Quaker Reports Earnings Per Share of $0.80 for First Quarter, Before Unusual Items, A 4 Percent Increase

Apr 19, 2001, 01:00 ET from The Quaker Oats Company

    CHICAGO, April 19 /PRNewswire/ -- The Quaker Oats Company (NYSE:   OAT)
 today reported  earnings per share of $0.80 for its first quarter ended
 March 31, 2001, excluding unusual items.  This compares to $0.77 per share, on
 the same basis, in the first quarter of 2000, an increase of 4 percent.
     Including unusual items in both years, first-quarter earnings were
 $0.78 per share in 2001, versus one-cent per share in 2000.  Unusual items for
 this year include two cents per share, or $2.4 million, in after-tax
 restructuring charges.  Last year, the Company recorded a net charge of
 $0.76 per share, related to restructuring actions.  (See section entitled
 "Unusual Items" for details.)
     Robert S. Morrison, chairman, president and chief executive officer, said,
 "Earnings for the quarter came in slightly better than our original
 expectations. We're pleased with the increase in earnings, given that we were
 comparing against a very strong base period." He noted that first-quarter
 earnings grew 51 percent and 42 percent in 2000 and 1999, respectively.
     "We're also pleased with revenue growth of 5 percent, led by double-digit
 growth for beverages, hot cereals and grain-based snacks," Morrison said.
 "Importantly, category shares for many of our key U.S. brands rose, including
 Gatorade thirst quencher, Quaker oatmeal, Quaker Chewy granola bars and rice
 snacks, Aunt Jemima products and Pasta Roni."
 
     TOTAL COMPANY
     Operating income for the quarter was $196.5 million, versus $189.3 million
 in the first quarter of 2000, an increase of 4 percent.  Sales in the quarter
 were $1.23 billion, versus $1.17 billion in the year-ago quarter, an increase
 of 5 percent.  Excluding the impact of changes in foreign currency exchange
 rates, sales would have increased 6 percent.
     Total Company volume, as measured in pounds, increased 4 percent in the
 quarter versus the prior year.  Worldwide Beverages reported a 6 percent
 increase, while the Company's Foods business grew 1 percent.
 
     TOTAL FOODS
     Operating income for worldwide Foods was $142.0 million, versus
 $154.0 million in the year-ago quarter.  The 8 percent decrease primarily is
 tied to higher supply chain costs in the quarter. These higher costs reflect
 temporary transition costs associated with the reconfiguration of Quaker's
 North American operations. The Company is transitioning from a five-plant
 cereals manufacturing configuration to a three-plant system. As the transition
 is completed in the second half of 2001, costs are expected to decrease. The
 operating income also was affected by a planned increase in marketing spending
 in the first quarter to support new products. Total Foods sales in the quarter
 were $784.2 million, versus $773.2 million in the year-ago quarter, an
 increase of 1 percent.
 
     Foods: U.S. and Canada
     Operating income for U.S. and Canadian Foods was $129.0 million, versus
 $140.2 million in the year-ago quarter, a decrease of 8 percent.  First-
 quarter sales were $638.7 million, versus $632.8 million last year, a
 1 percent increase.
     Volume for the Foods portfolio increased 1 percent in the first quarter.
 Within the U.S. and Canadian Foods business, hot cereals increased 9 percent,
 grain-based snacks increased 9 percent, mixes and syrups increased 9 percent,
 and flavored rice and pasta increased 3 percent.  Cold cereals volume declined
 8 percent as promotional spending was moderated.
     "Our Foods business is off to a good start," noted Morrison.  "Quaker
 oatmeal had a tremendous winter season, as our new, portable Quaker Instant
 Oatmeal Express and adult flavors -- Cinnamon Roll and Honey Nut -- proved to
 be hits with consumers.  On the snacks side of the business, our product
 innovations continued to ride the wave of the eat-on-the-go trend, as
 we introduced new items, such as Baby Ruth(R) Chewy granola bars, Apple Crisp
 Quaker Fruit & Oatmeal bars and two new flavors of our Gatorade energy bar."
 
