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, 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 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
<Page 1>
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/ KATHRYN MCGRATH
(Kathryn McGrath)
Director - Compensation and Benefits
Date: June 23, 2000
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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, 1999 and 1998
(b) Consent of Independent E
Public Accountants
<Page 3>
Exhibit (a)
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT
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THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
AS OF DECEMBER 31, 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 9-18
Note: Supplemental schedules are either inapplicable for the twelve months ended
December 31, 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.
<Page 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) as of December
31, 1999 and 1998, and the related Statement of Changes in Net Assets Available
for Benefits for the year ended December 31, 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
December 31, 1999 and 1998, and the changes in net assets available for benefits
for the year ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
June 23, 2000
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THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, 1999 December 31, 1998
<S> <C> <C>
Plan interest in Quaker Master Trust $ 142,044 $ 121,004
NET ASSETS AVAILABLE FOR BENEFITS $ 142,044 $ 121,004
See accompanying notes to financial statements.
<Page 7>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
(dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
<S> <C>
Investment income:
Dividends $ 2,766
Interest 72
Interest on participant loans 467
Net appreciation in the fair value of assets 12,564
Total investment income 15,869
Contributions:
Participant 9,292
Employer 2,475
Rollovers 390
Total contributions 12,157
Total additions 28,026
DEDUCTIONS
Distributions to participants 5,020
Dividends to participants 1,962
Administrative expenses 4
Total deductions 6,986
Increase in net assets 21,040
Net assets available for benefits, beginning of period 121,004
NET ASSETS AVAILABLE FOR BENEFITS, END OF PERIOD $ 142,044
</TABLE>
See accompanying notes to financial statements.
<Page 8>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
The following brief description of The Quaker 401(k) Plan for Hourly Employees
(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.
Plan Expenses
The Company pays certain administrative for record keeping services.
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.
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THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
Investment Funds
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.
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THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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.
<Page 11>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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.
<Page 12>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 1 - THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES (CONTINUED)
Contributions
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. Participant's contributions up to 4% of
eligible earnings are matched with a 50 percent company contribution.
Participants direct the investment of their contributions to one or more of the
13 investment options and may change their investments daily. In addition,
participants may transfer or exchange their investment amounts between funds
on a daily basis.
The Plan also provides for discretionary cash contributions by the Company.
Participants may contribute to the Plan any portion of lump-sum distributions
received from other qualified plans when the contributions qualify as a tax-
free rollover.
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.
<Page 13>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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. In
addition, 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 the participant
or the participant's family or alleviating an immediate and substantial
financial hardship.
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 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 Internal Revenue Service 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 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.
<Page 14>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 transfers between the investment funds and 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 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 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 - 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.
<Page 15>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of the Plan's interest in the Quaker Master Trust (Master Trust)
is based on the beginning of year value of the Plan's interest in the trust
plus actual contributions and allocated investment income less actual
distributions and allocated administrative expenses (Note 1). Quoted market
prices are used to value investments in the Master Trust.
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.
Current Accounting Change
The Plan has adopted Statement of Position 99-3, "Accounting for and Reporting
of Certain Defined Contribution Plan Investments and Other Disclosure Matters,"
which was issued in September 1999. This statement simplifies disclosure
requirements, eliminating previously required disclosures for participant-
directed investment programs. As a result, the Plan has eliminated "by-fund"
disclosures in the statement of net assets available for benefits which has been
restated to conform to the current presentation.
NOTE 3 - 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, l999 and 1998. The Company intends to
file for a new determination letter.
NOTE 4 - RELATED PARTY TRANSACTIONS
Certain Plan investments available in the Master Trust are shares of mutual
funds managed by The Fidelity Management Trust Company, the trustee as defined
by the Plan. Also, the Master Trust holds investment in shares of the Company's
stock in the Quaker Stock Fund and Employee Stock Ownership Funds. These
transactions qualify as party-in-interest transactions. There have been no known
prohibited transactions with a party-in-interest.
<Page 16>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 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, 1999 and December 31,
1998, the Plan's interest in the Quaker Master Trust was approximately
15 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's interest in the
investment funds.
Investments Held in the Quaker Master Trust
A summary of the investments held by the Quaker Master Trust as of December 31,
1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
Fair Value Fair Value
<S> <C> <C>
Quaker common stock $ 569,086 $ 563,922
Common stock investments 177,049 171,079
Quaker preferred stock 134,961 135,446
Preferred stock investments 8 --
Short-term investments 151,690 115,656
Bonds 180 --
Participant loans receivable 15,638 12,769
Accrued income 2,663 3,109
Miscellaneous receivables 2,276 1,197
Assets held in the Quaker Master Trust $ 1,053,551 $ 1,003,178
Leveraged ESOP loans payable (77,500) (110,500)
Leveraged ESOP interest payable (2,884) (4,119)
Miscellaneous payable (2,339) (2,736)
Accrued expenses (204) (232)
Net assets held in the Quaker Master Trust $ 970,624 $ 885,591
</TABLE>
<Page 17>
THE QUAKER OATS COMPANY
THE QUAKER 401(k) PLAN FOR HOURLY EMPLOYEES
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 5 - PARTICIPATION IN A MASTER TRUST (CONTINUED)
A summary of the Quaker Master Trust income for the twelve months ended
December 31, 1999 and the seven months ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Interest $ 930 $ 579
Interest - participant loans 1,184 433
Dividends 24,442 12,379
Net realized and unrealized gain (loss) on investments:
Quaker common stock 59,068 18,203
Other common stock investments 24,760 (8,070)
Quaker preferred stock 8,607 4,366
Short-term investments 4,800 1,258
Quaker Master Trust net investment income $ 123,791 $ 29,148
</TABLE>
<Page 18>
Exhibit (b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 23, 2000 (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, 1999 or performed any audit procedures subsequent to the date of
our report.
/s/WASHINGTON, PITTMAN & McKEEVER, LLC
WASHINGTON, PITTMAN & McKEEVER, LLC
Chicago, Illinois
June 23, 2000
<Page 19>
