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 December 31, 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 Hourly 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 Hourly 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 Hourly 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: June 25, 1999
<2>
Exhibit Index
Exhibit Paper (P) or
Number Description Electronic (E)
(a) The Quaker 401(k) Plan E
for Hourly Employees
Financial Statements as of
December 31, 1998 and 1997
(b) Consent of Independent E
Public Accountants
<3>
Exhibit (a)
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT
<4>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
AS OF DECEMBER 31, 1998 AND 1997
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 9-19
Note: Supplemental schedules are either inapplicable for the twelve months ended
December 31, 1998, 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 HOURLY 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 Hourly Employees (Plan),
formerly the Quaker Stock Bonus Savings Plan, as of December 31, 1998
and 1997, and the related Statement of Changes in Net Assets Available
for Benefits with fund information for the year ended December 31,
1998. 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 December 31, 1998 and 1997, and the changes
in net assets available for benefits for the year ended December 31,
1998 in conformity with generally accepted accounting principles.
/s/WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
June 22, 1999
<6>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
ASSETS December 31, 1998 December 31,1997
Investment in Quaker Master Trust $ 121,004 $ --
The Quaker Oats Company Common Stock,
at market (1,908,412 shares, cost $57,144) -- 100,669
Collective Short-term Investments -- 1,464
Total investments 121,004 102,133
Contributions receivable - Employee -- 417
Contributions receivable - Employer -- 205
Dividends and interest receivable -- 552
Total assets 121,004 103,307
LIABILITIES
Total liabilities -- --
NET ASSETS AVAILABLE FOR BENEFITS $ 121,004 $ 103,307
See accompanying notes to financial statements.
<7>
<TABLE>
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
(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
ADDITIONS Total Fund Fund Fund Fund Fund Growth Fund Income Fund Manager
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 1,959 $ 1,062 $ -- $ 16 $ 64 $ 30 $124 $ 8 $ 79
Interest 327 208 -- -- 3 -- -- -- --
Total investment income 2,286 1,270 -- 16 67 30 124 8 79
Net appreciation
(depreciation) in the
fair value of assets 12,988 3,196 99 (9) -- 23 (23) (1) (30)
Employee contributions 8,564 4,661 89 17 287 51 62 6 35
Employer contributions 2,253 1,395 -- -- -- -- -- -- --
Net transfers from
other plans 136 21 17 8 19 3 12 -- --
Net transfers to the
Quaker Master Trust -- 110,327 -- -- 1,446 -- -- -- --
Total additions 26,227 120,860 205 32 1,819 107 175 13 84
DEDUCTIONS
Distributions to
participants 6,511 1,779 -- -- 157 -- 4 -- 1
Dividends to
participants 2,019 1,062 -- -- -- -- -- -- --
Total deductions 8,530 2,841 -- -- 157 -- 4 -- 1
LOANS
Loans issued -- (4,328) (34) (5) (125) (8) (28) -- (8)
Loans repaid -- 278 12 -- 8 8 -- -- --
Net Loans -- (4,050) (22) (5) (117) -- (28) -- (8)
INTERFUND TRANSFERS -- (7,007) 949 264 741 647 765 126 421
Increase in net assets 17,697 106,962 1,132 291 2,286 754 908 139 496
Net assets available
for benefits,
beginning of period 103,307 -- -- -- -- -- -- -- --
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $121,004 $106,962 $1,132 $291 $2,286 $754 $908 $139 $496
<CAPTION>
Non-Union Union
Fidelity Fidelity's Morgan Neuberger Participant (ESOP) (Non-ESOP)
Diversified U.S. Equity Stanley & Berman Directed Participant Stock Bonus Stock Bonus
International Index Global Equity Partners Fidelity Loan Quaker Stock Quaker Stock
ADDITIONS Fund Pool Fund Trust BrokerageLink Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 5 $ -- $ 4 $ 16 $ -- $ -- $ 481 $ 65
Interest -- -- -- -- 1 76 8 2
Total investment income 5 -- 4 16 1 76 489 67
Net appreciation
(depreciation) in the
