EXERCISE 11–1 Refer to the financial statements of Quaker Oats Company in Problem 9-6 along with the following footnotes.

SUPPLEMENTARY EXPENSE DATA

($ millions) Year 11 Year 10 Year 9 Advertising, media and production ............................... $ 277.5 $ 282.8 $ 256.5 Merchandising .............................................................. 1,129.9 912.5 886.2 Total advertising and merchandising ....................... $1,407.4 $1,195.3 $1,142.7 Maintenance and repairs .............................................. $ 96.1 $ 96.6 $ 93.8 Depreciation expense .................................................... $ 125.2 $ 103.5 $ 94.5 Research and development ........................................... $ 44.3 $ 43.3 $ 39.3 INTEREST (INCOME) EXPENSE

($ millions) Year 11 Year 10 Year 9 Total interest expense...................................................... $101.9 $120.2 $ 75.9 Total interest income......................................................... (9.0) (11.0) (12.4)

Net interest allocated to discontinued operations............. (6.7) (7.4) (7.1)

Year 11 Year 10 Year 9

% of % of % of Pretax Pretax Pretax

($ millions) Amount Income Amount Income Amount Income Tax provision based on the federal statutory rate ................ $139.9 34.0% $130.0 34.0% $81.3 34.0%

State and local income taxes, net of federal income tax benefit...................... 16.7 4.1 11.9 3.1 7.7 3.2 ANC benefit .................................... — — — — (1.7) (.7)

Repatriation of foreign earnings .... 4.3 1.0 4.8 1.3 (2.1) (.9)

Non-U.S. tax rate differential.......... 8.2 2.0 9.8 2.5 8.8 3.7 U.S. tax credits ............................... (.2) — (.1) — (.7) (.3)

Miscellaneous items—net ............. 6.8 1.6 (2.9) (.8) (3.1) (1.3)

Actual tax provision ....................... $175.7 42.7% $153.5 40.1% $90.2 37.7%

OTHER (INCOME) EXPENSE

($ millions) Year 11 Year 10 Year 9 Foreign exchange (gains) losses—net............................... $ (5.1) $ 25.7 $ 14.8 Amortization of intangibles ................................................ 22.4 22.2 18.2 Losses (gains) from plant closings and operations sold or to be sold—net ................................ 8.8 (23.1) 119.4 Miscellaneous—net........................................................... 6.5 (8.4) (2.8)

Net other expense............................................................... $32.6 $ 16.4 $149.6 Required:

a. Recast Quaker Oats’ income statements through Income from Continuing Operations for Years 11, 10, and 9

(estimate federal income tax at 34%).

b. Interpret trends revealed by the recasted income statements.