     Foods: Latin America, Europe and Asia/Pacific
     Operating income from Quaker's international foods businesses was
 $13.0 million, versus $13.8 million in the year-ago quarter, a decrease of 6
 percent, reflecting the Company's increased marketing investments to support
 its brands in Latin America.  Total sales in the international foods
 businesses were $145.5 million, versus $140.4 million in the year-ago quarter,
 an increase of 4 percent.  Excluding the impact of foreign exchange,
 international foods sales would have increased 12 percent.
     Volume for the Latin American foods business was even with the prior year.
 Volume for European foods rose a strong 14 percent, led by growth in cereals
 and rice snacks.  Volume for Asia/Pacific foods increased 2 percent.
 
     TOTAL BEVERAGES
     Worldwide Beverages operating income was $54.5 million, versus
 $35.3 million in the year-ago quarter, a 54 percent increase.  Operating
 margins for worldwide Beverages expanded to 12.3 percent from 8.8 percent in
 the year-ago quarter.
     U.S. and Canadian Beverages operating income was $46.9 million, versus
 $34.8 million in the year-ago quarter, an increase of 35 percent.  This growth
 was achieved despite a 9 percent increase in marketing spending, primarily
 related to new product and packaging offerings.  Outside the U.S. and Canada,
 Gatorade operating income was $7.6 million compared to $500,000 in the first
 quarter of last year, reflecting solid growth in Latin America.
     Sales for worldwide Beverages were $442.4 million, versus $398.9 million
 for the year-ago quarter, an increase of 11 percent.  U.S. and Canadian sales
 were $353.8 million, versus $318.9 million for the year-ago quarter, an
 increase of 11 percent.  Sales in Latin America grew 14 percent in the
 quarter, while combined sales in Europe and the Asia/Pacific region were
 2 percent below the first quarter a year ago, due to less favorable foreign
 exchange rates in Europe.  Gatorade volume increased in each region-Latin
 America, Europe and Asia/Pacific.
     "Despite difficult year-ago comparisons in North America -- including
 19 percent sales growth in the first quarter of 2000 -- Gatorade again
 delivered strong financial results," said Morrison.  "We consider the first
 quarter the 'off-season' for Gatorade, yet we maintained the solid momentum we
 experienced throughout 2000.  Once again, Gatorade proved itself to be a
 simply remarkable brand.  Product innovation is a key reason.  This year, we
 are building on its consumer appeal with new flavors-Passion Fruit, Starfruit
 and High Tide Gatorade Frost."
 
     UNUSUAL ITEMS
     Unusual items in the first quarter of 2001 totaled $4.0 million pretax
 ($2.4 million after tax), or two cents per share.  This net charge included
 $4.8 million pretax restructuring primarily related to the Company's North
 American supply chain reconfiguration ($2.9 million after tax), or two cents
 per share; and $800,000 in pretax income from an adjustment to prior-period
 restructuring reserves ($500,000 after tax).
     During the first quarter of 2000, Quaker recorded unusual charges totaling
 $173.7 million pretax ($104.2 million after tax), or $0.76 per share,
 primarily related to a major reconfiguration of the Company's North American
 Foods supply chain.  These charges included $56.8 million of pretax
 restructuring charges ($34.1 million after tax), or $0.25 per share, and a
 $120.1 million pretax asset impairment loss ($72.1 million after tax), or
 $0.53 per share.  Partially offsetting these expenses, in the first quarter of
 2000, the Company adjusted its prior-period restructuring reserves, resulting
 in pretax income of $3.2 million ($2.0 million after tax), or two cents per
 share.
 
     FINANCING AND OTHER
     Net financing costs (net interest expense and foreign exchange losses)
 were $14.4 million in the quarter, compared to $15.7 million in 2000.  Net
 foreign exchange losses declined $2.7 million.  Net interest expense increased
 $1.4 million.  Excluding unusual items, the Company's effective tax rate in
 the first quarter was 36.0 percent compared to 36.1 percent in the first
 quarter of 2000.
     The average number of common shares outstanding was 132.0 million,
 compared to 131.4 million a year ago.  The number of shares used to calculate
 diluted earnings per share for the three months ended March 31 was
 138.8 million for 2001 and 136.3 million for 2000.
 
