UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
[ ] Transition Report Pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1998
Commission file number 1-12
Full title of the Plan and the address of the Plan,
if different from that of the issuer named below:
The Quaker 401(k) Plan for Salaried Employees
Name of issuer of the securities held pursuant to the Plan and the address of
its principal executive office:
The Quaker Oats Company
P.O. Box 049001
Chicago, Illinois 60604-9001
Item 1. See Item 4.
Item 2. See Item 4.
Item 3. See Item 4.
Item 4. Financial Statements and Exhibits
(a) Financial Statements
The Quaker 401(k) Plan for Salaried Employees is subject to the
Employee Retirement Income Security Act of 1974 (ERISA), and the
report of Washington, Pittman & McKeever, LLC, independent public
accountants, as prepared in accordance with the financial reporting
requirements of ERISA is attached hereto and incorporated into this
report.
(b) Exhibit
Consent of Independent Public Accountants - Washington, Pittman &
McKeever, LLC.
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the administrators of the Plan have duly caused this annual report to be signed
on their behalf by the undersigned hereunto duly authorized.
The Quaker 401(k) Plan for Salaried Employees
(Name of Plan)
/s/ PAMELA S. HEWITT
(Pamela S. Hewitt)
Senior Vice President - Human Resources
/s/ DENNIS CORRY
(Dennis Corry)
Director - Employee Benefits
/s/ JAMES BROWN
(James Brown)
Manager - Benefit Plans
Date: December 22, 1998
<2>
Exhibit Index
Exhibit Paper (P) or
Number Description Electronic (E)
(a) The Quaker 401(k) Plan E
for Salaried Employees
Financial Statements as
of June 30, 1998 and 1997
(b) Consent of Independent E
Public Accountants
<3>
Exhibit (a)
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT
<4>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
AS OF JUNE 30, 1998 AND 1997
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 6
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS 7-8
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS 9-10
NOTES TO FINANCIAL STATEMENTS 11-23
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES 24
SCHEDULE OF REPORTABLE TRANSACTIONS 25
<5>
INDEPENDENT AUDITOR'S REPORT
To the Plan Committee of
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
of The Quaker Oats Company
We have audited the accompanying Statements of Net Assets
Available for Benefits of The Quaker 401(k) Plan for Salaried
Employees (Plan), formerly The Quaker Employee Stock Ownership
Plan (Plan) as of June 30, 1998 and 1997, and the related
Statements of Changes in Net Assets Available for Benefits for
the year ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for benefits of the Plan as of June 30, 1998 and 1997,
and the changes in net assets available for benefits for the year
ended June 30, 1998 and 1997 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
Schedules of Assets Held for Investment Purposes and of
Reportable Transactions are presented for the purpose of
additional analysis and are not a required part of the basic
financial statements. These schedules contain supplementary
information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental
schedules have been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
/s/ WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
December 18, 1998
<6>
<TABLE>
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF JUNE 30, 1998
(dollars in thousands)
<CAPTION>
Pimco Retirement Fidelity Fidelity Fidelity
Quaker ICAP Total Money Low-Priced Asset Asset Fidelity
Stock Diversified Return Market Stock Manager: Manager: Asset
ASSETS Total Fund Fund Fund Fund Fund Growth Income Manager
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments, at market $846,829 $90,056 $206,779 $24,765 $40,165 $ 1 $ 1 $ -- $ --
Cash 17,166 1,019 -- -- -- -- -- -- --
Employer contributions
receivable 13,680 -- -- -- -- -- -- -- --
Accrued dividends and
interest receivable 1,880 4 -- -- -- -- -- -- --
Due from broker for
unsetttled trades 105 -- -- -- -- -- -- -- --
Total assets 879,660 91,079 206,779 24,765 40,165 1 1 -- --
LIABILITIES
Accrued interest payable 4,961 -- -- -- -- -- -- -- --
Due to broker for
unsettled trades 213 -- -- -- -- -- -- -- --
Notes payable 135,300 -- -- -- -- -- -- -- --
Total liabilities 140,474 -- -- -- -- -- -- -- --
NET ASSETS AVAILABLE
FOR BENEFITS $739,186 $91,079 $206,779 $24,765 $40,165 $ 1 $ 1 $ -- $ --
<CAPTION>
Fidelity Fidelity's Morgan Neuberger Quaker Quaker
Diversified U.S. Equity Stanley & Berman Fidelity LESOP LESOP
International Index Institutional Partners Brokerage Common Preferred Loan
ASSETS Fund Pool Fund Trust Link Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments, at market $ -- $ 4 $ 1 $ 2 $ -- $349,121 $129,704 $6,230
Cash -- -- -- -- -- 12,685 3,462 --
Employer contributions
receivable -- -- -- -- -- 10,042 3,638 --
Accrued dividends and
interest receivable -- -- -- -- -- 1,862 14 --
Due from broker for
unsetttled trades -- -- -- -- -- 105 -- --
Total assets -- 4 1 2 -- 373,815 136,818 6,230
LIABILITIES
Accrued interest payable -- -- -- -- -- 3,061 1,900 --
Due to broker for
unsettled trades -- -- -- -- -- -- 213 --
Notes payable -- -- -- -- -- 82,500 52,800 --
Total liabilities -- -- -- -- -- 85,561 54,913 --
NET ASSETS
AVAILABLE
FOR BENEFITS $ -- $ 4 $ 1 $ 2 $ -- $288,254 $ 81,905 $6,230
See accompanying notes to financial statements.
