Week 14L discussion board Essay Example | Topics and Well Written Essays - 250 words

Week 14L discussion board - Essay Example For instance, the bureaucratic structure makes it difficult to get things done fast and efficiently. More often than not, information processing stops at some structural levels until clearance is given. Such deficiencies occur due to inefficiencies in some of the information processing levels. For instance, an absentee manager would cap all the information passing through their desk until they are available. All organizations depending on information processing systems to provide services to people are our competitors. However, there has been a remarkable change in information processing system in our company for the last several years. Most notable, many operations have shifted from technical dependency to software dependency systems. For instance, customer assistance systems use software technology answering machines as opposed to the customer service representative mode of operation. Considering most of the technological changes come with laying-down of some employees as they are replaced with efficient systems, fear would be the most form resistance from employees. They would resist the change in fear of losing their jobs. This can be dealt with by proper communication and affirmation that no jobs will be lost. Actually, the changes can come with a small pay increase as an assurance. Organizational culture is manageable to the extent in which all the stakeholders are willing to cooperate. If changes are done rapidly and inefficiently, more resistance is expected. However, with the right approach, organizational culture is

Early Post Partum Haemorrhage Essay Example | Topics and Well Written Essays - 2000 words

Early Post Partum Haemorrhage - Essay Example She was having one of the most serious complications of pregnancy known as post-partum hemorrhage(PPH). According to the Centers for Disease Control and Prevention (2006), hemorrhage, blood clot, high blood pressure, infection, stroke, amniotic fluid in the bloodstream and heart muscle disease are the leading causes of pregnancy-related deaths which sums up to 2-3 pregnancy-related deaths each day. Although deaths due to pregnancy complications have dramatically declined during the period of 1900-1982, the number of cases has ceased to show any decrease since then, which raises so much concern for the women of child bearing age. Furthermore, there seem to be a link between a woman’s race, ethnicity, country of birth, and age and her risk of dying of pregnancy complications. For example, African American women are four times as prone to pregnancy-related deaths as white women, and that, women aged 35-39 are three times at greater risk than women aged 20-24 years old. The risk goes up to five times for a woman aged 40 and above. Post-partum hemorrhage accounts for a high 17% of m ortality in women, and a case such as this would require a nurse/midwife with the proper knowledge and skills to address the situation and save the mother from an otherwise life-threatening situation. This paper is aimed at exploring the guidelines in the management of early post-partum hemorrhage and the treatments available for such condition. A woman in labor undergoes three different stages. The first stage is dilatation. It begins with the period of true labor contractions and ends with when the cervix is fully dilated. The first stage is further divided into three phases: the latent, the active and the transition phases. A regularly perceived uterine contraction marks the beginning of the latent phase. It ends when the rapid dilation of the cervix begins. In the active phase of labor, the cervix dilates

Airasia Berhad Strategy Analysis

Airasia Berhad Strategy Analysis Introduction AirAsia Berhad (AirAsia) is the leading low cost airlines in South East Asia, which has expanded rapidly since 2001. The company is based in Kuala Lumpur, Malaysia and has successfully positioned itself in customers mind through the simple slogan â€Å"Now Everyone Can Fly†. The company is currently valued at approximately RM2.7 billion and has a total of 60 aircrafts that fly to over 50 domestic and international destinations with over 400 domestic and international flights daily (Euromonitor International, 2009). The operation for the short and long haul are handled by AirAsia and its sister company, AirAsia X Sdn Bhd (AirAsia X) respectively (AirAsia, 2009). AirAsia aims to establish itself as a leading low cost carrier in market by valuing its customers through cost advantages created by operational effectiveness and efficiency. More customers are able to fly taking into consideration the low fare charges as AirAsia capture segments of customers that previously could not afford the airlines fare. Whether the strategy exploits the companys key resources Each organisation is unique in terms of it resources and capabilities and the key to success merely depend on its ability to find or create a competence that is distinctive (Teece, Pisano and Shuen, 1997). The Resource Based View (RBV) combines two perspectives, the internal analysis of phenomena within an organisation and an external analysis of the industry and its competitive environment (Eisenhardt and Martin, 2000) and (Collis and Montgomery, 1995). It goes beyond the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis by integrating internal and external perspectives. The ability of an organisations resources to present competitive advantages could not be determine without taking into considerations the broader competitive concept. Barney (1995) indicated that organisations resources and capabilities must be evaluated in terms of value, rarity, inimitability and organisation. Furthermore, Carpenter and Sanders (2009) suggested that in order for a company to gain co mpetitive advantage, they should possess resources and capabilities that are valuable, rare, inimitable, nonsubstitutable and exploitable (VRINE model). The value of the resources and capabilities interacts with the market sources and will differ based on time and industry. The three fundamental market forces; scarcity, demand and appropriability determines the value of a resources and capabilities (Collis and Montgomery, 1995). In order to answer the question of value, organisation could identify whether the resources and capabilities are able to meet market demand. As for AirAsia, the organisation relies on its human resources and management capabilities wherein these two components have satisfied the value requirement, as it has been able to meet the demand for the Low Cost Carrier (LCC) market. Resources and capabilities owned by AirAsia are homogenous in the market but aspect such as work culture and innovative routes make it difference from the competitors. For example, any ideas to improve the operations are welcome from all level of employees and in terms of route, AirAsia try penetrate new routes and will go to locations that others given up. In RBV concept, AirAsia can be characterised as a competitive parity company based on its valuable but not rare resources and capabilities. In airline industry, things like aircraft and fast turnaround time are easily imitated by others. Nevertheless, one of AirAsias distinct characteristic is path dependency wherein a characteristic of capabilities is developed and accumulated through a series of time (Dess, Lumpkin and Eisner, 2008). AirAsias work culture of openness between employees as well as the leadership from its Chief Executive Officer is something have been built up over a period of time which is difficult to duplicate. Moreover, the high capital requirement for market entry is another factor that leads to difficulty to imitate the resources and capabilities. It is undeniable that competitors can imitate the said resources and capability, however, it will take time and in the meantime, AirAsia will gain the competitive advantages. Controlling and exploiting the resources and capabilities provides competitive advantages to the organisations (Carpenter and Sanders, 2009). AirAsia has exploited it resources and capabilities, which is reflected in their financial performance. AirAsia has gradually increased its performance throughout the years. AirAsias s net profit for the 3rd quarter of 2009 totalled RM130 million ($38.4 million) which is sustained by rising passenger numbers and income from add-on services. The profit achieved was a turnaround from a RM466 million ($137 million) net loss in the same period last year (www.airasia.com). The fit of the strategy to current industry conditions The competitive environment consists of many factors that are particularly relevant to an organisations strategy. Analysing the external environment particularly the industry is a starting point for firms to develop a strategy. Porters five forces include the overall structure rather than focusing to any one element. However, the forces are not stagnant which tendency to change may occur. AirAsia operates within the airline industry and forces that are driven in the industry would identify the strength and weaknesses of the organisation. Rivalry among established companies Risk of entry by potential competitors Bargaining power of buyers Bargaining power of suppliers Substitute Products High Due to market growth High Full service airline might want to consider going low cost Low Price is at the cheapest. Low Limited provider in the market. Low There is competition train, bus, car travel etc There is potential market in the Asia for LCC due to the rapid economic and disposable incomes growth. This seems to be a profitable opportunity to tap. Infrastructure such as high-speed trains and highways has yet to meet the high standard level and therefore customers tend to choose the air as mode of transportation. Hence, threats of substitutes are low as the geographical structure of Asia has made air travel the viable, efficient and convenient mode of transportation. Looking into this scenario, AirAsia entered the airline industry concentrating on the LCC and noted that at the initial stage there were less rivalry but as the industry grows, the rivalry among established firms become higher partly due to price issues. AirAsias main competitors are Firefly, Tiger Airways and Jetstar Asia. Knowing the increase of competition in the market, AirAsia applied the adaptation process (Hanan Freeman, 1984) by expanding its operation to long haul services to various destinations. Moreove r, AirAsia realise the price is destructive and try to avoid direct price competition and try to create a friendly competition environment. As there is positive trend in the airline industry, full service airline carriers have refocused its operation related to costs and yields as it is seen as a requirement to maintain profitability (Graham and Vowles, 2006). There is possibility of new entrance of LCC, which creates further competition in the industry.For example, Firefly was set up by Malaysia Airline System Berhad (MAS) is a part of LCC industry in Malaysia that has adapted AirAsias low cost concept. However, it would not be a threat to AirAsia as Hanan Freeman (1984) highlighted it is difficult to imitate as tacit amount of knowledge is required on the targeted firm. The government barriers air service agreement and high capital requirement could act as barriers to entry. Due to significant growth within the industry, demand for additional aircraft has increased and suppliers will be in a powerful position. It was reported that Asia accounts for 40% of new aircraft orders for Boeing and Airbus and seat capacity on LCC worldwide has more than doubled in the past four years (Shameem, 2006). Due to few players, Boeing and Airbus, and lack of competition in the market, the bargaining power of suppliers are low. Consequently, there is not much competition in terms of pricing occurring between the two companies so an airline carrier will have to accept an offer from one of the suppliers. The bargaining power for buyers is low as there is no room to bargain for cheaper tickets as AirAsia provides the lowest price compared to other carriers. The biggest threats for AirAsia are the rivalry and risk of entry with the existing and potential competitors. LCC business is viable and there is healthy profitability provided AirAsia continuously improves itself and is flexible in the challenging market. The sustainability of the differentiators Porter (1996) indicated that to outperform rivals, an organisation need to deliver greater value to customers and build comparative value at a lower cost. The airline industry is at the growing stage and therefore stiff competition from existing and new LCC is expected in the future. In order to sustain its competitive advantage, AirAsia needs to leverage its competency in creating cost advantages. At present, AirAsia differentiates by providing substantially low fares with no frills concept and by offering innovative routes. Murray (1988) indicated that there is uncertainty for sustainable differentiation to be achieved through product innovation and suggested that the area that could be concentrated for the said