Notes to the Consolidated Financial Statements

Note 1
Summary of Significant Accounting Policies

Consolidation - The consolidated financial statements include The  Quaker  Oats
Company   and   all  of  its  subsidiaries  (the  Company).   All   significant
intercompany  transactions  have  been  eliminated.  Acquired  businesses   are
included  in the results of operations since their acquisition dates.  Divested
businesses  are  included in the results of operations until their  divestiture
dates.

Fiscal-Year  Change - The Consolidated Financial Statements and  Notes  to  the
Consolidated  Financial  Statements  for the  year  ended  December  31,  1996,
represent the first full calendar year since the Company changed from a June 30
fiscal year.  Previously reported amounts have been restated to conform to  the
current presentation.

Foreign  Currency Translation - Assets and liabilities of the Company's foreign
subsidiaries,  other than those located in highly inflationary  countries,  are
translated  at current exchange rates, while income and expense are  translated
at  average  rates  for  the  period.   For  entities  in  highly  inflationary
countries,  a combination of current and historical rates is used to  determine
foreign   currency   gains  and  losses  resulting  from  financial   statement
translation.   Translation  gains and losses are reported  as  a  component  of
common   shareholders'  equity,  except  for  those  associated   with   highly
inflationary countries, which are reported directly in the consolidated  income
statements.

Futures,  Swaps,  Options, Caps and Forward Contracts  -  The  Company  uses  a
variety  of  futures,  swaps,  options,  caps  and  forward  contracts  in  its
management  of  foreign currency, commodity price and interest rate  exposures.
Realized and unrealized gains and losses on foreign exchange contracts that are
effective  as  net  investment hedges are recognized as a component  of  common
shareholders'  equity.  Realized and unrealized gains and losses  on  commodity
options  and futures contracts that hedge commodity price exposure are deferred
in  inventory and subsequently included in cost of goods sold as the  inventory
is  sold.  Expenses associated with interest rate swap and cap agreements  that
hedge  interest  rate exposure are deferred and recognized as  a  component  of
interest expense over the term of each agreement. Other realized and unrealized
gains  and  losses  on financial instruments are recognized  currently  in  the
consolidated income statements.

Cash  and Cash Equivalents - Cash equivalents are composed of all highly liquid
investments with an original maturity of three months or less.  As a result  of
the  Company's cash management system, checks issued but not presented  to  the
banks  for  payment  may  create negative book cash  balances.   Such  negative
balances  are included in trade accounts payable and amounted to $45.5  million
and $64.7 million as of December 31, 1996 and 1995, respectively.

Inventories  -  Inventories are valued at the lower of cost or  market,  using
various  cost  methods,  and  include the cost of  raw  materials,  labor  and
overhead.   The percentages of year-end inventories valued using each  of  the
methods were as follows:

December 31                             1996            1995
Last-in, first-out (LIFO)                53%             49%
Average quarterly cost                   39%             44%
First-in, first-out (FIFO)                8%              7%

If the LIFO method of valuing these inventories was not used, total inventories
would  have  been $15.3 million and $12.2 million higher than  reported  as  of
December 31, 1996 and 1995, respectively.

Long-lived  Assets - Long-lived assets are comprised of intangible  assets  and
property,   plant   and   equipment.  Long-lived  assets,   including   certain
identifiable intangibles and goodwill related to those assets to  be  held  and
used,  are  reviewed for impairment whenever events or changes in circumstances
indicate  that  the  carrying amount of the asset may not be  recoverable.   An
estimate  of  undiscounted future cash flows produced  by  the  asset,  or  the
appropriate grouping of assets, is compared to the carrying amount to determine
whether  an  impairment exists.  If an asset is determined to be impaired,  the
loss is measured based on quoted market prices in active markets, if available.
If  quoted market prices are not available, the estimate of fair value is based
on  the  best  information available, including considering prices for  similar
assets  and the results of valuation techniques to the extent available.  Long-
lived  assets and certain identifiable intangibles to be disposed of  that  are
not  covered  by  Accounting Principles Board (APB) Opinion No. 30,  "Reporting
Results  of  Operations - Reporting the Effects of Disposal of a Segment  of  a
Business,  and  Extraordinary, Unusual and Infrequently  Occurring  Events  and
Transactions," are reported at the lower of the asset's carrying amount or  its
fair  value less cost to sell.  The Company reports an asset to be disposed  of
at the lower of its carrying amount or its estimated net realizable value.

45


The  Company  has evaluated the recoverability of Snapple beverages  long-lived
assets,  including  intangible  assets, as of December  31,  1996  pursuant  to
Financial Accounting Standards Board (FASB) Statement #121.  In performing  its
review  for  recoverability,  the Company compared the  estimated  undiscounted
future cash flows to the carrying value of Snapple beverages long-lived assets,
including  intangible  assets.  The carrying value of Snapple  beverages  long-
lived  assets  at  December  31,  1996 was  $1.7  billion.   As  the  estimated
undiscounted  future  cash  flows exceeded the  carrying  value  of  long-lived
assets,  the  Company was not permitted or required to recognize an  impairment
loss.

Although the Company's latest evaluation of recoverability has not resulted  in
the  recognition of an impairment loss, given the disappointing performance  of
the  business,  management  expects  to  update  its  assessment  during  1997.
Accordingly,  the Company's estimate of undiscounted future cash  flows  to  be
generated  by Snapple beverages could change in the near term.  A  change  that
results  in  recognition  of an impairment loss would require  the  Company  to
reduce  the carrying value of Snapple beverages to fair market value, which  is
significantly below the current carrying value of the long-lived assets.

Intangibles  -  Intangible assets consist principally of excess purchase  price
over  net  tangible  assets of businesses acquired (goodwill)  and  trademarks.
Goodwill  is  amortized on a straight-line basis over periods not exceeding  40
years.

Intangible assets, net of amortization, and their estimated useful lives
consist of the following:


                                      Estimated                                 
                                   Useful Lives                               
Dollars in Millions                  (In Years)        1996            1995
Goodwill                               10 to 40    $1,887.1        $1,893.2
Trademarks and other                    2 to 40       586.8           588.4
Intangible assets                                   2,473.9         2,481.6
Less accumulated amortization                         236.7           172.4
Intangible assets - net of amortization            $2,237.2        $2,309.2


Property and Depreciation - Property, plant and equipment are carried  at  cost
and  depreciated  on a straight-line basis over their estimated  useful  lives.
Useful lives range from 20 to 50 years for buildings and improvements and  from
three to 17 years for machinery and equipment.

Software  Costs  - The Company defers significant software development  project
costs.   No software costs were deferred during 1996.  Software costs  of  $0.2
million were deferred during 1995.  Amounts deferred are amortized over a three-
year period beginning with a project's completion.  Net deferred software costs
as  of  December  31,  1996  and  1995 were  $1.5  million  and  $4.2  million,
respectively.