     OUTLOOK
     The Company expects its merger with PepsiCo, Inc. to be completed by the
 end of the second quarter of 2001, subject to PepsiCo and Quaker shareholder
 approvals, U.S. Federal Trade Commission and other regulatory approvals, and
 other customary conditions to closing.
     For 2001, the Company's financial outlook -- as an independent company --
 is unchanged from previous guidance.  For the full year, the Company expects
 to deliver mid-single-digit sales growth, high-single-digit operating income
 growth and low-double-digit earnings-per-share growth.  The Company intends to
 continue its strategy of using cost-savings to help fund brand-building
 activities.
     For the second quarter, the Company expects to achieve mid-single-digit
 sales and operating income growth, which would drive mid-to-high single-digit
 growth in earnings per share.  The Company expects to deliver strong, double-
 digit earnings-per-share growth in the second half of the year.
 
     CONFERENCE CALL:
     At 10:30 a.m. (CT) today, management will host a conference call with
 investors to discuss first-quarter results and the Company's current outlook
 for 2001.  The live presentation is accessible through Quaker's Internet site
 at www.quakeroats.com .  The audio Webcast will be archived on the site.  To
 listen to the Webcast, Web users will need a computer with a sound card and
 speakers, as well as Real Audio software-which can be downloaded through
 www.real.com .
     The Quaker Oats Company is an international marketer of foods and
 beverages.  Its major brands include: Gatorade thirst quencher; Quaker cereals
 and grain-based snacks; Rice-A-Roni, Pasta Roni and Near East side dishes; and
 Aunt Jemima mixes and syrup.
 
     Forward-looking statements, within the meaning of Section 21E of the
 Securities and Exchange Act of 1934, are made in this document. The Company's
 results may differ materially from those suggested by the forward-looking
 statements for a variety of reasons, including actions of competitors; changes
 in laws and regulations (including changes in governmental interpretations of
 regulations and changes in accounting standards); customer and consumer
 demand, including customer and consumer response to marketing; effectiveness
 of spending, investments or programs, including cost reduction projects;
 changes in market prices or rates; fluctuations in the cost and availability
 of supply chain resources; foreign economic conditions, including currency
 rate fluctuations; weather; and the ability of the Company to effect
 manufacturing, distribution and outsourcing initiatives and plant
 consolidations.  Additional expenditures and cash dividends may be affected by
 the amount of cash flow from operating activities. These factors are more
 fully described in the Company's Annual Report on Form 10-K filed with the
 Securities and Exchange Commission. The forward-looking statement in this
 document concerning the Company's proposed merger with PepsiCo, Inc., is
 subject to a number of factors, including: the inability to obtain, or meet
 conditions imposed for, regulatory or governmental approval; customary closing
 conditions; and failure of the Company's or PepsiCo's shareholders to approve
 the merger and related matters.
 
     The Quaker Oats Company press releases are available on the Company's
 Internet web site: www.quakeroats.com .
 
     (R)Baby Ruth is a registered trademark of Nestle, S.A.
 
 
                     THE QUAKER OATS COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                        AND REINVESTED EARNINGS (UNAUDITED)
 
                                   Dollars in Millions (Except Per Share Data)
                                                         Three Months Ended
                                                             March 31,
                                                       2001              2000
 
