SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994
[ ]TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission file number 1-12
THE QUAKER OATS COMPANY
(Exact name of registrant as specified in its charter.)
NEW JERSEY
(State or other jurisdiction of
incorporation or organization)
36-1655315
(I.R.S. Employer
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
Common Stock ($5.00 Par Value)
Preferred Stock Purchase Rights
Name of each exchange
on which registered
Common Stock ($5.00 Par Value)
New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Toronto Stock Exchange
The Stock Exchange, London
The Amsterdam Stock Exchange
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 the 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.[ ]
The aggregate market value of Common Stock held by non-affiliates
of the Registrant as of the close of business on August 31,
1994 was $5,349,519,249.00. 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 August 31, 1994 totaled
$120,953,764.50 plus related dividends. The number of shares of Common
Stock, $5.00 par value, outstanding as of the close of business on
August 31, 1994 was 66,660,676.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of The Quaker Oats Company Annual Report to
Shareholders for the fiscal year ended June 30, 1994 (Parts I,
II and III of Form 10-K)
2. Portions of The Quaker Oats Company Notice of Annual
Meeting and Proxy Statement dated October 3, 1994
(Part III of Form 10-K)
CROSS-REFERENCE TABLE OF CONTENTS
The 1994 Annual Report to Shareholders and the 1994 Proxy Statement
include all information required in Parts I, II and 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 Annual Report to
Shareholders and 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
Annual Report to Shareholders, pages 55, 72
(b) Financial Information About Industry Segments
Annual Report to Shareholders, pages 50-52
(c) Narrative Description of Business
Annual Report to Shareholders, pages 37-39,42-43,61,64,66-67
(d) Financial Information About Foreign and Domestic
Operations and Export Sales
Annual Report to Shareholders, pages 50-52
(e) Executive Officers of Registrant
Annual Report to Shareholders, pages 70-71
Item 2.
Properties
Annual Report to Shareholders, page 66
Item 3.
Legal Proceedings
Annual Report to Shareholders, page 64, Exhibit 99 to
this Form 10-K
Item 4.
Submission of Matters to a Vote of Security-Holders
(Not Applicable)
PART II.
Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters
Annual Report to Shareholders, pages 42-43, 65, 72-73
Item 6.
Selected Financial Data
Annual Report to Shareholders, pages 40-43
Item 7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Annual Report to Shareholders, pages 37-39
Item 8.
Financial Statements and Supplementary Data
Annual Report to Shareholders, pages 44-65;
Item 9.
Disagreements with Accountants on Accounting and Financial Disclosure
(Not Applicable)
PART III.
Item 10.
Directors and Executive Officers of the Registrant
Notice of Annual Meeting and Proxy Statement, pages 6-9; Annual Report
to Shareholders, pages 70-71
Item 11.
Executive Compensation
Notice of Annual Meeting and Proxy Statement, pages 13-21
Item 12.
Security Ownership of Certain Beneficial Owners and Management
Notice of Annual Meeting and Proxy Statement, page 12
Item 13.
Certain Relationships and Related Transactions
(Not Applicable)
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)& (d) Financial Statement Schedules
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)& (c) Exhibits
3(a) Restated Certificate of Incorporation (as of January 13, 1993)
(incorporated by reference to the Company's Form 10-Q for the quarter ended
December 31, 1992, file number 1-12)
3(b) Bylaws of The Quaker Oats Company (as amended January 9, 1985)
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended June 30, 1985, file number 1-12)
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.
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)
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)
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)
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)
10(c) Deferred Compensation Plan for Executives 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)
10(d) Management Incentive Bonus Plan of The Quaker Oats Company (as
amended September 8, 1993)
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)
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)
10(f)(1) Termination Benefits Agreement with William D. Smithburg, first
effective in the fiscal year ended June 30, 1993 (incorporated by
reference to the Company's Form 10-K for the fiscal year ended June 30, 1993,
file number 1-12)
10(f)(2) Termination Benefits Agreement with Philip A. Marineau, first
effective in the fiscal year ended June 30, 1993 (incorporated by reference
to the Company's Form 10-K for the fiscal year ended June 30, 1993,
file number 1-12)
10(f)(3) Termination Benefits Agreements with certain Executive Officers,
first effective in the fiscal year ended June 30, 1993 (incorporated by
reference to the Company's Form 10-K for the fiscal year ended June 30, 1993,
file number 1-12)
10(f)(4) Termination Benefit Agreements with certain Executive Officers,
first effective in the fiscal year ended June 30, 1994 or first effective
by filing date
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)
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)
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)
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)
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)
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)
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)
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)
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)
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)
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)
10(j) The Quaker Officers Severance Program, effective March 10, 1993
(incorporated by reference to the Company's Form 10-K for the fiscal
year ended June 30, 1993, file number 1-12)
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)
10(k)(2) First 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, 1992, file number 1-12)
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)
10(k)(4) Third Amendment to The Quaker Long Term Incentive Plan of 1990
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)
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)
11 Statement re Computation of Per Share Earnings
12 Statement re Computation of Ratios
13 Annual Report to Shareholders of The Quaker Oats Company for the
fiscal year ended June 30, 1994
21 List of Subsidiaries of the Registrant
23 Consent of Auditors
99 Additional Exhibits - Events (Unaudited) Subsequent to Date of
Auditors' Report
(b) Reports on Form 8-K
On May 17, 1994, the Company filed an 8-K announcing reengineering measures
and related fourth-quarter charges.
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 and Chief Executive Officer
Date: September 14, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on the 14th day of September
1994, by the following persons on behalf of the Registrant and in
the capacities indicated.
Signature
Title
/s/ WILLIAM D. SMITHBURG
William D. Smithburg
Chairman and Chief Executive Officer and Director
/s/ TERRY G. WESTBROOK
Terry G. Westbrook
Senior Vice President and Chief Financial Officer
/s/ THOMAS L. GETTINGS
Thomas L. Gettings
Vice President and Corporate Controller
/s/ FRANK C. CARLUCCI
Frank C. Carlucci
Director
/s/ SILAS S. CATHCART
Silas S. Cathcart
Director
/s/ KENNETH I. CHENAULT
Kenneth I. Chenault
Director
/s/ JUDY C. LEWENT
Judy C. Lewent
Director
/s/ VERNON R. LOUCKS, JR.
Vernon R. Loucks, Jr.
Director
/s/ THOMAS C. MacAVOY
Thomas C. MacAvoy
Director
/s/ PHILIP A. MARINEAU
Philip A. Marineau
Director
/s/ LUTHER C. McKINNEY
Luther C. McKinney
Director
/s/ GERTRUDE G. MICHELSON
Gertrude G. Michelson
Director
/s/ WALTER J. SALMON
Walter J. Salmon
Director
/s/ WILLIAM L. WEISS
William L. Weiss
Director
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAPER (P),ELECTRONIC (E)
OR INCORPORATED BY
REFERENCE (IBRF)
3(a) Restated Certificate of Incorporation IBRF
(as of January 13, 1993) (incorporated
by reference to the Company's Form 10-Q
for the quarter ended December 31, 1992, file
number 1-12)
3(b) Bylaws of The Quaker Oats Company (as IBRF
amended January 9, 1985) (incorporated by
reference to the Company's Form 10-K for the
fiscal year ended June 30, 1985, file number 1-12)
4 Registrant undertakes to furnish to the Commission, IBRF
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.
10(a)(1) 1984 Long-Term Incentive Plan (incorporated by IBRF
reference to Exhibit B of the Company's 1983 Proxy
Statement, file number 1-12)
10(a)(2) First Amendment to 1984 Long-Term Incentive Plan IBRF
(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1992, file
number 1-12)
10(b)(1) Deferred Compensation Plan for Directors of The IBRF
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)
10(b)(2) First Amendment to the Deferred Compensation Plan IBRF
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)
10(c) Deferred Compensation Plan for Executives of The IBRF
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)
10(d) Management Incentive Bonus Plan of The Quaker Oats E
Company (as amended September 8, 1993)
10(e)(1) Directors' Stock Retirement Plan (incorporated by IBRF
reference to the Company's Form 10-K for the fiscal
year ended June 30, 1985, file number 1-12)
10(e)(2) First Amendment to Directors' Stock Retirement Plan IBRF
(incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1992, file number
1-12)
10(f)(1) Termination Benefits Agreement with William D. IBRF
Smithburg, first effective in the fiscal year ended June
30, 1993 (incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1993, file number
1-12)
10(f)(2) Termination Benefits Agreement with Philip A. Marineau, IBRF
first effective in the fiscal year ended June 30, 1993
(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1993, file number
1-12)
10(f)(3) Termination Benefits Agreements with certain Executive IBRF
Officers, first effective in fiscal year ended June 30,
1993(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1993, file number
1-12)
10(f) (4) Termination Benefit Agreements with certain Executive E
Officers, first effective in the fiscal year ended
June 30, 1994 or first effective by filing date
10(g)(1) The Quaker Supplemental Executive Retirement Program IBRF
(incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1989, file number
1-12)
10(g)(2) First Amendment to The Quaker Supplemental Executive IBRF
Retirement Program (incorporated by reference to the
Company's Form 10-K for the fiscal year ended June 30,
1992, file number 1-12)
10(g)(3) Second Amendment to The Quaker Supplemental IBRF
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)
10(g)(4) Third Amendment to The Quaker Supplemental IBRF
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)
10(g)(5) Fourth Amendment to The Quaker Supplemental IBRF
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)
10(g)(6) Fifth Amendment to The Quaker Supplemental IBRF
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)
10(g)(7) Sixth Amendment to The Quaker Supplemental IBRF
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)
10(h)(1) The Quaker Oats Company Benefits Protection IBRF
Trust (incorporated by reference to the Company's
Form 10-K for the fiscal year ended June 30, 1989,
file number 1-12)
10(h)(2) First Amendment to The Quaker Oats Company IBRF
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)
10(h)(3) Second Amendment to The Quaker Oats Company IBRF
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)
10(i) The Quaker Eligible Earnings Adjustment Plan IBRF
(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1992,
file number 1-12)
10(j) The Quaker Officers Severance Program, effective IBRF
March 10, 1993 (incorporated by reference to the
Company's Form 10-K for the fiscal year ended
June 30, 1993, file number 1-12)
10(k)(1) The Quaker Long Term Incentive Plan of 1990 IBRF
(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1990, file
number 1-12)
10(k)(2) First Amendment to The Quaker Long Term Incentive IBRF
Plan of 1990 (incorporated by reference to the
Company's Form 10-K for the fiscal year ended
June 30, 1992, file number 1-12)
10(k)(3) Second Amendment to The Quaker Long Term IBRF
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)
10(k)(4) Third Amendment to The Quaker Long Term Incentive E
Plan of 1990
10(l) The Quaker 415 Excess Benefit Plan (incorporated by IBRF
reference to the Company's Form 10-K for the fiscal
year ended June 30, 1990, file number 1-12)
10(m) Quaker Salaried Employees Compensation and IBRF
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)
11 Statement re Computation of Per Share Earnings E
12 Statement re Computation of Ratios E
13 Annual Report to Shareholders of The Quaker Oats E
Company for the fiscal year ended June 30, 1994
21 List of Subsidiaries of the Registrant E
23 Consent of Auditors E
99 Additional Exhibits- Events (Unaudited) Subsequent E
to Date of Auditors' Report
(b) 8-K filed May 17, 1994 IBRF
Exhibit 10(d)
RESOLVED, that the Management Incentive Bonus Plan (the "Plan")
of The Quaker Oats Company be amended to remove the funding
limitations contained therein, so as to provide for discretionary
funding by the Compensation Committee of the Board of Directors
of the Company, and to make other administrative changes deemed
desirable.
FURTHER RESOLVED, that the Plan is hereby amended and restated to
read as follows:
"MANAGEMENT INCENTIVE BONUS PLAN
OF
THE QUAKER OATS COMPANY
As Amended and Restated Effective September 8, 1993
1. PURPOSE AND ELIGIBILITY. The Plan is designed to promote
the interests of The Quaker Oats Company (the "Company") and its
shareholders by providing incentive bonuses for officers and
other managerial employees of the Company and its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of
Directors of the Company who shall not be eligible to participate
in the Plan.
3. BONUS FUND. The Committee shall determine the amount of the
Bonus Fund for each fiscal year. The Committee shall establish
the criteria it will use in determining the amount of the Bonus
Fund, which criteria shall be communicated to Plan participants
to the extent deemed feasible by the Chief Executive Officer.
4. AWARDS. For each fiscal year the Committee shall determine
the amounts that shall be paid from the Bonus Fund as individual
awards for each officer who is also a Director of the Company and
the aggregate amount available from the Bonus Fund for awards to
other eligible employees. The Chief Executive Officer shall
determine the employees and the amount each shall receive from
such aggregate amount. All bonus payments shall be made as soon
as practicable after the close of the fiscal year except where
the Chief Executive Officer, in his discretion, directs that a
delay in payment to certain eligible employees would further the
purposes of the Plan."
Exhibit 10(f)
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a
New Jersey corporation (the "Company"), and W. Stephen
Perry (the "Executive"), dated this 2ND day of August,
1994.
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.
2
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.
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:
3
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:
(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.
4
"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)
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.
5
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.
6
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.
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.
7
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.
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 two years after
the day and year first above written, provided that this
Agreement may thereupon be renewed annually at the
discretion of the Board.
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.
8
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/ W. Stephen Perry
W. Stephen Perry
THE QUAKER OATS COMPANY
By Doug Ralston
ATTEST:
/s/ Gerry Cassioppi
Gerry Cassioppi
Assistant Secretary
9
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a
New Jersey corporation (the "Company"), and Margaret M.
Eichman (the "Executive"), dated this 20TH day of June,
1994.
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.
2
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.
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:
3
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:
(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.
4
"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)
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.
5
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.
6
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.
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.