fair value of assets 1 239 20 43 26 -- 8,201 1,145
Employee contributions 20 131 42 51 -- -- 2,602 353
Employer contributions -- -- -- -- -- -- 744 114
Net transfers from
other plans 4 21 3 10 -- -- -- 17
Net transfers to the
Quaker Master Trust -- -- -- -- -- -- (96,115) (13,264)
Total additions 30 391 69 120 27 76 (84,079) (11,568)
DEDUCTIONS
Distributions to
participants -- 1 -- -- -- -- 3,815 308
Dividends to
participants -- -- -- -- -- -- 957 --
Total deductions -- 1 -- -- -- -- 4,772 308
LOANS
Loans issued -- (35) (15) (25) -- 4,611 -- --
Loans repaid 6 12 -- 1 -- (325) -- --
Net Loans 6 (23) (15) (24) -- 4,286 -- --
INTERFUND TRANSFERS 100 1,358 412 649 575 -- (234) (55)
Increase in net assets 136 1,725 466 745 602 4,362 (89,085) (11,931)
Net assets available
for benefits,
beginning of period -- -- -- -- -- -- 89,085 11,931
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $136 $1,725 $466 $745 $602 $4,362 $ -- $ --
<CAPTION>
Union
(Non-Sch. E)
PAYSOP Non-Sch. E Schedule E
Quaker Stock Money Market Money Market
ADDITIONS Fund Fund Fund
<S> <C> <C> <C>
Investment income:
Dividends $ 5 $ -- $ --
Interest -- 5 24
Total investment income 5 5 24
Net appreciation
(depreciation) in the
fair value of assets 68 -- --
Employee contributions -- 19 138
Employer contributions -- -- --
Net transfers from
other plans -- 1 --
Net transfers to the
Quaker Master Trust (948) (213) (1,233)
Total additions (875) (188) (1,071)
DEDUCTIONS
Distributions to
participants 32 2 412
Dividends to
participants -- -- --
Total deductions 32 2 412
LOANS
Loans issued -- -- --
Loans repaid -- -- --
Net Loans -- -- --
INTERFUND TRANSFERS (14) (6) 309
Increase in net assets (921) (196) (1,174)
Net assets available
for benefits,
beginning of period 921 196 1,174
NET ASSETS AVAILABLE
FOR BENEFITS, END
OF PERIOD $ -- $ -- $ --
</TABLE>
See accompanying notes to financial statements.
<8>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
The Quaker Stock Bonus Savings Plan was renamed The Quaker 401(k) Plan for
Hourly Employees (Plan), effective June 1, 1998. 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 was adopted by The Quaker Oats Company (Company) and provides a
program under which eligible employees may acquire an ownership interest in the
Company and accumulate 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 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.
Plan Expenses
The Company pays administrative recordkeeping expenses and participants'
account balances are deducted for investment management fees and other direct
expenses.
Eligibility
Under the current terms of the Plan, designated employees of the Company are
eligible to participate in the Plan on their first day of service.
<9>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
Investment Funds
Participants in the Plan were able to invest in Quaker common stock or the
money market funds through May 31, 1998. The money market funds held with
Northern Trust invested in short-term, fixed-income securities. Effective June
1, 1998, these assets were transferred into The Quaker Oats Company 401(k)
Plans Master Trust (Quaker Master Trust). As part of the Quaker Master Trust,
participants may 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.
<10>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY 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.
<11>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
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.
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.
Contributions
Through May 31, 1998, participants had the option to change their investment
election once a month and were allowed to elect to invest their contribution in
either the Quaker Stock Fund or the money market funds. Once a year,
participants had the option to transfer all or a portion of their monies they
had accumulated in the money market funds to the Quaker Stock Fund in multiples
of 25 percent. Once a year, participants who were at least age 59 1/2 or who
became totally and permanently disabled were permitted to transfer funds, in
multiples of 25 percent, between the two funds.