       Net Sales                                   $1,226.6          $1,172.1
       Cost of goods sold                             549.6             522.9
       Gross profit                                   677.0             649.2
       Selling, general and administrative
        expenses                                      487.7             467.6
       Restructuring charges and asset
        impairments (a)                                 4.0             173.7
       Interest expense                                14.8              13.9
       Interest income                                 (1.3)             (1.8)
       Foreign exchange loss -- net                     0.9               3.6
       Income (loss) before income taxes              170.9              (7.8)
       Provision (benefit) for income
        taxes                                          61.4              (9.6)
       Net Income                                    $109.5              $1.8
       Preferred dividends -- net of tax                1.1               1.1
       Net Income Available for Common               $108.4              $0.7
       Per Common Share:
          Net Income -- basic                         $0.82             $0.01
          Income before unusual charges --
           diluted                                    $0.80             $0.77
          Unusual charges -- diluted (a)              (0.02)            (0.76)
          Net Income -- diluted (b)                   $0.78             $0.01
          Dividends declared                         $0.285            $0.285
       Average Number of Common Shares
        Outstanding
          (in thousands)                            131,952           131,388
       Reinvested Earnings:
          Balance -- beginning of period           $1,061.7            $854.6
          Net income                                  109.5               1.8
          Dividends                                   (38.7)            (38.3)
          Balance -- end of period                 $1,132.5            $818.1
 
       (a)  2001 includes restructuring charges of $4.8 million pretax
            ($2.9 million after tax), or $0.02 per share, and income to
            reduce prior restructuring reserves of $0.8 million pretax
            ($0.5 million after tax), not material per share.  2000 includes
            restructuring charges of $56.8 million pretax ($34.1 million after
            tax), or $0.25 per share; income to reduce prior restructuring
            reserves of $3.2 million pretax ($2.0 million after tax), or
            $0.02 per share; and asset impairment losses of $120.1 million
            pretax ($72.1 million after tax), or $0.53 per share, related to
            the supply chain reconfiguration project.
 
       (b)  2001 adjustments to income and shares for the calculation of
            diluted EPS were approximately $0.5 million and 6.8 million shares,
            respectively.  2000 adjustments to income and shares for the
            calculation of diluted EPS were approximately $0.5 million and
            4.9 million shares, respectively.
 
                      THE QUAKER OATS COMPANY AND SUBSIDIARIES
                        THREE MONTHS NET SALES AND OPERATING
                        INCOME (LOSS) BY SEGMENT (UNAUDITED)
 
                                                            Dollars in Millions
 
                                  Net Sales                Operating
                                                            Income
                                                            (Loss)
                                 Three Months  Percent   Three Months   Percent
                                     Ended        Inc        Ended       (Dec)
                                    March 31,    (Dec)       March 31,    Inc
                                 2001      2000           2001    2000
     Foods:
         U.S. and Canadian     $638.7    $632.8   0.9%  $129.0  $140.2   (8.0%)
         Latin American          87.3      87.4  (0.1%)    4.1     7.6  (46.1%)
         Other (a)               58.2      53.0   9.8%     8.9     6.2   43.5%
     Total Foods               $784.2    $773.2   1.4%  $142.0  $154.0   (7.8%)
 
     Beverages:
         U.S. and Canadian     $353.8    $318.9  10.9%   $46.9   $34.8   34.8%
         Latin American          72.5      63.6  14.0%     9.5     3.1  206.5%
         Other (a)               16.1      16.4  (1.8%)   (1.9)   (2.6)   N/M
     Total Beverages           $442.4    $398.9  10.9%   $54.5   $35.3   54.4%
 
     Total Sales/Operating
      Income                 $1,226.6  $1,172.1   4.6%  $196.5  $189.3    3.8%
 
     Less:    Restructuring
               charges and
               asset
               impairments                                 4.0   173.7
              General
               corporate
               expenses                                    7.2     7.7
              Interest
               expense --
               net                                        13.5    12.1
              Foreign
               exchange loss
               -- net                                      0.9     3.6
 
     Income (loss) before
      income taxes                                      $170.9   $(7.8)
 
     (a) Other includes European and Asia/Pacific results.
 