differentiation is quality and service. While,Porter (1996) highlighted that positioning are successful based on activity system and simple consistency between each activity aligning with the organisation strategy. AirAsia builds it brand name by providing a good quality service at a low price. Furthermore, AirAsia focuses on branding through campaign and advertisement such as recent sponsorship deal with an American football team, Oakland Riders. During inception, AirAsia focused on internal destinations and have further entered the international destinations. AirAsia X is differentiated by its long haul LCC as customers would not need to look at different carriers to reach different destinations at a lowest price. It is based on the same no frills service model wherein the price is 80% lower than its competitor together with additional services that requires customer to pay additional payment such as food, entertainment and others. AirAsia also seek to create excitement amongst their customers with the range of innovative and personalized service such as self check-in. Customer loyalty is build by the differentiation, which could act as a defence against rivalry (Eng, 1994). Due to AirAsias success in the industry, competitor might want to adapt the companys business model. However, AirAsia had some advantages over its competitors by the advantage of experience and its brand enjoyed good recognition. AirAsia gain from the first mover advantage in South East Asia which allows it to establish itself before competition perceive further in this low cost segment, apart from competition that already exists across segments (low cost vs. full service carriers). AirAsia has the strength to lay down the rules and framework in the industry for business and operational suitability. Whether the elements of the strategy are consistent and aligned with the strategic position Strategy works as a driver in a firm in achieving goals and objectives (Carpenter and Sanders, 2009). AirAsias five strategy elements are as follows: Arenas (where will be active and with how much emphasis) * Low cost airline.  · specific markets-price sensitive customers (including first-time fliers) * Main base is located at the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Its affiliate airlines, Thai AirAsia and Indonesia AirAsia fly from Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively. Vehicles (How to get there?) * Internal development via new routes. * Strategic partnership. Differentiators (How to win?) * Low cost short and long haul with no-frills. Customers have the choice of customizing services without compromising on quality and services. * Create new segment in airline travel based on value and service. Staging and Pacing (what will the speed and sequence of moves?) * AirAsia flies to over 60 domestic and international destinations with 50 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia. * AirAsia has flown over 55 million guests across the region and continues to spread its wings to create more extensive route network through its associate companies, Thai AirAsia and Indonesia AirAsia. Economic Logic (How do returns be obtained?) * Low operation cost through flying with one type of aircraft, uses secondary airport locations etc. * Low cost incentive with various choices of destinations. Porter (1996) presented three generic strategies that an organisation could use to overcome the five forces and achieve competitive advantage. Adopting a suitable strategy depends on the organisations industry, customer characteristics and capabilities (Murray ,1988) and (Eng ,1993). However. In the LCC segment, cost is the competitive priority and it determines market position. In lieu of this, AirAsia has applied the focused cost leadership strategy wherein it targets on specific markets; price sensitive customers as well as lowering its overall costs (Flouris and Walker, 2005). Murray (1988) disagrees that cost structure is vital in relation to the output performance compared to the price sensitivity. Factors such as economy of scale and quality of management teams within the organization could be the benchmark for cost leadership. Under the cost leadership strategy, level of operation efficiency is vital as it assist in achieving cost advantages than the rivals by searching continuous areas for cost reduction along its value chain that leads to economies of scale (Eng, 1993). AirAsia increases its efficiency through increased route network and its operating activities by adapting cost optimising techniques such as quick turnaround times and maximizing of flight utilisation for its aircrafts (Shari, 2003). AirAsia took advantage from the existence of e-commerce which is easier technique in providing information. The cost related to web is very low compared to other methods like advertisement on television. AirAsia has taken advantage from this method to reduce the cost of operations. Malaysia government has supported AirAsia through the opening of the LCC terminal in Kuala Lumpur International Airport, which enhanced its competitive edge by reducing costs and better logistic planning (Euromonitor International, 2009). Competitors tend to know how big the market is and how good the opportunity is in Asia. Therefore, there is threat by competitors, which could imitate AirAsias low cost base. Most of the competitors have the same concept of no frills and low price strategy and will continuously try to reduce its costs than AirAsia in order to gain sustainability in the market. The challenge for AirAsia is to reduce cost effectively which is difficult for the competitors to copy. Possible issues associated with implementation Strategy formulation and implementation are interdependent with the objectives being a coherent set of strategy elements and implement levers (Carpenter and Sanders, 2009). In order to succeed in the LCC segment, AirAsia will need to maintain its low cost elements in their business design, as it is critical to the long-term success. The main reason is because the more gaps arise between the competiting airlines, the more flexibility will be available to offer lower price and gain market share. An extended route system will most certainly be a key differentiator and to sustain its competitive advantages, resources and capabilities need to be analysed further. With the growth in the LCC, it will create opportunity to others to enter the market. Competition between carriers using the same business model will inevitably be intense. There were studies resulting that adapting one or more forms of generic strategy will enable organisation to outperform better (Murray, 1988). However, Eng (1993) indicated that Porter discouraged organisations to combine the said strategies as it is inconsistent as for example differentiation is related to cost. One of the major pitfalls against attempting to differentiate is by trying to combine low cost and differentiation strategy by starting to add frills in its business model. By applying this strategy, carriers have lost their source of competitive advantage by narrowing the strategic cost gap. Every frill or service adds to cost and reduced the strategic cost gap, thus curbing the flexibility to offer innovative price deals. Around the world, it has been observed that low cost airlines pursuing a generic b usiness design have emerged as the most successful. Conclusion AirAsias success is based on the no-frills, low fare, simple and convenient option air travel. The company has managed to deliver low fares by consistently keeping cost low through high efficiency in every art of the business and maintaining simplicity. The company has indicated that synergies between the internal and external factors could develop a competitive advantage. This has allowed AirAsia to position and be the market leader for LCC in South East Asia. The brand name is a major strength to AirAsia wherein a lot of effort is being done. For example, initially when considering to enter the UK market, the company has collaborated with Manchester United and later with referees of Football Association of England. At the moment, they also collaborated with a giant American football club, Oakland Riders to create brand awareness for the local public in order for them to enter the USA market in the future. Bibliography AirAsia offers a new take on the long haul, low cost airline sector (February 2009) Euromonitor International. (assessed on December 2, 2009) Barney J.B. (1995) Looking Inside for Competitive Advantage Academy of Management Executive. 9(4): pp. 49-61 Carpenter, M.A., Sanders W.G. (2009) Strategic Management: A Dynamic Perspective Concepts and Cases Edition. 2nd Edition. New Jersey: Pearson International Edition Collis, D. J.,Montgomery, C. A. (1995) Competing on Resources Harvard Business Review. pp. 118-128 Dess, G.G., Lumpkin, G.T., Alan, B.E. (2008) Strategic Management. 4th Edition. New York: McGraw-Hill Irwin. Eisenthardt, K., Martin, J.A. (2000) Dynamic Capabilities: What Are They? Strategic Management Journal. 21: pp. 1105-1121 Eng, L.G. (2003) Using Generic Strategies: Some Caveats Singapore Management Review. 15(2) : pp. 43-48 Flouris T., Walker T.J., (2005) The Financial Performance of Low Cost and Full Service Airlines in Times of Crisis Canadian Journal Administrative Sciences. 22(1) : pp. 3-20 Hanan M.T., Freeman J. (1984) Structural Inertia and Organisational Change American Sociology Review. 49(2): pp. 149-164 Local Company Profile: AirAsia Sdn Bhd-Travel and Tourism-Malaysia (October 2009) Euromonitor International. (assessed on December 1, 2009) Murray A.I. (1988) A Contingency View of Porters â€Å"Generic Strategies† The Academy of Management Review. 13(3) : pp. 390-400 Graham B., Vowles T.M. (2006) Carriers within Carriers: A Strategic Response to Low-Cost Airline Competition Transport Reviews.: pp. 105-126 Porter M.E. (1996), What is Strategy Harvard Business School. pp. 61-78 Shameem A. (September 26, 2006), AirAsia Taked Flights on Low Cost Carriers Business Week (Online) Available from http://www.businessweek.com/globalbiz/content/sep2006/gb20060929_437421.html (assess on December 2, 2009) Shari M. (September 1, 2003) A Discount Carrier Spread its Wings Business Week (Online), Available from: http://www.businessweek.com/magazine/content/03_35/b3847132_mz033.htm (assessed on December 2, 2009) Teece, D.J., Pisano G., Shuen, Amy (1997) Dynamic Capabilities and Strategic Management Strategic Management Journal. 18(7): pp. 509-533 www.airasia.com (assess on November 12, 2009)

Characterization within the Drama Hamlet Essay -- Shakespeare Hamlet E

Characterization within the Drama Hamlet  Ã‚        Ã‚   The purpose of this essay is to enlighten the reader regarding the characters in Shakespeare’s tragedy Hamlet – whether they are three-dimensional or two-dimensional, dynamic or static, etc.    The genius of the Bard is revealed in his characterization. Brian Wilkie and James Hurt in Literature of the Western World examine the universal appeal of   Shakespeare resulting from his â€Å"sharply etched characters†:    Every age from Shakespeare’s time to the present has found something different in him to admire. All ages, however, have recognized his supreme skill in inventing sharply etched characters; it frequently happens that long after one has forgotten the exact story of a play one remembers its people with absolute vividness. (2155-56)    Louis B. Wright and Virginia A. LaMar in â€Å"Hamlet: A Man Who Thinks Before He Acts† comment on the propensity of the Bard for well-rounded characters in Hamlet: â€Å"We feel that they are living beings with problems that are perennially human† (62).    Hamlet has over 20 characters with speaking roles; in occupations from king to grave-digger; and in 20 different scenes; and with a differentiation in speech, actions, etc. between every single individual character. Where else can such great variety in characterization be found? This aspect of the dramatist is emphasized by Robert B. Heilman in â€Å"The Role We Give Shakespeare†; he says that this variety is â€Å"graspable and possessable to many men at odds with each other, because of the innumerableness of the parts† (10).    The play begins with the changing of the sentinels on a guard platform of the castle of Elsinore in Denmark. Recently the spectral likeness of dead ... ...e.† Essays on Shakespeare. Ed. Gerald Chapman. Princeton, NJ: Princeton University Press, 1965.    Levin, Harry. General Introduction. The Riverside Shakespeare. Ed. G. Blakemore Evans. Boston: Houghton Mifflin Co., 1974.    Shakespeare, William. The Tragedy of Hamlet, Prince of Denmark. Massachusetts Institute of Technology. 1995. http://www.chemicool.com/Shakespeare/hamlet/full.html No line nos.    Wilkie, Brian and James Hurt. â€Å"Shakespeare.† Literature of the Western World. Ed. Brian Wilkie and James Hurt. New York: Macmillan Publishing Co., 1992.    Wright, Louis B. and Virginia A. LaMar. â€Å"Hamlet: A Man Who Thinks Before He Acts.† Readings on Hamlet. Ed. Don Nardo. San Diego: Greenhaven Press, 1999. Rpt. from The Tragedy of Hamlet, Prince of Denmark. Ed. Louis B. Wright and Virginia A. LaMar. N. p.: Pocket Books, 1958.         