7
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.
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 two years after
the day and year first above written, provided that this
Agreement may thereupon be renewed annually at the
discretion of the Board.
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.
8
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/ Margaret M. Eichman
Margaret M. Eichman
THE QUAKER OATS COMPANY
By Doug Ralston
ATTEST:
/s/ Gerry Cassioppi
Gerry Cassioppi
Assistant Secretary
9
EXECUTIVE SEPARATION AGREEMENT
THIS AGREEMENT is made between The Quaker Oats Company, a
New Jersey corporation (the "Company"), and Penelope C.
Cate (the "Executive"), dated this 20TH day of June,
1994.
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.
2
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.
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:
3
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:
(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.
4
"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)
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.
5
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.
6
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.
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.
7
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.
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 two years after
the day and year first above written, provided that this
Agreement may thereupon be renewed annually at the
discretion of the Board.
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.
8
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/Penelope C. Cate
Penelope C. Cate
THE QUAKER OATS COMPANY
By Doug Ralston
ATTEST:
/s/ Gerry Cassioppi
Gerry Cassioppi
Assistant Secretary
9
EXHIBIT 10(k)(4)
THIRD AMENDMENT
TO
THE QUAKER LONG TERM INCENTIVE PLAN OF 1990
WHEREAS, on November 8, 1989, the shareholders of The Quaker
Oats Company (the "Company") approved the adoption of The Quaker
Long Term Incentive Plan of 1990 (the "Plan"); and
WHEREAS, the Plan has previously been amended and it is desirable
to amend the Plan to limit the number of stock options to 500,000
that can be granted to any single employee during any fiscal year
of the Company, in order to comply with the requirements of the
Omnibus Budget Reconciliation Act of 1993, in order to preserve
the tax deduction for all stock options granted under the Plan;
and
WHEREAS, the Board has authorized adoption of this Third
Amendment to the Plan, the shareholders of the Company have
approved this Amendment to the Plan and authorized the officers
of the Company to execute any documents in connection therewith;
NOW THEREFORE, the Plan is hereby amended effective as of
November 10, 1993 by substituting the following for Section 13.3
thereof:
"13.3 Grant of Options and Option Price. Each Option must be
granted to an Employee and must be granted no later than
December 31, 1998. No single Employee may be granted more than
500,000 Options during any Fiscal Year of the Company. The
purchase price for Shares under any Option shall be no less than
the Fair Market Value of the Shares at the time the Option is
granted."
IN WITNESS WHEREOF, this Amendment is executed by a duly
authorized officer of the Company.
THE QUAKER OATS COMPANY
By:/s/ D. Ralston
6/17, 1994 Its Senior Vice President
EXHIBIT 11
THE QUAKER OATS COMPANY AND SUBSIDARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Calculation of Fully Diluted Earnings Per Share
Dollars in Millions June 30 June 30 June 30
(Except per share data) 1994 1993 1992
<S> <C> <C> <C>
Income from Continuing Operations Before
Cumulative Effect of Accounting Changes $231.5 $286.8 $247.6
Less:Adjustments attributable to
conversion of ESOP Convertible
Preferred Stock (1.5) (1.9) (1.5)
Income Before Cumulative Effect of
Accounting Changes Used for Fully
Diluted Calculation 230.0 284.9 246.1
Cumulative Effect of Accounting Changes-
net of tax ---- (115.5) ----
Net Income Used for Fully Diluted
Calculation $230.0 $169.4 $246.1
Shares in Thousands
Average Number of Common Shares Outstanding 67,618 71,974 74,881
Plus Dilutive Securities:
Stock Options 858 1,069 1,194
ESOP Convertible Preferred Stock 1,338 1,354 1,366
Average Shares Outstanding
Used for Fully Diluted Calculation 69,814 74,397 77,441
Fully Diluted Earnings per Share
Before Cumulative Effect
of Accounting Changes $3.29 $3.83 $3.18
Fully Diluted Cumulative effect of
Accounting changes ---- ($1.55) ----
Fully Diluted Earnings Per Share $3.29 $2.28 $3.18
</TABLE>
EXHIBIT 12
<TABLE>
THE QUAKER OATS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
(Dollars in Millions)
Year Ended June 30
1994 1993 1992
<S>
Earnings: <C> <C> <C>
Income
Before Income Taxes and Cumulative Effect
of Accounting Changes $378.7 $467.6 $421.5
Add Fixed Charges, excluding amount
capitalized 109.9 80.3 93.2
Earnings $488.6 $547.9 $514.7
Fixed Charges (including amount capitalized):
Interest on Indebtedness $100.2 $ 68.9 $ 82.3
Portion of rents representative of the
interest factor 11.0 11.4 13.7
Fixed Charges $111.2 $ 80.3 $ 96.0
Ratio of Earnings to Fixed Charges (a) $ 4.39 $ 6.82 $ 5.36
<FN>
(a) For purposes of computing the ratio of earnings to fixed charges,
earnings represent income before income taxes and cumulative effect of
accounting changes plus fixed charges (net of capitalized interest). Fixed
charges represent interest (whether expensed or capitalized, including
amortization of debt discount) and one-third (the portion deemed
representative of the interest factor) of rents.
</TABLE>
INTERNATIONAL OPERATING PROFITS
An In-depth Analysis
When a U.S. company conducts business outside of the country, financial
statements of its foreign operations must be translated into U.S. dollars
for consolidation purposes. But translating sales and operating income
alone do not completely reflect the costs of doing business abroad.
Financing costs-foreign exchange and net interest costs-also need to be
taken into account. At Quaker, we view the financial results of our
international businesses on a financing-adjusted basis. We call this
"adjusted operating income." It provides an economic view of the operating
results of each foreign entity and provides for greater comparability
between years, particularly when hyper-inflation (like in Brazil) or
foreign currency translations distort operating income.
In fiscal 1994, several factors influenced International Grocery Products
operating income. In Europe, pet food volume and operating income
decreased from fiscal 1993 levels, reflecting the weakened economies in
many of the countries there. In Latin America, Brazil's operating income
increased 16 percent over the prior year reflecting that country's hyper-
inflationary environment. However, when financing costs are considered,
Brazil's adjusted operating income was actually below that achieved a year
ago. These higher financing costs can be found in the Company's
consolidated income statement. (See page 44.) Interest expense rose
considerably reflecting the higher costs of financing our Brazilian operation.
In addition, over the last three years, we have aggressively expanded
Gatorade thirst quencher internationally. It is now available in 25
countries outside of the United States. Expenses to introduce this thirst
quencher into new markets have had a negative impact on International
operating income, as well as adjusted operating income. While the Company
expects to continue the expansion of Gatorade, it also expects that the
underwriting costs in Europe will begin to subside.
Below the above narrative are graphs depicting operating income and adjusted
operating income for Europe and Latin America and Pacific for fiscal 1989
through fiscal 1994 excluding restructuring charges and gains on divestitures
as follows (in millions of dollars):
<TABLE>
<CAPTION>
Operating Income
Latin America
Europe and Pacific Total
<S> <C> <C> <C>
F'89 73.3 40.7 114.0
F'90 71.1 83.1 154.2
F'91 68.3 35.7 104.0
F'92 41.2 64.0 105.2
F'93 34.1 76.0 110.1
F'94 19.2 82.8 102.0
<CAPTION>
Adjusted Operating Income
Latin America
Europe and Pacific Total
<S> <C> <C> <C>
F'89 67.3 21.4 88.7
F'90 56.6 26.7 83.3
F'91 67.2 13.9 81.1
F'92 34.4 37.0 71.4
F'93 43.0 37.5 80.5
F'94 14.2 26.5 40.7
</TABLE>
24
Management's Discussion and Analysis
Fiscal 1994 Compared with Fiscal 1993
Operating Results
Consolidated net sales for fiscal 1994 were $5.95 billion, up 4 percent from
fiscal 1993. The increase in net sales reflects a 4 percent worldwide
increase in volumes 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 volumes. Gatorade thirst quencher
performance is particularly notable, in that two major soft drink competitors
have broadened the distribution of their sports beverages throughout the
United States, currently Gatorade thirst quencher's largest market. The Company
expects this heightened level of competition to continue in the coming year.
International Grocery Products sales decreased 5 percent to $1.70 billion,
although overall volumes increased 1 percent. Weaker European currencies
and lower volumes of European pet foods, cereals and oils contributed to the
decline. The weak European economy and the retail trade's tight management
of inventories suggest that the operating environment in Europe will continue
to be difficult in the near term. Offsetting Europe's decline, Gatorade thirst
quencher volumes increased significantly in Latin America.
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. Selling, general and administrative (SG&A) expense rose 5
percent to $2.43 billion due mainly to an 8 percent increase in advertising
and merchandising (A&M) expenses. A&M expenses were 26.6 percent of net
sales in fiscal 1994, up from 25.7 percent in fiscal 1993, and are likely to
continue at or near this level in the future.
Operating income was $537.2 million compared to $575.2 million last year.
Excluding restructuring charges and gains on divestitures (see following
sections) from both years, operating income was $645.8 compared to $595.7
million. On that same basis, U.S. and Canadian Grocery Products operating
income was $543.8 million versus $485.6 million in fiscal 1993. The 12
percent increase reflects significant increases from the Gatorade thirst
quencher, ready-to-eat cereals and Aunt Jemima products businesses,
partially offset by decreases in food service.
International Grocery Products operating income decreased to $102.0 million
versus $110.1 million in fiscal 1993, excluding restructuring charges and
gains on divestitures. European operating income declined $14.9 million due
mainly to volume declines in the pet foods and cereals businesses. Latin
American and 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 interest and foreign exchange costs
in that country.
Restructuring Charges
The Company is pursuing a series of cost-reduction and realignment
activities to bring greater value to consumers, trade customers and
ultimately, shareholders. As a result, the Company recorded a
restructuring charge of $118.4 million, or $1.09 per share, to eliminate
positions at its headquarters and research and development facilities,
to realign its U.S. sales force, to consolidate manufacturing for its Van
Camp's, rice cakes and Aunt Jemima product lines and to close a
Canadian pet foods facility, as well as to pursue other cost-reduction
initiatives. These changes eliminated approximately 1,500 positions,
resulting in severance and termination benefits totaling $44.7 million.
Charges associated with plant consolidations and sales office closures
totaled $38.3 million, of which 80 percent represents asset write-offs.
Product-line discontinuations resulted in charges of $35.4 million, of
which 90 percent represents asset write-offs. Cash outlays related to
severance, termination benefits and other expenses will occur
predominately in fiscal 1995 and will be funded through operating cash
flows. These actions are expected to save between $35 million and $45
million annually beginning in fiscal 1995. Approximately 75 percent of
these annual savings will be in cash.
Fiscal 1993 operating income included a charge of $38.6 million for the
consolidation of production facilities at a U.S. pet foods plant and a charge
of $9.7 million for European cost-reduction programs. (See following
section.)
The Company will continue to focus on worldwide efficiency initiatives that
improve its manufacturing, marketing, logistics and customer service processes
while lowering costs and more effectively utilizing human and financial
resources. These continuous improvement initiatives may lead to charges in
future periods.
See Note 2 to the consolidated financial statements for further discussion of
restructuring charges.
37
Management's Discussion and Analysis
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.
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. Foreign exchange expenses
increased $11.1 million from the prior year primarily reflecting small losses
on European currency hedges in fiscal 1994 versus gains in fiscal 1993.
Through various hedging strategies, the Company will continue to try to
mitigate the effects of foreign exchange fluctuations on its financial
results, except in areas like Brazil where hedging opportunities are limited
and costly. See Note 18 to the consolidated financial statements for
further discussion of foreign currency hedging and see page 24 of this
annual report for further discussion of international operating profits
and financing costs.
The effective tax rate for fiscal 1994 was 38.9 percent compared to 38.7
percent in fiscal 1993. Excluding the effects of certain restructuring
charges and gains on divestitures from 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. The Company has evaluated its deferred
tax assets and believes that future taxable income will be sufficient to
realize these assets. A valuation allowance has been provided for the
deferred tax assets not expected to be realized.
Fiscal 1993 Compared with Fiscal 1992
Operating Results
Consolidated net sales for fiscal 1993 were $5.73 billion, up 3 percent from
fiscal 1992. Volumes were up 2 percent from the prior year. About 1
percentage point of the increase in sales was due to price increases. U.S.
and Canadian Grocery Products sales increased 2 percent to $3.93 billion,
while volumes were even with the prior year. International Grocery Products
sales increased 4 percent to $1.80 billion and volumes were up 6 percent.
Gross profit margins increased to 49.9 percent from 49.2 percent in the prior
year primarily due to product mix improvement, cost containment and price
increases. SG&A expenses rose 3 percent to $2.30 billion, but remained
constant as a percentage of sales. Total A&M expenses as a percentage of
sales were 25.7 percent, slightly lower than in the prior year.
Consolidated operating income was $575.2 million in fiscal 1993 compared to
$540.2 million in fiscal 1992. Excluding restructuring charges and gains on
divestitures from both years, operating income increased to $595.7 million
from $539.2 million. U.S. and Canadian Grocery Products fiscal 1993 operating
income excluding restructuring charges and gains on divestitures was $485.6
million compared to $434.0 million in fiscal 1992, an increase of $51.6
million, or 12 percent. The increase was primarily due to gross profit margin
improvements and trade promotion timing. Operating income improved for
ready-to-eat cereals, rice cakes and food service. During fiscal 1992, the
Company changed the timing of trade promotions for U.S. and Canadian Grocery
Products to align production and shipments more closely with consumer demand
and to derive greater efficiencies in its go-to-market processes. The sales
and earnings postponed in the second half of fiscal 1992 were recouped in the
first half of fiscal 1993.
International Grocery Products fiscal 1993 operating income excluding
restructuring charges and gains on divestitures increased to $110.1 million
from $105.2 million in fiscal 1992. Operating income in Latin America
increased because of gross profit margin improvements in Brazil and the
expansion of Gatorade thirst quencher throughout most of the region.