</TABLE>
<7>
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
(FORMERLY THE QUAKER EMPLOYEE STOCK OWNERSHIP PLAN)
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF JUNE 30, 1997
(dollars in thousands)
1988 1989
Quaker ESOP Quaker ESOP
Total Trust Trust
ASSETS
Investments, at market $426,859 $302,950 $123,909
Cash 5,822 2,956 2,866
Employer contributions
receivable 21,954 18,692 3,262
Accrued dividends and
interest receivable 2,002 1,942 60
Total assets 456,637 326,540 130,097
LIABILITIES
Accrued interest
payable 5,884 3,699 2,185
Notes payable 161,350 100,300 61,050
Total liabilities 167,234 103,999 63,235
NET ASSETS AVAILABLE
FOR BENEFITS $289,403 $222,541 $ 66,862
See accompanying notes to financial statements.
<8>
<TABLE>
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED JUNE 30, 1998
(dollars in thousands)
<CAPTION>
Pimco Retirement Fidelity Fidelity Fidelity
Quaker ICAP Total Money Low-Priced Asset Asset Fidelity
Stock Diversified Return Market Stock Manager: Manager: Asset
ADDITIONS Total Fund Fund Fund Fund Fund Growth Income Manager
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 13,832 $ -- $ 344 $ 115 $ 166 $ -- $ -- $ -- $ --
Interest 598 4 135 -- 3 -- -- -- --
Total investment income 14,430 4 479 115 169 -- -- -- --
Realized gain on
investments 5,635 (21) 452 -- -- -- -- -- --
Unrealized gain/(loss)
on investments 78,898 (4,463) 540 92 -- -- -- -- --
Employee contributions 950 241 545 102 53 1 1 -- --
Employer contributions 27,275 -- -- -- -- -- -- -- --
Net transfers to the
Plan - (Note 2) 374,739 96,286 206,206 25,009 40,737 -- -- -- --
Total additions 501,927 92,047 208,222 25,318 40,959 1 1 -- --
DEDUCTIONS
Distributions to
participants 41,168 968 1,443 553 1,065 -- -- -- --
Interest expense on
note payable 10,976 -- -- -- -- -- -- -- --
Total deductions 52,144 968 1,443 553 1,065 -- -- -- --
INTERFUND TRANSFERS -- -- -- -- 271 -- -- -- --
Increase in net assets 449,783 91,079 206,779 24,765 40,165 1 1 -- --
Net assets available
for benefits,
beginning of period 289,403 -- -- -- -- -- -- -- --
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $739,186 $91,079 $206,779 $24,765 $40,165 $ 1 $ 1 $ -- $ --
<CAPTION>
Fidelity Fidelity's Morgan Neuberger Quaker Quaker
Diversified U.S. Equity Stanley & Berman Fidelity LESOP LESOP
International Index Institutional Partners Brokerage Common Preferred Loan
ADDITIONS Fund Pool Fund Trust Link Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ -- $ -- $ -- $ -- $ -- $ 7,313 $ 5,894 $ --
Interest -- -- -- -- -- 325 131 --
Total investment income -- -- -- -- -- 7,638 6,025 --
Realized gain on
investments -- -- -- -- -- 4,075 1,129 --
Unrealized gain/(loss)
on investments -- -- -- -- -- 65,016 17,713 --
Employee contributions -- 4 1 2 -- -- -- --
Employer contributions -- -- -- -- -- 19,891 7,384 --
Net transfers to the
Plan - (Note 2) -- -- -- -- -- -- -- 6,501
Total additions -- 4 1 2 -- 96,620 32,251 6,501
DEDUCTIONS
Distributions to
participants -- -- -- -- -- 29,837 7,302 --
Interest expense on
note payable -- -- -- -- -- 6,672 4,304 --
Total deductions -- -- -- -- -- 36,509 11,606 --
INTERFUND TRANSFERS -- -- -- -- -- 5,602 (5,602) (271)
Increase in net assets -- 4 1 2 -- 65,713 15,403 6,230
Net assets available
for benefits,
beginning of period -- -- -- -- -- 222,541 66,862 --
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $ -- $ 4 $ 1 $ 2 $ -- $288,254 $81,905 $6,230
See accompanying notes to financial statements.