Pepsi Cola

9-801-458 REV. OCTOBER 24, 2008 CARLISS Y. BALDWIN LEONID SOUDAKOV PepsiCo's Bid for Quaker Oats (A) Introduction By the end of 1999, following a multi-year restructuring effort, PepsiCo had once again become one of the most successful consumer products companies in the world. In less than four years, it had achieved an 80% increase in net income, on 30% lower sales, and with 75% fewer employees. Exhibits 1 through 3 contain the company’s recent financial statements. PepsiCo’s major subsidiaries were the Pepsi-Cola Company, which was the world’s second largest refreshment beverage company, Frito-Lay, Inc. the world’s largest manufacturer and distributor of snack chips, and Tropicana Products, the largest marketer of branded juices. PepsiCo’s leading brands included carbonated soft drinks (Pepsi, Diet Pepsi and Mountain Dew), AquaFina bottled water, Tropicana juices and juice-based drinks, Lipton tea-based beverages and Frappucino ice coffee, as well as Fritos and Doritos corn chips, Lay’s and Ruffles potato chips, and Rold Gold pretzels. Throughout 1999, PepsiCo was closely tracking several potential strategic acquisitions. In the fall of 2000, it appeared that the right moment for an equity-financed acquisition had arrived.At this time, PepsiCo management decided to initiate confidential discussions with The Quaker Oats Company about a potential business combination. Gatorade, a key brand in Quaker’s portfolio, had long been on PepsiCo’s wish list. On October 5, 2000, an investment-banking team from Merrill Lynch met with the top executives of PepsiCo to discuss a possible business combination between PepsiCo and Quaker. The goals of the meeting were: †¢ to assess the value of Quaker’s businesses; to estimate potential synergies associated with a Pepsi-Quaker merger; and to come up with an effective negotiation strategy. †¢ PepsiCo executives were confident that Quaker’s beverage a nd snack food businesses could contribute to Pepsi’s profitable growth in convenience foods and beverages. However, PepsiCo’s managers, led by CEO Roger Enrico and CFO Indra Nooyi, were committed to upholding the value of PepsiCo’s shares, and as a result, they were determined not to pay too much for Quaker. ________________________________________________________________________________________________________________ Leonid Soudakov (MBA ‘01) prepared this case from published sources under the supervision of Professor Carliss Y.Baldwin. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright  © 2001, 2002, 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to htt p://www. hbsp. harvard. edu.No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 801-458 PepsiCo’s Bid for Quaker Oats (A) PepsiCo’s Origins and History In the summer of 1898 Caleb D. Bradham, a young pharmacist from North Carolina, looked for a name that would better describe the â€Å"Brad’s Drink,† his concoction of carbonated water, sugar, vanilla and kola nuts.He decided to buy the name â€Å"Pep Kola† from the local competitor, which he later changed to Pepsi-Cola, maintaining that the beverage aided in curing dyspepsia, or indigestion. In 1902, Bradham applied for federal trademark protection and founded the first Pepsi-Cola Company. As a result of Bradham’s gambling on the post-World War I price of sugar, the company wen t bankrupt in 1923, and its assets were sold for $30,000. It was reorganized as the National Pepsi-Cola Company in 1928, only to go bankrupt again three years later. Emerging from bankruptcy with new owners, the company’s fortunes changed uddenly in 1934. That year, in the middle of the Great Depression, it introduced a 12-ounce bottle of Pepsi Cola for â€Å"just a nickel. † Its sales soared, and the Pepsi-Cola Company embarked on six decades of sustained and profitable growth. In 1965, the company merged with the Texas-based snack manufacturer, Frito-Lay, Inc. In 1970, its total food and beverage sales passed the $1 billion mark. The major products in its portfolio at this time were Pepsi-Cola, Diet Pepsi and Mountain Dew beverages, plus Fritos, Lay’s, Ruffles, Doritos, Cheetos, and Rold Gold snacks.The company, now called PepsiCo, continued to grow through the 1970s and 1980s. During this period, it used acquisitions to diversify out of its profitable, but re latively slow-growth beverage and snack businesses, acquiring North American Van Lines, a trucking company, in 1968; Wilson Sporting Goods in 1970; Pizza Hut restaurants in 1977; and the Taco Bell fast food chain in 1978. In 1984, PepsiCo was restructured to focus on soft drinks, snacks and restaurants, and the transportation and sporting goods businesses were sold.To strengthen its restaurant division, PepsiCo acquired Kentucky Fried Chicken in 1986; purchased an equity interest in California Pizza Kitchen in 1992; and acquired East Side Mario’s Restaurants and D’Angelo Sandwich Shops a year later. By 1995, PepsiCo sales had reached $30 billion, and it had 470,000 employees worldwide. It was the world’s third largest employer. Restructuring in the Mid-1990s In the mid-1990s, PepsiCo began to encounter severe problems in its international bottling operations and in its restaurant division.In August of 1996, PepsiCo’s long-time archrival, The CocaCola Comp any, bought Pepsi’s largest Venezuelan bottler, and PepsiCo was left with no presence in that market practically overnight. In Brazil and Argentina, a bottler jointly owned by PepsiCo and local investors, came close to bankruptcy. The bottler’s debts were converted into equity, a move that essentially eradicated Pepsi’s claim: PepsiCo reported a one-time loss of $576 million as a result of this restructuring. Simultaneously, the company suffered volume and profit declines in its restaurant businesses.Between 1988 to 1994, PepsiCo had invested close to $7 billion to acquire thousands of fast food and casual dining outlets. But the operational complexity of these businesses was a tax on PepsiCo’s management. Moreover, because of their capital intensity, even profitable restaurant chains could not maintain high returns on invested capital without commensurately high levels of debt. Finally, PepsiCo’s beverage sales to other restaurant chains suffered because of the company’s dual role as a beverage supplier and a major competitor through its own fast food chains. 2PepsiCo’s Bid for Quaker Oats (A) 801-458 In April 1996, Roger Enrico, formerly the head of the Frito-Lay division, became the CEO of PepsiCo. He acknowledged that the company had invested â€Å"too much money too fast, trying to achieve heroic overnight success where, in retrospect, the odds were tougher that they seemed. †1 In the restaurant division, Enrico’s team began by divesting PepsiCo’s restaurant supply and distribution company and the smaller casual dining businesses. Simultaneously, the company announced plans to spin off its core restaurant businesses into a separate company.In 1997, PepsiCo combined its three restaurant businesses, Pizza Hut, KFC and Taco Bell, into a new corporate entity, Tricon Global Restaurants. PepsiCo received $4. 5 billion in cash from Tricon as repayment of certain amounts due and a dividend; Tri con’s shares were then distributed to PepsiCo’s shareholders, and simultaneously listed on the NYSE. These moves created a new public company, with $10 billion in sales and a market capitalization of $4. 5 billion. Altogether, the divestitures of the restaurant businesses brought $5. 5 billion of cash proceeds to PepsiCo.At the same time, PepsiCo’s managers embarked on a major restructuring of the international beverage division. The goals of the program were to lower fixed costs, write down underperforming assets, and divest noncore businesses. Following the lead of Coca-Cola, the company consolidated its previously dispersed bottling operations into the hands of a few large, well capitalized â€Å"anchor† bottlers, who were focused solely on manufacturing, selling and distributing Pepsi’s line of beverages. The new bottlers were designed to be counterweights to large retailers, like Wal-Mart and Carrefour, in the rapidly consolidating retail mark etplace.Thus in 1998 PepsiCo created the Pepsi Bottling Group (PBG) with $7 billion in sales, and bottling operations in countries ranging from the United States to Russia. This move separated the bottling and concentrate parts of the business, and allocated responsibility for building operational efficiency to the bottling companies. Retaining a 35% noncontrolling interest, PepsiCo sold 65% of PBG’s equity in an initial public offering in 1999. The sale brought $1 billion in cash onto Pepsi’s balance sheet, and led to a significant reduction in the company’s asset base.Signaling management’s confidence in the new corporate strategy, PepsiCo used the cash generated by the restaurant and bottling divestitures to launch a share repurchase program. It bought back 54 million shares in 1996, 69 million shares in 1997 and 59 million shares in 1998. Management was now able to focus on building a strong portfolio of brands in beverage and snack foods. In 1998, Pe psiCo acquired the Tropicana juice business from Seagram’s for $3. 3 billion in cash. The acquisition gave the company a strong market presence in the fast-growing noncarbonated beverage segment.Compared to Pepsi’s existing businesses, Tropicana provided a lower return on assets and invested capital, but PepsiCo’s managers, especially Enrico and Indra Nooyi, the CFO, saw a great opportunity for strong margins and profitable growth if this superior brand were brought under the PepsiCo umbrella. Investment analysts and portfolio managers were more skeptical, however. At the time of the Tropicana acquisition, there was a perception on Wall Street that Pepsi might have paid too much. Two years later, however, the Tropicana acquisition was viewed as an outstanding success.Tropicana’s sales volume and profitability consistently exceeded market expectations every quarter from the date of acquisition in the fall of 1998 through September 2000. Moreover, the integ ration of the new business into PepsiCo’s corporate structure was seamless: neither Tropicana’s brand heritage, nor its unique distribution system was harmed by the acquisition process. 1 Letter From the Chairman, 1996 PepsiCo Annual Report. 3 801-458 PepsiCo’s Bid for Quaker Oats (A) Exhibit 4 shows PepsiCo’s stock price history from October 31, 1997 through October 4, 2000.Throughout 1999, PepsiCo’s stock price stagnated as investors shied away from the traditional packaged goods companies in favor of the Internet and technology stocks. This lackluster performance caused PepsiCo’s management to abstain from any major acquisitions. In the words of CFO Indra Nooyi, â€Å"we wanted a few quarters of solid performance behind us, and our currency— that is, our stock price—to reflect our underlying value. †2 When the Internet bubble burst in March 2000, PepsiCo’s stock price began to rise: between March 8 and October 4, it appreciated from $30. 0 to $45. 125, or almost 50%. PepsiCo’s managers believed that it was time to see if a deal could be struck with Quaker that would be advantageous to both sides. The Quaker Oats Company Nearly a century old in 1999, Quaker Oats was a worldwide consumer goods company with annual sales of $4. 