Current  Accounting  Changes  -  The  Company  adopted  FASB  Statement   #123,
"Accounting  for  Stock-Based  Compensation,"  as  of  December  31,  1996  and
implemented  the disclosure provisions of this Statement.  While the  Statement
encourages  companies to recognize expense for stock options at estimated  fair
value based on an option-pricing model, the Company has elected to disclose the
pro forma net income and earnings per share that would have been obtained under
the Statement's approach for valuing and expensing stock options.  See Note  10
for further discussion and related disclosures.

Income  Taxes  - The Company uses an asset and liability approach to  financial
accounting and reporting for income taxes.  Deferred income taxes are  provided
when  tax  laws and financial accounting standards differ with respect  to  the
amount  of  income  for a year and the bases of assets and liabilities.  Income
taxes  have been provided on $111.0 million of the $142.9 million of unremitted
earnings  from  foreign  subsidiaries.  Taxes  are  not  provided  on  earnings
expected to be indefinitely reinvested.

Estimates  and  Assumptions  -  The  preparation  of  financial  statements  in
conformity  with  Generally  Accepted  Accounting  Principles  (GAAP)  requires
management  to make estimates and assumptions that affect the reported  amounts
of  assets  and liabilities and disclosure of contingent assets and liabilities
at  the  date of the financial statements and the reported amounts of  revenues
and  expenses  during the reporting period.  Actual results could  differ  from
those estimates.


Note 2
Acquisitions and Divestitures

The  Company  has made significant changes in its business portfolio  with  the
1994 acquisitions and the 1995 through 1996 divestitures.

On December 6, 1994, the Company purchased Snapple Beverage Corp. for a tender-
offer  price of $1.7 billion.  The acquisition was accounted for as a  purchase
and the results of Snapple beverages are included in the consolidated financial

46


statements  since  the  date  of acquisition.  The  acquisition  was  initially
financed with commercial paper borrowings.  The after-tax proceeds on the  1995
divestitures  of  $1.25  billion  were used  to  reduce  the  commercial  paper
borrowings.

The following table presents unaudited pro forma combined historical results as
if Snapple Beverage Corp. was acquired at the beginning of 1994.  The pro forma
results are not necessarily indicative of what actually would have occurred  if
the  acquisition had been completed as of the beginning of 1994, nor  are  they
necessarily indicative of future consolidated results.

Pro Forma Results (Unaudited)

                                                                          
Dollars in Millions (Except Per Share Data)                                 1994
Net Sales                                                              $ 6,859.7
Income before cumulative effect of accounting change                   $   150.0
Income per common share before cumulative effect of accounting change  $    1.09


In  1994,  the Company also purchased the Adria pasta business in  Brazil,  the
Southern  Foods  oat  milling  business in Australia,  and  the  Arnie's  bagel
business  in  the United States.  In 1994, the Company realized a $9.8  million
gain  on  the sale of a business in Venezuela. Sales and operating income  from
these businesses were not material.

On  March 14, 1995, the Company completed the sale of its U.S. and Canadian pet
food  business to H.J. Heinz Company for $725.0 million and realized a gain  of
$513.0  million.   On April 24, 1995, the Company completed  the  sale  of  its
European  pet  food business to Dalgety PLC for $700.0 million and  realized  a
gain  of  $487.2 million.  Other divestitures in 1995 included the Dutch  honey
business in February 1995, the Mexican chocolate business in May 1995  and  the
U.S.  bean  and chili businesses in June 1995.  The Company realized  gains  on
these   divestitures  of  $4.9  million,  $74.5  million  and  $91.2   million,
respectively. In 1995, the Company also purchased the Nile Spice variety  soup-
in-a-cup business in the United States.  Pro forma information for the 1994 and
1995 acquisitions was not material in the aggregate.

On  January  15,  1996, the Company completed the sale of its Italian  products
business  and  realized a gain of $2.8 million.  On July 9, 1996,  the  Company
completed  the sale of its U.S. and Canadian frozen foods business  for  $185.8
million and realized a gain of $133.6 million.

The  following  table presents sales and operating income from  the  businesses
divested  in  1996  and 1995 through the divestiture dates.   Operating  income
includes  certain  allocations  of overhead  expenses  and  excludes  gains  on
divestitures and restructuring charges in all years.

Dollars in Millions                           1996           1995           1994
Sales:                                                                          
   U.S. and Canadian                         $81.6         $376.5         $950.0
   International                               4.0          420.4          997.2
Sales from divested businesses               $85.6         $796.9       $1,947.2
Operating income:                                                               
   U.S. and Canadian                          $7.9          $29.7          $47.7
   International                               0.5           16.1           62.9
Operating income from divested businesses     $8.4          $45.8         $110.6



Note 3
Restructuring Charges

In September 1996, the Company recorded restructuring charges of $23.0 million.
These  charges  included $16.6 million to change how the Company sells  Snapple
beverages in certain Texas markets and $6.4 million for plant consolidations in
the U.S. Foods business.  Estimated savings from the 1996 restructuring actions
are  about  $6  million annually beginning in 1997, of which  approximately  90
percent will be in cash.

In  December 1995, the Company recorded restructuring charges of $40.8 million.
These  charges  included  $24.4  million  to  reduce  the  amount  of  contract
manufacturing capacity in the Snapple beverages supply chain system  and  $16.4
million  to  realign  the European beverage and Asia/Pacific  grain-based  food
businesses.   The  realignment  in  Europe and  Asia/Pacific  resulted  in  the
elimination  of  about 80 positions and allowed the Company to  focus  on  more
attractive  growth areas in Southern Europe for beverages and China for  foods.
In  June 1995, the Company recorded restructuring charges of $76.5 million  for
cost-reduction  and realignment activities in order to address the  changes  in
its  business portfolio and to allow it to more quickly and effectively respond
to  the needs of trade customers and consumers.  These changes resulted in  the
elimination   of  approximately  850  positions  and  primarily  included   the
realignment   of  the  corporate,  U.S.  shared  services  and  business   unit
structures,  the  European  cereal business and the  U.S.  distribution  center
network.   Savings realized from these restructuring activities  have  been  in
line with expectations.

47


In  1994,  the  Company  recorded restructuring charges of  $118.4  million  to
eliminate   positions  at  the  headquarters  and  research   and   development
facilities,   a   combination  and  realignment  of  the  U.S.   sales   force,
manufacturing consolidations for the bean and chili, rice cake and Aunt  Jemima
syrup businesses and the closing of a Canadian pet food facility and refocusing
of  the  Canadian  business,  as  well  as  other  cost-reduction  initiatives.
Approximately 1,500 positions were eliminated as a result of these initiatives.
Savings realized from the 1994 restructuring activities have been in line  with
expectations.  With the 1995 divestitures of the U.S. and Canadian and European
pet  food businesses, as well as the U.S. bean and chili businesses, there  are
no  remaining  reserves  and  no recurring savings  to  be  realized  from  the
restructuring activities related to these businesses.

