-blended dry baking mixes; ready-to-bake
biscuits; Arnie's Bagelicious bagels and Petrofsky's bagels; Burry
cookies and crackers; and Mrs. Richardson's syrups, ice cream
toppings and condiments.
70
The Quaker Oats Company and Subsidiaries
Additional 10-K Information
International Grocery Products Description
The Company is broadly diversified in the packaged food and
beverage industry, both geographically and by product line.
Competitive conditions vary by country. The Company manufacturers
and markets its products in many countries throughout Europe, Latin
America and the Asia/Pacific region. It is the leading hot cereals
producer in many countries and has other leading market positions
for products in a number of countries, including the following:
the leading pasta manufacturer in Brazil; the leading producer of
edible seed oils in Italy (sold in January 1996); the leading
canned fish processor in Brazil; and the leading sports beverage
distributor in Mexico, Korea, Italy, Argentina, Australia, Brazil,
Venezuela, Colombia and the Philippine Islands.
Raw Materials
The raw materials used in manufacturing include oats, wheat, corn,
rice, sweeteners, tea, orange and other juice concentrate, almonds,
coffee beans, raisins, beef, chicken, corn oil, shortening and
fish, as well as a variety of packaging materials. These products
are purchased mainly in the open market. Supplies of all raw
materials have been adequate and continuous.
71
The Quaker Oats Company and Subsidiaries
Directors and Offices
Directors Officers
Members of the Senior
Board of Officers
Directors
Frank C. Thomas C. William D. Smithburg +
Carlucci MacAvoy Age 57
1*,5,6 1,5,6* Chairman,
Chairman Paul M. President and
The Carlyle Hammaker CEO
Group Professor of Joined Quaker
(Banking) Business in 1966.
Washington, Administration Elected to
D.C. Darden Graduate present office in
School of Business November 1995.
Silas S. Cathcart Administration
2*,3,5 University of Luther C.
Retired Virginia McKinney +
Chairman Charlottesville, Age 64
Illinois Tool Virginia Senior Vice
Works President
(Diversified Luther C. Law and
Products) McKinney 3 Corporate
Chicago, Senior Vice Affairs
Illinois President Joined Quaker
Law and in 1974.
Kenneth I. Corporate Elected to
Chenault Affairs present
1,2,4,5 office in 1994.
Vice Chairman Walter J.
American Salmon Douglas J.
Express 4,5,6 Ralston +
Company Stanley Roth,Sr. Age 50
(Financial Professor of Senior Vice
and Travel Retailing President
Services) Harvard Human
New York, New Business Resources
York School Joined Quaker
Boston, in 1981.
Judy C. Massachusetts Elected to
Lewent present
1,4,5,6 William D. office in 1992.
Senior Vice Smithburg 3,5
President and Chairman,
Chief President and Robert S.
Financial CEO Thomason +
Officer Age 51
Merck & Co., William L. Senior Vice
Inc. Weiss President
(Pharmaceutic 2,3,4*,5 Finance and
als) Chairman Chief
Whitehouse Emeritus Financial
Station, Ameritech Officer
New Jersey Corporation Joined Quaker
(Telecommunica in 1971.
Vernon R. tions) Elected to
Loucks, Jr. Chicago, present
2,3,5* Illinois office in
Chairman and March 1995.
Chief
Executive
Officer
Baxter
International
Inc.
(Medical Care
Products)
Deerfield,
Illinois
Corporate Staff
Officers Board Committees
Jeffrey A. Mary M. Hoskins 1 Audit
Atkins + Assistant 2 Compensation
Age 47 Treasurer 3 Executive
Vice 4 Finance
President R. Thomas Howell Jr.+ 5 Nominating
Corporate Age 53 (William D. Smithburg
Planning Vice President Ex Officio Member)
Joined Quaker General Corporate 6 Public Responsibility
in 1977. Counsel and * Denotes Committee
Elected to Corporate Secretary Chairman
office in Joined Quaker
April 1995. in 1971. Elected
to present office
John H. in 1994.
Calhoun
Vice John G. Jartz
President Vice
International President
Law Business
Development
Penelope C. Cate
Vice James G. LeGere
President Vice
Government and President
Community Information
Relations Services
Michael L. Mart C. Matthews
Cohen Vice
Vice President President and
Human Associate
Resources General
Corporate
Janet K. Cooper+ Counsel
Age 42
Vice Kenneth W. Murray
President and Vice President
Treasurer Internal Auditing
Joined Quaker
in 1978. W. Stephen Perry+
Elected to Age 53
present Vice President
office in 1992. Corporate Tax
Joined Quaker in
Margaret M. 1994. Elected to
Eichman present office
Vice President in 1994.
Investor
Relations and Arthur R. Skantz
Corporate Vice President
Communications Corporate
Growth
Scott Gantwerker
Vice President
Quality Worldwide
Thomas L. Gettings+
Age 39
Vice President
and Corporate
Controller
Joined Quaker
in 1987. Elected
to present office
in 1992.
72
The Quaker Oats Company and Subsidiaries
Directors and Offices
Officers (Continued)
Worldwide International
U.S. and Worldwide Quaker Quaker
Canadian Beverages Food Service Food Products
Quaker Food
Products James F. A. Stephen Barbara R.