     N/M = Not Meaningful
 
     CONTACT:  Mark Dollins, Director - Corporate Communications,
 312-222-7399, or Margaret M. Eichman, Vice President - Investor Relations and
 Corporate Affairs, 312-222-7818, both of Quaker Oats Company
 
 

SOURCE The Quaker Oats Company
    CHICAGO, April 19 /PRNewswire/ -- The Quaker Oats Company (NYSE:   OAT)
 today reported  earnings per share of $0.80 for its first quarter ended
 March 31, 2001, excluding unusual items.  This compares to $0.77 per share, on
 the same basis, in the first quarter of 2000, an increase of 4 percent.
     Including unusual items in both years, first-quarter earnings were
 $0.78 per share in 2001, versus one-cent per share in 2000.  Unusual items for
 this year include two cents per share, or $2.4 million, in after-tax
 restructuring charges.  Last year, the Company recorded a net charge of
 $0.76 per share, related to restructuring actions.  (See section entitled
 "Unusual Items" for details.)
     Robert S. Morrison, chairman, president and chief executive officer, said,
 "Earnings for the quarter came in slightly better than our original
 expectations. We're pleased with the increase in earnings, given that we were
 comparing against a very strong base period." He noted that first-quarter
 earnings grew 51 percent and 42 percent in 2000 and 1999, respectively.
     "We're also pleased with revenue growth of 5 percent, led by double-digit
 growth for beverages, hot cereals and grain-based snacks," Morrison said.
 "Importantly, category shares for many of our key U.S. brands rose, including
 Gatorade thirst quencher, Quaker oatmeal, Quaker Chewy granola bars and rice
 snacks, Aunt Jemima products and Pasta Roni."
 
     TOTAL COMPANY
     Operating income for the quarter was $196.5 million, versus $189.3 million
 in the first quarter of 2000, an increase of 4 percent.  Sales in the quarter
 were $1.23 billion, versus $1.17 billion in the year-ago quarter, an increase
 of 5 percent.  Excluding the impact of changes in foreign currency exchange
 rates, sales would have increased 6 percent.
     Total Company volume, as measured in pounds, increased 4 percent in the
 quarter versus the prior year.  Worldwide Beverages reported a 6 percent
 increase, while the Company's Foods business grew 1 percent.
 
     TOTAL FOODS
     Operating income for worldwide Foods was $142.0 million, versus
 $154.0 million in the year-ago quarter.  The 8 percent decrease primarily is
 tied to higher supply chain costs in the quarter. These higher costs reflect
 temporary transition costs associated with the reconfiguration of Quaker's
 North American operations. The Company is transitioning from a five-plant
 cereals manufacturing configuration to a three-plant system. As the transition
 is completed in the second half of 2001, costs are expected to decrease. The
 operating income also was affected by a planned increase in marketing spending
 in the first quarter to support new products. Total Foods sales in the quarter
 were $784.2 million, versus $773.2 million in the year-ago quarter, an
 increase of 1 percent.
 
     Foods: U.S. and Canada
     Operating income for U.S. and Canadian Foods was $129.0 million, versus
 $140.2 million in the year-ago quarter, a decrease of 8 percent.  First-
 quarter sales were $638.7 million, versus $632.8 million last year, a
 1 percent increase.
     Volume for the Foods portfolio increased 1 percent in the first quarter.
 Within the U.S. and Canadian Foods business, hot cereals increased 9 percent,
 grain-based snacks increased 9 percent, mixes and syrups increased 9 percent,
 and flavored rice and pasta increased 3 percent.  Cold cereals volume declined
 8 percent as promotional spending was moderated.
     "Our Foods business is off to a good start," noted Morrison.  "Quaker
 oatmeal had a tremendous winter season, as our new, portable Quaker Instant
 Oatmeal Express and adult flavors -- Cinnamon Roll and Honey Nut -- proved to
 be hits with consumers.  On the snacks side of the business, our product
 innovations continued to ride the wave of the eat-on-the-go trend, as
 we introduced new items, such as Baby Ruth(R) Chewy granola bars, Apple Crisp
 Quaker Fruit & Oatmeal bars and two new flavors of our Gatorade energy bar."
 