European operating income decreased primarily as a result of higher A&M
expenses to support the continued expansion of pet foods and Gatorade thirst
quencher.
Restructuring Charges
In fiscal 1993, the Company recorded a restructuring charge of $38.6 million to
consolidate production facilities at a U.S. pet foods plant. The charge
included $20.7 million for non-cash asset write-offs and $17.9 million in
cash for severance and termination benefits and other related plant
consolidation costs. The consolidation was completed in fiscal 1994. The
Company also recorded a $9.7 million cash charge for severance related to
European cost-reduction programs. The Company realized approximately
$14 million in combined savings from these actions in fiscal 1994 and
anticipates $20 million in annualized savings in fiscal 1995.
In fiscal 1992, the Company discontinued certain product lines, resulting in
non-cash asset write-offs of $10.0 million.
38
Gains on Divestitures
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. In fiscal 1992, the Company realized an $11.0 million
gain on the sale of the Ghirardelli chocolate business.
Interest, Foreign Exchange, Income Taxes and Accounting Changes
Net interest expense of $55.1 million decreased $12.3 million from fiscal 1992
stemming primarily from lower domestic long-term debt and lower local currency
debt in Brazil. Foreign exchange losses increased to $15.1 million from $13.1
million last year. The change resulted primarily from higher foreign currency
losses in Brazil, where inflation and devaluation were very significant. These
losses were partially offset by foreign exchange hedge gains arising from the
strengthening of the U.S. dollar in relation to European currencies. Changes
in net financing costs for Brazil were more than offset by higher operating
income in that country.
The effective tax rate in fiscal 1993 was 38.7 percent compared to 41.3 percent
in fiscal 1992. Excluding the fiscal 1993 effects of the pet foods
restructuring charge and the gain on the sale of a United Kingdom business,
the effective tax rate decreased to 38.4 percent. The improvement was
primarily due to lower nondeductible intangibles and a change in the mix of
domestic and foreign taxable income.
Included in net income in fiscal 1993 was the cumulative effect of adopting
Financial Accounting Standards Board (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.
Liquidity and Capital Resources
The ability to generate funds internally remains one of the Company's
significant financial strengths. Net cash provided by operating activities
of $450.8 million, $558.2 million and $581.3 million during fiscal 1994, 1993
and 1992, respectively, was well in excess of the Company's dividends and
capital expenditures. The decrease in net cash provided by operating
activities resulted mainly from changes in working capital items, primarily
accounts receivable and inventories. Capital expenditures for fiscal
1994, 1993 and 1992 were $175.1 million, $172.3 million and $176.4 million,
respectively, with no material individual commitments outstanding.
During fiscal 1994, three million shares of the Company's outstanding common
stock were repurchased for $209.6 million under a five million share
repurchase program announced in August 1993.
Short-term and long-term debt (total debt) increased $206.7 million from
June 30, 1993 to June 30, 1994 and increased $1.9 million from June 30, 1992
to June 30, 1993. The total debt-to-total capitalization ratio was 68.8
percent, 59.0 percent and 48.7 percent as of June 30, 1994, 1993 and 1992,
respectively. One of the Company's financial objectives is to generate
economic value through the use of leverage, while maintaining a solid
financial position through strong operating cash flows. The increase
in debt resulted primarily from the issuance of $200.0 million of medium-
term notes. The medium-term notes were issued under a $600.0 million shelf
registration filed with the Securities and Exchange Commission in fiscal 1990.
No other securities have been issued under the shelf registration.
Commercial paper has been the Company's primary source of short-term
financing. The Company's ratings of "A1" (Standard & Poor's) and "P1"
(Moody's) have been maintained throughout the year. In fiscal 1994, the
Company obtained new revolving credit facilities totaling $350.0 million. The
available levels of borrowings are adequate to meet the Company's working
capital needs. For further discussion of the Company's revolving credit
facilities and lines of credit, see Note 6 to the consolidated financial
statements.
Pending Accounting Changes
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of adoption
is a $4.1 million after-tax charge in the first quarter of fiscal 1995. The
adoption of this statement will not have a material effect on operating
results or cash flows in future years.
The Company is in compliance with the accounting required in the American
Institute of Certified Public Accountants' Statement of Position (SOP)
93-7, "Reporting on Advertising Costs," that requires advertising expenses to
be expensed as incurred or the first time the advertising takes place. The
adoption of this SOP, required in fiscal 1995, will have no impact on the
Company's financial statements.
39
The Quaker Oats Company and Subsidiaries
<TABLE>
<CAPTION>
Eleven-Year
Selected
Financial
Data
5-Year 10-Year
Compound Compound
Year Ended June 30 Growth Growth Rate 1994
Rate
Operating Results (a)(b)(c)(d)(e)
<S> <C> <C> <C>
Net sales 4.1% 7.7% $5,955.0
Gross profit 6.3% 10.8% 3,028.8
Income from continuing operations before income
taxes and cumulative effect of accounting changes 9.6% 6.0% 378.7
Provision for income taxes 10.3% 4.0% 147.2
Income from continuing operations before cumulative
effect of accounting changes 9.2% 7.5% 231.5
Income (loss) from discontinued operations -- net of tax ----
Income from the disposal of discontinued operations -- net of ----
tax
Cumulative effect of accounting changes -- net of tax ----
Net income 2.7% 5.3% $231.5
Per common share:
Income from continuing operations before cumulative
effect of accounting changes 12.3% 9.5% $3.36
Income (loss) from discontinued operations ----
Income from the disposal of discontinued
operations ----
Cumulative effect of accounting changes ----
Net income 5.6% 7.2% $3.36
Dividends declared:
Common stock 8.1% 12.2% $140.6
Per common share 12.1% 14.4% $2.12
Convertible preferred and redeemable preference stock $4.0
Average number of common shares
outstanding (in thousands) 67,618
<FN>
(a)Fiscal 1994 results include a pretax restructuring charge of $118.4 million,
or $1.09 per share, for workforce reductions, plant consolidations and
product discontinuations and a pretax gain of $9.8 million, or $.13 per share,
for the sale of a business in Venezuela.
(b) See Management's Discussion and Analysis for further discussion of fiscal
1992 through 1994 restructuring charges and gains on divestitures.
(c)See Notes 13 and 17 to the consolidated financial statements for discussion
of fiscal 1993 accounting changes.
40
<CAPTION>
Dollars in Millions (Except Per Share Data)
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$5,730.6 $5,576.4 $5,491.2 $5,030.6 $4,879.4 $4,508.0 $3,823.9 $2,968.6 $2,925.6 $2,830.9
2,860.6 2,745.3 2,652.7 2,350.3 2,229.0 2,114.6 1,750.7 1,298.7 1,174.7 1,085.7
467.6 421.5 411.5 382.4 239.1 314.6 295.9 255.8 238.8 211.3
180.8 173.9 175.7 153.5 90.2 118.1 141.3 113.4 110.3 99.0
286.8 247.6 235.8 228.9 148.9 196.5 154.6 142.4 128.5 112.3
- --- --- (30.0) (59.9) 54.1 59.2 33.5 37.2 28.1 26.4
- --- --- --- --- --- --- 55.8 --- --- ---
(115.5) --- --- --- --- --- --- --- --- ---
$171.3 $247.6 $205.8 $169.0 $203.0 $255.7 $243.9 $179.6 $156.6 $138.7
$3.93 $3.25 $3.05 $2.93 $1.88 $2.46 $1.96 $1.77 $1.53 $1.35
- --- --- (0.40) (0.78) 0.68 0.74 0.43 0.47 0.35 0.32
- --- --- --- --- --- --- 0.71 --- --- ---
(1.59) --- --- --- --- --- --- --- --- ---
$2.34 $3.25 $2.65 $2.15 $2.56 $3.20 $3.10 $2.24 $1.88 $1.67
$136.1 $128.6 $118.7 $106.9 $95.2 $79.9 $63.2 $55.3 $50.5 $44.4
$1.92 $1.72 $1.56 $1.40 $1.20 $1.00 $0.80 $0.70 $0.62 $0.55
$4.2 $4.2 $4.3 $3.6 --- --- --- $2.3 $3.6 $3.9
71,974 74,881 75,904 76,537 79,307 79,835 78,812 79,060 81,492 80,412
<FN>
(d)Fiscal 1989 results include a pretax restructuring charge of $124.3
million, or $1.00 per share, for plant consolidations and overhead
reductions and a pretax charge of $25.6 million, or $.20 per share,
for a change to the LIFO method of accounting for the majority of U.S.
Grocery Products inventories.
(e)Per share data and average number of common shares outstanding
reflect the November 1986 two-for-one stock split-up.
</TABLE>
41
The Quaker Oats Company and Subsidiaries
<TABLE>
<CAPTION>
Eleven-Year
Selected
Financial
Data
Year Ended June 30 1994
<S> <C>
Financial Statistics(a)(b)
Current ratio 1.0
Working capital $(5.5)
Property, plant and equipment -- net $1,214.2
Depreciation expense $133.3
Total assets $3,043.3
Long-term debt $759.5
Preferred stock (net of deferred compensation) and
redeemable preference stock $15.3
Common shareholders' equity $445.8
Net cash provided by operating activities $450.8
Operating return on assets(c) 19.9%
Gross profit as a percentage of sales 50.9%
Advertising and merchandising as a percentage of sales 26.6%
Income from continuing operations before cumulative effect
of accounting changes as a percentage of sales 3.9%
Total debt-to-total capitalization ratio(d) 68.8%
Common dividends as a percentage of income available for
common shares (excluding cumulative effect
of accounting changes) 63.1%
Number of common shareholders 28,197
Number of employees worldwide 20,000
Market price range of common stock High $82
Low $61 7/8
<FN>
(a)Income-related statistics exclude the results of businesses reported as
discontinued operations. Balance sheet amounts and related statistics
have not been restated for discontinued operations, other than
Fisher-Price, due to materiality.
(b)Effective fiscal 1991, common shareholders' equity and number of
employees worldwide were reduced as a result of the Fisher-Price spin-off.
42
<CAPTION>
Dollars in Millions (Except Per Share Data)
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.0 1.2 1.3 1.3 1.8 1.4 1.4 1.4 1.7 1.6
$(37.5) $168.7 $317.8 $342.8 $695.8 $417.5 $507.9 $296.8 $400.7 $316.8
$1,228.2 $1,273.3 $1,232.7 $1,154.1 $959.6 $922.5 $898.6 $691.0 $616.5 $650.1
$129.9 $129.7 $125.2 $103.5 $94.2 $88.3 $81.6 $59.1 $56.3 $57.4
$2,815.9 $3,039.9 $3,060.5 $3,377.4 $3,125.9 $2,886.1 $3,136.5 $1,944.5 $1,760.3 $1,726.5
$632.6 $688.7 $701.2 $740.3 $766.8 $299.1 $527.7 $160.9 $168.2 $200.1
$11.4 $7.9 $4.8 $1.8 ---- ---- ---- ---- $37.9 $38.5
$551.1 $842.1 $901.0 $1,017.5 $1,137.1 $1,251.1 $1,087.5 $831.7 $786.9 $720.1
$558.2 $581.3 $543.2 $460.0 $408.3 $320.8 $375.1 $266.9 $295.5 $263.6
21.1% 18.9% 18.8% 20.4% 14.4% 18.3% 22.1% 25.8% 24.5% 24.4%
49.9% 49.2% 48.3% 46.7% 45.7% 46.9% 45.8% 43.7% 40.2% 38.4%
25.7% 26.0% 25.6% 23.8% 23.4% 24.9% 22.9% 21.7% 19.4% 18.4%
5.0% 4.4% 4.3% 4.6% 3.1% 4.4% 4.0% 4.8% 4.4% 4.0%
59.0% 48.7% 47.4% 52.3% 44.2% 33.8% 50.2% 35.7% 28.9% 35.4%
48.9% 52.9% 58.9% 65.1% 46.9% 31.3% 25.9% 31.2% 33.0% 32.9%
33,154 33,580 33,603 33,859 34,347 34,231 32,358 27,068 26,670 26,785
20,200 21,100 20,900 28,200 31,700 31,300 30,800 29,500 28,700 28,400
$77 $75 3/4 $64 7/8 $68 7/8 $66 1/4 $57 3/8 $57 5/8 $39 3/4 $26 1/8 $16 1/8
$56 1/8 $50 1/4 $41 3/4 $45 1/8 $42 5/8 $31 $32 5/8 $23 1/2 $14 3/4 $10 5/8
<FN>
(c)Operating income divided by average identifiable assets of U.S. and Canadian
and International Grocery Products.
(d)Total debt divided by total debt plus total shareholders' equity including
preferred stock (net of deferred compensation) and redeemable preference stock.
</TABLE>
43
The Quaker Oats Company and Subsidiaries
<TABLE>
<CAPTION>
Consolidated
Statements of
Income
Dollars in Millions (Except Per Share Data)
Year Ended June 30 1994 1993 1992
<S> <C> <C> <C>
Net Sales $5,955.0 $5,730.6 $5,576.4
Cost of goods sold 2,926.2 2,870.0 2,831.1
Gross profit 3,028.8 2,860.6 2,745.3
Selling, general and administrative expenses 2,425.6 2,302.3 2,244.3
Restructuring charges and gains on divestitures -- net 108.6 20.5 (1.0)
Interest expense -- net of $8.9, $10.5 and $9.6
interest income, respectively 89.7 55.1 67.4
Foreign exchange loss -- net 26.2 15.1 13.1
Income Before Income Taxes
and Cumulative Effect of Accounting Changes 378.7 467.6 421.5
Provision for income taxes 147.2 180.8 173.9
Income Before Cumulative Effect of Accounting Changes 231.5 286.8 247.6
Cumulative effect of accounting changes -- net of tax ---- (115.5) ----
Net Income 231.5 171.3 247.6
Preferred dividends -- net of tax 4.0 4.2 4.2
Net Income Available for Common $227.5 $167.1 $243.4
Per Common Share:
Income Before Cumulative Effect of Accounting Changes $3.36 $3.93 $3.25
Cumulative effect of accounting changes ---- (1.59) ----
Net Income $3.36 $2.34 $3.25
Dividends declared $2.12 $1.92 $1.72
Average Number of Common Shares Outstanding
(in thousands) 67,618 71,974 74,881
<FN>
See accompanying notes to the consolidated financial statements.