Restructuring  provisions were determined based on estimates  prepared  at  the
time  the  restructuring actions were approved by management and the  Board  of
Directors.   The  1996 and 1995 restructuring reserve balances  are  considered
adequate to cover committed restructuring actions.

The restructuring charges and utilization to date were as follows:

<TABLE>
<CAPTION>
                                                                          As of December 31, 1996
                                              Amounts Charged               Amounts    Remaining
Dollars in Millions                    Cash       Non-Cash       Total     Utilized      Reserve
<S>                                  <C>          <C>           <C>          <C>           <C>
1996                                                                                                              
Severance and termination benefits   $  1.4       $   --        $  1.4       $  0.9        $ 0.5
Asset write-offs                         --         18.9          18.9         14.0          4.9
Loss on lease and other                 2.6          0.1           2.7          0.1          2.6
Subtotal                                4.0         19.0          23.0         15.0          8.0
1995                                                                                               
Severance and termination benefits     48.8           --          48.8         44.6          4.2                         
Loss on reduction of contract                                                                      
    manufacturing capacity             22.5          1.9          24.4          8.1         16.3
Asset write-offs to consolidate                                                                    
    facilities                          0.1         22.8          22.9         18.8          4.1
Contract cancellation fees, loss on                                                                
    leases and other                   21.2           --          21.2          7.6         13.6
Subtotal                               92.6         24.7         117.3         79.1         38.2
1994                                                                                               
Severance and termination benefits     44.7           --          44.7         44.7           --
Asset write-offs and loss on leases     7.6         30.7          38.3         38.3           --
Product-line  discontinuations          3.3         32.1          35.4         35.4           --
Subtotal                               55.6         62.8         118.4        118.4           --
Total                                $152.2       $106.5        $258.7       $212.5        $46.2

</TABLE>

Operating income excluding restructuring charges, gains on divestitures and
divested businesses in all periods was as follows:

                                            
Dollars in Millions                          1996        1995        1994
Operating Income as reported               $565.9    $1,415.0      $486.4
Restructuring charges:                                                
   Foods                                      6.4        70.4        68.0
   Beverages                                 16.6        46.9         4.6
Ongoing Businesses                           23.0       117.3        72.6
Divested Businesses                            --          --        45.8
Subtotal                                     23.0       117.3       118.4
Gains on divestitures                      (136.4)   (1,170.8)       (9.8)
Operating income from Divested Businesses    (8.4)      (45.8)     (110.6)
Subtotal                                   (144.8)   (1,216.6)     (120.4)
Operating income excluding charges, gains                                  
   and Divested Businesses                 $444.1    $  315.7      $484.4
   


Note 4
Trade Accounts Receivable Allowances

Dollars in Millions                                     1996         1995
Balance at beginning of year                           $26.8        $20.8
Provision for doubtful accounts                         12.3         13.5
Provision for discounts and allowances                  32.2         23.9
Write-offs of doubtful accounts - net of recoveries     (8.4)        (7.4)
Discounts and allowances taken                         (28.0)       (21.2)
Effect of divestitures                                  (5.3)        (1.9)
Effect of exchange rate changes                         (0.3)        (0.9)
Balance at end of year                                 $29.3        $26.8


Note 5
Revolving Credit Facilities and Short-term Debt

In 1996, the Company reduced the level of its revolving credit facilities by  a
total  of  $600.0  million.   The Company now has  a  $900.0  million  annually
extendible  five-year  revolving  credit  facility  with  various  banks.   The
facility  supports  the  Company's commercial  paper  borrowings  and  is  also
available for direct borrowings.  There were no direct borrowings in 1996 or in
1995.   The revolving credit facility requires the Company and certain domestic
subsidiaries to maintain certain financial ratios.

48


The  Company  had  an  Adjusted Principal Revolving  Credit  Agreement  through
December  29,  1995, at which time the Company terminated the  Agreement.   The
Company borrowed the predetermined amount available each quarter during 1995.

Short-term debt consists primarily of commercial paper borrowings in the United
States  and  notes  payable  to banks in foreign countries.   Commercial  paper
borrowings outstanding as of December 31, 1996 and 1995 were $438.6 million and
$693.0  million, respectively.  Notes payable to banks were $78.4  million  and
$19.4  million as of December 31, 1996 and 1995, respectively.  See Note 6  for
discussion of reclassification of short-term debt to long-term debt.   Weighted
average  interest rates on all short-term debt outstanding as of  December  31,
1996 and 1995 were 5.8 percent and 6.4 percent, respectively.  Nominal interest
rates  in  highly  inflationary  countries  have  been  adjusted  for  currency
devaluation to express interest rates in U.S. dollar terms.


Note 6
Long-term Debt

Dollars in Millions                                               1996      1995
7.76% Senior ESOP notes due through 2001                       $  64.9  $   71.7
8.0% Senior ESOP notes due through 2001                          100.3     115.6
                                                                       
7.75%-7.9% Series A medium-term notes due through 2000            41.5      56.7
8.63%-9.34% Series B medium-term notes due through 2019          185.6     216.1
6.5%-7.48% Series C medium-term notes due through 2024           200.0     200.0
6.45%-7.78% Series D medium-term notes due through 2026          400.0     331.0
                                                                       
6.63% deutsche mark swap due 1997                                 18.1      19.4
5.7%-8.0% Industrial Revenue Bonds due through 2009, tax-exempt   24.9      33.4

Non-interest bearing installment note due 2014                     6.1       5.4
Short-term debt to be refinanced                                    --      69.0
Other                                                              3.2       2.1
Subtotal                                                       1,044.6   1,120.4
Less current portion of long-term debt                            51.1      68.6
Long-term debt                                                 $ 993.5  $1,051.8

Aggregate required payments for long-term debt maturing over the next five
years are as follows:

Dollars in Millions       1997        1998      1999      2000     2001
Required payments        $51.1      $108.6     $94.4     $80.5    $47.7

In  January  1990,  the Company filed a $600.0 million medium-term  note  shelf
registration  with  the  SEC.  In April 1995, the Company  filed  a  prospectus
supplement  for  $400.0 million Series D medium-term notes in addition  to  the
$200.0  million  Series C medium-term notes previously issued  under  the  1990
shelf registration.

As  of  December 31, 1995, the Company had issued $331.0 million  of  Series  D
medium-term  notes  with the intent to  issue the remaining  $69.0  million  of
medium-term  notes  in the near future.  As a result, the consolidated  balance
sheet  as of December 31, 1995, included the reclassification of $69.0  million
of  short-term  debt  to long-term debt, reflecting the  Company's  intent  and
ability to refinance this debt on a long-term basis.

As  of  December 31, 1996, the Company had issued $400.0 million  of  Series  D
medium-term  notes bearing interest ranging from 6.45 percent to  7.78  percent
per annum with maturities from three to 30 years.