     Foods: Latin America, Europe and Asia/Pacific
     Operating income from Quaker's international foods businesses was
 $13.0 million, versus $13.8 million in the year-ago quarter, a decrease of 6
 percent, reflecting the Company's increased marketing investments to support
 its brands in Latin America.  Total sales in the international foods
 businesses were $145.5 million, versus $140.4 million in the year-ago quarter,
 an increase of 4 percent.  Excluding the impact of foreign exchange,
 international foods sales would have increased 12 percent.
     Volume for the Latin American foods business was even with the prior year.
 Volume for European foods rose a strong 14 percent, led by growth in cereals
 and rice snacks.  Volume for Asia/Pacific foods increased 2 percent.
 
     TOTAL BEVERAGES
     Worldwide Beverages operating income was $54.5 million, versus
 $35.3 million in the year-ago quarter, a 54 percent increase.  Operating
 margins for worldwide Beverages expanded to 12.3 percent from 8.8 percent in
 the year-ago quarter.
     U.S. and Canadian Beverages operating income was $46.9 million, versus
 $34.8 million in the year-ago quarter, an increase of 35 percent.  This growth
 was achieved despite a 9 percent increase in marketing spending, primarily
 related to new product and packaging offerings.  Outside the U.S. and Canada,
 Gatorade operating income was $7.6 million compared to $500,000 in the first
 quarter of last year, reflecting solid growth in Latin America.
     Sales for worldwide Beverages were $442.4 million, versus $398.9 million
 for the year-ago quarter, an increase of 11 percent.  U.S. and Canadian sales
 were $353.8 million, versus $318.9 million for the year-ago quarter, an
 increase of 11 percent.  Sales in Latin America grew 14 percent in the
 quarter, while combined sales in Europe and the Asia/Pacific region were
 2 percent below the first quarter a year ago, due to less favorable foreign
 exchange rates in Europe.  Gatorade volume increased in each region-Latin
 America, Europe and Asia/Pacific.
     "Despite difficult year-ago comparisons in North America -- including
 19 percent sales growth in the first quarter of 2000 -- Gatorade again
 delivered strong financial results," said Morrison.  "We consider the first
 quarter the 'off-season' for Gatorade, yet we maintained the solid momentum we
 experienced throughout 2000.  Once again, Gatorade proved itself to be a
 simply remarkable brand.  Product innovation is a key reason.  This year, we
 are building on its consumer appeal with new flavors-Passion Fruit, Starfruit
 and High Tide Gatorade Frost."
 
     UNUSUAL ITEMS
     Unusual items in the first quarter of 2001 totaled $4.0 million pretax
 ($2.4 million after tax), or two cents per share.  This net charge included
 $4.8 million pretax restructuring primarily related to the Company's North
 American supply chain reconfiguration ($2.9 million after tax), or two cents
 per share; and $800,000 in pretax income from an adjustment to prior-period
 restructuring reserves ($500,000 after tax).
     During the first quarter of 2000, Quaker recorded unusual charges totaling
 $173.7 million pretax ($104.2 million after tax), or $0.76 per share,
 primarily related to a major reconfiguration of the Company's North American
 Foods supply chain.  These charges included $56.8 million of pretax
 restructuring charges ($34.1 million after tax), or $0.25 per share, and a
 $120.1 million pretax asset impairment loss ($72.1 million after tax), or
 $0.53 per share.  Partially offsetting these expenses, in the first quarter of
 2000, the Company adjusted its prior-period restructuring reserves, resulting
 in pretax income of $3.2 million ($2.0 million after tax), or two cents per
 share.
 
     FINANCING AND OTHER
     Net financing costs (net interest expense and foreign exchange losses)
 were $14.4 million in the quarter, compared to $15.7 million in 2000.  Net
 foreign exchange losses declined $2.7 million.  Net interest expense increased
 $1.4 million.  Excluding unusual items, the Company's effective tax rate in
 the first quarter was 36.0 percent compared to 36.1 percent in the first
 quarter of 2000.
     The average number of common shares outstanding was 132.0 million,
 compared to 131.4 million a year ago.  The number of shares used to calculate
 diluted earnings per share for the three months ended March 31 was
 138.8 million for 2001 and 136.3 million for 2000.
 