44
<CAPTION>
Consolidated
Statements of
Cash Flows
Dollars in Millions
Year Ended June 30 1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $231.5 $171.3 $247.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting changes ---- 115.5 ----
Depreciation and amortization 171.2 156.9 155.9
Deferred income taxes (7.7) (46.4) ----
Restructuring charges and gains on divestitures -- net 108.6 20.5 (1.0)
Loss on disposition of property and equipment 15.0 23.8 23.1
(Increase) decrease in trade accounts receivable (77.7) 59.1 84.7
(Increase) decrease in inventories (67.6) 41.9 (14.3)
(Increase) in other current assets (56.3) (25.8) (10.1)
Increase (decrease) in trade accounts payable 44.1 (7.6) 24.0
Increase (decrease) in other current liabilities 6.6 (6.4) 132.5
Change in deferred compensation 15.6 11.0 11.6
Other items 67.5 44.4 (43.1)
Change in payable to Fisher-Price ---- ---- (29.6)
Net Cash Provided by Operating Activities 450.8 558.2 581.3
Cash Flows from Investing Activities:
Additions to property, plant and equipment (175.1) (172.3) (176.4)
Change in other receivables and investments (6.4) (25.6) (20.0)
Purchase and sale of property and businesses -- net (82.1) 1.2 16.5
Net Cash Used in Investing Activities (263.6) (196.7) (179.9)
Cash Flows from Financing Activities:
Cash dividends (144.6) (140.3) (132.8)
Change in short-term debt 83.3 67.0 (19.6)
Proceeds from long-term debt 222.2 0.5 1.1
Reduction of long-term debt (100.6) (59.0) (46.2)
Proceeds from short-term debt to be refinanced ---- ---- 50.0
Issuance of common treasury stock 11.8 23.3 20.3
Repurchases of common stock (214.9) (323.1) (235.1)
Repurchases of preferred stock (1.2) (1.1) (0.9)
Net Cash Used in Financing Activities (144.0) (432.7) (363.2)
Effect of Exchange Rate Changes on Cash and Cash Equivalents 36.2 37.0 (17.6)
Net Increase (Decrease) in Cash and Cash Equivalents 79.4 (34.2) 20.6
Cash and Cash Equivalents -- Beginning of Year 61.0 95.2 74.6
Cash and Cash Equivalents -- End of Year $140.4 $61.0 $95.2
<FN>
See accompanying notes to the consolidated financial statements.
45
The Quaker Oats Company and Subsidiaries
<CAPTION>
Consolidated
Balance Sheets
June 30 1994 1993 1992
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $140.4 $61.0 $95.2
Trade accounts receivable -- net of allowances 509.4 478.9 575.3
Inventories:
Finished goods 266.5 241.5 302.8
Grains and raw materials 78.8 73.1 93.7
Packaging materials and supplies 40.2 39.4 38.8
Total inventories 385.5 354.0 435.3
Other current assets 218.3 173.7 150.4
Total Current Assets 1,253.6 1,067.6 1,256.2
Other Receivables and Investments 82.1 88.8 83.0
Property, plant and equipment 2,125.9 2,059.2 2,066.1
Less accumulated depreciation 911.7 831.0 792.8
Property - Net 1,214.2 1,228.2 1,273.3
Intangible Assets -- Net of Amortization 493.4 431.3 427.4
Total Assets $3,043.3 $2,815.9 $3,039.9
<FN>
See accompanying notes to the consolidated financial statements.
46
Dollars in Millions
June 30 1994 1993 1992
Liabilities and Shareholders' Equity
<S> <C> <C> <C>
Current Liabilities:
Short-term debt $211.3 $128.0 $61.0
Current portion of long-term debt 45.4 48.9 57.9
Trade accounts payable 406.3 391.6 420.2
Accrued payroll, pension and bonus 158.9 161.3 147.0
Accrued advertising and merchandising 149.6 130.6 120.2
Income taxes payable 40.6 33.7 82.6
Other accrued liabilities 247.0 211.0 198.6
Total Current Liabilities 1,259.1 1,105.1 1,087.5
Long-term Debt 759.5 632.6 688.7
Other Liabilities 481.4 426.2 171.7
Deferred Income Taxes 82.2 89.5 242.0
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
Deferred Compensation (80.8) (85.9) (90.5)
Treasury Preferred Stock, at cost, 47,817 shares;
34,447 shares; and 21,315 shares, respectively (3.9) (2.7) (1.6)
Common Shareholders' Equity
Common stock, $5 par value, authorized 200,000,000
shares; issued 83,989,396 shares 420.0 420.0 420.0
Additional paid-in capital ---- ---- 2.9
Reinvested earnings 1,273.6 1,190.1 1,162.3
Cumulative translation adjustment (75.4) (65.4) (24.5)
Deferred compensation (143.5) (154.0) (160.4)
Treasury common stock, at cost, 17,185,100 shares;
14,533,157 shares; and
10,586,091 shares, respectively (1,028.9) (839.6) (558.2)
Total Common Shareholders' Equity 445.8 551.1 842.1
Total Liabilities and Shareholders' Equity $3,043.3 $2,815.9 $3,039.9
47
The Quaker Oats Company and Subsidiaries
<CAPTION>
Consolidated
Statements
of Common
Shareholders'
Equity
Common Stock Issued
Shares Amount
<S> <C> <C>
Balance as of June 30, 1991 83,989,396 $420.0
Net income
Cash dividends declared on common stock
Cash dividends declared on preferred stock
Common stock issued for stock purchase and incentive plans
Repurchases of common stock
Foreign currency adjustments
(net of allocated income tax benefits of $8.3)
Deferred compensation
Other
Balance as of June 30, 1992 83,989,396 420.0
Net income
Cash dividends declared on common stock
Cash dividends declared on preferred stock
Common stock issued for stock purchase and incentive plans
Repurchases of common stock
Foreign currency adjustments
(net of allocated income tax provisions of $(12.6))
Deferred compensation
Other
Balance as of June 30, 1993 83,989,396 420.0
Net income
Cash dividends declared on common stock
Cash dividends declared on preferred stock
Common stock issued for stock purchase and incentive plans
Repurchases of common stock
Foreign currency adjustments
(net of allocated income tax benefits of $1.4)
Deferred compensation
Other
Balance as of June 30, 1994 83,989,396 $420.0
<FN>
See accompanying notes to the consolidated financial statements.
48
<CAPTION>
Dollars in Millions
Common Additional Reinvested Cumulative Deferred Treasury Common Stock
Shares
Outstanding Paid-in Earnings Translation Compensation Shares Amount Total
Capital Adjustment
<C> <C> <C> <C> <C> <C> <C> <C>
76,328,721 $7.2 $1,047.5 $(52.9) $(168.0) 7,660,675 $(352.8) $901.0
247.6 247.6
(128.6) (128.6)
(4.2) (4.2)
619,084 (9.4) (619,084) 29.7 20.3
(3,544,500) 3,544,500 (235.1) (235.1)
28.4 28.4
7.6 7.6
5.1 5.1
73,403,305 2.9 1,162.3 (24.5) (160.4) 10,586,091 (558.2) 842.1
171.3 171.3
(136.1) (136.1)
(4.2) (4.2)
805,434 (8.4) (3.2) (805,434) 41.7 30.1
(4,752,500) 4,752,500 (323.1) (323.1)
(40.9) (40.9)
6.4 6.4
5.5 5.5
69,456,239 ---- 1,190.1 (65.4) (154.0) 14,533,157 (839.6) 551.1
231.5 231.5
(140.6) (140.6)
(4.0) (4.0)
439,142 (1.3) (3.4) (439,142) 25.6 20.9
(3,091,085) 3,091,085 (214.9) (214.9)
(10.0) (10.0)
10.5 10.5
1.3 1.3
66,804,296 $ ---- $1,273.6 $(75.4) $(143.5) 17,185,100 $(1,028.9) $445.8
49
The Quaker Oats Company and Subsidiaries
<CAPTION>
Geographic Segment
Information
Net
Sales
5-Year
Year Ended June 30 Compound 1994 1993 1992
Growth Rate
<S> <C> <C> <C> <C>
United States 3.4% $4,028.5 $3,705.7 $3,599.8
Canada 0.8% 224.2 224.6 242.5
U.S. and Canadian Grocery Products 3.2% 4,252.7 3,930.3 3,842.3
Europe 3.7% 1,164.3 1,335.8 1,354.5
Latin America and Pacific 13.9% 538.0 464.5 379.6
International Grocery Products 6.4% 1,702.3 1,800.3 1,734.1
Net Sales and Operating Income from
Continuing Operations 4.1% $5,955.0 $5,730.6 $5,576.4
Less: General corporate expenses
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
<FN>
(a)Fiscal 1994 results include a pretax restructuring charge of $118.4 million,
or $1.09 per share, for workforce reductions, plant consolidations and product
discontinuations and a pretax gain of $9.8 million, or $.13 per share, for the
sale of a business in Venezuela. The restructuring charge was included in
operating income as follows: $97.8 million in the United States; $15.1 million
in Canada; $1.7 million in Europe; and $3.8 million in Latin America and
Pacific.
(b)See Management's Discussion and Analysis for further discussion of
fiscal 1992 through 1994 restructuring charges and gains on divestitures.
50
Dollars in Millions (Except Per Share Data)
Operating
Income(a)(b)(c)(d)
5-Year
1991 1990 1989 Compound 1994 1993 1992 1991 1990 1989
Growth Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$3,623.3 $3,377.7 $3,413.9 12.4% $431.9 $428.2 $414.8 $408.5 $354.7 $241.2
236.9 232.3 216.0 ---- (1.0) 18.8 20.2 20.5 17.8 15.1
3,860.2 3,610.0 3,629.9 11.0% 430.9 447.0 435.0 429.0 372.5 256.3
1,326.4 1,084.6 968.6 (19.8)% 17.5 52.2 41.2 68.3 88.6 52.6
304.6 336.0 280.9 16.9% 88.8 76.0 64.0 35.7 83.1 40.7
1,631.0 1,420.6 1,249.5 2.6% 106.3 128.2 105.2 104.0 171.7 93.3
$5,491.2 $5,030.6 $4,879.4 9.0% 537.2 575.2 540.2 533.0 544.2 349.6
1.6% 42.6 37.4 38.2 40.4 34.3 39.3
9.7% 89.7 55.1 67.4 86.2 101.8 56.4
---- 26.2 15.1 13.1 (5.1) 25.7 14.8
9.6% 378.7 467.6 421.5 411.5 382.4 239.1
10.3% 147.2 180.8 173.9 175.7 153.5 90.2
9.2% $231.5 $286.8 $247.6 $235.8 $228.9 $148.9
12.3% $3.36 $3.93 $3.25 $3.05 $2.93 $1.88
<FN>
(c)See Note 13 to the consolidated financial statements for discussion of
fiscal 1993 adoption of FASB Statement #106.
(d)Fiscal 1989 results include a pretax restructuring charge of $124.3 million,
or $1.00 per share, for plant consolidations and overhead reductions and a
pretax charge of $25.6 million, or $.20 per share, for a change to the LIFO
method of accounting for the majority of U.S. Grocery Products inventories.
51
The Quaker Oats Company and Subsidiaries
<CAPTION>
Geographic Segment
Information
Dollars in Millions
Year Ended June 30 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Identifiable Assets
United States $1,892.3 $1,772.3 $1,892.2 $2,114.8 $2,035.1
Canada 107.1 105.0 105.7 113.9 115.1
U.S. and Canadian Grocery Products 1,999.4 1,877.3 1,997.9 2,228.7 2,150.2
Europe 576.5 562.9 687.5 533.5 517.7
Latin America and Pacific 209.4 182.4 154.4 122.5 120.2
International Grocery Products 785.9 745.3 841.9 656.0 637.9
Total Continuing Businesses 2,785.3 2,622.6 2,839.8 2,884.7 2,788.1
Corporate(a) 258.0 193.3 200.1 175.8 589.3
Total Consolidated $3,043.3 $2,815.9 $3,039.9 $3,060.5 $3,377.4
Capital Expenditures
U.S. and Canadian Grocery Products $123.9 $107.2 $110.7 $167.0 $210.3
International Grocery Products 51.2 65.1 65.7 73.6 59.7
Total Continuing Businesses 175.1 172.3 176.4 240.6 270.0
Corporate ---- ---- ---- ---- 5.6
Total Consolidated $175.1 $172.3 $176.4 $240.6 $275.6
Depreciation and Amortization
U.S. and Canadian Grocery Products $131.6 $117.6 $116.6 $112.9 $97.9
International Grocery Products 38.5 38.2 38.2 36.4 29.8
Total Continuing Businesses 170.1 155.8 154.8 149.3 127.7
Corporate 1.1 1.1 1.1 1.0 0.8
Total Consolidated $171.2 $156.9 $155.9 $150.3 $128.5
<FN>
(a)Includes net assets of businesses reported as discontinued operations,
corporate cash and cash equivalents, certain other current assets,
property and miscellaneous receivables and investments.
