UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] Annual Report Pursuant to Section l5(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, 1999
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, 1999
<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, 1999 and 1998
(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, 1999 AND 1998
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT
<4>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
AS OF JUNE 30, 1999 AND 1998
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 6
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS 7
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS 8
NOTES TO FINANCIAL STATEMENTS 9-21
Note: Supplemental schedules are either inapplicable for the twelve months ended
June 30, 1999, or are not required because they are filed as part of The
Quaker Oats Company 401(k) Plans Master Trust (Quaker Master Trust), in which
this Plan participates.
<5>
INDEPENDENT AUDITOR'S REPORT
To the Plan Administrative 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)
as of June 30, 1999 and 1998, and the related Statement of Changes in
Net Assets Available for Benefits with fund information for the year
ended June 30, 1999. 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, 1999 and 1998, and the changes in
net assets available for benefits for the year ended June 30, 1999 in
conformity with generally accepted accounting principles.
/s/WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
December 21, 1999
<6>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF JUNE 30, 1999 AND 1998
(dollars in thousands)
ASSETS June 30, 1999 June 30, 1998
Investment in Quaker Master Trust $ 857,778 $ 739,186
NET ASSETS AVAILABLE FOR BENEFITS $ 857,778 $ 739,186
See accompanying notes to financial statements.
<7>
<TABLE>
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED JUNE 30, 1999
(dollars in thousands)
<CAPTION>
Fidelity
Quaker Pimco Retirement Fidelity Fidelity Fidelity
Common ICAP Total Money Low-Priced Asset Asset Fidelity
Stock Diversified Return Market Stock Manager: Manager: Asset
Total Fund Fund Fund Fund Fund Growth Fund Income Fund Manager
ADDITIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 19,560 $ 1,805 $ -- $ 2,455 $ 1,997 $ 107 $ 255 $ 81 $ 332
Interest 1,131 11 155 5 3 -- -- -- --
Total investment income 20,691 1,816 155 2,460 2,000 107 255 81 332
Net appreciation
(depreciation) in the
fair value of assets 132,278 18,514 18,163 (1,501) -- 269 135 (10) (52)
Employee contributions 12,825 2,450 6,385 735 1,159 271 257 48 62
Employer contributions 28,614 -- -- -- -- -- -- -- --
Net transfers from
other plans 2,221 55 208 181 582 102 312 46 82
Total additions 196,629 22,835 24,911 1,875 3,741 749 959 165 424
DEDUCTIONS
Distributions to
participants 67,617 6,745 14,439 2,477 6,946 139 139 152 191
Interest expense
on notes payable 8,615 -- -- -- -- -- -- -- --
Dividends to
participants 1,805 1,805 -- -- -- -- -- -- --
Total deductions 78,037 8,550 14,439 2,477 6,946 139 139 152 191
LOANS
Participant loans -- (2,040) (2,888) (229) (661) (31) (84) (28) (24)
Loans repaid -- 1,328 1,973 249 252 48 111 10 9
Net Loans -- (712) (915) 20 (409) 17 27 (18) (15)
INTERFUND TRANSFERS -- (19,124) (27,340) 291 6,103 2,413 4,059 1,561 2,279
Increase (decrease)
in net assets 118,592 (5,551) (17,783) (291) 2,489 3,040 4,906 1,556 2,497
Net assets available
for benefits,
beginning of period 739,186 91,079 206,779 24,765 40,165 1 1 -- --
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $857,778 $85,528 $188,996 $24,474 $42,654 $3,041 $4,907 $1,556 $2,497
<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
Fund Pool Fund Trust Link Fund Fund Fund
ADDITIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 38 $ -- $ 22 $ 82 $ 6 $ 7,002 $ 5,378 $ --
Interest -- -- -- -- 4 180 65 708
Total investment income 38 -- 22 82 10 7,182 5,443 708
Net appreciation
(depreciation) in the
fair value of assets 233 2,732 252 751 653 69,827 22,312 --
Employee contributions 144 813 208 279 14 -- -- --
Employer contributions -- -- -- -- -- 20,761 7,853 --
Net transfers from
other plans 42 374 177 60 -- -- -- --
Total additions 457 3,919 659 1,172 677 97,770 35,608 708
DEDUCTIONS
Distributions to
participants 177 1,086 37 78 74 26,819 7,726 392
Interest expense
on notes payable -- -- -- -- -- 5,025 3,590 --
Dividends to
participants -- -- -- -- -- -- -- --
Total deductions 177 1,086 37 78 74 31,844 11,316 392
LOANS
Participant loans (13) (215) (24) (15) -- -- -- 6,252
Loans repaid 21 131 33 51 -- -- -- (4,216)
Net Loans 8 (84) 9 36 -- -- -- 2,036
INTERFUND TRANSFERS 2,237 17,799 1,834 3,185 6,186 973 (2,456) --
Increase (decrease)
in net assets 2,525 20,548 2,465 4,315 6,789 66,899 21,836 2,352
Net assets available
for benefits,
beginning of period -- 4 1 2 -- 288,254 81,905 6,230
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $2,525 $20,552 $2,466 $4,317 $6,789 $355,153 $103,741 $8,582
</TABLE>
See accompanying notes to financial statements.
