Recasting of the Income Statement "Quarker Oats Company"

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

SUPPLEMENTARY EXPENSE DATA

($ millions) Year 11Year 10 Year 9

Advertising, media, and production $277.5 $282.8 $256.5

Merchandising1,129.9912.5 886.2

Total Advertising and merchandising 1,407.4 1,195.3 1,142.7

Maintainance 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

(S Million) 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

(S Million)Amount% Pretax IncomeAmount% Pretax Inc. Amount% Pretax Inc.

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 Earnings4.3 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

itemsnet 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

(S Million) Year 11 Year 10 Year 9

Foreign exchange (gains) lossesnet $ (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 soldnet 8.8(23.1) 119.4 Miscellaneousnet 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.

CHECK Recast cont. income Years 11-9, $252.7, $224.5, $126.8

This problem taken from The Book of Financial Statement Analysis by K.R. Subramanyam Eleventh Edition Chapter 11 Equity Analysis and Valuation Problem 11.1-Page 642.