</TABLE>
<9>
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
(FORMERLY THE QUAKER EMPLOYEE STOCK OWNERSHIP PLAN)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED JUNE 30, 1997
(dollars in thousands)
1988 1989
Quaker ESOP Quaker ESOP
ADDITIONS Total Trust Trust
Investment income:
Dividends $ 14,117 $ 7,895 $ 6,222
Interest 254 138 116
Total investment income 14,371 8,033 6,338
Realized gain on
investments 1,594 1,144 450
Unrealized gain/(loss)
on investments 100,236 73,775 26,461
Employer contributions 25,829 19,235 6,594
Total additions 142,030 102,187 39,843
DEDUCTIONS
Distributions to
participants 27,886 22,377 5,509
Interest expense on
note payable 12,937 8,043 4,894
Total deductions 40,823 30,420 10,403
INTERFUND TRANSFERS -- 783 (783)
Increase in net assets 101,207 72,550 28,657
Net assets available
for benefits,
beginning of period 188,196 149,991 38,205
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $289,403 $222,541 $66,862
See accompanying notes to financial statements.
<10>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
The Quaker Employee Stock Ownership Plan (ESOP) was renamed The
Quaker 401(k) Plan for Salaried Employees (Plan). Effective May
31, 1998, at the close of business, The Quaker Investment Plan
(QIP) merged into the Plan. The following brief description of
the Plan provides only general information. The Plan document
should be referred to for the complete Plan provisions.
General
The Plan covers salaried domestic employees of The Quaker Oats
Company (Company or Quaker) and certain domestic subsidiaries.
The Plan includes The Quaker LESOP Common Stock Fund and The
Quaker LESOP Preferred Stock Fund (LESOP Funds) and 13 investment
funds (non-LESOP Funds). Under the Plan, eligible salaried
employees are awarded annual employer contributions to the LESOP
funds and may contribute to non-LESOP Funds on a pretax basis for
long-term retirement savings.
The Plan is intended to qualify as a cash or deferred arrangement
under Section 401(k) of the Internal Revenue Code (Code) and is
subject to the provisions of the Employee Retirement Income
Security Act of 1974.
Overall responsibility for administering the Plan rests with the
Plan's administrative committee which is appointed by the Board
of Directors of the Company. The Plan's trustee is responsible
for the management and control of the Plan's assets and has
certain discretionary authority and control over such assets.
The Plan's administrative committee appointed The Fidelity
Management Trust Company (FMTC) as the trustee and The Fidelity
Institutional Retirement Services Company as the record keeper
for the Plan, effective June 1, 1998. Prior to June 1, 1998, The
Northern Trust Company (Northern Trust) was the trustee and
Hewitt Associates was the record keeper for the Plan. The
Company currently pays all record keeping expenses as well as
expenses for operation and management of LESOP Funds.
Participants pay operating and management expenses which are
deducted from non-LESOP Funds.
Eligibility
Under the current terms of the Plan, salaried employees of the
Company are eligible to participate in the Plan on the date of
employment.
LESOP Funds
FMTC must invest all LESOP Funds assets, including earnings
thereon, primarily in Quaker stock, except as otherwise directed
by the Plan committee. The assets of the LESOP Funds may not be
commingled with the assets of the non-LESOP Funds.
<11>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Non-LESOP Funds
Effective June 1, 1998, participants could invest in one or more
of the following 13 investment funds:
Fidelity Retirement Money Market Portfolio
This fund invests in high quality, short-term, U.S. dollar
denominated money market securities of domestic and foreign
issuers. The fund seeks to maintain a stable net asset value
of $1 per share, but there is no guarantee it will do so.
PIMCO Total Return Fund - Administrative Class
This fund invests in a variety of bonds, including U.S.
government, corporate, mortgage and foreign. The fund seeks
to provide high total return that exceeds general bond
market indices.