<8>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
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
participant directed 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 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 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.
Plan Expenses
The Company pays administrative record keeping expenses as well
as expenses for operation and management of LESOP Funds.
Participants' account balances are deducted for investment management fees and
other direct expenses of the non-LESOP Funds in which the participant invests.
Eligibility
Under the current terms of the Plan, designated salaried employees of the
Company are eligible to participate in the Plan on their first
day of service.
Vesting
Participants are immediately vested in both their voluntary
contributions and the Company's allocations as well as the actual
earnings thereon.
<9>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
LESOP Funds (Non-participant Directed)
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. Participants
over age 55 with 10 or more years of participation in the Plan may elect
to diversify their investments by transferring certain amounts out of the LESOP
Funds, into other Plan investment funds once a year.
Non-LESOP Funds (Participant Directed)
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.
<10>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
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.
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. The fund may have some exposure to emerging
markets, which pose greater risks due to less developed
political and economic situations and less liquid markets.
This fund seeks long-term capital growth.
Quaker Common 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 Common Stock Fund is an employee stock ownership
plan and, as such, participants may be paid quarterly cash
dividends from the Quaker Common Stock Fund and, when paid, the
Company is eligible for a corresponding tax deduction.
<11>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Fidelity Asset Manager: Income
This fund invests all basic types 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.
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
participant's Plan account. Through this account,
participants have access to a wide range of additional
investments.
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 and interest income of the LESOP Funds are available
to make payments on maturing obligations on the LESOP loans. Refer to
Notes 5 and 6 for further discussion of the notes payable issued by the
LESOP Funds.
<12>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
Employee Contributions
Participants in the Plan were 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 were able to contribute up to 15 percent. Those
participants with a base salary of $70,000 or more were limited
to 7 percent. The Plan allowed employees the option to deposit excess funds from
The Quaker Flex Plan to the Plan. Effective July 1, 1999, all participants in
the Plan are allowed to contribute up to 10 percent of their base salary,
subject to the IRS dollar amounts allowed. Also, the Plan will no longer allow
participants the option to deposit excess funds from The Quaker Flex Plan to the
Plan.
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 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 non-LESOP 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.
<13>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES (CONTINUED)
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.
Participant Loans
Participants may borrow from their fund accounts a minimum of
$1,000 up to a maximum equal to 50 percent of their account
balance or $50,000. Loan transactions are treated as a transfer
to (from) the investment from (to) the Participant Loan Fund.
Loan terms range from one year to five years, or up to 15 years for the
purchase of a primary residence. 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. The loans are
secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as
determined by the Plan's administrator. Interest rates during
the year ended June 30, 1999 (Fiscal 1999), ranged from 8.75 percent to 9.50
percent. Principal and interest are paid ratably according to a
regular payment schedule, directly through payroll deductions for
active employees.
Plan Termination
While the Company has not expressed intent to terminate the Plan,
the Plan may be terminated at any time by action of the Company's
Board of Directors. In the event of the Plan's termination, the
value of the accounts determined as of the effective date of such
termination shall be held for the benefit of participants, former
participants or their beneficiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared on the
accrual basis of accounting.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's
management to use estimates and assumptions that affect the
accompanying financial statements and disclosures. Actual
results could differ from those estimates and assumptions.
Certain previously reported amounts have been reclassified to
conform to the current presentation.
<14>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pending Accounting Change
In September 1999, Statement of Position (SOP) No. 99-3,
"Accounting for and Reporting of Certain Defined Contribution
Plan Investments and Other Disclosure Matters," was issued. This
SOP will require changes to the financial statement presentation
and disclosures for the Plan and must be adopted for plan years
ending after December 15, 1999.
Investment Valuation and Income Recognition
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. The purchase and sale of investments,
including related gains and losses, are recognized on the transaction trade
date. Brokerage commissions and investment management fees increase the cost
or decrease the sale proceeds on the transactions. Interest income
is recorded as earned and dividend income is recorded as of the
record date.
NOTE 3 - FEDERAL INCOME TAXES
The Quaker Investment Plan (QIP) merged into The Quaker Employee
Stock Ownership Plan (ESOP) which was renamed The Quaker 401(k)
Plan for Salaried Employees at the close of business May 31,
1998. 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.
The Plan has not received a determination letter from the IRS
since October 9 1997; 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, 1999.