Doyle + Diamond + Allen +
Douglas W. Age 43 Age 49 Age 43
Mills + Executive Vice Executive
Age 50 Vice President - Vice
Executive President President President
Vice Joined Quaker Joined Quaker Joined Quaker
President in 1981. in 1993. in 1977.
Joined Quaker Elected to Elected to Elected to
in 1969. present present present
Elected to office in office in office in
present 1994. September March 1995.
office in 1995.
1994. Donald R. Europe
Uzzi Paul V. Baron
John A. Boynton+ President - Vice Franco Cianci
Age 42 Beverages, President and President
Vice North America Business Italian
President and Leader Products
Chief Michael T. North
Customer Tay American Food George F.
Officer President - Service Sewell
Joined Quaker Beverages, President
in 1981. North Asia Alden B. Cereals,
Elected to Knowles Europe
present Bernardo Vice
office in Wolfson President and Pacific
1994. President - Business
Beverages, Leader William C.
Latin America In-Store Bake Trotter
Polly B. and Southern President
Kawalek Europe Gregory W. Quaker
President - Murray Pacific
Snacks John S. Vice
Breuer President and
David L. President - Business + also Executive
Morton Beverages, Leader Officers as
President and South Asia Coffee defined by
Chief Business Unit Securities and
Executive Exchange
Officer Dale W. Commission
The Quaker Tremblay regulations.
Oats Vice Such Executive
Company of President and Officers serve
Canada Business at the pleasure
Limited Leader of the Board of
McDonald's Directors. All
Mark A. Shapiro Business Unit Executive Officers
President - (except W. Stephen
Golden Grain Perry who joined
the Company in
Russell A. Young + January 1994 and
Age 47 was formerly a tax
Vice partner of Coopers
President & Lybrand and A.
Supply Chain Stephen Diamond
Joined Quaker who joined the
in 1970. Company in August
Elected to 1993 and was former
present ly President of
office in Pillsbury Europe
March 1995. and Managing
Director of
Grand Met Food
Group UK) have
been employed
by The Quaker
Oats Company in
an executive
capacity for
five years or
more.
73
The Quaker Oats Company and Subsidiaries
Shareholder Information
Dividend Reinvestment and Stock Purchase Plan
Owners of Quaker Oats common stock may use the Company's Dividend
Reinvestment and Stock Purchase Plan to purchase additional shares,
commission-free, through automatic dividend reinvestment and/or
optional cash investments. A booklet describing the Plan and
enrollment procedures is available on request from the Harris Bank.
Dividends
Cash dividends on Quaker common stock have been paid for 90
consecutive years. Dividends are generally declared on a quarterly
basis, with holders as of the record date being entitled to receive
the cash dividend on the payable date.
Shareholder Services
Harris Trust and Savings Bank acts as transfer agent and registrar
for the Company stock and maintains all primary shareholder
records. Shareholders may obtain information relating to their
share positions, dividends, stock transfer requirements, lost
certificates, dividend reinvestment accounts and other related
matters by telephoning the Shareholder Hotline toll-free at 1-800-
344-1198.
Form 10-K
This Transition Period Report includes all financial statements
required by Form 10-K.
74
The Quaker Oats Company and Subsidiaries
Shareholder Information
Investor Relations
Security analysts, investment professionals and shareholders should
direct their business-related inquiries to:
Investor Relations - Suite 27-7
or call (312) 222-7818
Media Relations
Copies of press releases are available at no charge through PR
Newswire's Company News On-Call fax service.
1-800-758-5804, extension 103689.
Press and media related inquiries should be addressed to:
Media Relations - Suite 27-6
or call (312) 222-7388
Consumer Affairs
Inquiries regarding our products should be addressed to:
Consumer Affairs
The Quaker Oats Company
P.O. Box 049003
Chicago, Illinois 60604-9003
or call 1-800-494-7843
75
The Quaker Oats Company and Subsidiaries
Shareholder Information
Corporate Headquarters Mailing Address: Street Address:
The Quaker Oats Quaker Tower
Company 321 North Clark Street
P.O. Box 049001 Chicago, Illinois 60610-4714
Chicago, Illinois (312) 222-7111
60604-9001
Transfer Agent, Harris Trust and Savings Bank, Shareholder Services
Registrar and Dividend Division
Disbursing Agent P.O. Box 755, 311 West Monroe - 14th Floor
Chicago, Illinois 60690-0755
1-800-344-1198
Dividend Reinvestment Harris Trust and Savings Bank, Dividend Reinvestment
and and Stock Purchase Plan
Stock Purchase Plan P.O. Box 95894
Chicago, Illinois 60690-9938
1-800-344-1198
Independent Public Arthur Andersen LLP
Accountants 33 West Monroe
Chicago, Illinois 60603
(312) 580-0033
Shares Listed New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Stock Exchange, London
The Quaker Oats Company
was incorporated in 1901 under the
laws of the state of New Jersey.
Ticker Symbol: OAT
76
This Notice of Annual Meeting,
Proxy Statement and Form 10-K
is printed on recycled paper.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated February 2, 1996, included in this Form 10-K
for the transition period ended December 31, 1995 into the Company's previously
filed Registration Statement File Nos. 33-13980, 33-13981, 33-32970, 2-79503
and 33-33253.
/s/ Arthur Andersen LLP
Chicago, Illinois
March 22, 1996