7 billion. In addition to its hot cereals, Quaker Oats and Quaker Instant Oatmeal, the company’s portfolio of brands included Gatorade sports beverages, Granola snack bars, Life and Cap’n Crunch ready-to-eat cereals, and Rice-a-Roni and Near East flavored grain dishes.Exhibits 5-7 contain Quaker’s most recent financial statements as of October 4, 2000. Exhibit 8 provides data on Quaker’s financial performance broken down by beverage and food segments and by region. Exhibit 9 shows Quaker’s total sales and growth rates by product line for the years 1994-1999. In 1999, Quaker was emerging from a period of restructuring and refocu sing of its core businesses. During the decade prior to 1999, Quaker divested businesses with more than $2 billion in revenues, or about a third of its initial asset base.The divested operations included chemicals, toy manufacturing, specialty retailing, restaurants and pet foods, as well as the infamous Snapple beverage business. (In 1994, Quaker paid $1. 7 billion for Snapple Corporation, which sold branded juice-based beverages. Quaker then made the mistake of replacing Snapple’s distributors, and alienating the brand’s target consumers. After incurring dramatic losses, Quaker sold the business to Triarc in 1997 for $300 million. ) Robert Morrison joined the company as CEO in 1997, and proceeded to lead the company through an impressive turnaround.By 1999, 93% of Quaker’s U. S. sales came from brands holding the number-one or number-two positions in their product categories, and the company was perceived to be one of the best-managed companies in the packaged food and beverage industry. However, because it was a relatively small player in a highly concentrated and competitive global industry, Quaker was also seen as a potential acquisition target. Table A shows the distribution of revenues among the major players in the global packaged food and beverage industries.Indeed, in August 2000, David Nelson, an analyst at CSFB estimated Quaker’s synergies with various large food and beverage companies, and translated those figures into a potential takeover price for the company. His calculations are summarized in Table B. 2 Quoted in Lauren R. Rubin, â€Å"Profitable Fit,† Barron’s, December 11, 2000. 4 PepsiCo’s Bid for Quaker Oats (A) 801-458 Table A Major Companies Competing in the Global Packaged Food and Beverage Industries Annual Revenues, $Bns 50 40 30 20 10 0 Heinz Kraft Quaker Oats Hershey General Mills Coca-Cola Campbell PepsiCo Unilever Keebler Danone Kellogg NestleTable B Potential Acquirer's Estimated S ynergies ($ in millions) Synergy Estimates Savings Kellogg Campbell Philip Morris Coca-Cola Pepsi-Cola Nestle Danone Source: Capitalized Value Total 450 200 450 650+ 425 400 275 Per OAT Share $20. 36 $9. 05 $20. 36 $30. 00+ $19. 23 $18. 10 $12. 45 Potential Takeover Price $95. 36 $84. 05 $95. 36 $105+ $94. 23 $93. 10 $87. 45 Revenues 150 25 150 500+ 250 150 100 300 175 300 150 175 250 175 CSFB Equity Research Report on Quaker Oats, August 1, 2000. Interest in Quaker was centered on its Gatorade line of sports beverages, which accounted for 39% of Quaker’s sales in 1999.According to one analyst report in August 2000, â€Å"As a small, publicly traded, now well-managed company owning possibly the fastest-growing billion dollar growth potential product in the food and beverage industry, there is little doubt that Quaker is an attractive target or at least a highly desirable merger partner. †3 3 David C. Nelson, David S. Bianco, â€Å"Quaker Oats: Is It in the Stock? ,â⠂¬  Credit Suisse First Boston Equity Research, 08/01/2000, p. 4. 5 801-458 PepsiCo’s Bid for Quaker Oats (A) Rumors linking PepsiCo and Gatorade first surfaced in 1994.Late in 1996, Quaker reportedly attempted to sell both its beverage businesses (Gatorade and Snapple) as a package for about $3 billion. A year later, analysts predicted that PepsiCo’s would use the proceeds from the spin-off of its restaurant unit to finance an acquisition of Gatorade. Finally, in a report published in March 2000, Bill Pecoriello, an analyst at Sanford C. Bernstein & Co. , advocated a PepsiCo-Quaker merger, saying that PepsiCo was â€Å"strongly positioned† to leverage Gatorade through its distribution system in the US and internationally, and to sell Quaker snacks through its Frito-Lay network.Fueled in part by speculation that it might be acquired, Quaker stock appreciated almost 80% from its low of $45. 9375 on March 14 to its recent high of $79. 125 on September 29, 2000. E xhibit 10 shows Quaker’s stock price history from October 1997 through October 4, 2000. Exhibit 11 calculates selected ratios for PepsiCo and Quaker for the years 1996 to 2000. Exhibit 12 provides data on comparable companies. Exhibit 13 shows market interest rates as of October 4, 2000. Gatorade Gatorade was created on the campus of the University of Florida in 1965.Researchers at the school wanted to create a drink that would prevent dehydration among athletes. The drink was named for school’s football team, the Gators: its introduction in the early 1970s launched the commercial sports beverage industry. Quaker acquired rights to the formula and the name in 1983. By 1999 Gatorade was well established as the world’s leading sports drink with $1. 9 billion in global sales, and 82 percent of the U. S. sports beverage market. Its growth had been remarkable: From 1997-1999, Gatorade’s sales grew at an annual rate of 12 percent, while profits grew at around 1 5 percent (see Exhibits 8 and 9).Over the next five years (2000-2004), Quaker’s management expected Gatorade sales to increase by $1 billion, implying a 9. 25% cumulative average growth rate. Should that growth materialize, economies of scale were expected to drive profits upward at a 13. 5% rate over the same time period. As a rehydrating and energy beverage, Gatorade was a seasonal product, with the majority of its sales occurring in the warmer months of April to October. Highest levels of per capita consumption were in the southern parts of United States. Gatorade’s international presence was limited, however: less than 20% of its sales came from outside North America.Its European launch in the mid-1980s had been unsuccessful, partly because of poor brand positioning, but also because heat-driven beverage consumption was not common in Europe’s colder climates. Quaker’s managers believed that Gatorade had huge growth potential in the warm-weather climat es of Latin America and Asia, but the shaky economies in these regions presented major challenges to sustained, profitable growth. At the time of the acquisition by Quaker, Gatorade had only two flavors on the market: orange and lemon-lime. By 1999, there were more than twenty different flavors, from Whitewater Splash to Cool Blue Raspberry.Quaker was also seeking to extend the Gatorade’s brand into new product arenas. In the summer of 2000, Quaker launched a vitamin-fortified flavored water called Propel under the Gatorade brand umbrella in southern U. S. markets. This new product was advertised as a â€Å"fitness water†: it delivered the vitamins, carbohydrates, and antioxidants present in Gatorade with only one-fifth of the calories. This move marked Gatorade’s entrance into the fast-growing bottled water market. At the same time, the company launched Torq, a quick energy, high-carbohydrate diet supplement for intense athletes.Although Torq was a niche produc t with limited market prospects, it signaled Gatorade’s continuing commitment to sports nutrition, thereby enhancing consumers’ perception of the brand. 6 PepsiCo’s Bid for Quaker Oats (A) 801-458 Finally, Quaker’s management had decided to extend the Gatorade brand into the $500 million energy bar market, which was growing at an annual rate of 30%. This was a natural move, given Quaker’s core expertise in snack bar products (see below), and the fact that nearly 70% of energy bar consumers also drank Gatorade. Quaker’s Food BusinessesQuaker’s food businesses were based on an assortment of brands in the categories of hot and ready-to-eat cereals, grain products, snack bars, maple syrups, pancake mixes and grits. Following Morrison’s restructuring, all product lines were profitable, but for the most part their growth rates were low (see Exhibits 8 and 9). None of Quaker’s current food brands had the potential to exceed $ 1 billion in sales in the foreseeable future:? Hot cereals Oats were Quaker’s original product, but by 1999, hot cereals represented only 13% of the company’s U.S. sales. Still oats were the company’s most profitable product line with operating contribution margins of almost 30%, and high returns on invested capital. Recently, sales had benefited from a growing consumer focus on healthy living and diet. Thus in 1999, Quaker’s hot cereal sales increased by 12. 5% compared with the compound annual sales growth of 1. 6% over the prior five years (see Exhibit 9). Quaker managers projected considerable volume growth in this category as the baby boomers grew older and became even more health conscious.In the eyes of consumers, the main drawbacks of oatmeal were its taste and inconvenience in preparation. New product development focused on these issues. Thus in 1999 Quaker introduced several new instant oatmeal flavors, including baked apple, French vanilla, and cinnamon roll. It was testing convenient single-serve microwave-ready cups designed to eliminate the need for a bowl in preparation. Other new hot oatmeal products included Dinosaur Eggs, which were targeted towards kids: when hot water was added to the instant oatmeal, the eggs hatched little dinosaurs.Ready-to-eat cereal In 1999, Quaker held the number four position in the intensely competitive ready-to-eat (RTE) cereal market category, trailing General Mills (33%), Kellogg (31%) and Kraft (16%). The business included three strong brands: Life and Cap’n Crunch, with more than $150 million in annual sales each, and the Toasted Oatmeal line, with sales of around $100 million. The balance of the segment was made up of bagged cereals: Sweet Crunch, Cocoa Blasts, and Marshmallow Safari. Real per-capita RTE cereal demand had decreased about 6% annually in the United States since 1994.Bucking this trend, Quaker’s RTE sales had increased by 1%-2% on average over the last fiv e years (see Exhibit 9). But, although Quaker’s top RTE cereal brands were competing effectively for share in this declining category, it was increasingly difficult to maintain their profitability. In this difficult segment of their business, Quaker management had decided to focus on efficiency. In 2000, the company announced a two-year restructuring plan designed to achieve significant cost savings by closing manufacturing facilities, consolidating manufacturing lines, and reconfiguring the RTE ereal distribution network. Golden Grain Quaker’s Golden Grain business produced flavored rice and pasta. Sales had been flat for the last five years (see Exhibit 9), but Quaker still held the number one position in flavored rice with a 37% market share, and the number two position in flavored pasta with a 33% market share. Competition was increasing in these markets, however: Mars was aggressively marketing flavored rice under its Uncle Ben’s brand, and General Mills wa s promoting flavored pasta under the Betty Crocker label.In response to these competitive moves, Quaker managers felt they might have to defend share by increasing expenditures on promotion and advertising or dropping 7 801-458 PepsiCo’s Bid for Quaker Oats (A) prices. The division contributed about $50 million in operating profits annually, and accounted for about 7% of Quaker’s 1999 operating income. Grain-based snacks Quaker’s Snack Foods division sold Chewy Granola Bars, Fruit & Oatmeal Bars, Rice Cakes, and new Crispy Mini-Rice Cakes. Its products accounted for 17. 