NOTE 4 - 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 Master Trust in order to realize certain
administrative efficiencies. Investment income, investment
management fees and other direct expenses relating to the Quaker
Master Trust are allocated to the individual plans based on the
average daily balances of each plan. A separate account is
maintained reflecting the equitable share of each plan's
participation in each investment fund. As of June 30, 1999 and
1998, the Plan's interest in the Quaker Master Trust was
approximately 86 percent and 87 percent, respectively. As of
December 31, 1998, the fiscal year end of the Quaker Master
Trust, the Plan's interest was approximately 86 percent of the
total $885,591,000.
<15>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
(dollars in thousands)
NOTE 4 - PARTICIPATION IN A MASTER TRUST (CONTINUED)
Investments Held in the Quaker Master Trust
The Fair Value of the investments held by the Quaker Master Trust
as of June 30, are as follows:
1999 1998
Quaker common stock $ 591,206 $ 544,460
Common stock investments 186,272 188,229
Quaker preferred stock 142,832 129,408
Short-term investments 144,013 103,059
Participant loans receivable 14,568 6,230
Accrued income 2,966 1,880
Employer contributions receivable 25,500 13,680
Miscellaneous receivables 3,543 105
Assets held in the Quaker Master Trust $ 1,110,900 $ 987,051
Leveraged ESOP notes payable $ (105,550) $ (135,300)
Leveraged ESOP interest payable (3,868) (4,961)
Miscellaneous payable (2,983) (213)
Accrued expenses (3,773) --
Liabilities in the Quaker Master Trust $ (116,174) $ (140,474)
Net assets held in the Quaker Master Trust $ 994,726 $ 846,577
A summary of the Quaker Master Trust income for the period from July 1, 1998
through June 30, 1999 was as follows:
1999
Interest $ 641
Interest - participant loans 982
Dividends 22,067
Net realized and unrealized gain on investments:
Quaker common stock 108,493
Other common stock investments 19,063
Quaker preferred stock 22,298
Short-term investments 3,918
Quaker Master Trust net investment income $ 177,462
<16>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 5 - 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 1988 and 1989 Trusts
issued certain notes pursuant to one or more loan agreements, and
used the proceeds of such notes to acquire, for the future
allocation to Plan participants, shares of common stock of the
Company.
Investments in Company Stock
The Quaker LESOP Common Stock Fund investments, at June 30, were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C>
Allocated Unallocated Allocated Unallocated
Quaker common shares:
Number of Shares 4,301,823 1,629,977 4,145,094 2,209,790
Cost $ 101,029,872 $ 40,761,727 $ 96,061,552 $ 55,262,449
Market $ 285,533,502 $ 108,189,723 $ 227,721,102 $ 121,400,338
</TABLE>
During Fiscal 1999, 579,813 shares of the Company's common stock
were allocated. 503,713 shares were allocated to participants'
accounts based on participants' compensation pursuant to the
terms of the Plan. The remaining 76,100 shares were allocated
to participants' accounts to replace dividend earnings on
allocated shares.
Notes Payable
In January 1989, The Quaker LESOP Common Stock Fund (then known
as The 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 is 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 by 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 payable and interest is
unconditionally guaranteed by Quaker. Northern Trust purchased
5,626,304 shares of Quaker common stock with the proceeds of the
notes at a cost of $149,624,972. These shares were placed in the
fund's unallocated account pending future allocation to Plan
participants.
<17>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 5 - THE QUAKER LESOP COMMON STOCK FUND (CONTINUED)
In July 1995, 1,861,286 shares of Quaker common stock were
transferred from a 1985 trust into The 1988 Quaker Employee
Stock Ownership Trust.
The Company's cash contributions, plus cash received from dividends
and interest, were used to make regularly scheduled note payments
on July 15, 1998 of $23,698,915 (principal and interest in the
amount of $20,400,000 and $3,298,915, respectively), and January
15, 1999 of $2,483,183 (interest only). The outstanding balance
of the notes payable as of June 30, 1999, was $62,100,000 with
maturing principal balances as follows:
Fiscal 2000 $ 23,100,000
Fiscal 2001 25,800,000
Fiscal 2002 13,200,000
$ 62,100,000
Contributions
The Company is obligated to make contributions in cash to the
fund which, when aggregated with the fund's dividends and
interest earnings, equal the amount necessary to enable the Plan
to make its regularly scheduled payments of principal and
interest due on its notes payable.
As of June 30, 1999, employer contributions receivable were
$21,479,498. The Company's cash contributions, plus cash
received from dividends and interest, were used to make the
regularly scheduled payment on July 15, 1999 of $25,583,183
(principal and interest in the amount of $23,100,000 and
$2,483,183, respectively), on the notes payable. In association
with this payment, 607,627 shares of the Company's common stock
were released from the trust's unallocated account, and 591,493
shares were allocated to participants' accounts based on
participants' compensation pursuant to the terms of the Plan.