Fidelity's U.S. Equity Index Commingled Pool
This fund primarily invests in the common stocks of the 500
companies that comprise the Standard and Poor's 500 Index (S&P
500). The fund seeks to approximate the composition and total
return of the S&P 500.
ICAP Diversified Fund
This fund primarily invests in large capitalization stocks.
The fund seeks to achieve a total return greater than the S&P
500 with an equal or lesser degree of risk than the S&P 500.
Neuberger & Berman Partners Trust
This fund invests in common stocks of established medium- to
large-capitalization companies, using a value-oriented
investment approach. The fund seeks to provide capital
growth.
<12>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Fidelity Low-Priced Stock Fund
This fund primarily invests in stocks of companies that the
fund manager considers undervalued or out of favor with other
investors and that could offer the possibility for significant
growth. This fund seeks long-term capital appreciation.
Fidelity Diversified International Fund
This fund primarily invests in stocks of larger companies
located outside the United States. The fund manager seeks
stocks that are undervalued compared to industry norms for
their countries. This fund seeks long-term capital growth.
Morgan Stanley Institutional Fund, Inc. - Global Equity
Portfolio Class B
This fund invests in a diversified mix of stocks throughout
the world, selected after detailed analysis by local country
investment experts. The portfolio may have some exposure to
emerging markets, which pose greater risks due to less
developed political and economic situations and less liquid
markets. The fund seeks long-term capital growth.
Quaker Stock Fund
This fund pools a participant's money with that of other
participants to buy shares of Quaker common stock. The fund
also holds an amount of short-term investments to allow
participants to buy or sell every business day without the
usual trade settlement period for individual stock
transactions. Ownership is measured in units of the fund
instead of shares of stock. The fund seeks to increase the
investment value over the long term by investing in the common
stock of the Company.
The Quaker Stock Fund is an employee stock ownership plan and,
as such, participants may be paid quarterly cash dividends
from the Quaker Stock Fund and, when paid, the Company is
eligible for a corresponding tax deduction.
Fidelity Asset Manager: Income
This fund invests in a variety of U.S. and foreign
investments: stocks, bonds, and short-term and money market
instruments. The benchmark allocation for this fund is 20% in
stocks, 50% in bonds and 30% in the short-term/money market
class. The fund seeks to provide high current income, with
some potential for capital appreciation.
<13>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Fidelity Asset Manager
This fund invests in a variety of U.S. and foreign
investments: stocks, bonds, and short-term and money market
instruments. The benchmark allocation for this fund is 50% in
stocks, 40% in bonds and 10% in the short-term/money market
class. This fund seeks to provide high total return with
reduced risk over the long term.
Fidelity Asset Manager: Growth
This fund invests in a variety of U.S. and foreign
investments: stocks, bonds, and short-term and money market
instruments. The benchmark allocation for this fund is 70% in
stocks, 25% in bonds and 5% in the short-term/money market
class. This fund seeks to provide maximum total return over
the long term.
Fidelity BrokerageLink
BrokerageLink is a service that allows the participant to open
a Fidelity brokerage account with the assets in the
participants Plan account. Through this account, participants
have access to thousands of investments, including: over 2,000
Fidelity and non-Fidelity mutual funds, individual stocks on
all major exchanges, government and corporate bonds,
treasuries and other government securities, certificates of
deposits, unit investment trusts, and foreign securities.
Employer Contributions
The Company has made cash contributions to the LESOP Funds to
make payments of principal and/or interest on the notes payable.
All cash dividends received with respect to unallocated shares of
Quaker stock in the LESOP Funds and interest income of the LESOP
Funds are available to make payments on maturing obligations on
the LESOP loans. Refer to Notes 6 and 7 for further discussion
of the notes payable issued by the LESOP Funds.
<14>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Employee contributions
Participants in the Plan are allowed to defer receipt of, and
have placed in the non-LESOP Funds, up to 15 percent of their
base salary, subject to the Internal Revenue Service (IRS) dollar
amounts allowed. Participants with a base salary of less than
$70,000 are able to contribute up to 15 percent. Those
participants with a base salary of $70,000 or more are
limited to 7 percent. Contributions are not subject to federal
income tax until distributed to the participants or their
beneficiaries. The Plan allows participants to transfer their
accounts among non-LESOP Funds in increments of one percent or
in specific dollar amounts. Participants may also change the
percentage of their future earnings contributed to the Plan.