</TABLE>
52
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 date. Certain
prior-year amounts have been reclassified to conform to the current
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
expenses 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 and Forward Contracts - The Company enters into a
variety of futures, swaps, options and forward contracts in its management
of foreign currency and commodity price exposures. Realized and unrealized
gains and losses on foreign currency options, currency swaps and foreign
exchange forward contracts that are effective as net investment hedges are
recognized in a component of common shareholders' equity. Realized and
unrealized gains and losses on 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.
Other realized and unrealized gains and losses on these 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 $53.0 million, $45.9 million and $37.6 million as of June 30, 1994, 1993
and 1992, respectively.
<TABLE>
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 percentage of year-end inventories valued using each of the
methods was as follows:
<CAPTION>
June 30 1994 1993 1992
<S> <C> <C> <C>
Last-in, first- 60% 53% 57%
out (LIFO)
Average 30% 35% 31%
quarterly cost
First-in, first- 10% 12% 12%
out (FIFO)
</TABLE>
If the LIFO method of valuing these inventories was not used, total
inventories would have been $19.6 million, $17.2 million and $13.9 million
higher than reported as of June 30, 1994, 1993 and 1992, respectively.
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 5 to 50 years for buildings and improvements and
from 3 to 17 years for machinery and equipment.
Intangibles - Intangible assets consist principally of excess purchase price
over net tangible assets of businesses acquired (goodwill). Goodwill is
amortized on a straight-line basis over periods not exceeding 40 years. The
Company continually evaluates whether events or circumstances have occurred
indicating that the remaining estimated useful life of goodwill may not be
appropriate. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the acquired business'
undiscounted future operating income compared to the carrying value of
goodwill to determine if a write-off is necessary. Gross goodwill as of
June 30, 1994, 1993 and 1992 was $615.2 million, $528.0 million and
$522.0 million, respectively. Accumulated goodwill amortization as of
June 30, 1994, 1993 and 1992 was $128.0 million, $113.3 million and
$103.2 million, respectively.
Software Costs - The Company defers significant software development project
costs. Software costs of $5.3 million, $5.0 million and $13.2 million were
deferred during fiscal 1994, 1993 and 1992, respectively, pending the
projects' completion. Amounts deferred are amortized over a three-year
period beginning with a project's completion. As of June 30, 1994,
$37.5 million of completed project costs were subject to amortization.
Total amortization expense was $11.4 million, $7.7 million and $2.6 million
in fiscal 1994, 1993 and 1992, respectively.
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. Effective July 1,
1992, the Company adopted FASB
53
The Quaker Oats Company and Subsidiaries
Statement #109, "Accounting for Income Taxes," which requires an asset and
liability approach to financial accounting and reporting for income taxes.
See Note 17 for further discussion. Federal income taxes have been provided
on $187.8 million of the $293.1 million of unremitted earnings from foreign
subsidiaries. Taxes are not provided on earnings expected to be indefinitely
reinvested.
Postretirement Benefits Other Than Pensions - The Company provides
certain health and life insurance benefits for eligible retirees. Effective
July 1, 1992, the Company adopted FASB Statement #106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," whereby
the cost of postretirement benefits is accrued during the years that
employees render service. See Note 13 for further discussion.
Note 2
Restructuring Charges and Gains on Divestitures
In May 1994, the Board of Directors approved plans to streamline
administrative functions, reengineer and consolidate plant operations and
discontinue certain product lines in the United States and in some
foreign locations. The approved plans resulted in a restructuring charge
of $118.4 million and included the elimination of positions at the
headquarters and research and development facilities, a combination
and realignment of the U.S. sales force, manufacturing consolidations
for Van Camp's products, rice cakes and Aunt Jemima syrup and closing
of a Canadian pet foods facility and refocusing of the Canadian
business, as well as other cost-reduction initiatives.
The cost of providing severance and termination benefits for the
elimination of approximately 1,500 positions was $44.7 million of the
restructuring charge and will be a cash expense. Charges associated with
plant consolidations, sales office closures and equipment that has been
determined to be permanent excess capacity total $38.3 million. Of this
amount, $30.7 million was for non-cash asset write-offs. The remaining
$7.6 million is in cash expenses mainly for loss on facility and sales office
leases. Product-line discontinuations resulted in charges of $35.4 million,
of which $32.1 million was for non-cash asset write-offs. The remaining
$3.3 million will be in cash expenses for loss on leases and other
associated costs. Restructuring reserves of $61.1 million were included
in other accrued liabilities as of June 30, 1994.
The reengineering efforts are expected to save between $35 million and
$45 million annually beginning in fiscal 1995. Approximately 75 percent of
the savings will be in cash. Severance, termination benefits and other cash
outlays will occur predominately in fiscal 1995 and will be funded through
operating cash flows.
In fiscal 1993, the Company took a restructuring charge of $38.6 million to
consolidate production facilities at a U.S. pet foods plant. The charge
included $20.7 million for non-cash asset write-offs and $17.9 million in
cash for severance and termination benefits and other related plant
consolidation costs. The consolidation was completed in fiscal 1994 and
asset write-offs and cash outlays were consistent with amounts originally
provided. The Company also took a $9.7 million cash charge for severance
related to European cost-reduction programs. The Company realized
approximately $14 million in combined savings from these actions in fiscal
1994 and anticipates $20 million in annualized savings in fiscal 1995.
In fiscal 1992, the Company discontinued certain product lines, resulting in
non-cash asset write-offs of $10.0 million.
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. In fiscal 1992, the Company
realized an $11.0 million gain on the sale of the Ghirardelli chocolate
business.
<TABLE>
Operating income excluding restructuring charges and gains on divestitures
in all years was as follows:
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Operating income as $537.2 $575.2 $540.2
reported
Restructuring charges:
U.S. and Canadian Grocery 112.9 38.6 10.0
Products
International Grocery 5.5 9.7 ----
Products
Subtotal 118.4 48.3 10.0
Gains on divestitures:
U.S. and Canadian Grocery ---- ---- (11.0)
Products
International Grocery (9.8) (27.8) ----
Products
Subtotal (9.8) (27.8) (11.0)
Operating income excluding $645.8 $595.7 $539.2
charges and gains
</TABLE>
54
Note 3
Acquisitions and Discontinued Operations
The Company purchased the Near East flavored rice business and three small
food service businesses in fiscal 1994 and the Chico-San rice cakes
business in fiscal 1993. Pro forma information for all acquisitions was not
material in the aggregate.
The Fisher-Price business was spun off to the Company's shareholders in
fiscal 1991.
<TABLE>
Note 4
Trade Accounts Receivable Allowances
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Balance at beginning of year $15.0 $16.6 $18.7
Provision for doubtful 7.5 5.7 7.2
accounts
Provision for discounts and 16.6 13.8 13.5
allowances
Write-offs of doubtful (5.2) (4.4) (5.4)
accounts - net of recoveries
Discounts and allowances (13.9) (13.9) (19.2)
taken
Effect of exchange rate (2.5) (2.8) 1.8
changes
Balance at end of year $17.5 $15.0 $16.6
</TABLE>
<TABLE>
Note 5
Property, Plant and Equipment
<CAPTION>
Dollars in
Millions
Balance Balance
at Be Retir Other at End
1994 ginning Additi ements Change of Year
of Year ons and s
Sales
Gross property:
<S> <C> <C> <C> <C> <C>
Land $28.7 $0.5 $(1.0) $2.4 $30.6
Buildings and 441.5 23.9 (10.2) (0.2) 455.0
improvements
Machinery and 1,589.0 161.0 (103.7) (6.0) 1,640.3
equipment
Total $2,059.2 $185.4 $(114.9) $(3.8) $2,125.9
Accumulated
depreciation:
Buildings and $120.3 $13.3 $(1.3) $(0.8) $131.5
improvements
Machinery and 710.7 124.0 (50.7) (3.8) 780.2
equipment
Total $831.0 $137.3 $(52.0) $(4.6) $911.7
<CAPTION>
Dollars in Millions
1993 Balance Balance
at Beg Retire Other at End
inning Addition ments Changes of Year
of Year s and
Sales
<S> <C> <C> <C> <C> <C>
Gross property:
Land $29.8 $0.1 $(0.1) $(1.1) $28.7
Buildings and 448.4 21.1 (17.3) (10.7) 441.5
improvements
Machinery and 1,587.9 166.1 (95.6) (69.4) 1,589.0
equipment
Total $2,066.1 $187.3 $(113.0) $(81.2) $2,059.2
Accumulated
depreciation:
Buildings and $118.4 $12.6 $(7.0) $(3.7) $120.3
improvements
Machinery and 674.4 118.4 (48.3) (33.8) 710.7
equipment
Total $792.8 $131.0 $(55.3) $(37.5) $831.0
1992
Gross property:
Land $31.0 $---- $(2.2) $ 1.0 $29.8
Buildings and 427.2 20.7 (10.0) 10.5 448.4
improvements
Machinery and 1,456.4 155.7 (69.8) 45.6 1,587.9
equipment
Total $1,914.6 $176.4 $(82.0) $57.1 $2,066.1
Accumulated
depreciation:
Buildings and $104.1 $13.2 $(2.2) $3.3 $118.4
improvements
Machinery and 577.8 119.3 (40.2) 17.5 674.4
equipment
Total $681.9 $132.5 $(42.4) $20.8 $792.8
Included in the "Other Changes" column for fiscal 1994, 1993 and 1992 were
net increases (decreases) of $2.6 million, $(45.8) million and $31.9 million,
respectively, reflecting the effect of translating non-U.S. property at
current exchange rates as required by FASB Statement #52.
</TABLE>
55
The Quaker Oats Company and Subsidiaries
<TABLE>
Note 6
Short-term Debt and Lines of Credit
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Notes payable - non-U.S. $132.9 $35.6 $111.0
subsidiaries
Short-term debt - U.S. 78.4 142.4 ----
Short-term debt to be ---- (50.0) (50.0)
refinanced
Total short-term debt $211.3 $128.0 $61.0
Weighted average interest
rates on debt
outstanding at end of year:
Notes payable - non-U.S. 7.1% 9.0% 10.8%
subsidiaries(a)
Short-term debt - U.S. 4.4% 3.2% ----
Weighted average interest
rates on debt
outstanding during year:
Notes payable - non-U.S.
subsidiaries
(computed on month-end 9.4% 10.6% 11.5%
balances)(a)
Short-term debt - U.S.
(computed on daily balances) 3.3% 3.3% 4.0%
Average amount of debt
outstanding during year $227.3 $121.3 $105.5
Maximum month-end balance $303.1 $178.0 $170.2
during year
<FN>
(a)Nominal interest rates in highly inflationary countries have been adjusted
for currency devaluation to express interest rates in U.S. dollar terms.
</TABLE>
The consolidated balance sheets as of June 30, 1993 and 1992 included the
reclassification of $50.0 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. See Note 7 for further discussion of long-term debt issued in
fiscal 1994.
The Company has Revolving Credit Agreements totaling $350.0 million with
various banks that support its commercial paper borrowings and are also
available for direct borrowings. The first $175.0 million facility
requires a commitment fee of one-eighth of one percent per annum, generally
payable on any available and unused portion. The facility expires no sooner
than November 1996. The maturity will be automatically extended for
one-year periods unless otherwise determined by the various banks. The
Company anticipates that the facility will be extended beyond November
1996. The second $175.0 million facility requires a commitment fee of
one-tenth of one percent per annum payable on any available and unused
portion. The second facility expires in November 1994. The Company
anticipates that this facility will also be extended for an additional year
upon its maturity. As of June 30, 1994, the Company had $89.6 million
of borrowings outstanding, at market interest rates, under the second
facility. Under the most restrictive terms of the Revolving Credit
Agreements, the Company must maintain total shareholders' equity greater
than $300.0 million.
The Company has an Adjusted Principal Revolving Credit Agreement. Each
quarter, the Company may borrow a predetermined amount from $4.0 million
up to $41.0 million. The amount borrowed may be repaid based upon an index
of foreign currency rates. The Agreement is in effect through fiscal 1996
and bears interest at market rates in effect at the time of each borrowing.
The Company borrowed the available amount each quarter in fiscal 1994.
The Company's non-U.S. subsidiaries have additional committed lines of
credit of $31.7 million, of which $22.2 million was utilized as of
June 30, 1994.
56
<TABLE>
Note 7
Long-term Debt
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
7.76% Senior ESOP Notes due $80.8 $85.9 $90.5
through 2002
8.0% Senior ESOP Notes due 133.9 140.3 145.0
through 2002
8.75% ESOP installment loan 5.5 7.9 10.2
due through 1996
7.4%-7.9% Series A Medium-
term Notes
due through 2000 71.8 86.8 101.7
8.15%-9.34% Series B Medium-
term Notes
due through 2020 229.6 248.0 250.0
6.5%-7.48% Series C Medium-
term Notes
due through 2024 200.0 ---- ----
5.415% and 6.63% deutsche
mark swaps
due 1993 and 1998, 17.5 16.3 30.4
respectively
Industrial Revenue Bonds:
5.7%-10.75% due through 2010, 34.4 35.6 35.6
tax-exempt
4.5%-8.375% due through 2000, 0.8 0.9 6.7
taxable
Sinking Fund Debentures:
7.7% due through 2001 ---- ---- 14.0
Non-interest bearing 4.5 4.0 3.5
installment note due 2014
Short-term debt to be ---- 50.0 50.0
refinanced
Other 26.1 5.8 9.0
Subtotal 804.9 681.5 746.6
Current portion of long-term 45.4 48.9 57.9
debt
Long-term debt $759.5 $632.6 $688.7
<FN>
All maturity dates presented refer to fiscal years.
Aggregate required payments of maturities of long-term debt for the next
five fiscal years are as follows:
<CAPTION>
Dollars in Millions 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Required payments $45.4 $37.0 $53.7 $78.7 $50.7
</TABLE>
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 Securities and Exchange
Commission in January 1990. No other securities have been issued under
the shelf registration.