The remaining 16,134 shares were allocated by the Company to
replace dividend earnings on the allocated shares.
NOTE 6 - 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 1989 Trust issued
certain notes pursuant to one or more loan agreements, and used
the proceeds of such notes to acquire, for the future allocation
to Plan participants, shares of common stock of the Company.
<18>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 6 - THE QUAKER LESOP PREFERRED STOCK FUND (CONTINUED)
Investments in Company Stock
The Quaker LESOP Preferred Stock Fund investments, at June 30, were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C>
Allocated Unallocated Allocated Unallocated
Quaker Common Shares:
Number of Shares 5,738 -- 5,396 --
Cost $ 371,059 -- $ 300,841 --
Market $ 380,860 -- $ 296,443 --
Quaker Series B
ESOP Convertible
Preferred shares:
Number of Shares 527,388 419,394 468,705 542,687
Cost $ 38,196,166 $ 36,666,528 $ 33,241,250 $ 47,872,975
Market $ 79,561,754 $ 63,269,779 $ 59,970,805 $ 69,436,801
During Fiscal 1999, 123,293 of the Company's ESOP Preferred stock
shares were allocated to participants. 102,213 shares were
allocated to participants' accounts based on participants'
compensation pursuant to the terms of the Plan. The remaining
21,080 shares were allocated to participants' accounts to replace
dividend earnings on allocated shares. As of June 30, 1999,
32,325 shares were released but unallocated as a result of the
January 15, 1999 principal payment on the notes payable. (See
"Contributions" on page 20.)
Notes 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 is 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 by 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 payable and interest is unconditionally guaranteed by
Quaker.
<19>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 6 - THE QUAKER LESOP PREFERRED STOCK FUND (CONTINUED)
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.
The Company's cash contributions, plus cash received from
dividends and interest, were used to make regularly scheduled
note payments on July 15, 1998 of $6,619,360 (principal and
interest in the amount of $4,400,000 and $2,219,360,
respectively), and January 15, 1999 of $6,827,920 (principal and
interest in the amount of $4,950,000 and $1,877,920,
respectively). The outstanding balance of the notes payable as of
June 30, 1999, was $43,450,000 with maturing principal balances
as follows:
Fiscal 2000 $ 10,600,000
Fiscal 2001 19,250,000
Fiscal 2002 13,600,000
$ 43,450,000
Contributions
The Company is obligated to make contributions in cash to the
fund which, when aggregated with the fund's dividends and
interest earnings, equal the amount necessary to enable the Plan
to make its regularly scheduled payments of principal and
interest due on its notes payable.
As of June 30, 1999, employer contributions receivable were
$4,020,463. The Company's cash contributions, plus cash received
from dividends and interest, were used to make a regularly
scheduled payment on July 15, 1999 of $6,635,860 (principal and
interest in the amount of $4,950,000 and $1,685,860,
respectively), on the notes payable. In association with this
payment, 51,903 shares of the Company's preferred stock were
released from the unallocated account. These shares combined with
32,325 shares released on January 15, 1999, (a total of 84,228
shares) were allocated to participants' accounts in July 1999
based on participants' compensation pursuant to the Plan.
<20>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998
NOTE 7 - YEAR 2000 (UNAUDITED)
To address the year 2000 issues, the Company has developed and is
executing a detailed four-phase comprehensive readiness plan.
The first and second phases included the assessment, replacement
and remediation of the Company's internal computer and imbedded
systems and have been completed. The third phase, the assessment
of the year 2000 readiness plans of the Company's material third
parties, will continue through 1999. All of the Company's major
service providers, vendors, suppliers and customers who are
believed to be critical to the business operations after January
1, 2000, have been contacted to determine their stage of year
2000 compliance, with approximately 80 percent indicating that
they are fully compliant. All but a few of the remaining 20
percent have plans in place to achieve compliance before the end
of the year. In particular to the Plan, the Company has been in
close contact with the trustee and record keeper of the Plan and
has been informed that they are on schedule with their internal
deadlines to achieve year 2000 compliance. The fourth phase, the
completion of contingency plans in the event of year 2000 non-
compliance, was also completed and includes, among other things,
ongoing monitoring through the year-end date change.
The Company's year 2000 readiness plan is an ongoing process and
the estimates of the completion dates for various components of
the program as described above are subject to change. The
Company does not expect year 2000 projects discussed above to
have a significant effect on Plan operations.
<21>
Exhibit (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our report dated December 21, 1999 (and all 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,
1999 or performed any audit procedures subsequent to the date of
our report.
/s/WASHINGTON, PITTMAN & McKEEVER,LLC
WASHINGTON, PITTMAN & McKEEVER,LLC
Chicago, Illinois
December 22, 1999
<22>
</TABLE>