<12>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
When the Plan assets were transferred into the Quaker Master Trust on June 1,
1998, certain provisions related to contributions were changed. Beginning on
this date, participants have the option to change their original investment
elections daily to any one of the 13 funds included in the Quaker Master Trust.
In addition, participants may make transfers or exchanges between funds on a
daily basis.
The Plan allows participants to contribute 1 percent to 15 percent of their
earnings, in whole percentage increments, to the Plan before Federal and most
state withholding taxes are computed. The Company contributes an additional 50
percent of a participant's contribution up to a maximum of 4 percent of a
participant's eligible earnings.
The Plan also provides for discretionary cash contributions by the Company.
Participants may contribute to the Plan any portion of distributions received
from other qualified plans when the contributions qualify as a tax-free
rollover.
Participants may elect to deposit excess funds from The Quaker Flex Plan to the
Plan. The Company does not provide additional contributions on these funds.
Generally, all contributions are not subject to Federal income taxes until
distributed to the participant or the participant's beneficiary.
Participant Accounts
Each participant account is credited with the participant's contribution and an
allocation of the Company's contribution and Plan earnings. Each participant
account is also charged with an allocation of investment management fees and
other direct expenses. Allocations are based on participant earnings or
account balances in each fund.
Vesting
Participants are immediately vested in both their voluntary contribution and
the Company's contribution as well as the actual earnings thereon.
<13>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
Distributions
Participants may elect to receive a distribution of all or a portion of their
account if they are at least age 59 1/2 or if they are totally and permanently
disabled as determined by the Company with the advice of a medical doctor.
Additionally, participants may receive the portion of their account consisting
of participant contributions 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 a participant or
the participant's family or alleviating an immediate and substantial financial
hardship.
Through May 31, 1998, participants meeting certain age and service criteria
were permitted to withdraw a portion of their ESOP account. This provided
employees nearing retirement the opportunity to diversify their holdings.
After May 31, 1998, this option is no longer available, as the Quaker Master
Trust provides adequate diversification options to participants.
If a participant's employment with the Company is terminated, the Plan will
distribute the 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. If a participant terminates
employment, attains age 65 in a Plan year, and no distribution or deferral
election is received by the 15th day after the end of the Plan year, an
automatic lump-sum distribution will be made. A participant may elect in
writing to receive the distribution in one of the following ways: (a) in a
lump sum; or (b) 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 Internal Revenue
Service regulations. If the distribution is made through installment payments,
a 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 ($3,500 or less prior to June 1, 1998), an
automatic lump-sum distribution will be made as soon as practicable after the
end of the Plan year in which the termination occurs.
All dividends received with respect to Company stock held on the record date in
a participant's employee stock ownership accounts, currently referred to as the
Quaker Stock Fund, are distributed to participants no later than 90 days after
the end of the Plan year in which the dividends are received.
<14>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
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. 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 1998 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 Terminations
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 - PLAN CHANGES
Trustee and Record Keeper Changes
The Plan's Administrative Committee appointed The Fidelity Management Trust
Company (FMTC) as the new trustee and Fidelity Institutional Retirement Service
Company as the new record keeper for the Plan, effective June 1, 1998. The
money market funds, previously managed by Northern Trust, is managed by FMTC.
On June 1, 1998, the assets of the Plan were transferred from Northern Trust to
FMTC and are now included in the Quaker Master Trust.
<15>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 3 - 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.
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.
<16>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 4 - FEDERAL INCOME TAXES
The Plan obtained its latest determination letter on August 20, 1996, in which
the Internal Revenue Service stated that the Plan, as then designed, was in
compliance with the applicable requirements of the Internal Revenue Code. The
Plan has been amended since receiving the determination letter; however, the
Plan administrator believes the Plan is currently designed and being operated
in compliance with the applicable requirements of the Internal Revenue Code.