The  non-interest bearing installment note for $55.5 million had an unamortized
discount  of $49.4 million and $50.1 million as of December 31, 1996 and  1995,
respectively, based on an imputed interest rate of 13 percent.


Note 7
Financial Instruments

The  Company actively monitors its exposure to foreign currency rate, commodity
price  and  interest rate risks.  Financial instruments are used to reduce  the
impact  of  these  risks  and  to  fund operating  requirements.   The  primary
financial  instruments used are foreign exchange forward  contracts,  purchased
foreign  currency options, commodity options and futures contracts, and  short-
term and long-term debt instruments.  In addition, the Company has occasionally
used interest rate swap and cap agreements.

Foreign  currency hedge instruments are used to reduce the risk that  the  U.S.
dollar  value  of the net investment in and cash flows from foreign  operations
will   decrease  as  exchange  rates  fluctuate.   Similarly,  commodity  hedge
instruments  are  used to reduce the risk that raw material purchases  will  be
adversely  affected as commodity prices change.  Interest  rate  swap  and  cap
agreements  are  used to reduce the risk that interest costs will  increase  as
interest rates change.  While the hedge instruments are subject to the risk  of
loss  from exchange rate, commodity price or interest rate changes, the  losses
would  generally  be  offset  by  expected gains  on  translation  of  the  net

49


investments,  higher  operating results, lower costs  of  the  purchases  being
hedged  or  lower interest costs.  The Company uses financial instruments  only
for purposes of hedging risk associated with underlying exposures.  The Company
does not trade or use these instruments with the objective of earning financial
gains  on  the  exchange  rate, commodity price or interest  rate  fluctuations
alone,  nor does it utilize instruments in currencies, commodities or  interest
for  which there are no underlying exposures.  Management believes that its use
of financial instruments to reduce risk is in the Company's best interest.

Latin American and Asian currency hedging markets are rapidly evolving but  are
not  yet  fully  developed.  Historically, the Company  has  not  hedged  these
currencies because the opportunities were limited and costly.  During 1996, the
Company  executed certain hedging instruments to reduce exposure  to  Brazilian
currency movements.  As of December 31, 1996, no Brazilian currency hedges were
outstanding.  As in Europe and Canada, the Company will continue to use foreign
currency hedge instruments, where economical, to reduce exposure to potentially
significant  currency movements in Latin America and in  Asia.   Where  hedging
opportunities  are not available, the exposures are addressed through  managing
net  asset  positions  and borrowing or investing in  a  combination  of  local
currency and U.S. dollars.

The  counterparties to the Company's financial instruments are major  financial
institutions.   The Company continually evaluates the creditworthiness  of  the
counterparties   and   has   never  experienced,  nor   does   it   anticipate,
nonperformance by any of its counterparties.

Balance  Sheet Hedges - The Company utilizes net investment hedges and  foreign
currency swaps to offset foreign currency gains and losses which are recognized
in the balance sheet.

Net  Investment Hedges - The Company's significant net hedges and  the  related
foreign currency net investments and net exposures as of December 31, 1996 were
as follows:


Dollars in Millions        Net Investment     Net Hedge    Net Exposure
Currency:                                                
   British pound                   $ 23.2         $ 5.2          $ 18.0
   Canadian dollar                 $ 26.5         $ 9.5          $ 17.0
   Dutch guilder                   $ 19.8         $18.5          $  1.3
   German mark                     $ 20.1         $16.3          $  3.8
   Italian lira                    $ 24.5         $ 4.4          $ 20.1

The  Company actively monitors its net exposures and adjusts the hedge  amounts
as  appropriate.  The net hedges are stated above on an after-tax  basis.   The
net  exposures  are subject to gain or loss if foreign currency exchange  rates
fluctuate.  On a consolidated basis, the net gain or loss is recognized  as  an
increase  or  decrease in cumulative translation adjustment in the consolidated
balance  sheet,  except in highly inflationary economies where  net  gains  and
losses are reported in net income.

As  of December 31, 1996 and 1995, the Company had net foreign exchange forward
contracts to sell primarily European and Canadian currencies for $35.3  million
and $74.7 million, respectively, to hedge its net investments.  These contracts
will  mature in 1997.  Unrealized losses as of December 31, 1996 and 1995  were
$0.2  million  and  $1.0 million, respectively.  The carrying  value  of  these
contracts approximates fair value.

Foreign  Currency Swaps - In 1988, the Company swapped $15.0 million  of  long-
term  debt  for 27.9 million in deutsche mark (DM) denominated long-term  debt,
effectively  hedging part of the German net investment.  The DM swap  agreement
requires the Company to re-exchange DM 27.9 million for $15.0 million in August
1997  and to make semiannual interest payments of DM 0.9 million through August
1997.   The  DM swap was included in current long-term debt as of December  31,
1996  for  $18.1  million.  The DM swap was included in long-term  debt  as  of
December  31,  1995 for $19.4 million.  The long-term debt is revalued  as  the
U.S. dollar/DM exchange rate changes.

Due  to  the sale of the European pet food business in 1995, the net investment
in  Germany was reduced to the point where the DM swap was no longer  effective
as  a net investment hedge, requiring any subsequent revaluation adjustments to
be  charged  or credited to the consolidated income statement.  To offset  this
charge  or credit, the Company entered into a foreign exchange forward contract
and  the net effect on the consolidated income statements for 1996 and 1995 was
not material.  The interest payments are subject to exchange rate fluctuations;
however,  the  effect on the Company's consolidated income statements  was  not
material.

Income  Statement  Hedges  -  The Company uses  foreign  currency  options  and
forwards,  commodity options and futures, and interest rate  hedges  to  offset
gains and losses which are recognized in the income statement.

Foreign  Currency  Hedges  -  The Company uses  foreign  currency  options  and
forwards  to  offset the impact of foreign currency fluctuations recognized  in
the   Company's  operating  results.   Included  in  the  consolidated   income

50


statements were losses from foreign currency hedge instruments of $1.0 million,
$3.5 million and $2.0 million  in  1996, 1995 and 1994, respectively.

Commodity Options and Futures - The Company uses commodity options and  futures
contracts  to  reduce  its exposure to commodity price  changes.   The  Company
regularly  hedges purchases of oats, corn, corn sweetener, wheat, coffee  beans
and  orange  juice concentrate.  Of the $2.81 billion in cost  of  goods  sold,
approximately  $275  million  to $325 million is in  commodities  that  may  be
hedged.   The  Company's  strategy is typically  to  hedge  certain  production
requirements for various periods up to 12 months.  As of December 31, 1996  and
1995,  approximately  32  percent and 54 percent,  respectively,  of  hedgeable
production  requirements  for  the  next  12  months  were  hedged.    Deferred
unrecognized  losses related to commodity options and futures contracts  as  of
December  31,  1996 and 1995 were $0.1 million and $0.4 million,  respectively.
Realized  gains (losses) charged to cost of goods sold in 1996, 1995 and   1994
were  $5.1 million, $0.3 million  and $(5.2) million, respectively.   The  fair
values  of these commodity instruments as of December 31, 1996 and 1995,  based
on  quotes  from  brokers, were net losses of $2.9 million  and  $0.2  million,
respectively.