The Plan allows employees the option to deposit excess funds from
The Quaker Flex Plan to the Plan. The Plan also allows
a participant to contribute to the Plan a lump-sum distribution
received from other qualified plans when the contribution
qualifies as a tax-free rollover.
Distributions
Participants may elect in writing to receive all or a portion of
their accounts if they are at least age 59 1/2 years
or if they are totally and permanently disabled as determined by
the Company with the advice of a medical doctor. The
participant's account will then be valued as of the latest
available valuation date before distribution. If only a portion
of the account is distributed, the remaining balance will
continue to be adjusted for contributions, net earnings, gains
and losses as of each valuation date.
Participants may receive a distribution of a portion of their
non-LESOP accounts in the event of a hardship. Hardship
withdrawals occur when funds are required for purchasing
or making capital expenditures for a primary residence,
financing the post-secondary education of the participant
or the participant's family or alleviating existing financial
hardship.
If a participant's employment with the Company is terminated, the
Plan may distribute the participant's account balance to the
participant or the participant's beneficiary. A participant may
elect to defer the lump-sum distribution or the start of
installment payments until age 70 1/2. A participant may elect in
writing to receive the distribution in one of the following ways:
(a) in a lump sum; (b) in a partial distribution; or (c) in
approximately equal annual installments over a chosen period.
The period chosen, however, must be no longer than the
participant's life expectancy when distributions begin as
determined by the IRS regulations.
If the distribution is made through installment payments, the
participant's remaining account balance will continue to be
adjusted for net earnings and gains and losses as of each
valuation date. If a participant's account value is $5,000 or
less, an automatic lump-sum distribution may be made as soon as
practicable after the end of the Plan year in which termination
occurs.
<15>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Loans
Plan participants may borrow up to 50 percent of their account
balances. The minimum loan amount is $1,000 and the maximum is
$50,000. The term of a loan may be a minimum of one year and a
maximum of 15 years. Loan amounts may not be deducted from the
LESOP Funds; as such, in no event can a participant borrow more
than their combined balance in all of the non-LESOP Funds.
Participants may have up to three loans outstanding at any time
and each loan will have a separate payment schedule. Repayments
on the loan are to be made directly through payroll deductions
for active employees. Loans made to a participant shall be
secured by the participant's non-forfeitable interest from one or
more of the funds in which a participant's account is invested
prior to the making of such loans.
Plan Termination
The Plan may be terminated at any time by the action of the Board
of Directors or the Executive Committee of the Board. In the
event of termination of the Plan, the accounts shall be held for
the benefit of the participants, former participants or their
beneficiaries.
Income Tax Status
The QIP obtained its latest determination letter on October 9,
1997, in which the IRS stated that the QIP, as then designed, was
in compliance with the applicable requirements of the Code. The
ESOP obtained its latest determination letter on May 22, 1996.
Effective May 31, 1998, at the close of business, the QIP merged
into the Plan.
The Plan has not since received a determination letter from the
IRS; however, the Plan administrator believes that the merged
plan is currently designed and being operated in compliance with
the applicable requirements of the Code, and therefore, qualifies
as tax exempt as of June 30, 1998.
<16>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 2 - PLAN CHANGES
Plan Merger
Effective May 31, 1998, at the close of business, the QIP merged
into the Plan. As a result of this merger, the assets of the QIP
were transferred to the Plan. For additional information
regarding the transferred assets refer to Form 11-K of the QIP
for the transition period from January 1, 1998 to May 31, 1998.
Management Change
The Plan's administrative committee appointed FMTC as the trustee
and The Fidelity Institutional Retirement Services Company as the
record keeper for the Plan, effective June 1, 1998.
Participant accounts transferred from the QIP were invested in
similar non-LESOP Funds. The Bond Fund, previously managed by
Barclays Global Investors, is managed by The Pacific Investment
Management Company. The Money Market Fund and the Quaker Stock
Fund, previously managed by Northern Trust, are managed by FMTC.
Management of the Diversified Fund remains the same.
The Quaker LESOP Common Stock Fund and The Quaker LESOP Preferred
Stock Fund previously managed by Northern Trust, are managed by
FMTC.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements are prepared on the accrual
basis of accounting. Interest income is recorded as earned and
dividend income is recorded as of the record date.
The preparation of the financial statements in conformity with
generally accepted accounting principles (GAAP) requires the
Plan's management to use estimates and assumptions that affect
the accompanying financial statements and disclosures. Actual
results could differ from these estimates and assumptions.
Certain previously reported amounts have been reclassified to
conform to the current presentation.