4% of the snack/granola bar market, second only to Kellogg Co.Quaker’s Chewy Granola Bars led the $360 million granola bar category with a 39% market share. Over the past five years, Chewy’s growth in revenues averaged 8% annually. Quaker Fruit & Oatmeal Bars were number two to Kellogg’s NutriGrain in the cereal bar category. Quaker Rice Cakes had an impressive 66% market sha re in the $165 million rice cake category. The profits of the snack business had grown at 10% per year over the past three years, owing to the strength of demand for granola and cereal bars, and successful new product introductions (see Exhibit 9). Other U. S. nd international foods Quaker also sold Aunt Jemima syrup and pancake mixes, and through them held a 17% share of the $560 million syrup category and 21% of the $300 million pancake mix category. Quaker Grits dominated the $100 million corn grits market, with a 77% share. These were highly profitable brands, but they were in categories that promised little in the way of future growth. The Quaker’s international food businesses lacked critical mass. Its Latin American food sales were concentrated in Brazil, where sales had declined 17% in 1999, due to severe currency devaluation and economic recession.In Europe, Quaker had a small, growing RTE cereal business, which was concentrated in the United Kingdom and Scandinavia. Its Asian food business was minuscule, accounting for less than $25 million in sales in 1999. Potential Synergies Gatorade If the acquisition succeeded, PepsiCo’s management expected that Gatorade would dramatically enhance both the company’s strategic position and its economic performance. PepsiCo would become the clear category leader in noncarbonated beverages, a market, which was growing at 8%-9% annually, three times faster than the carbonated soft drink market.With Tropicana and Gatorade combined, PepsiCo would control a full quarter of this $23 billion market. One of the major benefits of combining the two companies’ operations would stem from distribution. Gatorade used a warehouse brokers’ distribution system to deliver beverages to convenience stores and supermarkets, whereas PepsiCo’s used a Direct Store Delivery (DSD) system. Each system worked best for different types of products and retail outlets. The DSD system was much more expens ive, usually amounting to 15%-20% of sales, but it gave PepsiCo direct control over product selection, in-store visibility and the size of product displays.Moreover, the labor and equipment costs of DSD were mostly fixed, hence the contribution margins of incremental unit sales were high. DSD worked well for high volume products (like colas), but it was not an economical way to supply lower volume products in large varieties) to supermarkets and convenience stores. As indicated, Quaker used a warehouse brokers’ distribution system. In the case of Gatorade, however, robust consumer demand acted to offset many of the disadvantages of selling through brokers, including lower margins, potential stock-outs and poor product presentation.As a fastmoving convenience store item, Gatorade was regularly allocated highly visible shelf space, almost entirely without slotting fees, which were customary in the retail business. Moreover, Gatorade’s new products and packages historical ly had won increased shelf space for the brand, instead of taking up the same shelf space and cannibalizing older products. 8 PepsiCo’s Bid for Quaker Oats (A) 801-458 The acquisition of Quaker would enable PepsiCo to distribute Tropicana’s nonrefrigerated juices, like Twister and Dole, through Gatorade’s warehouse brokers’ distribution system.The merger would thus considerably enhance company’s position in the $7 billion nonrefrigerated juice segment: According to CEO Enrico, PepsiCo would become the â€Å"category captain† of the nonrefrigerated juice aisle. PepsiCo’s managers estimated that using Gatorade’s warehouse distribution system for Tropicana juices could generate an incremental $400 million in sales and $45 million in operating profit by the year 2004. The PepsiCo management team also projected procurement savings of approximately $60 million annually by 2004 from reductions in the costs of raw materials and supplie s.Moreover, Gatorade used â€Å"hot-fill† production lines, which were similar to those used by PepsiCo’s Twister, Lipton teas, Frapuccino and SoBe beverages. If the two companies were combined, the team anticipated cost savings from better capacity utilization in manufacturing, warehouse, delivery and logistics systems. Collectively, these cost savings were expected to reach $65 million annually by 2004. Other potential benefits of the business combination were more difficult to quantify.For example, PepsiCo’s managers believed that Pepsi’s extensive cooler distribution network could be used to increase Gatorade’s penetration in vending machines, schools, and smaller convenience stores as well as other niche vending channels and food service accounts. PepsiCo CFO Indra Nooyi argued: â€Å"The combination of Gatorade and AquaFina in vending machines is a no-brainer. † Over the longer term, PepsiCo could accelerate Gatorade’s internati onal expansion by using the existing sales and distribution organizations of both Pepsi-Cola International and Frito-Lay International.Finally, the sports technology expertise of the Gatorade Sports Science Institute might be combined with the health research capabilities of the Tropicana Nutrition Center to develop products that would meet the refreshment and nutrition needs of beverage consumers in new ways. Snacks If the acquisition succeeded, PepsiCo’s managers planned to integrate the Quaker’s snack food division into its Frito-Lay unit, which was already the world’s leader in salty snacks. They saw a significant opportunity in the $2 billion snack bars market, which was growing at 9% annually.Frito-Lay was in the process of reengineering its direct store delivery (DSD) distribution system to handle more product units. PepsiCo’s management believed that distributing Quaker’s Chewy Granola and other snacks through Frito-Lay’s system coul d increase Quaker’s revenues from snacks by an incremental $200 million and its operating profit by $34 million by 2004. A nonquantifiable benefit of the acquisition would be that Quaker snacks were not salty. For the most part, its brands connoted nutrition and health more than good taste or fun.Quaker brands’ positioning would give Frito-Lay access to numerous consumption occasions, for example, in the morning, that its existing salty snack brands did not serve. According to Roger Enrico, PepsiCo CEO: â€Å"We see bars as an ideal way to â€Å"smuggle† nutrition into more daily diets. † Other foods If the acquisition succeeded, Quaker’s nonsnack food businesses would represent 10% of the combined company’s pro forma sales. Quaker Oatmeal, RTE cereals, Golden Grain, and Aunt Jemima businesses did not fit within PepsiCo’s convenience-food strategy, nor did they represent significant growth opportunities.Yet these businesses were highl y profitable, and were expected to generate substantial free cash flows and modest growth over the foreseeable future. Lastly, their unit volumes supported the scale of Quaker’s (hence Gatorade’s) warehouse brokers’ distribution system. One complexity of the proposed acquisition stemmed from the fact that PepsiCo’s management would only consider a stock-for-stock transaction. Under that transaction structure, the company would be able to account for the merger as a pooling-of-interests. With a pooling-of-interests 801-458 PepsiCo’s Bid for Quaker Oats (A) accounting treatment, no goodwill would be created, and neither PepsiCo’s nor Quaker’s shareholders would have to recognize a gain or loss as a result of the merger for income tax purposes. On the other hand, under pooling-of-interests accounting, PepsiCo was precluded from selling any significant assets of Quaker for two years following the merger. Thus, if the acquisition succeeded , PepsiCo would not be able to divest Quaker’s slower-growth food divisions for at least two years.By the same token, PepsiCo would not be able to repurchase shares in any significant quantity for two years. Both Pepsi and Quaker used share repurchases as their primary mode of returning cash to shareholders (see Exhibits 3 and 7). If the acquisition succeeded, Pepsi would have to change its cash distribution policy radically. Decision PepsiCo had to determine its initial offer before approaching the Quaker. The timing was critical, as several other companies were likely to be attracted by Quaker’s obvious strengths (see Tables A and B).At the same time, PepsiCo management had two major concerns. First, although Gatorade’s synergies and growth prospects provided a clear strategic rationale for the acquisition, Gatorade plus the snack business accounted for only about 40%-45% of Quaker’s sales and operating income. Food products like Quaker Oats, which Peps iCo was not directly interested in, constituted the bulk of Quaker’s business. Second, Quaker traded at 23 times the earnings, which was lower than PepsiCo, but still at a premium compared to other food manufacturers (see Exhibit 12).Depending on the price and the value of realized synergies, a stock-for-stock transaction could potentially dilute PepsiCo’s earnings and diminish earnings per share, at least in the short run. 10 PepsiCo’s Bid for Quaker Oats (A) 801-458 Sources This case was prepared using the following published sources: PepsiCo, Inc. 2000 Annual Report, available at www. pepsico. com/2000/annual2000. html PepsiCo, Inc. 1999 Annual Report, available at www. pepsico. com/1999/annual1999. html PepsiCo, Inc. 1998 Annual Report, available at www. pepsico. com/1998/content. shtml PepsiCo, Inc. 997 Annual Report, available at www. pepsico. com/1997/content. shtml PepsiCo, Inc. 1996 Annual Report, available at www. pepsico. com/1996/content. shtml The C oca-Cola Company 1999 Annual Report, available at www. cocacola. com/annualreport The Quaker Oats Company 1999 Annual Report, available at www. quakeroats. com The Quaker Oats Company 1998 Annual Report, available at www. quakeroats. com The Quaker Oats Company 1997 Annual Report, available at www. hoovers. com Form S-4, Registration Statement under the Securities Act of 1933, as filed by PepsiCo, Inc. ith SEC on 01/09/2001 â€Å"Pepsi Seeks $5B Credit Line,† Dow Jones News Service, 10/12/1994 â€Å"Analysts Dubious on Pepsi’s Interest in Quaker,† Dow Jones News Service, 10/12/1994 â€Å"Quaker Rises on Pepsi Report,† The Milwaukee Journal Sentinel, 11/30/1996 Michael J. Branca, â€Å"PEP: The Good, The Bad and The Ugly,† Lehman Brothers Equity Research, 11/03/2000 Cathleen Egan, â€Å"S. Bernstein Analyst Muses over a Pepsi-Quaker Merger,† Dow Jones News Service, 03/13/2000 Cathleen Egan, â€Å"Quaker in Talks to Sell Gatorade, Snapple to Pepsi,† Dow Jones News Service, 11/29/1996 David C.Nelson, David S. Bianco, â€Å"Quaker Oats: Is It in the Stock? ,† Credit Suisse First Boston Equity Research, 08/01/2000 Lauren R. Rubin, â€Å"Profitable Fit,† Barron’s, 12/11/2000 Patricia Sellers, â€Å"Can Coke and Pepsi Make Quaker Sweat? † Fortune, 07/10/1995 Janet Kidd Stewart, â€Å"Pepsi Chief Pooh-poohs Deal for Quaker Drinks,† Chicago Sun-Times, 01/25/1997 11 801-458 PepsiCo’s Bid for Quaker Oats (A) Exhibit 1 PepsiCo Financial Statements: Consolidated Statement of Income ($ millions, except per share data) 9/2/00a 1999 1998 1997 1996Net sales New PepsiCo Bottling operations Total net sales Costs and expenses Cost of sales SG&A Amortization of intangible assets Impairment and restructuring charge Total costs and expenses Operating profit New PepsiCo Bottling operations and equity investments Total operating profit Bottling equity income, net Gain on bottling transactions In terest expense Interest income Income before taxes Provision for income taxes Income from continuing operations Income from discontinued operations, net Net income Net income per share of common stock, $ 14,028 0 14,028 8,244 2,123 20,367 14,686 7,662 22,348 13,655 7,262 20,917 20,337 5,433 6,209 96 0 11,738 8,198 9,103 183 65 17,549 9,330 9,924 222 288 19,764 8,525 9,241 199 290 18,255 8,452 9,063 206 576 18,297 2,290 0 2,290 135 0 (156) 43 2,312 740 1,572 0 1,572 1. 