Interest  Rate  Hedges  -  The  Company actively  monitors  its  interest  rate
exposure.  In 1995, the Company entered into interest rate swap agreements with
a  notional  value of $150.0 million.  The swap agreements were used  to  hedge
fixed  interest  rate risk related to anticipated issuance of  long-term  debt.
The swap agreements were subsequently terminated at a cost of $11.9 million  as
long-term debt was issued.  Included in the consolidated balance sheets  as  of
December  31,  1996 and 1995 were $8.9 million and $10.8 million, respectively,
of  prepaid  interest  expense as settlement of  all  the  interest  rate  swap
agreements.  Prepaid interest expense is recognized in the consolidated  income
statements  on  a  straight-line  basis over the  original  term  of  the  swap
agreements,  which ranged from three to 10 years.  The carrying  value  of  the
settled  interest rate swap agreements approximates the fair value of the  swap
at  the  settlement date less amortized interest.  In 1994, the Company entered
into  interest rate cap agreements with a notional value of $600.0  million  to
hedge floating interest rate risk.  As of December 31, 1996 and 1995 there were
no  interest  rate  cap  agreements in place and no deferred  prepaid  interest
related  to  these  agreements.  Included in 1996  interest  expense  was  $1.9
million  related  to  the  interest rate swap agreements.   In  1995,  interest
expense  included $2.0 million related to both the interest rate swap  and  cap
agreements.

Debt  Instruments - The carrying value of cash and cash equivalents and  short-
term  debt  approximates  fair  value due to the  short-term  maturity  of  the
instruments.   The  fair value of long-term debt was $1.07  billion  and  $1.10
billion as of December 31, 1996 and 1995, respectively, and was based on market
prices  for the same or similar issues or on the current rates offered  to  the
Company  for similar debt of the same maturities.  The carrying value of  long-
term  debt, including current maturities, as of December 31, 1996 and 1995  was
$1.04 billion and $1.12 billion, respectively.


Note 8
Capital Stock

In  November 1994, shareholders approved an increase in authorized shares  from
200  million  to  400  million.   Pursuant to the two-for-one  stock  split-up,
shareholders  of record received an additional share of common stock  for  each
share  held.   Per  share data and average number of common shares  outstanding
have  been  retroactively  restated.  As a result of  the  increase  in  issued
shares,  common  stock  has  been increased and reinvested  earnings  has  been
decreased by $420.0 million.

During 1994, 0.6 million shares of the Company's outstanding common stock  were
repurchased  for  $22.5  million under a 10 million  share  repurchase  program
announced in August 1993.

The  Company  is  authorized to issue 10 million shares of preferred  stock  in
series,  with terms fixed by resolution of the Board of Directors.  One million
shares  of Series A Junior Participating Preferred Stock had been reserved  for
issuance  in  connection  with  the 1986 Shareholder  Rights  Plan.   The  1986
Shareholder  Rights Plan expired on July 30, 1996 and was  replaced  by  a  new
Shareholder  Rights Plan adopted on May 8, 1996.  As a result, the one  million
shares of Series A Junior Participating Preferred Stock have been canceled  and
four  million shares of Series C Junior Participating Preferred Stock have been
reserved for issuance in connection with the new Shareholder Rights Plan.   See
Note 11 for further discussion.

An additional 1,750,000 shares of Series B Employee Stock Ownership Plan (ESOP)
Convertible Preferred Stock (Series B Stock) have been reserved for issuance in
connection with the Company's ESOP.  As of December 31, 1996, 1,282,051  shares
of  the  Series  B Stock had been issued and are each convertible  into  2.1576
shares  of the Company's common stock.  The Series B Stock will be issued  only
for the ESOP and will not be traded on the open market.

51


The  Company  is  also  authorized to issue one million  shares  of  redeemable
preference stock, none of which had been issued as of December 31, 1996.


Note 9
Deferred Compensation

The ESOP was established to issue debt and to use the proceeds of such debt  to
acquire   shares  of  the  Company's  stock  for  future  allocation  to   ESOP
participants.   The  ESOP  borrowings are included as  long-term  debt  on  the
Company's  consolidated balance sheets.  See Note 6 for further  discussion  on
the ESOP notes.

Deferred  compensation  of  $168.3 million as of December  31,  1996  primarily
represents the Company's payment of future compensation expense related to  the
ESOP.    As  the  Company  makes  annual  contributions  to  the  ESOP,   these
contributions, along with the dividends accumulated on the common and preferred
stock  held by the ESOP, are used to repay the outstanding loans.  As the loans
are  repaid, common and preferred stock are allocated to ESOP participants  and
deferred compensation is reduced by the amount of the principal payments on the
loans.

The following table presents the ESOP loan payments:
                                
Dollars in Millions                1996             1995
Principal payments                $22.1            $19.4
Interest payments                  14.7             16.2
Total ESOP payments               $36.8            $35.6

As of December 31, 1996, 4,171,785 shares of common stock and 453,105 shares of
preferred stock were held in the accounts of ESOP participants.


Note 10
Employee Stock Option and Award Plans

In  November  1989,  the Company's shareholders approved the  adoption  of  The
Quaker Long Term Incentive Plan of 1990 (Plan).  The purpose of the Plan is  to
promote  the  interests of the Company and its shareholders  by  providing  the
officers   and  other  key  employees  with  additional  incentives   and   the
opportunity, through stock ownership, to increase their proprietary interest in
the  Company  and their personal interest in its continued success.   The  Plan
provides  for  benefits to be awarded in a variety of ways, with stock  options
being  used  most frequently.  Twenty-six million shares of common  stock  have
been authorized for grant under the Plan. Previously, stock options were issued
under the 1984 Long-Term Incentive Plan, which expired by its terms on December
31, 1990.

Stock  options may be granted for the purchase of common stock at a  price  not
less  than the fair market value on the date of grant.  Generally, the exercise
price  of  each stock option equals the market price of the Company's stock  on
the date of grant.  However, portions of the 1992 option awards were granted at
exercise  prices  higher  than the fair market value  on  the  date  of  grant.
Options  are generally exercisable after one or more years and expire no  later
than  10  years from the date of grant.  As of December 31, 1996,  726  persons
held such options.