<17>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Valuation
Investments are included in the accompanying Statements of Net
Assets Available for Benefits at fair market value. Fair market
value is based on published market prices.
Net realized and unrealized gains and losses for the period are
reflected in the accompanying Statement of Changes in Net Assets
Available for Benefits based on revalued cost. The net realized
gain or loss on the investments sold is calculated as the
difference between the proceeds received and the fair market
value of investments on the first day of the Plan year or the
average cost of investments if purchased during the Plan year.
The net realized gain or loss on the distribution of Quaker
common stock shares is calculated as the difference between the
fair market value on the date of distribution and fair market
value on the first day of the Plan year. The net unrealized gain
is calculated as the difference between the fair market value of
investments at the end of the Plan year and the fair market value
at the beginning of the Plan year or the average cost of
investments if purchased during the Plan year.
Purchases and sales of securities, including related gains and
losses, are recognized on the transaction trade date. Brokerage
commissions increase the cost or decrease the sale proceeds on
the security transactions.
NOTE 4 - INVESTMENTS
The fair value of the Plan's investments at June 30, 1998, which
represent 5% or more of the Plan's net assets are summarized as
follows:
Fair Value
(in thousands)
Quaker LESOP Common Fund $ 288,254
ICAP Diversified Fund $ 206,779
Quaker Stock Fund $ 91,079
Quaker LESOP Preferred Fund $ 81,905
Retirement Money Market Fund $ 40,165
The net realized gain and net unrealized gain were as follows:
Year Ended Year Ended
June 30, 1998 June 30, 1997
Net realized gain on investments $ 5,635 $ 1,594
Net unrealized gain on fair value of
investments 78,898 100,236
NET GAIN ON FAIR VALUE OF INVESTMENTS $ 84,533 $101,830
18
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 5 - PARTICIPATION IN A MASTER TRUST
Effective June 1, 1998, the investments of the Plan and the
investments of The Quaker 401(k) Plan for Hourly Employees were
combined in The Quaker Oats Company 401(k) Plans Master Trust in
order to realize certain administrative efficiencies. A separate
account is maintained reflecting the equitable share of each
plan's participation in each investment fund.
At June 30, 1998, the Plan's undivided interest in The Quaker
Oats Company 401(k) Plans Master Trust was 87%.
NOTE 6 - THE QUAKER LESOP COMMON STOCK FUND
Effective June 1, 1998, the common shares within The 1988 Quaker
Employee Stock Ownership Trust and the common shares within The
1989 Quaker Employee Stock Ownership Trust were combined to form
The Quaker LESOP Common Stock Fund. The Quaker LESOP Common
Stock Fund, or its predecessors, was established to issue certain
notes pursuant to one or more loan agreements, and to use the
proceeds of such notes to acquire, for the future allocation to
Plan participants, shares of common stock of the Company.
Note Payable
In January 1989, The Quaker LESOP Common Stock Fund (then known
as The 1988 Quaker Employee Stock Ownership Trust) issued
$150,000,000 Senior ESOP Notes at an interest rate of 8.07% with
principal due in annual installments through July 15, 2001.
Under the terms of the note agreement of The Quaker LESOP Common
Stock Fund, if there is a change in the federal tax rate or the
inclusion rate (the percentage of income received by the lenders
that is not excludable from gross income pursuant to Section 133
of the Code), the interest rate of the loan will be adjusted
effective on the date the change in rates occurs. The new
interest rate will be determined by multiplying the old interest
rate by an adjustment fraction. Effective January 1, 1993, under
the new tax bill, the federal tax rate increased. Thus, the
interest rate paid on The Quaker LESOP Common Stock Fund declined
from 8.07% to 8.00%. Interest is payable semiannually on January
15th and July 15th. Payment of the notes and interest is
unconditionally guaranteed by Quaker. Northern Trust purchased
5,626,304 shares of Quaker common stock with the proceeds of the
note at a cost of $149,624,972. These shares were placed in the
fund's unallocated account pending future allocation to Plan
participants.
The Quaker LESOP Common Stock Fund includes 1,861,286 shares of
Quaker common stock that were transferred from the 1985 Trust
into The 1988 Quaker Employee Stock Ownership Trust in July of
1995.