09 2,765 53 2,818 83 1,000 (363) 118 3,656 1,606 2,050 0 2,050 1. 40 2,460 124 2,584 0 0 (395) 74 2,263 270 1,993 0 1,993 1. 35 2,252 410 2,662 0 0 (478) 125 2,309 818 1,491 651 2,142 1. 40 2,040 (565) 91 1,566 624 942 207 1,149 0. 73 Source: Company 10(K) and 10(Q) filings. aData for 36 weeks ended September 2, 2000. 2 PepsiCo’s Bid for Quaker Oats (A) 801-458 Exhibit 2 Assets PepsiCo Financial Statements: Consolidated Balance Sheet ($ millions) 9/2/00a 705 97 1,835 975 588 4,200 9,209 (3,928) 5,281 4,531 3,011 636 8,178 17,659 1999 964 92 1,704 899 514 4,173 8,816 (3,550) 5,266 4,735 2,846 531 8,112 17,551 1998 311 83 2,453 1,016 499 4,362 13,110 (5,792) 7,318 8,996 1,396 588 10,980 22,660 1997 1,928 955 2,150 732 486 6,251 11,294 (5,033) 6,261 5,855 1,201 533 7,589 20,101 1996 307 289 2,276 853 225 3,950 10,908 (4,822) 6,086 6,036 1,147 491 7,674 4,450 22,160Cash and cash equivalents Short-term investments, at cost Accounts and notes receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net Accumulated depreciation Net PP&E Intangible assets, net Investments in unconsolidated affiliates Other assets Net II&O Net assets of discontinued operations Total assets Liabilities and Shareholders' Equity Short-term borrowings Accounts payable and other current liabilities Income taxes payable Total current liabilities Long-term debt Other liabilities Deferred income taxes Common stock Capital in excess of par value Retained earni ngs Accumulated other comprehensive loss Less: Repurchased common shares, at cost Total shareholders' equity Total liabilities and shareholders' equity Average shares outstanding, millions 16 3,337 168 3,621 2,737 3,033 1,380 29 963 15,040 (1,219) (7,925) 6,888 17,659 1,446 233 3,399 156 3,788 2,812 2,861 1,209 29 1,081 14,066 (989) (7,306) 6,881 17,551 1,466 3,921 3,870 123 7,914 4,028 2,314 2,003 29 1,166 12,800 (1,059) (6,535) 6,401 22,660 1,480 0 3,617 640 4,257 4,946 2,265 1,697 29 1,314 11,567 (988) (4,986) 6,936 20,101 1,528 0 3,378 413 3,791 8,174 1,997 1,575 29 1,201 9,184 (768) (3,023) 6,623 22,160 1,564 Source: Company 10(K) and 10(Q) filings. aData for 36 weeks ended September 2, 2000. 13 801-458 PepsiCo’s Bid for Quaker Oats (A) Exhibit 3 PepsiCo Financial Statements: Consolidated Statement of Cash Flows ($ millions) 9/2/00a 1999 1998 1997 1996Cash Flows from Operating Activities Net income from continuing operations Adjustments to reconcile net income to net cas h provided by operating activities: Gain on bottling transactions Bottling equity income, net Depreciation and amortization Noncash portion of 1998 income tax benefit Noncash portion of restructuring charges Deferred income taxes Other noncash charges and credits, net Net change in operating working capital Net Cash Provided by Operating Activities Cash Flows from Investing Activities Capital spending Investments in unconsolidated affiliates Sales of businesses Sales of property, plant and equipment Short-term investments, by original maturity: More than three months – purchases More than three months – maturities Three months or less, net Other, net Net Cash Used for Investing Activities Cash Flows from Financing Activities Proceeds from issuances of long-term debt Payments of long-term debt Short-term borrowings, by original maturity: More than three months – proceeds More than three months – payments Three months or less, net Cash dividends paid Share repurchases Proceeds from exercises of stock options Other, net Net Cash Used for Financing Activities Net cash from discontinued operations Effect of Exchange Rate Changes Net (Decr. )/Incr. in Cash and Cash Equivalents Cash and Cash Equivalents – Beginning of year Cash and Cash Equivalents – End of period Source: Company 10(K) and 10(Q) filings. aData represents 36 weeks ended September 2, 2000. 1,572 2,050 1,993 1,491 942 0 (135) 642 0 0 138 191 (295) 2,113 (1,000) (83) 1,032 0 37 529 364 98 3,027 0 0 1,234 (259) 254 150 237 (398) 3,211 0 0 1,106 0 233 51 342 196 3,419 0 0 1,073 0 366 160 505 146 3,192 (574) (66) 0 0 (582) 577 0 (137) (782) (1,118) (430) 499 126 (2,025) 2,008 12 (144) (1,072) 1,405) (4,537) 17 134 (525) 584 839 (126) (5,019) (1,506) (119) 221 80 (92) 177 (735) (96) (2,070) (1,630) (75) 43 9 (115) 192 736 (214) (1,054) 108 (716) 103 (32) 375 (594) (1,238) 408 0 (1,586) 0 (4) (259) 964 705 3,480 (1,123) 3,691 (2,741) (2,856) (778) (1,285) 308 0 (1,304 ) 0 2 653 311 964 990 (2,277) 2,713 (417) 1,753 (757) (2,230) 415 0 190 0 1 (1,617) 1,928 311 0 (1,875) 146 (177) (1,269) (736) (2,459) 403 5 (5,962) 6,236 (2) 1,621 307 1,928 1,772 (1,432) 740 (1,873) 89 (675) (1,651) 323 (9) (2,716) 605 (5) 22 285 307 14 801-458 -15- Exhibit 4 PepsiCo Stock Price History PEP Historical Price Performance, October 31, 1997-October 4, 2000 Oct 4: Last close $45. 125 50 45 40 35 30Mar 8: 52 week low of $30. 50 25 Jul-98 Jul-99 Jan-98 Apr-98 Jun-98 Oct-98 Jan-99 Apr-99 Jun-99 Oct-99 Jan-00 Feb-00 Apr-00 Jun-00 Jul-00 Nov-97 Dec-97 Feb-98 Mar-98 Feb-99 Mar-99 Mar-00 Aug-00 Aug-99 Sep-99 Nov-99 May-99 Dec-99 May-00 Aug-98 Nov-98 May-98 Source: Prepared by casewriter based on CRSP data. Sep-98 Dec-98 Sep-00 Oct-00 20 801-458 PepsiCo's Bid for Quaker Oats (A) Exhibit 5 Quaker Financial Statements: Consolidated Statement of Income ($ millions, except per share data) 9/30/00* Net sales Cost of goods sold Gross Profit SG&A Impairment and restructuring (gain) or charge Interest expense Interest income Foreign exchange loss, net Income before taxesProvision (benefit) for income taxes Net income Preferred dividends, net Net income available for common Net income per share of common stock, $ 4,045 1,805 2,240 1,551 172 40 1999 4,725 2,137 2,588 1,904 (2) 62 (12) 18 618 163 455 4 451 3. 36 1998 4,843 2,374 2,468 1,873 129 70 (11) 12 397 112 285 5 280 2. 04 1997 5,016 2,565 2,451 1,939 1,486 86 (7) 11 (1,064) (133) (931) 4 (934) (6. 80) 1996 5,199 2,808 2,392 1,981 (113) 107 (7) 9 416 168 248 4 244 1. 80 477 165 312 3 309 2. 34 Source: Company 10(K) and 10(Q) filings. aData for nine months ended September 30, 2000. 16 PepsiCo's Bid for Quaker Oats (A) 801-458 Exhibit 6 Quaker Financial Statements: Consolidated Balance Sheet ($ millions)Assets Cash and cash equivalents Short-term investments, at cost Accounts and notes receivable, net Inventories Other current assets Total current assets Property, plant and equipment Accumulated depreciation N et PP Intangible assets, net Other assets Total assets Liabilities and Shareholders' Equity Short-term borrowings Accounts payable Other current liabilities Total current liabilities Long-term debt Other liabilities Deferred income taxes Preferred stock Deferred compensation Tresury preferred stock Total preferred stock, net Common stock Capital in excess of par value Retained earnings Accumulated other comprehensive loss Deferred compensation Less: Repurchased common shares, at cost Total shareholders' equity Total liabilities and shareholders' equity Average shares outstanding, millions /30/00* 111 126 391 287 234 1,149 1,872 (797) 1,075 231 57 288 2,512 89 258 648 995 672 510 0 100 (27) (47) 25 840 126 1,051 (108) (22) (1,578) 310 2,512 132 1999 283 0 254 266 193 997 1,852 (745) 1,107 237 56 293 2,396 155 214 570 938 715 523 0 100 (39) (39) 22 840 101 855 (95) (46) (1,457) 197 2,396 134 1998 327 28 283 261 216 1,115 1,819 (749) 1,070 246 79 325 2,510 137 168 704 1,009 795 533 0 1 00 (48) (30) 22 840 79 556 (80) (68) (1,176) 151 2,510 137 1997 84 0 306 256 487 1,133 1,913 (748) 1,165 351 49 400 2,697 169 191 586 946 888 579 36 100 (57) (22) 21 840 29 431 (82) (91) (899) 228 2,697 137 1996 111 0 295 275 209 890 1,943 (743) 1,200 2,237 69 2,306 4,394 568 210 576 1,355 994 559 238 100 (65) (16) 19 840 0 1,521 (68) (103) (960) 1,230 4,394 135 Source: Company 10(K) and 10(Q) filings. Data for nine months ended September 30, 2000. 17 801-458 PepsiCo's Bid for Quaker Oats (A) Exhibit 7 Quaker Financial Statements: Consolidated Statement of Cash flows ($ millions) 9/30/00* 1999 455 124 14 (5) 4 0 13 (38) 32 31 631 (222) 14 (185) 219 14 0 (160) (156) 34 1 (96) 83 (373) (9) (516) 2 (44) 327 283 1998 285 133 (31) (27) 90 38 12 (41) 32 23 514 (205) 266 (166) 143 8 240 287 (160) (17) 2 (109) 112 (377) (8) (557) (1) 242 84 327 1997 (931) 161 (12) 1,151 66 40 42 (91) 20 43 490 (216) 300 0 0 0 0 84 (159) (453) 8 (54) 121 (50) (6) (593) (7) (26) 111 84 1996 248 201 14 (82) 23 0 29 (70) 22 27 410 (243) 174 0 0 0 0 (68) (157) (125) 2 (78) 31 0 (6) (331) 6 17 93 111Cash Flows from Operating Activities Net income from continuing operations Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes (Gains) losses on divestitures, net Restructuring charges** Asset impairment losses Loss on disposition of property and equipment Net change in operating working capital Change in deferred compensation Other items Net Cash Provided by Operating Activities Cash Flows from Investing Activities Additions to property, plant and equipment Business divestitures, net of tax Purchase of marketable securities Proceeds from sale of marketable securities Proceeds from sale of PP Capial gains tax recovery Net Cash Used for Investing Activities Cash Flows from Financing Activities Cash dividends paid Change in short-term debt Proceeds from issuances of long-term debt Reduction of long-term debt Issuance of common treasury stock Repurchases of common stock Repurchases of preferred stock Net Cash Used for Financing Activities Effect of Exchange Rate Changes Net (Decr. )/Incr. in Cash and Cash Equivalents Cash and Cash Equivalents – Beginning of year Cash and Cash Equivalents – End of period 312 99 4 0 177 0 2 (132) 35 15 512 (199) 0 (354) 232 5 0 (316) (115) (25) 1 (84) 105 (236) (9) (364) (4) (172) 283 111 Source: Company 10(K) and 10(Q) filings. a Data for nine months ended September 30, 2000. bThe 2000 number represents the sum of restructuring charges, asset impairments and losses (gains) on divestiture. 18 801-458 -19- Exhibit 8 Quaker Oats Operating Segment Information (dollars in millions, except per share data) bYear Ended December 31 1999 Net Sales a 1998 1997 Operating Income (Loss) 1999 1998 1997 $2,359. 5 308. 4 215. 4 2,883. 3 1,502. 3 229. 1 103. 8 1,835. 2 4,718. 5 6. 7 $4,725. 2 $2,274. 1 372. 9 202. 9 2,849. 9 $399. 8 26. 2 21. 1 447. 1 253. 9 16. 5 (7 . 3) 263. 1 710. 2 -$710. 2 $2,287. 8 371. 4 205. 7 2,864. 9 1,183. 3 232. 2 103. 0 1,518. 5 4,383. 4 632. 3 $5,015. 7 $369. 8 28. 2 (1. 2) 396. 8 214. 9 25. 6 (7. 4) 233. 1 629. 9 (2. 4) $627. 5 $390. 3 34. 0 (9. 9) 414. 4 182. 7 19. 3 (15. 0) 187. 0 601. 4 (34. 6) $566. 8 1,338. 2 267. 7 103. 1 1,709. 0 4,558. 9 283. 6 $4,842. 5 Foods: U. S. and Canadian Latin American Other c Total Foods Beverages: U. S. nd Canadian Latin American Other c Total Beverages Total Ongoing Businesses Total Divested Businesses d Total Sales/Operating Income Less: (Gains) losses on divestitures, restructuring charges, asset impairments and other–net e (2. 3) 25. 9 50. 2 18. 1 618. 3 163. 3 $455. 0 $3. 36 $3. 23 128. 5 31. 9 58. 9 11. 6 396. 6 112. 1 $284. 5 $2. 04 $1. 97 1,491. 1 50. 1 79. 1 10. 8 (1,064. 3) (133. 4) ($930. 9) ($6. 80) ($6. 