Effective December 31, 1996, the Company has elected to disclose the pro  forma
effects of FASB Statement #123, "Accounting for Stock-Based Compensation."   As
allowed  under the provisions of this new Statement, the Company will  continue
to  apply  APB  Opinion #25 and related Interpretations in accounting  for  the
stock  options awarded under the Plan.  Accordingly, no compensation  cost  has
been  recognized for these stock options.  Had compensation cost for  the  Plan
been  determined consistent with FASB Statement #123, the Company's net  income
and  earnings  per  share  would have been reduced to  the  pro  forma  amounts
indicated below:

Dollars in Millions                           1996         1995
Net Income:                                            
   As reported                              $247.9       $724.0
   Pro forma                                $242.0       $720.7
Earnings per share:                                    
   As reported                              $ 1.80       $ 5.39
   Pro forma                                $ 1.76       $ 5.37

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes   option-pricing  model  with  the   following   weighted-average
assumptions:


                                               1996                   1995
Dividend yield                       3.3 % -  3.4 %                  3.2 %
Expected volatility                 14.4 % - 20.1 %        20.6 % - 20.9 %
Risk-free interest rates            5.66 % - 6.76 %        5.78 % - 6.23 %
Expected lives                         2 to 8 years           2 to 8 years

52


A summary of the status of the Company's option plans is presented below:

<TABLE>
<CAPTION>
                                                 1996                      1995                  1994
                                                 Weighted-                 Weighted-             Weighted-
                                                   Average                   Average               Average
                                                  Exercise                  Exercise              Exercise
                                          Shares     Price          Shares     Price       Shares    Price
<S>                                   <C>           <C>         <C>           <C>      <C>          <C>
Outstanding at beginning  of 
    year                              16,724,814    $33.99      14,706,033    $33.78   12,899,425   $31.70
Granted                                  152,150    $33.93       4,038,115    $33.13    3,138,450   $39.98
Exercised                              1,260,977    $24.66         927,371    $22.97      847,806   $22.97
Forfeited                              1,351,957    $38.14       1,091,963    $37.36      484,036   $37.40
Outstanding at end of  year           14,264,030    $34.42      16,724,814    $33.99   14,706,033   $33.78
Exercisable at end of year            10,947,837    $34.33      10,150,528    $34.00    8,159,018   $30.47
Weighted-average fair value of                                                                              
    options granted during the year    $    5.97                  $   6.38                    N/A           

<FN>

N/A:   Information  not applicable as the date of issue  for  the  1994  option
grants precedes the effective date of FASB Statement #123 requirements.

</FN>

The  following  summarizes  information  about  stock  options  outstanding  at
December 31, 1996:

                        Options Outstanding             Options Exercisable
                               Average    Weighted-                 Weighted-
    Range of                 Remaining      Average                   Average
    Exercise               Contractual     Exercise                  Exercise
      Prices       Shares         Life        Price       Shares        Price
$20.38-40.35   14,264,030   6.43 Years       $34.42   10,947,837       $34.33

Under  the  Plan, restricted stock awards grant shares of the Company's  common
stock to key officers and employees.  These shares are subject to a restriction
period  from  the  date of grant, during which they may not be sold,  assigned,
pledged or otherwise encumbered.  The number of shares of the Company's  common
stock  awarded  were  55,600,  19,400  and  45,000  in  1996,  1995  and  1994,
respectively.   The  1994 awards reflect the 1994 two-for-one  stock  split-up.
Restrictions  on  these awards lapse after a period of time designated  by  the
Compensation Committee of the Board of Directors.

Note 11
Shareholder Rights Plan

On  May  8,  1996,  the Company's Board of Directors adopted a new  Shareholder
Rights  Plan to replace the Shareholder Rights Plan originally adopted in  1986
which  expired  on  July 30, 1996.  The Company's Shareholder  Rights  Plan  is
designed  to deter coercive or unfair takeover tactics and to prevent a  person
or  group from gaining control of the Company without offering a fair price  to
all shareholders.

Under  the  terms of the 1996 Shareholder Rights Plan, all common  shareholders
own  one  "Right"  per  outstanding share of common  stock  entitling  them  to
purchase  from  the  Company one one-hundredth of a share of  Series  C  Junior
Participating Preferred Stock at an exercise price of $150.  The Rights  become
exercisable:   10 days after a public announcement that a person or  group  has
acquired  shares representing 15 percent or more of the outstanding  shares  of
common stock; or 15 business days following commencement of a tender offer  for
15 percent or more of such outstanding shares of common stock.

The  Company  can redeem the Rights for $0.01 per Right at any  time  prior  to
their  becoming exercisable.  The Rights will expire on July 31,  2006,  unless
redeemed earlier by the Company or exchanged for common stock.

If  after the Rights become exercisable the Company is involved in a merger  or
other business combination at any time when there is a holder of 15 percent  or
more  of  the  Company's  stock, the Rights will  then  entitle  holders,  upon
exercise  of the Rights, to receive shares of common stock of the acquiring  or
surviving company with a market value equal to twice the exercise price of each
Right.  There is an exemption for any issuance of common stock by  the  Company
directly  to any person, even if that person would become the beneficial  owner
of  15%  or more of the common stock provided that such person does not acquire
any  additional shares of common stock.  The Rights described in this paragraph
shall  not apply to an acquisition, merger or consolidation which is determined
by  a majority of the Company's independent directors, after consulting one  or
more investment banking firms, to be fair and otherwise in the best interest of
the Company and its shareholders.

53


Note 12
Pension Plans
The Company has various pension plans covering substantially all U.S. employees
and certain foreign employees.  Plan benefits are based on compensation paid to
employees  and their years of service.  Company policy is to make contributions
to  its U.S. plans within the maximum amount deductible for Federal income  tax
purposes.   Plan assets consist primarily of equity securities and  government,
corporate and other fixed-income obligations.

The components of net pension costs for the plans were as follows:

Dollars in Millions                                1996      1995      1994
Service cost (benefits earned during the year)   $ 34.0     $53.5    $ 49.9
Interest cost on projected benefit obligation      70.0      63.3      57.6
Return on plan assets                             (72.4)    (69.0)    (65.0)
Net amortization and deferral                      (8.7)     (7.3)     (8.1)
Multi-employer plans                                0.5       0.4       0.3
Net pension costs                                $ 23.4     $40.9    $ 34.7

The decline in the Company's 1996 pension expense is due primarily to an 
increase in  the actual rate of return on the plans' net assets, a reduction 
in the number of  active employees and changes in certain actuarial assumptions  
to  better reflect the Company's actual experience.

Reconciliations of the funded status of the Company's U.S. plans to the accrued
pension costs were as follows:


</TABLE>
<TABLE>
<CAPTION>
                                                   Overfunded          Underfunded
Dollars in Millions                              1996     1995        1996      1995
<S>                                           <C>       <C>        <C>       <C>                    
Vested benefits                               $ 702.5   $ 658.7    $  65.6   $  59.3
Non-vested benefits                              25.0      15.4        0.9       1.5
Accumulated benefit obligation                  727.5     674.1       66.5      60.8
Effect of projected future salary increases      65.1      75.3       10.5      13.9
Projected benefit obligation                    792.6     749.4       77.0      74.7
Plan assets at market value                     880.4     783.7       26.9      27.1
Projected benefit obligation less                                                                  
  (greater) than plan assets                     87.8      34.3      (50.1)    (47.6)
Unrecognized net (gain) loss                   (135.7)    (64.3)       1.5       1.7
Unrecognized prior service cost                  16.4      19.0        4.2       5.2
Unrecognized net (asset) liability at                                                              
  transition                                     (9.9)    (22.1)       0.9       1.5
Accrued pension costs                         $ (41.4)  $ (33.1)   $ (43.5)  $ (39.2)
                                                                                    
<FN>

Assumptions (reflecting averages across all plans): Weighted average discount
rate: 7.5%, Rate of future compensation increases: 4.5%, Long-term rate of 
return on plan assets:  9.5%.