<19>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 6 - THE QUAKER LESOP COMMON STOCK FUND (CONTINUED)
The Quaker LESOP Common Stock Fund investments at June 30, 1998,
and The 1998 Quaker Employee Stock Ownership Trust investments at
June 30, 1997, were as follows:
1998 1997
Allocated Unallocated Allocated Unallocated
Quaker Common Shares:
Number of Shares 4,145,094 2,209,790 3,813,305 2,937,670
Cost $ 96,061,552 $ 55,262,449 $ 83,783,757 $ 73,465,279
Market $227,721,102 $121,400,338 $171,122,062 $131,827,941
The outstanding balance of the note payable at June 30, 1998, was
$82,500,000 with maturing principal balances as follows:
Fiscal 1999 $20,400,000
Fiscal 2000 23,100,000
Fiscal 2001 25,800,000
Fiscal 2002 13,200,000
$82,500,000
Contributions
The Company's regular contributions, plus cash received from
dividends and interest, were used to make a regularly scheduled
payment on January 15, 1998 of $3,298,915 (interest only) on the
note payable. On May 27, 1998, 116,446 shares of the Company's
common stock were pre-released from the unallocated account to
replace dividends from the allocated accounts that were used to
repay the LESOP Funds notes payable.
The Company's regular contributions, plus cash received from
dividends and interest, were used to make a regularly scheduled
payment on July 15, 1998 of $23,698,915 (principal and interest
in the amount of $20,400,000 and $3,298,915, respectively), on
the note payable. In association with this payment, 522,846
shares of the Company's common stock were released from the
trust's unallocated account, and 503,173 shares were allocated to
participants' accounts based on participants' compensation
pursuant to the terms of the Plan. The remaining 19,133 shares
were allocated by the Company to replace dividends from the
allocated accounts that were used to repay the LESOP Funds notes
payable.
<20>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 7 - THE QUAKER LESOP PREFERRED STOCK FUND
Effective June 1, 1998, the common shares within The 1989 Quaker
Employee Stock Ownership Trust were transferred to The Quaker
LESOP Common Stock Fund. The remaining preferred shares formed
The Quaker LESOP Preferred Stock Fund. The Quaker LESOP
Preferred Stock Fund, or its predecessor, was established to
issue certain notes pursuant to one or more loan agreements, and
to use the proceeds of such notes to acquire, for the future
allocation to Plan participants, shares of stock of the Company.
Note Payable
In June 1989, The Quaker LESOP Preferred Stock Fund (then known
as The 1989 Quaker Employee Stock Ownership Trust) issued
$100,000,000 Senior ESOP Notes at an interest rate of 7.83% due
July 15, 2001. Under the terms of the note agreement of The
Quaker LESOP Preferred Stock Fund, if there is a change in the
federal tax rate or the inclusion rate (the percentage of income
received by the lenders that is not excludable from gross income
pursuant to Section 133 of the Code), the interest rate of the
loan will be adjusted effective on the date the change in rates
occurs. The new interest rate will be determined by multiplying
the old interest rate by an adjustment fraction. Effective
January 1, 1993, under the new tax bill, the federal tax rate
increased. Thus, the interest rate paid on The Quaker LESOP
Preferred Stock Fund declined from 7.83% to 7.76%. Interest and
principal is payable semiannually on January 15th and July 15th.
Payment of the notes and interest is unconditionally guaranteed
by Quaker.
Northern Trust purchased 1,282,051 shares of the Company's Series
B ESOP Convertible Preferred Stock with the proceeds of the note
at a cost of $99,999,978. These shares were placed in the fund's
unallocated account pending future allocation to Plan
participants. The conversion rate of convertible preferred stock
to common stock is 1:2.1576.
<21>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 7 - THE QUAKER LESOP PREFERRED STOCK FUND (CONTINUED)
The Quaker LESOP Preferred Stock Fund investments at June 30,
1998, and The 1989 Quaker Employee Stock Ownership Trust at June
30, 1997, were as follows:
1998 1997
Allocated Unallocated Allocated Unallocated
Quaker Common
Shares:
Number of Shares 5,396 -- 163,905 --
Cost $300,841 -- $5,042,092 --
Market $296,443 -- $7,355,237 --
Quaker Series B
ESOP Convertible
Preferred
Shares:
Number of Shares 468,705 542,687 429,387 641,136
Cost $33,241,250 $47,872,975 $28,720,091 $56,557,624
Market $59,970,805 $69,436,801 $46,749,510 $69,803,682
The outstanding balance of the note payable at June 30, 1998, was
$52,800,000 with maturing principal balances as follows:
Fiscal 1999 $ 9,350,000
Fiscal 2000 10,600,000
Fiscal 2001 19,250,000
Fiscal 2002 13,600,000
$ 52,800,000
Contributions
The Company's regular contributions, plus cash received from
dividends and interest, were used to make a regularly scheduled
payment on January 15, 1998 of $6,619,360 (principal and interest
in the amount of $4,400,000 and $2,219,360, respectively), on the
note payable. In association with this payment, 51,774 shares of
the Company's preferred stock were released from the unallocated
account.