The Plan administrator believes that the Plan was qualified and the related
trust was tax-exempt as of December 31, l998 and 1997. The Company intends to
file for a new determination letter during 1999.
NOTE 5 - INVESTMENTS
The fair value of the Plan's investment in The Quaker Oats Company common stock
at December 31, 1997, represented 5 percent or more of the Plan's net assets.
The total net realized and unrealized gain related to the Plan's investment in
The Quaker Oats Company common stock for the period from January 1, 1998
through May 31, 1998 (prior to transferring such assets into the Quaker Master
Trust) was $9,414.
NOTE 6 - PARTICIPATION IN A MASTER TRUST
Effective June 1, 1998, the investments of the Plan and the investments of The
Quaker 401(k) Plan for Salaried Employees were combined in the Quaker 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 December 31, 1998, the Plan's
interest in the Quaker Master Trust was approximately 14 percent. 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.
<17>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 6 - PARTICIPATION IN A MASTER TRUST (CONTINUED)
Investments Held in the Quaker Master Trust
A summary of the investments held by the Quaker Master Trust as of December 31,
1998 was as follows:
Fair Value
Quaker common stock $ 563,922
Common stock investments 171,079
Quaker preferred stock 135,446
Short-term investments 115,656
Participant loans receivable 12,769
Accrued income 3,109
Miscellaneous receivables 1,197
Assets held in the Quaker Master Trust $ 1,003,178
Leveraged ESOP loans payable (110,500)
Leveraged ESOP interest payable (4,119)
Miscellaneous payable (2,736)
Accrued expenses (232)
Net assets held in the Quaker Master Trust $ 885,591
A summary of the Quaker Master Trust income for the period from June 1, 1998
through December 31, 1998 was as follows:
1998
Interest $ 579
Interest - participant loans 433
Dividends 12,379
Net realized and unrealized gain (loss) on investments:
Quaker common stock 18,203
Other common stock investments (8,070)
Quaker preferred stock 4,366
Short-term investments 1,258
Quaker Master Trust net investment income $ 29,148
<18>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
(dollars in thousands)
NOTE 7 - RECONCILIATION OF THE FORM 5500 TO THE FINANCIAL STATEMENTS
The following is a reconciliation of benefits paid to participants per the Form
5500 to the financial statements:
Year Ended
December 31, 1998
Distributions to participants per the Form 5500 $ 6,510
Add: Distributions payable, beginning of period 1
DISTRIBUTIONS TO PARTICIPANTS PER THE
FINANCIAL STATEMENTS $ 6,511
NOTE 8 - YEAR 2000 (UNAUDITED)
To address the year 2000 issue, the Company has developed and is executing a
detailed four-phase comprehensive readiness plan. The first phase of the
readiness plan, the assessment of the Company's internal systems, has been
completed. The second phase involves the remediation, replacement and testing
of the Company's computer systems (95 percent complete) and imbedded systems
(90 percent complete) and is scheduled for completion by mid-1999. The third
phase will continue through mid-1999 and includes the Company taking steps to
assess the year 2000 plans of its material third parties. These steps include
contacting the Company's major service providers, including the Company's major
service providers, who are believed to be critical to the business operations
after January 1, 2000, to determine their stage of year 2000 compliance through
questionnaires, interviews, on-site visits, testing and other available means.
In particular to the Plan, the Company has been in close contact with the
trustee and record keeper, has received action plans and implementation
schedules from 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 involves the development of contingency plans in
the event of year 2000 non-compliance and is also expected to be completed by
mid-1999.
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.
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Exhibit (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 22, 1999 (and all references to our Firm) included in or made a part
of the Form 11-K. It should be noted that we have not audited any financial
statements of The Quaker 401(k) Plan for Hourly Employees subsequent to
December 31, 1998 or performed any audit procedures subsequent to the date of
our report.
/s/WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
June 25, 1999
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