</FN>
</TABLE>

Reconciliations of the funded status of the Company's foreign plans to the 
prepaid (accrued) pension costs were as follows:

<TABLE>
<CAPTION>

                                                 Overfunded             Underfunded
Dollars in Millions                            1996       1995       1996       1995
<S>                                          <C>        <C>        <C>        <C>
Vested benefits                              $ 95.1     $ 78.2     $ 14.0     $ 21.0
Non-vested benefits                              --        0.1        0.6        2.2
Accumulated benefit obligation                 95.1       78.3       14.6       23.2
Effect of projected future salary increases    29.0       24.4        0.7        0.8
Projected benefit obligation                  124.1      102.7       15.3       24.0
Plan assets at market value                   139.0      114.6        0.1         --
Projected benefit obligation less                                                       
  (greater) than plan assets                   14.9       11.9      (15.2)     (24.0)
Unrecognized net (gain) loss                   (4.7)      (3.5)       0.5        0.2
Unrecognized prior service cost                 2.7        3.9         --         --     
Unrecognized net asset at transition           (7.3)      (7.9)      (0.1)      (0.1)
Prepaid (accrued) pension costs              $  5.6     $  4.4     $(14.8)    $(23.9)

<FN>

Assumptions (reflecting averages across all plans): Weighted average discount rate: 7.9%,
Rate  of future compensation increases:  6.1%, Long-term rate of return on plan
assets:  8.1%.

</FN>
</TABLE>

Unrecognized prior service cost is being amortized over periods ranging from 10
to 18 years.

The  foreign pension plans included unfunded termination indemnity reserves  of
$6.7 million and $15.4 million as of December 31, 1996 and 1995, respectively.


Note 13
Postretirement Benefits Other Than Pensions and Other
Postemployment Benefits

The Company has various postretirement health care plans covering substantially
all  U.S. employees and certain foreign employees.  The plans provide  for  the
payment  of  certain  health  care  and life  insurance  benefits  for  retired
employees  who  meet  certain  service-related eligibility  requirements.   The
Company funds only the plans' annual cash requirements.

54


The components of postretirement benefit costs were as follows:

Dollars in Millions                                1996       1995     1994
Service cost (benefits earned during the year)    $ 6.7      $ 6.9    $ 7.1
Interest cost on projected benefit obligation      17.3       19.4     19.0
Amortization                                        0.4        0.2      0.1
Total postretirement benefit costs                $24.4      $26.5    $26.2

The  Company's  unfunded  accumulated postretirement  benefit  obligations  and
accrued postretirement benefit costs were as follows:

Dollars in Millions                               1996               1995
Current retirees                               $ 132.3            $ 136.4
Current active employees - fully eligible         11.7               15.8
Current active employees - not fully eligible    105.1              113.6
Accumulated postretirement benefit obligation    249.1              265.8
Unrecognized net gain (loss)                      27.1               (5.5)
Unrecognized prior service cost                   (5.2)              (2.3)
Accrued postretirement benefit costs           $ 271.0            $ 258.0
Assumptions:                                                     
  Weighted average discount rate:  7.50%                           
  Health care trend rates (varies by plan):       1997         2007 and Beyond
    Pre-age 65                                   9-12%               4-6%
    Age 65 and over                              7-12%               4-6%

If the health care trend rates were increased one percentage point, the current-
year  postretirement benefit costs would have been $3.9 million higher and  the
accumulated  postretirement benefit obligation as of December  31,  1996  would
have been $34.3 million higher.

Effective  July  1, 1994, the Company adopted FASB Statement #112,  "Employers'
Accounting  for  Postemployment  Benefits." The  Statement  requires  that  the
expected cost of other postemployment benefits be charged to expense during the
years that employees render services.  The cumulative effect of adoption was  a
$6.8 million pretax charge, or $4.1 million after-tax, in the third quarter  of
1994.   The  adoption of the Statement has not had a material effect on  annual
operating  results or cash flows since adoption, nor is it expected to  have  a
material effect in future years.

Note 14
Lease and Other Commitments

Certain equipment and operating properties are rented under non-cancelable  and
cancelable  operating leases.  Total rental expense under operating leases  was
$36.4 million, $36.3 million and $33.5 million for the years ended December 31,
1996,  1995  and  1994,  respectively. The following is a  schedule  of  future
minimum annual rentals on non-cancelable operating leases, primarily for  sales
offices,  distribution  centers and corporate headquarters,  in  effect  as  of
December 31, 1996.

<TABLE>
<CAPTION>

Dollars in Millions    1997     1998    1999     2000     2001   Thereafter    Total
<S>                   <C>      <C>     <C>      <C>      <C>          <C>     <C>
Total payments        $29.3    $28.0   $24.7    $17.5    $16.3        $66.1   $181.9

</TABLE>

The Company enters into executory contracts to promote various products.  As of
December 31, 1996, future commitments under these contracts amounted to $47.0
million.


Note 15
Supplementary Income Statement Information

Dollars in Millions                      1996          1995         1994
Advertising, media and production    $  289.8      $  271.5     $  303.5
Merchandising                           913.5       1,192.7      1,383.9
Total advertising and merchandising  $1,203.3      $1,464.2     $1,687.4
Depreciation expense                 $  119.1      $  115.3     $  133.1
Amortization of intangibles          $   78.5      $   86.7     $   36.9
Research and development             $   33.0      $   40.4     $   56.2


Note 16
Interest Expense

Dollars in Millions                        1996         1995        1994
Interest expense                        $ 113.0       $135.9      $103.1
Interest expense capitalized               (6.2)        (4.3)       (1.6)
Subtotal                                  106.8        131.6       101.5
Interest income                            (7.4)        (6.2)       (9.0)
Interest expense - net                  $  99.4       $125.4      $ 92.5

Interest paid in the years ended December 31, 1996, 1995 and 1994 was $109.0
million, $129.9 million and $96.6 million, respectively.