80) General corporate expenses Interest expense–net Foreign exchange loss–net Income (Loss) before income taxes Provision (Benefit) for income t axes f Net Income (Loss) Per Common Share: Net income (loss)e Net income (loss)–diluted 801-458 -20- Exhibit 8 (continued) (dollars in millions) Year Ended December 31 1999 Identifiable Assets 1998 1997 1999Capital Expenditures Net of Depreciation 1998 1997 Foods: U. S. and Canadian Latin American Other c Total Foods Beverages: U. S. and Canadian Latin American Other c Total Beverages Total Ongoing Businesses Total Divested Businesses g Total Operating Segments Corporateh Total Consolidated $1,124. 6 174. 0 110. 1 1,408. 7 522. 7 105. 4 79. 6 707. 7 2,116. 4 0. 0 2,116. 4 279. 8 $2,396. 2 464. 2 94. 6 109. 5 668. 3 2,115. 1 37. 5 2,152. 6 357. 7 $2,510. 3 364. 5 81. 9 98. 2 544. 6 1,845. 4 335. 9 2,181. 3 515. 7 $2,697. 0 69. 8 20. 4 1. 7 91. 9 99. 5 0. 0 99. 5 (0. 9) $98. 6 $1,187. 0 167. 7 92. 1 1,446. 8 $1,056. 9 122. 4 121. 5 1,300. 8 $3. 7 3. 7 0. 2 7. 6 $37. 5 6. 5 (0. ) 43. 4 26. 1 6. 3 0. 8 33. 2 76. 6 (3. 5) 73. 1 (0. 9) $72. 2 $7. 2 9. 7 12. 3 29. 2 26. 4 (0. 9) 20. 0 45. 5 74. 7 (18. 7) 56. 0 (1. 7) $54. 3 Source: Company financial statements and casewriter calculations. aIntersegment sales are not material. bOperating results exclude restructuring and asset impairment charges, gains and losses on divestitures and certain other expenses not allocated to operating segments such as income taxes, general corporate expenses and financing costs. cOther includes European and Asia/Pacific businesses. d1999 includes net sales and operating results (through the divestiture date) for the Brazilian pasta business. 998 includes net sales and operating results (through the divestiture date) for the Ardmore Farms, Continental Coffee, Nile Spice and Liqui-Dri businesses and the business divested in 1999. 1997 includes net sales and operating results (through the divestiture date) for the Snapple beverages and certain food service businesses and the businesses divested in 1999 and 1998. e1999 includes pretax restructuring charges of $12. 7 million, or $0. 06 per share, a pretax divestiture gain of $5. 1 million, or $0. 03 per share, and pretax adjustments of $9. 9 million, or $0. 04 per share, to reduce prior restructuring and divestiture reserves. 1998 includes pretax restructuring charges of $89. 7 million, or $0. 8 per share, pretax asset impairment losses of $38. 1 million, or $0. 18 per share, and a combined pretax divestiture loss of $0. 7 million, or a gain of $0. 20 per share, due to certain tax benefits. 1997 includes pretax restructuring charges of $65. 9 million, or $0. 27 per share, a pretax net charge of $4. 8 million, or $0. 02 per share, for an asset impairment loss partly offset by a cash litigation settlement, and a combined pretax loss of $1. 42 billion, or $8. 41 per share, for business divestitures. f1999 includes reductions in the provision for income taxes of $59. 3 million, or $0. 44 per share, related to previously recorded tax accruals and tax assets. Includes the following Divested Businesses: in 1999, the Bra zilian pasta business in 1998 Ardmore Farms, Continental Coffee, Nile Spice, Liqui-Dri and the business divested in 1999; in 1997, Snapple, certain food service businesses and the businesses divested in 1999 and 1998. hIncludes corporate cash and cash equivalents, short-term investments and miscellaneous receivables and investments. PepsiCo's Bid for Quaker Oats (A) 801-458 Exhibit 9 Quaker Oats Company Operations Summary 1994-1999 Annual Sales (dollars in millions) 1994 U. S. and Canadian Gatorade a International Gatorade Total Beverages U. S. Hot Cereals U. S. Ready-to-Eat Cereals Golden Grain Grain-based Snacks Other U. S. nd Canadian Foods Latin American Foods European and Asian Foods Total Foods Total Sales $908 269 1,177 416 679 334 275 483 301 233 2,721 $3,898 1995 $1,040 308 1,348 402 665 324 298 505 319 210 2,723 $4,071 1996 $1,095 283 1,378 440 626 316 285 518 345 207 2,737 $4,115 1997 $1,183 335 1,518 462 693 343 269 521 371 208 2,867 $4,385 1998 $1,338 371 1,709 431 712 341 291 500 373 203 2,851 $4,560 1999 $1,502 333 1,835 485 725 344 305 501 308 215 2,883 $4,718 CAGR 10. 6% 4. 4% 9. 3% 3. 1% 1. 3% 0. 6% 2. 1% 0. 7% 0. 5% -1. 6% 1. 2% 3. 9% Distribution of Annual Sales (%) 1994 U. S. and Canadian Gatorade a International Gatorade Total Beverages U. S. Hot Cereals U. S. Ready-to-Eat Cereals Golden Grain Grain-based Snacks Other U. S. nd Canadian Foods Latin American Foods European and Asian Foods Total Foods Total Sales 23% 7% 30% 11% 17% 9% 7% 12% 8% 6% 70% 100% 1995 26% 8% 33% 10% 16% 8% 7% 12% 8% 5% 67% 100% 1996 27% 7% 33% 11% 15% 8% 7% 13% 8% 5% 67% 100% 1997 27% 8% 35% 11% 16% 8% 6% 12% 8% 5% 65% 100% 1998 29% 8% 37% 9% 16% 7% 6% 11% 8% 4% 63% 100% 1999 32% 7% 39% 10% 15% 7% 6% 11% 7% 5% 61% 100% Source: Company financial statements. aIncludes Europe, Asia-Pacific and Latin America. 21 801-458 -22- Exhibit 10 Quaker Oats Stock Price History OAT Historical Price Performance, October 31, 1997-October 4, 2000 90 Oct 4: Last close $76. 0625 80 70 60 50 40 Mar 14: 52 week low of $45. 9375 Jul-98 Jul-99 Jan-98 Apr-98 Jun-98 Oct-98 Jan-99 Apr-99 Jun-99 Oct-99 Jan-00Apr-00 Jun-00 Jul-00 Feb-98 Mar-98 Feb-99 Mar-99 Feb-00 Nov-97 Dec-97 Aug-98 Sep-98 Nov-98 Dec-98 Aug-99 Sep-99 Nov-99 Dec-99 Mar-00 Aug-00 May-99 May-00 Source: Prepared by casewriter based on CRSP data. May-98 Sep-00 Oct-00 30 PepsiCo's Bid for Quaker Oats (A) 801-458 Exhibit 11 PepsiCo PepsiCo and Quaker Oats: Selected Ratios 1996-2000 36 Wks. 00 39% 44% 16% 16% 32% a 1999 40% 45% 14% 15% 44% -2% 26% 40% 64% 53% 12% 30% 1998 42% 44% 12% 17% 12% 0% 33% 49% 82% 35% 12% 31% 1997 41% 44% 13% 16% 35% -4% 30% 36% 62% 54% 13% 21% 1996 42% 45% 10% COGS/Sales SGA/Sales Operating Profit/Sales New Pepsi Operating Profit/New Pepsi Sales Tax Rate NWC (excl.Cash ST Inv and ST Debt)/Sales a Net PPE/Sales a Net II/Sales a Invested Capital/Sales Shareholders Equity/Invested Capital Return on Invested Capital d Return on Equity c 40% -2% 30% 38% 66% 50% 9% 14% -1% 26% 40% 66% 52% 17% 23% Quaker Oats, Inc. COGS/Sales SGA/Sales b Operating Profit/Sales Tax Rate NWC (excl. Cash ST Inv and ST Debt)/Sales a Net PPE/Sales a Net II/Sales a Invested Capital/Sales Shareholders Equity/Invested Capital Return on Invested Capital d Return on Equity c a 9 Mos. 00 45% 38% 13% 35% 0% 20% 5% 25% 23% 33% 100% 1999 45% 40% 15% 26% -2% 23% 6% 28% 15% 38% 229% 1998 49% 39% 10% 28% -2% 22% 7% 26% 12% 26% 185% 1997 51% 39% -19% 13% 5% 23% 8% 37% 12% -46% -410% 1996 54% 38% 10% 40% 0% 23% 44% 67% 35% 9% 20% Source: Company financial statements. aAnnualized. Quaker Operating Profit = Gross Profit – SG – Impairment, consistent with PepsiCo’s definition. cReturn on Invested Capital = [Operating Profit * (1 – Tax Rate)]/Invested Capital. dReturn on Equity = Net Income from Continuing Operations/Shareholders’ Equity. 23 801-458 -24- Exhibit 12 Quaker Oats: Comparable Food and Beverage Companies Source: Company Annual Reports, Hoover’s Online Bu siness Network. aSara Lee financial information includes RYA/Monarch, the sale of which is scheduled to close in second quarter of fiscal 2001. bH. J. Heinz EBIT includes $464. 6 million gain on the sale of Weight Watchers. Hershey EBIT includes $243. 8 million gain on the sale of U. S. pasta business. Kellogg EBIT incorporates $244. million in restructuring charges and equipment write-offs. PepsiCo EBIT includes $1,000,000 gain on bottling transactions. cAverage diluted shares outstanding, in millions of per-share calculations, including stock options, ESOP and non-vested awards. dCommon Stock price data for 52 weeks prior to October 4, 2000, includes Danone ADR’s traded at NYSE. eP/E calculated as Closing Common Stock price divided by EPS for the last full fiscal year. fMarket Capitalization calculated as the Closing Common Stock price times the average diluted shares outstanding. Using last-available diluted shares outstanding would not change the calculation significantly . PepsiCo's Bid for Quaker Oats (A) 801-458 Exhibit 13

Psychopathology And Traumas Essay

Abstract   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   This paper is a literature review of studies and discussions of the effect of various stressors to children, such as violence, sexual abuse, and trauma. There are also some articles that explain how the human brain processes and adapts to these various factors. The goal of all these articles is to understand and explain the relationships between different stressors in the way that a child’s brain develops. They presume that the brain is the organ responsible for causing different children from reacting differently to the various stressors in their childhood. There is also a discussion analyzing the relationship between the size of the hippocampus and exposure to stress. These articles provide valuable insight into a very important aspect of human life, specifically, coping with trauma.            The article of Friedrich, Fisher, Broughton, Houston and Shafran discussed sexual behavior in children, with the goal of understanding the relationship between sexual behavior and sexual abuse. The authors of this article believed that the existing literature had gathered limited knowledge on the topic of normative sexual behavior among children (Friedrich, Fisher, Broughton, Houston & Shafran, 1998).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In order to achieve an understanding of normative childhood sexual behavior, the authors conducted a study of children between the ages two and twelve, whose sexual behaviors were rated by primary female caregivers, such as their parents and day care providers. The children were screened on whether they were sexually abused. The authors likewise used a 38-item scale called the Child Sexual Behavior Inventory, Third Version, to assess the children’s sexual behavior, the diversity of which could cover a wide range (Friedrich, Fisher, Broughton, Houston & Shafran, 1998).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   After the study, the authors found that the children exhibited a broad range of sexual behaviors, such as such as exhibitionistic behavior or excessive modesty. Sexual behaviors also had different frequencies, and these are influenced by the age groups of the children, as well as other factors, like maternal education, family stress and violence, and number of hours spent in day care (Friedrich, Fisher, Broughton, Houston & Shafran, 1998).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Specifically, the authors noted that â€Å"a review of the reported endorsement frequencies indicated that for each age and gender group, there are 1  to 5  items that at least 20% of the parents endorsed.† This led the authors to conclude that the behavior of the children could be considered development-related sexual behaviors, and not too far removed from the mean (Friedrich, Fisher, Broughton, Houston & Shafran, 1998, p. 3).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   On the other hand, the article by Ford and Kidd on Early Childhood Trauma and Disorders of Extreme Stress as Predictors of Treatment Outcome with Chronic Posttraumatic Stress Disorder (PTSD) sought to determine whether early childhood trauma could be considered as a predictor of the outcome of treatment for people with chronic posttraumatic stress disorder. This goal is influenced by studies showing the prevalence of early childhood trauma in cases of people with recurring PTSD (Ford & Kidd).