     OUTLOOK
     The Company expects its merger with PepsiCo, Inc. to be completed by the
 end of the second quarter of 2001, subject to PepsiCo and Quaker shareholder
 approvals, U.S. Federal Trade Commission and other regulatory approvals, and
 other customary conditions to closing.
     For 2001, the Company's financial outlook -- as an independent company --
 is unchanged from previous guidance.  For the full year, the Company expects
 to deliver mid-single-digit sales growth, high-single-digit operating income
 growth and low-double-digit earnings-per-share growth.  The Company intends to
 continue its strategy of using cost-savings to help fund brand-building
 activities.
     For the second quarter, the Company expects to achieve mid-single-digit
 sales and operating income growth, which would drive mid-to-high single-digit
 growth in earnings per share.  The Company expects to deliver strong, double-
 digit earnings-per-share growth in the second half of the year.
 
     CONFERENCE CALL:
     At 10:30 a.m. (CT) today, management will host a conference call with
 investors to discuss first-quarter results and the Company's current outlook
 for 2001.  The live presentation is accessible through Quaker's Internet site
 at www.quakeroats.com .  The audio Webcast will be archived on the site.  To
 listen to the Webcast, Web users will need a computer with a sound card and
 speakers, as well as Real Audio software-which can be downloaded through
 www.real.com .
     The Quaker Oats Company is an international marketer of foods and
 beverages.  Its major brands include: Gatorade thirst quencher; Quaker cereals
 and grain-based snacks; Rice-A-Roni, Pasta Roni and Near East side dishes; and
 Aunt Jemima mixes and syrup.
 
     Forward-looking statements, within the meaning of Section 21E of the
 Securities and Exchange Act of 1934, are made in this document. The Company's
 results may differ materially from those suggested by the forward-looking
 statements for a variety of reasons, including actions of competitors; changes
 in laws and regulations (including changes in governmental interpretations of
 regulations and changes in accounting standards); customer and consumer
 demand, including customer and consumer response to marketing; effectiveness
 of spending, investments or programs, including cost reduction projects;
 changes in market prices or rates; fluctuations in the cost and availability
 of supply chain resources; foreign economic conditions, including currency
 rate fluctuations; weather; and the ability of the Company to effect
 manufacturing, distribution and outsourcing initiatives and plant
 consolidations.  Additional expenditures and cash dividends may be affected by
 the amount of cash flow from operating activities. These factors are more
 fully described in the Company's Annual Report on Form 10-K filed with the
 Securities and Exchange Commission. The forward-looking statement in this
 document concerning the Company's proposed merger with PepsiCo, Inc., is
 subject to a number of factors, including: the inability to obtain, or meet
 conditions imposed for, regulatory or governmental approval; customary closing
 conditions; and failure of the Company's or PepsiCo's shareholders to approve
 the merger and related matters.
 
     The Quaker Oats Company press releases are available on the Company's
 Internet web site: www.quakeroats.com .
 
     (R)Baby Ruth is a registered trademark of Nestle, S.A.
 
 
                     THE QUAKER OATS COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                        AND REINVESTED EARNINGS (UNAUDITED)
 
                                   Dollars in Millions (Except Per Share Data)
                                                         Three Months Ended
                                                             March 31,
                                                       2001              2000
 