<22>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
NOTE 7 - THE QUAKER LESOP PREFERRED STOCK FUND (CONTINUED)
The Company's regular contributions, plus cash received from
dividends and interest, were used to make a regularly scheduled
payment on July 15, 1998 of $6,448,640 (principal and interest in
the amount of $4,400,000 and $2,048,640, respectively), on the
note payable. In association with this payment, 50,439 shares of
the Company's preferred stock were released from the unallocated
account.
All of the shares released from the unallocated account, after
the note payments, were allocated to participants' accounts based
on participants' compensation pursuant to the Plan.
NOTE 8 - RECONCILIATION OF THE FORM 5500 TO THE FINANCIAL STATEMENTS
The following is a reconciliation of net assets available for
benefits per the Form 5500 to the financial statements:
As of As of
June 30, 1998 June 30, 1997
Net assets available for benefits per
the Form 5500 $ 739,186 $ 285,761
Add: Distributions payable to
participants -- 3,642
NET ASSETS AVAILABLE FOR BENEFITS PER
THE FINANCIAL STATEMENTS $ 739,186 $ 289,403
The following is a reconciliation of benefits paid to
participants per the Form 5500 to the financial statements:
Year Ended Year Ended
June 30, 1998 June 30, 1997
Distributions to participants per $ 37,139 $ 27,208
the Form 5500
Add: Distributions payable, beginning
of year -- 4,320
Add: Distributions payable, transferred
to the Plan on May 31, 1998 4,029 --
Less: Distributions payable, end of year -- 3,642
DISTRIBUTIONS TO PARTICIPANTS PER THE
FINANCIAL STATEMENTS $ 41,168 $ 27,886
<23>
<TABLE>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
FORM 5500 ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF JUNE 30, 1998
<CAPTION>
Number of Market
Description Shares Cost Value
<S> <C> <C> <C>
The Quaker Oats Company Series B ESOP
Convertible Preferred Stock* 1,011,392 $ 81,114,225 $129,407,606
The Quaker Oats Company Common Stock* 7,999,576 194,880,654 439,474,272
Collective Funds
Fidelity Retirement Money Market
Portfolio* 40,165,303 40,165,303 40,165,303
ICAP Diversified Fund 20,534,184 180,106,031 206,779,241
Total Collective Funds 220,271,334 246,944,544
Registered Investment Companies
Fidelity Asset Manager* -- -- --
Fidelity Asset Manager: Growth* 27 544 548
Fidelity Asset Manager: Income* -- -- --
Fidelity Diversified International Fund* 7 128 128
Fidelity Low-Priced Stock Fund* 46 1,242 1,252
Fidelity's U.S. Equity Index Commingled
Pool* 109 3,429 3,461
Morgan Stanley Global Equity B 62 1,306 1,310
Neuberger & Berman Partners Trust 94 1,774 1,756
PIMCO Total Return Fund - Administrative
Class 2,310,154 24,672,930 24,764,849
Total Registered Investment Companies 24,681,323 24,773,304
Cash 17,166,750 17,166,750
Participant Loans (9.25%) 6,230,044 6,230,044
TOTAL INVESTMENTS $544,342,330 $863,995,520
* Represents party-in-interest to the Plan.
<24>
</TABLE>
<TABLE>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
FORM 5500 ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED JUNE 30, 1998
<CAPTION>
Purchase Selling Expense Cost of Current Value on Net
Description Price # of Trades Price # of Trades Incurred Asset Transaction Date Gain
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Northern Trust Money
Market Fund $ -- -- $39,686,995 1 $ -- $39,686,995 $39,686,995 $ --
Fidelity Retirement Money
Market Fund $40,165,303 6 -- -- $ -- $40,165,303 $40,165,303 $ --
PIMCO Total Return -
Administrative Class $24,672,930 5 -- -- $ -- $24,672,930 $24,672,930 $ --
<25>
Exhibit (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our report dated December 18, 1998 (and references to our
Firm) included in or made a part of this Form 11-K. It should be
noted that we have not audited any financial statements of The
Quaker 401(k) Plan for Salaried Employees subsequent to June 30,
1998 or performed any audit procedures subsequent to the date of
our report.
/s/ WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
December 21, 1998
<26>
</TABLE>