The non-interest bearing installment note for $55.5 million has an
unamortized discount of $51.0 million, $51.5 million and $52.0 million as of
June 30, 1994, 1993 and 1992, respectively, based on an imputed interest rate
of 13 percent.
Note 8
Capital Stock
During fiscal 1994, three million shares of the Company's outstanding common
stock were repurchased for $209.6 million under a five 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 ESOP Convertible Preferred Stock
(Series B Stock) have been reserved for issuance in connection with the
Company's ESOP plan. As of June 30, 1994, 1,282,051 shares of the Series
B Stock had been issued and are each convertible into 1.0788 shares
of the Company's common stock. The Series B Stock will be issued only
for the ESOP and will not trade 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 June 30, 1994.
57
The Quaker Oats Company and Subsidiaries
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 7 for amounts and terms
of the ESOP notes.
Deferred compensation of $224.3 million as of June 30, 1994 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 payment on the loans.
<TABLE>
The following table presents the ESOP loan repayments:
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Principal payments $13.9 $11.6 $9.3
Interest payments 18.4 19.4 20.2
Total ESOP payments $32.3 $31.0 $29.5
</TABLE>
As of June 30, 1994, 2,135,436 shares of common stock and 400,933 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 (the "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. Nine 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 June 30, 1994, 691 persons held such options.
Changes in stock options outstanding were as follows:
<TABLE>
<CAPTION>
Shares Option Price
(Per Share)
<S> <C> <C>
Balance as of June 30, 1991 3,425,718 $8.30-57.00
Adjustment due to Fisher- 293,241 -----
Price spin-off
Granted 1,492,792 70.69-88.36
Exercised (564,540) 7.64-52.50
Expired or terminated (89,683) 7.64-88.36
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
</TABLE>
As of June 30, 1994, options for 3,398,920 shares were exercisable and the
average per share option price of unexercised options expiring during the
period January 1995 to September 2003 was $63.95.
In July 1991, the number and exercise price of all options outstanding were
adjusted for the Fisher-Price spin-off. This adjustment increased the number
of options outstanding by 293,241 and decreased the exercise price of the
options outstanding by approximately 8 percent.
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 were 23,200, 70,800 and 24,000 in fiscal
1994, 1993 and 1992, respectively. Restrictions on these awards lapse after
a period of time designated by the Compensation Committee of the Board of
Directors.
58
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
of record on July 30, 1986 received for each share owned one "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 $.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.
<TABLE>
The components of net pension costs for defined plans were as follows:
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Service cost (benefits earned $44.4 $41.5 $35.6
during the year)
Interest cost on projected 53.1 51.9 46.6
benefit obligation
Actual return on plan assets (61.3) (64.8) (65.3)
Net amortization and deferral (8.7) (8.5) (5.8)
Multi-employer plans 0.3 0.2 0.4
Net pension costs $27.8 $20.3 $11.5
</TABLE>
59
The Quaker Oats Company and Subsidiaries
<TABLE>
Reconciliations of the funded status of the Company's U.S. defined plans to
the (accrued) prepaid pension costs were as follows:
<CAPTION>
Overfunded Underfunded
Dollars in Millions 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Vested benefits $505.9 $459.5 $ $52.0 $47.3 $
369.6 48.9
Non-vested benefits 10.8 10.1 8.5 1.1 0.2 0.2
Accumulated benefit obligation 516.7 469.6 378.1 53.1 47.5 49.1
Effect of projected future salary increases 64.0 62.0 53.7 4.7 8.9 8.6
Projected benefit obligation 580.7 531.6 431.8 57.8 56.4 57.7
Plan assets at market value 640.9 637.5 581.0 22.0 23.3 29.3
Projected benefit obligation less (greater) 60.2 105.9 149.2 (35.8) (33.1) (28.4)
than plan assets
Unrecognized net (gain) (40.6) (59.6) (84.8) (4.0) (4.2) (11.1)
Unrecognized prior service cost 6.9 8.1 7.3 4.9 5.6 9.4
Unrecognized net (asset) liability at (40.7) (52.9) (65.2) 3.5 4.2 4.9
transition
(Accrued) prepaid pension costs $(14.2) $1.5 $6.5 $(31.4) $(27.5) $(25.2)
<FN>
Assumptions (reflecting averages across all plans):
Weighted average discount rate: 8%
Rate of future compensation increases: 5%
Long-term rate of return on plan assets: 8.5%
Reconciliations of the funded status of the Company's foreign defined plans
to the prepaid (accrued) pension costs were as follows:
<CAPTION>
Overfunded Underfunded
Dollars in Millions 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Vested benefits $61.3 $89.8 $69.0 $19.6 $18.7 $22.1
Non-vested benefits 6.4 ---- ---- 4.8 4.5 1.0
Accumulated benefit obligation 67.7 89.8 69.0 24.4 23.2 23.1
Effect of projected future salary increases 13.4 18.8 10.8 3.6 3.4 2.5
Projected benefit obligation 81.1 108.6 79.8 28.0 26.6 25.6
Plan assets at market value 89.1 113.0 88.2 ---- ---- 2.6
Projected benefit obligation less
(greater) than plan assets 8.0 4.4 8.4 (28.0) (26.6) (23.0)
Unrecognized net (gain) loss (2.3) 13.4 (5.7) (0.3) (0.2) (0.2)
Unrecognized prior service cost 2.8 3.1 3.5 0.8 0.8 0.9
Unrecognized net (asset) liability at (4.2) (13.5) 5.4 ---- (0.2) (0.2)
transition
Prepaid (accrued) pension costs $4.3 $7.4 $11.6 $(27.5) $(26.2) $(22.5)
<FN>
Assumptions (reflecting averages across all plans):
Weighted average discount rate: 8%
Rate of future compensation increases: 5%
Long-term rate of return on plan assets: 8.2%
</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 $14.1 million, $14.1 million and $17.8 million as of June 30, 1994, 1993
and 1992, 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." This 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. The incremental effect on fiscal 1993 operating
income of adopting FASB Statement #106 was a pretax charge of $14.8
million. Cash expenditures are not affected by this accounting change.
<TABLE>
The components of postretirement benefit costs were as follows:
<CAPTION>
Dollars in Millions 1994 1993
<S> <C> <C>
Service cost (benefits earned $7.0 $6.2
during the year)
Interest cost on projected 18.4 18.3
benefit obligation
Amortization of prior service 0.1 ----
cost
Total postretirement benefit $25.5 $24.5
costs
Postretirement benefit costs incurred and expensed in fiscal 1992 were $9.2
million.
</TABLE>
60
<TABLE>
The Company's unfunded accumulated postretirement benefit obligations were
as follows:
<CAPTION>
Dollars in Millions 1994 1993
<S> <C> <C>
Current retirees $122.1 $122.5
Current active employees - 12.5 12.0
fully eligible
Current active employees - 115.2 100.0
not fully eligible
Accumulated postretirement 249.8 234.5
benefit obligation
Unrecognized net loss (12.5) (11.1)
Unrecognized prior service (2.0) ----
costs
Accrued postretirement $ 235.3 $223.4
benefit costs
Assumptions:
Weighted average discount
rate: 8%
Health care trend rates 1995 2005 and Beyond
(varies by plan):
Pre-age 65: 10-14% 4-6%
Age 65 and over: 10-14% 5-6%
</TABLE>
If the health care trend rates were increased one percentage point, the
current-year postretirement benefit costs would have been $2.5 million
higher and the accumulated postretirement benefit obligation as of
June 30, 1994 would have been $34.2 million higher.
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of adoption
is a $4.1 million after-tax charge in the first quarter of fiscal 1995. The
adoption of this statement will not have a material effect on operating
results or cash flows in future years.
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
$33.1 million, $34.3 million and $41.0 million in fiscal 1994, 1993 and 1992,
respectively. The following is a schedule of future minimum annual rentals
on non-cancelable operating leases, primarily for sales offices, distribution
centers and corporate headquarters, in effect as of June 30, 1994:
<TABLE>
Dollars in 1995 1996 1997 1998 1999 Later Total
Millions
<S> <C> <C> <C> <C> <C> <C> <C>
Total $27.0 $26.0 $24.6 $21.9 $20.3 $115.1 $234.9
payments
The Company enters into executory contracts to promote various products.
As of June 30, 1994, future commitments under these contracts amounted to
$62.7 million.
</TABLE>
Note 15
Supplementary Income Statement Information
<TABLE>
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Advertising, media and $295.3 $282.0 $288.8
production
Merchandising 1,291.5 1,193.0 1,160.8
Total advertising and $1,586.8 $1,475.0 $1,449.6
merchandising
Depreciation expense $133.3 $129.9 $129.7
Amortization of intangibles $33.9 $26.3 $23.6
Maintenance and repairs $98.2 $105.6 $96.2
Research and development $56.3 $52.4 $52.1
Note 16
Interest Expense
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Interest expense $99.9 $66.1 $78.5
Interest expense (1.3) (0.5) (1.5)
capitalized
Subtotal 98.6 65.6 77.0
Interest income (8.9) (10.5) (9.6)
Interest expense - net $89.7 $55.1 $67.4
Interest paid in fiscal 1994, 1993 and 1992 was $72.0 million, $74.3 million
and $74.7 million, respectively.
</TABLE>
61
The Quaker Oats Company and Subsidiaries
Note 17
Income Taxes
Effective July 1, 1992, the Company adopted FASB Statement #109, "Accounting
for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. The cumulative effect
of adopting FASB Statement #109 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:
<TABLE>
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Currently payable -
Federal $140.1 $129.2 $109.9
Non-U.S. 23.4 25.0 23.8
State 30.3 29.7 24.1
Total currently payable 193.8 183.9 157.8
Deferred - net
Federal (34.0) (6.7) 8.2
Non-U.S. (13.3) 2.7 5.6
State 0.7 0.9 2.3
Total deferred - net (46.6) (3.1) 16.1
Provision for income taxes $147.2 $180.8 $173.9
The components of the deferred income tax (benefit) provision were as follows:
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
Accelerated tax depreciation $11.2 $15.0 $9.3
Postretirement benefits (8.2) (5.8) ----
Accrued expenses including (36.9) (8.6) ----
restructuring charges
Loss carryforwards (8.3) (2.2) ----
Other (4.4) (1.5) 6.8
(Benefit) provision for $(46.6) $(3.1) $16.1
deferred income taxes
Total income tax provisions (benefits) were allocated as follows:
<CAPTION>
Dollars in Millions 1994 1993
<S> <C> <C>
Continuing operations $147.2 $180.8
Cumulative effect of accounting ---- $(90.0)
changes
Items charged directly to common $(8.1) $2.6
shareholders' equity
The sources of pretax income before cumulative effect of accounting changes
were as follows:
<CAPTION>
Dollars in Millions 1994 1993 1992
<S> <C> <C> <C>
U.S. sources $365.8 $389.3 $346.2
Non-U.S. sources 12.9 78.3 75.3
Income before income taxes and
cumulative effect of $378.7 $467.6 $421.5
accounting changes
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates were as follows:
<CAPTION>
Dollars in Millions 1994 1993 1992
% of % of % of
Amount Pretax Amount Pretax Amount Pretax
Income Income Income
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on
the Federal
statutory rate $132.5 35.0% $159.0 34.0% $143.3 34.0%
State and local income
taxes - net of Federal
income tax benefit 18.4 4.8 19.7 4.2 17.8 4.2
Repatriation of foreign (9.6) (2.5) (2.4) (0.5) (2.9) (0.7)
earnings
Non-U.S. tax rate 9.0 2.4 1.7 0.4 6.7 1.6
differential
Miscellaneous items (3.1) (0.8) 2.8 0.6 9.0 2.2
Provision for income $147.2 38.9% $180.8 38.7% $173.9 41.3%
taxes
The consolidated balance sheets included the following deferred tax assets
and deferred tax liabilities:
<CAPTION>
Dollars in Millions 1994 1993
Deferred Deferred Tax Deferred Tax Deferred Tax
Tax Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Depreciation and amortization $21.1 $219.3 $14.5 $211.0
Postretirement benefits 94.1 ---- 85.9 ----
Other benefit plans 52.4 11.5 42.0 13.5
Accrued expenses including 112.9 21.7 59.1 4.1
restructuring charges
Loss carryforwards 24.3 ---- 20.8 ----
Other 18.1 33.5 21.8 34.6
Subtotal 322.9 286.0 244.1 263.2
Valuation allowance (28.1) ---- (18.1) ----
Total $294.8 $286.0 $226.0 $263.2
</TABLE>
62
As of June 30, 1994, the Company had $63.9 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 have no expiration restrictions.
Those with restrictions expire primarily in five years. A valuation
allowance has been provided for a portion of the deferred tax assets
related to the loss carryforwards.
Included in the other current assets on the consolidated balance sheets were
deferred tax assets of $91.0 million, $52.3 million and $57.3 million as of
June 30, 1994, 1993 and 1992, respectively. Income taxes paid in fiscal
1994, 1993 and 1992 were $163.9 million, $213.3 million and $182.1 million,
respectively.
Note 18
Financial Instruments
Financial instruments are primarily used to fund working capital requirements
and to reduce the impact of foreign currency rate and commodity price
fluctuations. The main financial instruments used are short-term and
long-term debt instruments, foreign exchange forward contracts, purchased
foreign currency options and commodity options and futures contracts.
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 decline. Similarly, the
commodity hedge instruments are used to reduce the risk that raw material
purchases will be adversely affected as commodity prices change. While the
hedge instruments are subject to the risk of loss from exchange rate
movement or changing commodity prices, the losses would generally be
offset by expected gains on translation of the net investments or lower
costs of the purchases being hedged. The Company does not trade these
instruments with the objective of earning financial gains on the exchange
rate or commodity price fluctuations alone, nor does it trade in currencies
or commodities 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.