       Net Sales                                   $1,226.6          $1,172.1
       Cost of goods sold                             549.6             522.9
       Gross profit                                   677.0             649.2
       Selling, general and administrative
        expenses                                      487.7             467.6
       Restructuring charges and asset
        impairments (a)                                 4.0             173.7
       Interest expense                                14.8              13.9
       Interest income                                 (1.3)             (1.8)
       Foreign exchange loss -- net                     0.9               3.6
       Income (loss) before income taxes              170.9              (7.8)
       Provision (benefit) for income
        taxes                                          61.4              (9.6)
       Net Income                                    $109.5              $1.8
       Preferred dividends -- net of tax                1.1               1.1
       Net Income Available for Common               $108.4              $0.7
       Per Common Share:
          Net Income -- basic                         $0.82             $0.01
          Income before unusual charges --
           diluted                                    $0.80             $0.77
          Unusual charges -- diluted (a)              (0.02)            (0.76)
          Net Income -- diluted (b)                   $0.78             $0.01
          Dividends declared                         $0.285            $0.285
       Average Number of Common Shares
        Outstanding
          (in thousands)                            131,952           131,388
       Reinvested Earnings:
          Balance -- beginning of period           $1,061.7            $854.6
          Net income                                  109.5               1.8
          Dividends                                   (38.7)            (38.3)
          Balance -- end of period                 $1,132.5            $818.1
 
       (a)  2001 includes restructuring charges of $4.8 million pretax
            ($2.9 million after tax), or $0.02 per share, and income to
            reduce prior restructuring reserves of $0.8 million pretax
            ($0.5 million after tax), not material per share.  2000 includes
            restructuring charges of $56.8 million pretax ($34.1 million after
            tax), or $0.25 per share; income to reduce prior restructuring
            reserves of $3.2 million pretax ($2.0 million after tax), or
            $0.02 per share; and asset impairment losses of $120.1 million
            pretax ($72.1 million after tax), or $0.53 per share, related to
            the supply chain reconfiguration project.
 
       (b)  2001 adjustments to income and shares for the calculation of
            diluted EPS were approximately $0.5 million and 6.8 million shares,
            respectively.  2000 adjustments to income and shares for the
            calculation of diluted EPS were approximately $0.5 million and
            4.9 million shares, respectively.
 
                      THE QUAKER OATS COMPANY AND SUBSIDIARIES
                        THREE MONTHS NET SALES AND OPERATING
                        INCOME (LOSS) BY SEGMENT (UNAUDITED)
 
                                                            Dollars in Millions
 
                                  Net Sales                Operating
                                                            Income
                                                            (Loss)
                                 Three Months  Percent   Three Months   Percent
                                     Ended        Inc        Ended       (Dec)
                                    March 31,    (Dec)       March 31,    Inc
                                 2001      2000           2001    2000
     Foods:
         U.S. and Canadian     $638.7    $632.8   0.9%  $129.0  $140.2   (8.0%)
         Latin American          87.3      87.4  (0.1%)    4.1     7.6  (46.1%)
         Other (a)               58.2      53.0   9.8%     8.9     6.2   43.5%
     Total Foods               $784.2    $773.2   1.4%  $142.0  $154.0   (7.8%)
 
     Beverages:
         U.S. and Canadian     $353.8    $318.9  10.9%   $46.9   $34.8   34.8%
         Latin American          72.5      63.6  14.0%     9.5     3.1  206.5%
         Other (a)               16.1      16.4  (1.8%)   (1.9)   (2.6)   N/M
     Total Beverages           $442.4    $398.9  10.9%   $54.5   $35.3   54.4%
 
     Total Sales/Operating
      Income                 $1,226.6  $1,172.1   4.6%  $196.5  $189.3    3.8%
 
     Less:    Restructuring
               charges and
               asset
               impairments                                 4.0   173.7
              General
               corporate
               expenses                                    7.2     7.7
              Interest
               expense --
               net                                        13.5    12.1
              Foreign
               exchange loss
               -- net                                      0.9     3.6
 
     Income (loss) before
      income taxes                                      $170.9   $(7.8)
 
     (a) Other includes European and Asia/Pacific results.
 
     N/M = Not Meaningful
 
     CONTACT:  Mark Dollins, Director - Corporate Communications,
 312-222-7399, or Margaret M. Eichman, Vice President - Investor Relations and
 Corporate Affairs, 312-222-7818, both of Quaker Oats Company
 
 SOURCE  The Quaker Oats Company

RELATED LINKS

http://www.quakeroats.com