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   A study with participants from patients in a PTSD live-in rehabilitation facility, who were exposed to trauma, was conducted. Most participants were classified as trauma-exposed since they came from war zone military duty. Others who did not show â€Å"pervasive avoidance and emotional numbing symptomatology† were considered people who had to trauma-related experience. Structured interviews were conducted to classify patients to determine their classification as a person with PTSD or Disorders of Extreme Stress Not Otherwise Specified (DESNOS). Participants were asked in interviews whether they were exposed to certain traumatic events, such as witnessing the death of a family member or experiencing sexual abuse. On the other hand, DESNOS was a good empirical basis for treatment planning of PTSD. DESNOS is considered a good instrument in assessing trauma and treatment planning for PSTD because it has been observed in previous studies that most war veterans with PTSD also had histories of DESNOS symptoms (Ford & Kidd).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   On a different aspect of trauma and its effect on children, Gilbertson, Shenton, Ciszewski, Kasai, Lasko, Orr and Pitman (2002), investigated the validity of the hypothesis that Smaller Hippocampal Volume Predicts Pathologic Vulnerability to Psychological Trauma and conducted a study to determine the relationship between the volume of the hippocampus and the tendency of a person to develop PTSD. The researchers’ hypothesis focused on the hippocampus of animals that the hippocampus gets damaged by severe stress and that humans with stress-related psychiatric conditions have smaller hippocampal volume. Hence, the researchers investigated whether the smaller hippocampal volume comes before or after a severely stressful event. If smaller hippocampal volume comes before the event, then it would mean that it is a preexisting condition of the person and not influenced by trauma, violence or stress. On the other hand, if the smaller hippocampal volume comes after the event, then it means that it is a result of the trauma caused by the experience (Gilbertson, Shenton, Ciszewski, Kasai, Lasko, Orr,   & Pitman, 2002).    Using a â€Å"case-control† design, Gilbertson, et al. conducted a study to analyze the the hippocampi volume of monozygotic twins. The twins have the same genetic makeup, which the researchers theorized any difference in the volumes of their hippocampi may be caused by external factors, such as stress. Thus, the study involved twins, where one is exposed to a traumatic event such as combat, and the other one is not exposed (Gilbertson et al, 2002). After comparison of images taken through magnetic resonance imaging (MRI), the researchers concluded that the volumes of the hippocampi of the twin subjects are preexisting vulnerability factors. This means that smaller hippocampal volumes are not caused by mere exposure to stress. There conclusion was based on the finding that there was no significant difference between the hippocampal volumes of twins who were and were not exposed to traumatic events (Gilbertson et al., 2002).      Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In the next article however, no case study was conducted, but Perry (1997) explained the workings of the human brain in relation to exposure to violence. In Incubated in Terror: Neurodevelopmental Factors in the ‘Cycle of Violence’ In: Children, Youth and Violence: The Search for Solutions introduced the concept of a person’s adaptability to experience through a brief discussion of the process of development that began centuries ago. Perry traced the development of the human brain through a process called sociocultural evolution. Perry pointed out the human existence had long been pervaded by violence, which began from interspecies violence to interspecies violence, from prehistoric times. Perry believed that up to the present, different forms of violence, such as physical abuse, victimize of children. Thus, Perry sought answers on matters relating to the effect of violence on parents and children, particularly in the c ontext of neurodevelopment (Perry, 1997).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry discussed how violence affects children. This effect depends on various factors, such as the pattern and type of violence and the presence of support systems or caretakers for the child. Furthermore, Perry considered the age of the child an important factor that affects the child, considering that the human brain develops in a linear fashion, and certain developments only occur when a child reaches a specific age. Perry also believed that humans are capable of adapting to violence or trauma (Perry, 1997).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry also discussed the organization and function of the human brain. The brain has a hierarchical organization that functions to promote a person’s survival. Perry described that the brain matures throughout the life of a person. In relation to this development, Perry explained that there are factors affecting the process that lead to a child’s predisposition to violence. For Perry, violence is rooted in neurobiology, and factors that affect activity in different parts of the brain would affect a person’s propensity toward violence. Specifically, Perry explains that changes in the activity in the brainstem, such as stress, would increase a person’s propensity for violence (Perry, 1997).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Furthermore, Perry discussed different pathways to violence to which children may be exposed. Perry suggested that it is most dangerous when all different negative experiences, such as lack of care in childhood and physical abuse, combine and affect a child. Another important part of Perry’s observations are his discussion on the implications of the theory to the formulation of public policy. He purports that ultimately, the solution to problems of violence lie within primary prevention, through the transformation of violence (Perry, 1997).      In another article written by Perry (2001b), in â€Å"The neurodevelopmental impact of violence in childhood, in Schetky D & Benedek, E. (Eds.) Textbook of child and adolescent forensic   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   psychiatry, he discussed how violence affects the development of a child’s brain. Perry noted that violence pervades American society despite its many technological advances. Thus, while violence is abhorred by many, there are a few solutions presented for its avoidance (Perry, 2001b).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry noted that violence is multidimensional and complex. It has different effects, both on adults and children. In particular, Perry pointed out that violence causes fear in children, which has negative consequences on the neurodevelopmental changes of a child, such as causing a child to become more susceptible to being violent (Perry, 2001b).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry further noted that violence could be seen in various situations, such as in the home, community, school, and media. It seems that violence is everywhere. Most especially in the United States, violence can be seen in the home, as shown by statistics (Perry, 2001b).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry then discussed how the brain works and develops in general. He stated that the brain grows more complex with age. Such development may cause some areas of the brain, such as the higher, sub-cortical and cortical areas, to become less impulsive. In turn, this may cause the brain to have lower excitatory activity. These tendencies may lead to increased tendencies of an individual to become aggressive and violent   (Perry, 2001b).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perry then noted the growing body of evidence supporting the position that the neurodevelopment processes of an individual’s developing brain is hindered or altered by exposure to violence. Thus, exposure to violence leads to the stimulation of responses from a child’s brain, causing alterations in the brain’s development and consequences as related to the brain’s function   (Perry, 2001b).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   A similar discussion on the effect of trauma on the development of the brain is provided by Perry, Pollard, Blakley, Baker and Vigilante (1996). In an article entitled â€Å"Childhood Trauma, the Neurobiology of Adaptation & Use-dependent Development of the Brain: How States become Traits,† the authors provided observations on childhood trauma and its effect on the essential functioning of affected children. The researchers theorized that a mature brain is born out of developmental experiences. Therefore, neurodevelopment is important, and this occurs in a very critical point in a human’s life, which is his childhood. However, neurodevelopment is disturbed by experiences that disrupt the brain’s processes of organizing information, such as traumatic experiences (Perry, Pollard, Blakley, Baker & Vigilante, 1996).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The researchers believed that given an understanding of the effect of traumatic experiences on a child’s neurodevelopment, that modifications in public policy and societal perspectives may occur. Therefore, more research should be undertaken to explore this field of study (Perry, Pollard, Blakley, Baker & Vigilante, 1996). Conclusion.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   All the articles provide insight on the relationship of various factors with children’s mental development. In particular, the articles endeavored and succeeded in analyzing data on the relationship between children’s brain development and traumatic events. There were detailed accounts on the specific brain areas that were affected by exposure to stress, such as the hippocampus and the brainstem. The time of exposure to trauma was also investigated to determine whether the size of a person’s hippocampus is predetermined prior or consequent to the exposure to stress. However, some of the articles did not discuss specific studies conducted that established the conclusions, but only discussed theories based on other studies. Therefore, more studies should be conducted, or more research made, to provide basis for some of the given conclusions. References Friedrich, W. N., Fisher, J., Broughton, D., Houston, M. & Shafran, C. R. (1998).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Normative Sexual Behavior in Children: A Contemporary Sample. Pediatrics    101(4). Retrieved February 23, 2008, from   Ã‚   http://pediatrics.aappublications.org/cgi/content/full/101/4/e9.  Ford, J. D. & Kidd, P. Early Childhood Trauma and Disorders of Extreme Stress as   Ã‚  Ã‚  Ã‚  Ã‚     Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Predictors of Treatment Outcome with Chronic Posttraumatic Stress Disorder.  Gilbertson, M. W., Shenton, M. E., Ciszewski, A., Kasai, K., Lasko, N. B., Orr, S. P.,   Ã‚  Ã‚   Pitman, R. K. (2002). Smaller Hippocampal Volume Predicts Pathologic   Ã‚   Vulnerability to Psychological Trauma. Nature Neuroscience 5(11), 1242-1247.  Perry, B. D. (1997).   Incubated in Terror: Neurodevelopmental Factors in the ‘Cycle of Violence’ In: Children, Youth and Violence: The Search for Solutions (J Osofsky,   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Ed.). New York: Guilford Press,   124-148, Perry, B.D. (2001b). The neurodevelopmental impact of violence in childhood. In   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Schetky D & Benedek, E. (Eds.) Textbook of child and adolescent forensic   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   psychiatry. Washington, D.C.: American Psychiatric Press, Inc. (221-238) Perry, B. D., Pollard, R. A., Blakley, T. L., Baker, W. L. & Vigilante, D. (1996). Childhood   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Trauma, the Neurobiology of Adaptation & Use-dependent Development of the Brain: How States become Traits. Infant Mental Health Journal.