Excerpts from the June 30, 1994 balance sheet of The Quaker Oats Company are provided below (dollars in millions). (Working capital, debt covenants, and 1994 1993 1992 restrictions on management decisions) Current assets: Cash and short-term investments $ 140.4 $ 61.0 $ 95.2 Receivables 509.4 478.9 575.3 Inventories 385.5 354.0 435.3 Other current assets 218.3 173.7 150.4 Current liabilities 1,259.1 1,105.1 1,087.5 REQUIRED:

a. The notes to the company’s 1992 financial statements state that “under the most restric¬ tive terms of the various loan agreements . . . minimum working capital of $150 million must be maintained.” Compute how close The Quaker Oats Company came to this restric¬ tion at the end of 1992, and discuss what has happened since that time.

b. In Quaker Oats’ 1994 annual report, it states “under the most restrictive terms of the Revolving Credit Agreements, the company must maintain total shareholders’ equity greater than $300 million.” Comment on possible explanations for the changing restrictions