<TABLE>
The Company's significant net investments, net hedges and net exposures in
foreign currencies subject to the hedging program as of June 30, 1994 were
as follows:
<CAPTION>
Dollars in Millions
Currency Net Net Hedge Net Exposure
Investment
<S> <C> <C> <C>
Canadian dollar $32.1 $(17.4) $14.7
British pound $70.1 $(16.3) $53.8
French franc $22.9 ---- $22.9
Dutch guilder $33.8 $(6.7) $27.1
Italian lira $56.2 $(47.5) $8.7
</TABLE>
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 as the Company manages the exposures on an economic basis.
The net exposures are subject to gain or loss if foreign currency exchange
rates fluctuate. On a consolidated basis, a gain or loss would be
recognized as an increase or decrease in the cumulative translation
adjustment account on the consolidated balance sheet, but future
reported income would not be effected. 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 in local currency
or investing in U.S. dollars.
As of June 30, 1994 and 1993, the Company had net foreign exchange forward
contracts to sell $142.5 million and $225.5 million, respectively, of
European and Canadian currencies to hedge its net investments. These
contracts generally mature in less than two years, except for contracts to
sell $7.7 million in British pounds in fiscal 1998. Unrealized (losses)
gains on these foreign exchange forward contracts as of June 30, 1994 and 1993
were $(4.0) million and $10.3 million, respectively. The carrying value of
these contracts approximates fair value.
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. 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 June 30, 1994 and 1993 for $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. The debt swap has been effective
as a hedge of the net investment in Germany and the resulting increase or
decrease in long-term debt has been charged or credited to the
cumulative translation adjustment account on the consolidated
63
The Quaker Oats Company and Subsidiaries
balance sheet. The interest payments are subject to exchange rate
fluctuations, but the effect on the Company's consolidated income statement
has not been material. In late fiscal 1994, the net investment in Germany
was reduced to the point where the DM swap was no longer effective as a net
investment hedge, requiring the mark to market adjustment to
be charged to the consolidated income statement. To offset this charge,
the Company entered into a foreign exchange forward contract and the net
effect on the consolidated income statement for fiscal 1994 was not material.
The Company uses options to hedge currency fluctuations on certain
anticipated purchases denominated in foreign currencies.
As of June 30, 1994 and 1993, the Company had options to sell Italian
lire and purchase U.S. dollars for $77.0 million and $91.2 million,
respectively. Deferred unrecognized losses related to these options were
$9.0 million and $6.9 million as of June 30, 1994 and 1993, respectively.
The fair values of outstanding purchased foreign exchange options as of
June 30, 1994 and 1993, based on broker quotes, were $2.7 million and
$3.3 million, respectively.
Included in the consolidated income statements were gains of $1.1 million
and $6.2 million in fiscal 1994 and 1993, respectively, from foreign
currency hedge instruments.
The Company uses commodity options and futures contracts to reduce
its exposure to commodity price changes. The Company regularly hedges
purchases of oats, corn, soybeans, wheat, coffee beans and orange juice
concentrate. Of the $2.93 billion in cost of goods sold, approximately
$200 million to $250 million is in commodities that may be hedged. The
Company's strategy is to typically hedge most of the production requirements
for the following twelve-month period. As of June 30, 1994, approximately
two-thirds of fiscal 1995 production requirements were hedged. Deferred
unrecognized losses related to commodity options and futures contracts as of
June 30, 1994 were $4.4 million. Deferred unrecognized gains as of
June 30, 1993 were $0.4 million. Realized losses charged to cost of goods
sold in fiscal 1994 and 1993 were $0.2 million and $1.9 million, respectively.
The fair values of these commodity instruments as of June 30, 1994 and 1993,
based on quotes from brokers, were net gains of $7.3 million and net losses
of $1.0 million, respectively.
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 $779.7 million and
$730.7 million as of June 30, 1994 and 1993, respectively, which 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 June 30, 1994 and 1993 was
$759.5 million and $632.6 million, respectively.
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.
Note 19
Litigation
On December 18, 1990, Judge Prentice H. Marshall of the United States
District Court for the Northern District of Illinois issued a memorandum
opinion stating that the Court would enter judgment against the Company in
favor of Sands, Taylor & Wood Co. The Court found that the use of the words
"thirst aid" in advertising Gatorade thirst quencher infringed the
Plaintiff's rights in the trademark THIRST-AID. On July 9, 1991, Judge
Marshall entered a judgment of $42.6 million, composed of $31.4 million in
principal, plus prejudgment interest of $10.6 million and fees, expenses and
costs of $0.6 million. The order enjoined use of the phrase "THIRST-AID" in
connection with the advertising or sale of Gatorade thirst quencher in the
United States. The Company subsequently appealed the judgment. On
September 2, 1992, the Court of Appeals for the Seventh Circuit vacated the
monetary award component of the District Court's judgment. The appellate
court affirmed the finding of infringement, but found that the monetary award
was an inequitable "windfall" to the Plaintiff. The case was remanded to the
District Court for further proceedings. The Company filed a request for
rehearing that was denied. The Company also filed a Petition for
Certiorari with the U.S. Supreme Court that was denied. On June 7, 1993,
Judge Marshall issued a judgment on remand of $26.5 million, composed of
$20.7 million in principal, prejudgment interest of $5.4 million and fees,
expenses and costs of $0.4 million. The Company has appealed this judgment
to the Court of Appeals for the Seventh Circuit. Management, with advice
from outside legal counsel, has determined that the unrecognized loss in this
case, if any, will not be material to the consolidated financial statements
of the Company.
The Company is not a party to any pending legal proceedings or
environmental clean-up actions that it believes will have a material
adverse effect on its financial position or results of operations.
64
<TABLE>
Note 20
Quarterly Financial Data (Unaudited)
<CAPTION>
Dollars in Millions (Except Per Share Data)
1994 First Second Third Fourth
Quarter(a) Quarter(a) Quarter(a) Quarter(b)
<S> <C> <C> <C> <C>
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 $1.31 $0.63 $1.08 $0.34
Cash dividends declared $0.53 $0.53 $0.53 $0.53
Market price range:
High $75 7/8 $76 1/4 $71 1/8 $82
Low $62 1/2 $66 1/8 $61 7/8 $62
<FN>
(a)Cost of goods sold and gross profit for the first, second and third
quarters of fiscal 1994 have been restated by $0.2 million, $1.9 million
and $2.2 million, respectively, for certain reclassifications. Net income
was not affected by these changes.
(b)Includes a $118.4 million pretax restructuring charge ($72.8 million after-
tax or $1.09 per share) for workforce reductions, plant consolidations and
product discontinuations and a $9.8 million pretax gain (or $.13 per share)
for the sale of a business in Venezuela.
<CAPTION>
Dollars in Millions (Except Per Share Data)
1993 First Second Third Fourth
Quarter Quarter(b) Quarter(c) Quarter
(a)
<S> <C> <C> <C> <C>
Net sales $1,494.2 $1,332.7 $1,358.1 $1,545.6
Cost of goods sold 740.5 677.0 679.5 773.0
Gross profit $753.7 $655.7 $678.6 $772.6
Income before cumulative
effect of accounting $60.2 $56.2 $77.0 $93.4
changes
Net income $(55.3) $56.2 $77.0 $93.4
Per common share:
Income before cumulative
effect of accounting $0.81 $0.77 $1.05 $1.30
changes
Net income $(0.78) $0.77 $1.05 $1.30
Cash dividends declared $0.48 $0.48 $0.48 $0.48
Market price range:
High $65 $71 $70 $77
Low $56 1/8 $60 1/8 $62 1/4 $60 3/8
<FN>
(a)Includes a $38.6 million pretax charge ($26.9 million after-tax or
$.37 per share) for the consolidation of production facilities at a U.S.
pet foods plant.
(b)Includes a $17.4 million pretax gain ($10.5 million
after-tax or $.14 per share) for the sale of two Italian businesses and a
$9.7 million pretax charge ($5.9 million after-tax or $.08 per share) for
European cost-reduction programs.
(c)Includes a $10.4 million pretax gain ($8.3 million after-tax or $.11
per share) for the sale of a business in the United Kingdom.
</TABLE>
Report of Independent Public Accountants
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 June 30, 1994,
1993 and 1992, and the related consolidated statements of income, common
shareholders' equity and cash flows for the years then ended. 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 June 30, 1994, 1993 and 1992, and the
results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
As indicated in Note 13 and Note 17, effective July 1, 1992, the Company
changed their accounting for postretirement benefits other than pensions
and income taxes.
Arthur Andersen & Co.
Chicago, Illinois,
August 3, 1994
65
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 maintains a strong system of
internal accounting controls, supported by formal policies and procedures
that are communicated throughout the Company. Management also maintains
a staff of internal auditors who evaluate the adequacy of and investigate
the adherence to these controls, policies and procedures.
Our independent public accountants, Arthur Andersen & Co., 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 Committee meets
periodically with the independent public accountants, internal auditors and
management to assure that all are properly discharging their
responsibilities. The 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 & Co. and the internal auditors have unrestricted
access to the Audit Committee.
Additional 10-K Information
<TABLE>
Description of Property
As of June 30, 1994, the Company operated 54 manufacturing plants in 16
states and 13 foreign countries and owned or leased distribution centers
and sales offices in 21 states and 18 foreign countries. The
number of locations utilized by each segment of the business was as follows:
<CAPTION>
Owned and Owned and Owned and
Leased Leased Leased
Mfg. Locations Distributio Sales
n Centers Offices
<S> <C> <C> <C> <C> <C> <C>
Geographic U.S. Forei U.S. Fore U.S. Fore
Segment gn ign ign
U.S. and 28 4 10 ---- 43 5
Canadian
Grocery
Products
International ---- 22 ---- 24 ---- 36
Grocery
Products
Total 28 26 10 24 43 41
</TABLE>
The Company owns a research and development laboratory in
Barrington, Illinois, and a pet food nutrition facility in Lake
County, Illinois. The corporate offices are maintained in leased space
in 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 affect the continued use of these
trademarks. Among the most important of the domestic grocery product
trademarks owned by the Company are Quaker, Cap'n Crunch, Quaker 100%
Natural, Quaker Toasted Oatmeal, Quaker Oat Squares and Life for
breakfast cereals; Gatorade for thirst-quenching beverages; Quaker,
Chico-San and Quaker Chewy for rice and grain-based
snacks; Van Camp's for canned bean products; Ken-L Ration, Kibbles'n Bits'n
Bits'n Bits, Gravy Train, Cycle and Gaines for dog foods; Puss'n Boots and
Pounce for cat foods; Rice-A-Roni and Near East for value-added rice and
grain products; Noodle Roni for value-added pasta; Golden Grain and Mission
for pasta; Quaker and Aunt Jemima for mixes, syrups and corn goods;
Aunt Jemima and Celeste for frozen foods; Wolf for chili, hot dog sauce,
tamales and beef stew; Ardmore Farms for citrus and fruit juices;
Continental and WB for coffee; and Mrs. Richardson's for ice cream
toppings. Many of the grocery product
66
trademarks owned by the Company in the United States are registered
in foreign countries in which the Company does substantial business.
Internationally, the key trademarks owned include Cruesli, Honey Monster
and Sugar Puffs for breakfast cereals; Cuore for edible oils; Felix for cat
foods; Fido, Bonzo and Chunky for dog foods; Coqueiro for fish;
Toddy and ToddYnho for chocolate beverages; and Carlos V and
Larin for chocolate candy.
U.S. and Canadian Grocery Products Description
The Company is a major participant in the competitive packaged foods
industry in the United States and Canada and is the leading manufacturer of
hot cereals, sports beverages, pancake mixes, grain-based snacks, cornmeal,
hominy grits, value-added rice products and canned pork and beans. In
addition, the Company is the second-largest manufacturer of dog food,
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; Wolf Brand
chili; Aunt Jemima frozen breakfast products and mixes; Continental coffee;
Ardmore Farms single-serve frozen fruit juices; Gatorade thirst quencher; a
specialty line of custom-blended dry baking mixes; ready-to-bake biscuits;
Petrofsky's bagels; Burry cookies and crackers; and Mrs. Richardson's
syrups, ice cream toppings and condiments.
International Grocery Products Description
The Company participates along with a significant number of other companies
in the human and pet foods markets and is broadly diversified, both
geographically and by product line. Competitive conditions vary by country.
The Company manufactures and markets its products in Argentina, Benelux,
Brazil, Colombia, France, Germany, Italy, Mexico, the United Kingdom and
Venezuela. The Company also markets products in many countries throughout
the world and 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 producer of edible seed oils in Italy; the
leading producer of chocolate candy and chocolate beverages in Mexico; the
leading canned fish processor in Brazil; the leading sports beverage
distributor in Mexico, Korea, Italy, Argentina, Australia and Venezuela;
and the second-largest pet food company in continental Europe.
Raw Materials
The raw materials used in manufacturing include oats, wheat, soy products,
corn, rice, sweeteners, orange juice concentrate, almonds, coffee beans,
raisins, beef, chicken, corn oil, cocoa beans, shortening, meat by-products,
dry beans and fish, as well as a variety of packaging materials. These
products are purchased mainly on the open market. Supplies of all raw
materials have been adequate and continuous.
67
Directors
Members of the
Board of Directors
Frank C. Carlucci 1*,5,6
Chairman
The Carlyle Group
(Banking)
Washington, D.C.
Silas S. Cathcart 2*,5
Retired Chairman
Kidder, Peabody Group Inc.
(Investments)
Chicago, Illinois
Kenneth I. Chenault 1,4,5,6
President, USA,
American Express Travel
Related Services Company, Inc.
(Financial and Travel Services)
New York, New York
Judy C. Lewent 1,4,5,6
Senior Vice President and
Chief Financial Officer
Merck & Co., Inc.
(Pharmaceuticals)
Whitehouse Station, New Jersey
Vernon R. Loucks, Jr. 2,3,5*
Chairman and Chief
Executive Officer
Baxter International Inc.
(Medical Care Products)
Deerfield, Illinois
Thomas C. MacAvoy 1,5,6
Paul M. Hammaker
Professor of Business
Administration
Colgate Darden
Graduate School of Business Administration
University of Virginia
Charlottesville, Virginia
Philip A. Marineau 3
President and Chief Operating Officer
Luther C. McKinney 3
Senior Vice President Law and Corporate Affairs,
and Corporate Secretary
Gertrude G. Michelson 2,4,5,6*
Senior Advisor to R.H. Macy & Co., Inc.
(Retail Merchandising)
New York, New York
Walter J. Salmon 4,5
Stanley Roth, Sr.,
Professor of Retailing
Harvard Business School
Boston, Massachusetts
William D. Smithburg 3,5
Chairman and Chief Executive Officer
William L. Weiss 2,3,4*,5
Chairman Emeritus
Ameritech Corporation
(Telecommunications)
Chicago, Illinois
In May 1994, the Company lost a valued contributor and good friend
with the death of Weston R. Christopherson, former Chairman and
CEO of the Northern Trust Company and Jewel Companies, Inc. and a
member of the Board of Directors since 1984. During that period, he
served on the Audit, Executive, Finance, Nominating and Public
Responsibility Committees. Wes leaves behind a legacy of leadership
and sound judgment. We will miss him.
Board Committees
1 Audit
2 Compensation
3 Executive
4 Finance
5 Nominating
(William D. Smithburg Ex Officio member)
6 Public Responsibility
* Denotes Committee Chairman
Officers
Senior Officers
William D. Smithburg+
Age 56
Chairman and Chief Executive Officer
Joined Quaker in 1966. Elected to present office in 1983.
Philip A. Marineau+
Age 47
President and Chief Operating Officer
Joined Quaker in 1972. Elected to present office in 1993.
Luther C. McKinney+
Age 63
Senior Vice President Law and Corporate Affairs, and
Corporate Secretary Joined Quaker in 1974. Elected to present
office in 1977.
Douglas J. Ralston+
Age 49
Senior Vice President
Human Resources Joined Quaker in 1981.
Elected to present office in 1992.
Terry G. Westbrook+
Age 48
Senior Vice President and Chief Financial Officer
Joined Quaker in 1984. Elected to present office
in 1991.
Corporate Staff Officers
Barbara R. Allen+
Age 41
Vice President Corporate Planning
Joined Quaker in 1977. Elected to present office in 1992.
John H. Calhoun
Vice President
International Law
Penelope C. Cate
Vice President
Government Relations
Janet K. Cooper+
Age 41
Vice President and Treasurer
Joined Quaker in 1978. Elected to present office in 1992.
Margaret M. Eichman
Vice President
Investor Relations and Corporate Communications
Thomas L. Gettings+
Age 37
Vice President and Corporate Controller
Joined Quaker in 1987.
Elected to present office in 1992.
R. Thomas Howell, Jr.+
Age 52
Vice President and General Corporate
Counsel Joined Quaker in 1971.
Elected to present office in 1984.
John G. Jartz
Vice President
Business Development
Mart C. Matthews
Vice President and Associate General
Corporate Counsel
Kenneth W. Murray
Vice President
Internal Auditing
W. Stephen Perry+
Age 52
Vice President Corporate Tax
Joined Quaker in 1994. Elected to present office in January 1994.
Arthur R. Skantz
Vice President
Corporate Growth
70
U.S. and Canadian Grocery Products
John A. Boynton+
Age 40
Vice President Finance and Customer Service
U.S. Grocery Products Joined Quaker in 1981.
Elected to present office in 1992.
David R. Nogle+
Age 57
Senior Vice President
U.S. Grocery Products Services
Joined Quaker in 1962. Elected to present office in 1985.
John R. Van Atta+
Age 55
Group Vice President
Research and Development Joined Quaker in 1987. Elected to present
office in 1989.
Russell A. Young
Vice President
Supply Chain
U.S. Grocery Products
Breakfast Foods Division
David L. Bere'+
Age 41
Vice President-President
Joined Quaker in 1978. Elected to present office in 1992.
John S. Breuer
President
U. S. Cereals
David L. Morton
President and Chief Executive Officer
The Quaker Oats Company of Canada Limited
Gatorade Worldwide
Division
James F. Doyle+
Age 42
Senior Vice President-President
Joined Quaker in 1981.
Elected to present office in 1992.
Donald R. Uzzi
President
Gatorade North America
Bernardo Wolfson
President
Gatorade Latin America
A. Stephen Diamond
President
Gatorade Europe
Michael T. Tay
Regional Vice President
Gatorade North Asia
Diversified Grocery Products
Douglas W. Mills+
Age 48
Senior Vice President-President
Joined Quaker in 1969. Elected to present
office in 1989.
Charles F. Marcy
President
Golden Grain
Convenience Foods Division
Walter G. VanBenthuysen+
Age 55
Senior Vice President-President
Joined Quaker in 1986. Elected to present office in 1992.
Lyle G. Hubbard
President
Convenience Foods
Retail
International Grocery Products
Robert S. Thomason+
Age 49
Senior Vice President
International Grocery Products and President-Cereals, Europe
Joined Quaker in 1971. Elected to present office in 1993.
Europe
Thierry Henault
Vice President-
President-Pet Foods, Europe
Franco Cianci
President
Italian Products
Richard F. Savage
Vice President Human Resources,
Europe
George F. Sewell
Vice President
Finance, Europe
Pacific
William C. Trotter
Vice President-President
Quaker Pacific
Latin America
Mark A. Shapiro
Vice President-President and Director
Erasmo Cabello
Managing Director
Mexico
Fabrica de Chocolates
La Azteca, S.A. de C.V.
Otavio J. Franco
Managing Director
Brazil
Quaker Alimentos Ltda.
Alfredo G. Halle
Managing Director
Argentina
Elaboradora Argentina
de Cereales, S.A.
Joseph R. Nahmias
Managing Director
Colombia, Venezuela and Caribbean
Productos Quaker, S.A.
+also Executive Officers as defined by Securities and Exchange Commission
regulations. Such Executive officers serve at the pleasure of the Board of
Directors. All Executive Officers (except W. Stephen Perry who joined the
Company in January 1994 and was formerly a tax partner of Coopers &
Lybrand) have been employed by The Quaker Oats Company in an executive
capacity for five years or more.
71
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 89 consecutive
years, and Quaker has increased dividends in each of its last 27 fiscal 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 Annual Report includes all financial statements and notes required by
Form 10-K. If you request a Form 10-K, you will receive the annual report,
proxy statement, and the Form 10-K cover page, exhibit list and conformed
signature page.
Annual Meeting
Shareholders are cordially invited to attend the Annual Meeting, which will
be held at the Bob Carr Performing Arts Centre, 401 West Livingston Street,
Orlando, Florida, on Wednesday, November 9, 1994, at 9:30 a.m. (EST).
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
Press and media related inquiries should be addressed to:
Public 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 (312) 222-7843
The Quaker Oats Company was incorporated in 1901 under the laws of the
state of New Jersey.
Ticker Symbol: OAT
72
Corporate Information
Corporate Headquarters Mailing Address:
The Quaker Oats Company
P.O. Box 049001
Chicago, Illinois 60604-9001
Street Address:
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4714
(312) 222-7111
Transfer Agent, Registrar and Harris Trust and Savings Bank,
Dividend Disbursing Agent Shareholder Services Division
P.O. Box 755, 311 West Monroe-12th Floor
Chicago, Illinois 60690-0755
1-800-344-1198
Canadian Transfer Agent The R-M Trust Company
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario M5C2W9
Canada
1-800-387-0825
Canadian Registrar Montreal Trust Company of Canada
151 Front Street West
Toronto, Ontario M5J 2N1
Canada
(416) 981-9500
Dividend Reinvestment and Harris Trust and Savings Bank, Dividend
Stock Purchase Plan Reinvestment and Stock Purchase Plan
P.O. Box A3309
Chicago, Illinois 60690-9604
1-800-344-1198
Auditors Arthur Andersen & Co.
33 West Monroe
Chicago, Illinois 60603
(312) 580-0033
Shares Listed New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Toronto Stock Exchange
The Stock Exchange, London
Amsterdam Stock Exchange
73
Appendix
Listing of Graphic and Image Material
The graphs included in the 1994 Annual Report to Shareholders incorporated
into this Annual Report on Form 10-K are described on page 24.
EXHIBIT 21
1 OF 2
THE QUAKER OATS COMPANY
ACTIVE DOMESTIC SUBSIDIARIES AS OF 7/1/94
State of
Subsidiary Incorporation
Ardmore Farms, Inc. Pennsylvania
Bob's Farms, Inc. Delaware
Continental Coffee Products Company Delaware
Gaines Pet Foods Corp Delaware
Gatorade Puerto Rico Company Delaware
Golden Grain Company California
Grocery International Holdings, Inc. Delaware
Katy Properties Corporation Delaware
Liqui-Dri Foods, Inc. Kentucky
Pritikin Systems, Inc. Delaware
The Q-Bear Company Delaware
The Q-Ketchikan Company Delaware
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 Corp. U.S. Virgin
Islands
Quaker Oats Holdings, Inc. Delaware
Quaker Oats Music, Inc. Delaware
Richardson Foods Corporation New York
Rockford Farms, Inc. Delaware
Stokely-Van Camp, Inc. Indiana
The Gatorade Company Delaware
Wolf Brand Products Texas
EXHIBIT 21
2 OF 2
THE QUAKER OATS COMPANY
ACTIVE FOREIGN SUBSIDIARIES AS OF 7/1/94
Subsidiary Country
Elaboradora Argentina de Cereales, S.A. Argentina
The Gatorade Company of Australia Pty. Ltd. Australia
EH (Holdings) Limited Bermuda
QUIC Ltd. Bermuda
Quaker Alimentos Ltda. Brazil
Quaker Brasil Ltda. Brazil
The Quaker Oats Compay of Canada Limited Canada
Beverages Gatorade (Chile) Ltda. Chile
Productos Quaker, S.A. Colombia
OTA A/S Denmark
Quaker Oats Limited England
Gatorade Limited England
France Collecte S.A. France
Quaker France S.A. France
Orata GmbH Germany
Partnership Gbr Germany
Quaker Latz GmbH Germany
Quaker Oats Beteiligungsgesellschaft mbH Germany
Quaker & Partner, GmbH Germany
Polis Srl Italy
Quaker-Chiari & Forti S.p.A. Italy
Quaker Products (Malaysia) Sdn. Bhd. Malaysia
Acra, S.A. de C.V. Mexico
Fabrica de Chocolates La Azteca, S.A. de C.V. Mexico
Productos Quaker de Mexico S.A. de C.V. Mexico
B.V. Bijenstand Mellona v/h Joh. de Meza The
Netherlands
Quaker Oats B.V. The
Netherlands
Norsk OTA A/S Norway
Gatorade Portugal Services da Marketing S.A. Portugal
QO Puerto Rico, Inc. Puerto Rico
Quaker Oats Iberia, S.A. Spain
Svenska OTA AB Sweden
Nevex, C.A. Venezuela
Productos Quaker, C.A. Venezuela
Tempus, S.R.L. Venezuela
Inversiones 253-30, C.A. Venezuela
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated August 3, 1994,
included in The Quaker Oats Company annual report to shareholders
for the year ended June 30, 1994, into this Form 10-K and into
the Company's previously filed Registration Statement File Nos.
33-13980, 33-13981, 33-32970, 2-79503 and 33-33253.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 21, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 140
<SECURITIES> 0
<RECEIVABLES> 527
<ALLOWANCES> 18
<INVENTORY> 386
<CURRENT-ASSETS> 1254
<PP&E> 2126
<DEPRECIATION> 912
<TOTAL-ASSETS> 3043
<CURRENT-LIABILITIES> 1259
<BONDS> 760
<COMMON> 420
<PREFERRED-MANDATORY> 0
<PREFERRED> 100
<OTHER-SE> 26
<TOTAL-LIABILITY-AND-EQUITY> 3043
<SALES> 5955
<TOTAL-REVENUES> 5955
<CGS> 2926
<TOTAL-COSTS> 2926
<OTHER-EXPENSES> 135
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 379
<INCOME-TAX> 147
<INCOME-CONTINUING> 232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232
<EPS-PRIMARY> 3.36
<EPS-DILUTED> 3.29
</TABLE>
Exhibit 99
Events (Unaudited) Subsequent to the Date of Auditors'
Report
The following events occurred subsequent to the release of the 1994 Annual
Report to Shareholders.
Litigation
The following paragraph should be read in conjunction with Note 19 to the
consolidated financial statements for the year ended June 30, 1994,
included in this Form 10-K under Exhibit 13.
On September 13, 1994, the Court of Appeals for the Seventh Circuit
rendered
an opinion affirming in part and remanding in part the District Court's
judgment on remand of a $26.5 million monetary award. The Court of Appeals
has affirmed the lower court's award of a reasonable royalty, but has again
remanded the case to allow the District Court to explain the basis for and
calculation of its royalty award. Management, with advice from outside
legal
counsel, has determined that this opinion appears to indicate a range of
exposure between $16 million and $27 million. The Company will record an
amount for this litigation in the first quarter of fiscal 1995. No amount
has
previously been recorded for this matter. The Company will petition the
Seventh Circuit for a rehearing and will consider its other options.
Two-for-one Stock Split-up
On September 14, 1994, the Board of Directors declared a two-for-one stock
split-up, subject to the adoption by shareholders of a proposed charter
amendment which would increase the authorized shares of common stock from
200 million to 400 million. If approved, shareholders of record on
November 9,
1994, will receive an additional share of common stock for each share held
and
all per share information would be retroactively restated. Earnings per
share for fiscal 1994, 1993 and 1992, assuming approval of the authorized
share increase, would have been $1.68, $1.17 and $1.63, respectively.