55


Note 17
Income Taxes

The  Company  uses an asset and liability approach to financial accounting  and
reporting  for income taxes in accordance with FASB Statement #109, "Accounting
for  Income  Taxes."  Provisions for income taxes on income  before  cumulative
effect of accounting change were as follows:

Dollars in Millions                1996           1995           1994
Currently payable:                                                          
   Federal                       $ 99.4         $339.1         $129.8
   Foreign                         10.2          131.7           15.0
   State                           26.6           54.9           40.2
Total currently payable           136.2          525.7          185.0
Deferred - net:                                                
   Federal                         15.9          (19.8)         (42.2)
   Foreign                         10.4           (7.3)          (3.1)
   State                            5.2           (2.1)         (12.4)
Total deferred - net               31.5          (29.2)         (57.7)
Provision for income taxes       $167.7         $496.5         $127.3

The components of the deferred income tax provision (benefit) were as follows:

Dollars in Millions                    1996         1995        1994
Accelerated tax depreciation          $ 3.7       $(23.8)     $  8.8
Postretirement benefits                 0.6         (6.5)       (6.0)
Accrued expenses including                                       
  restructuring charges                40.6         12.6       (30.8)
Loss carryforwards                     (7.1)         3.5        (6.1)
Foreign gain deferral                   9.8           --          --
Other                                 (16.1)       (15.0)      (23.6)
Provision (benefit) for deferred                                  
  income taxes                        $31.5       $(29.2)     $(57.7)

Total income tax provisions (benefits) were allocated as follows:

Dollars in Millions                          1996        1995        1994
Continuing operations                     $ 167.7     $ 496.5     $ 127.3
Cumulative effect of accounting change    $    --     $    --     $  (2.7)
Items charged directly to common                                      
  shareholders' equity                    $  (8.4)    $ (11.4)    $ (12.7)

The sources of pretax income before cumulative effect of accounting change were
as follows:

Dollars in Millions                       1996          1995          1994
U.S. sources                            $362.8      $  925.4        $302.2
Foreign sources                           52.8         295.1          18.2
Income before income taxes and                                       
  cumulative effect of accounting      
  change                                $415.6      $1,220.5        $320.4

Reconciliations  of  the statutory Federal income tax rates  to  the  effective
income tax rates were as follows:

<TABLE>
<CAPTION>

Dollars in Millions                     1996                 1995                  1994
                                              % of                 % of                   % of
                                            Pretax               Pretax                 Pretax
                                  Amount    Income     Amount    Income     Amount      Income
<S>                               <C>        <C>       <C>        <C>       <C>          <C>
Tax provision based on the                                                                                     
   Federal statutory rate         $145.5     35.0%     $427.2     35.0%     $112.1       35.0%
State and local income                                                                                         
   taxes - net of Federal                                                                                       
   income tax benefit               20.7      5.0        34.3      2.8        18.1        5.6
Repatriation of foreign                                                                                        
   earnings                        (11.3)    (2.7)       18.9      1.5        (3.9)      (1.2)
Foreign tax rate differential        2.1      0.5        21.1      1.7         5.5        1.7
Miscellaneous items                 10.7      2.6        (5.0)    (0.3)       (4.5)      (1.4)
Provision for income taxes        $167.7     40.4%     $496.5     40.7%     $127.3       39.7%

</TABLE>

Deferred tax assets and deferred tax liabilities were as follows:

Dollars in Millions                     1996                      1995
                                 Assets   Liabilities      Assets   Liabilities
Depreciation and amortization    $ 56.9        $400.1      $ 58.8       $ 405.6
Postretirement benefits           100.3            --       100.9            -- 
Other benefit plans                60.8           9.2        59.8          20.2
Accrued expenses including                                                    
  restructuring charges            80.3           7.9       147.9          10.4
Loss carryforwards                 14.5            --        13.5            --
Other                              13.3          33.2        15.9          22.8
Subtotal                          326.1         450.4       396.8         459.0
Valuation allowance               (14.2)           --       (20.0)           --
Total                            $311.9        $450.4     $ 376.8        $459.0

56


As of December 31, 1996, the Company had $48.3 million of operating and capital
loss  carryforwards  available  to  reduce future  taxable  income  of  certain
international  subsidiaries.  These loss carryforwards must be utilized  within
the carryforward periods of these international jurisdictions.  The majority of
loss  carryforwards have no expiration restrictions.  Those  with  restrictions
expire primarily in five years.  A valuation allowance has been provided for  a
portion of the deferred tax assets related to the loss carryforwards.

Included in other current assets were deferred tax assets of $99.9 million  and
$151.4  million as of December 31, 1996 and 1995, respectively.   Income  taxes
paid  during 1996, 1995 and 1994 were $161.1 million, $434.7 million and $100.4
million, respectively.


Note 18
Litigation

The  case entitled Sands, Taylor & Wood v. The Quaker Oats Company, which dealt
with the Company's use of the words "thirst aid" in advertising Gatorade thirst
quencher,  was settled in September 1995 while the case was pending before  the
U.S.  Court of Appeals for the Seventh Circuit.  The Company did not incur  any
additional charge above the amount previously recorded in connection with  this
settlement.

On  November  1, 1995, the Company filed suit against Borden, Inc.  in  Federal
District   Court   in   New   York   alleging   that   Borden   made   material
misrepresentations  and  committed  fraud  in  connection  with  the  Company's
November 1994 acquisition of a Brazilian pasta business for $100 million.   The
Company seeks to rescind the transaction and collect damages.

The  Company  is also a party to a number of lawsuits and claims, which  it  is
vigorously defending.  Such matters arise out of the normal course of  business
and  relate  to  the  Company's recent acquisition activity and  other  issues.
Certain  of these actions seek damages in large amounts.  While the results  of
litigation  cannot  be predicted with certainty, management believes  that  the
final outcome of such litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations.  Changes in
assumptions,  as well as actual experience, could cause the estimates  made  by
management to change.

Note 19
Quarterly Financial Data (Unaudited)

Dollars in Millions (Except Per Share Data)
                                First      Second       Third     Fourth
1996                       Quarter(a)     Quarter  Quarter(b)    Quarter
Net sales                    $1,222.8    $1,481.8   $ 1,436.2   $1,058.2
Cost of goods sold              664.5       790.1       754.3      598.6
Gross profit                 $  558.3    $  691.7   $   681.9   $  459.6
Net income                   $   32.2    $   64.6   $   133.0   $   18.1
Per common share:                                                   
  Net income                 $   0.23    $   0.47   $    0.98   $   0.12
  Cash dividends declared    $  0.285    $  0.285   $   0.285   $  0.285
  Market price range:                                            
    High                     $ 35 7/8    $ 37 5/8   $  36 7/8   $ 39 1/2
    Low                      $ 32 3/4    $ 32 3/8   $  30 3/8   $ 34 1/8
(a)Includes  a  $2.8 million pretax gain ($1.7 million after-tax  or  $.01  per
share) for the sale of the Italian products business.
(b)Includes a $133.6  million pretax gain ($80.1 million after-tax or $.59  per
share)  for the sale of the U.S. and Canadian frozen foods business and  pretax
restructuring  charges of $23.0 million ($19.4 million after-tax  or  $.14  per
share)  related to plant consolidations in the U.S. Foods business and a change
in how the Company sells Snapple beverages in certain Texas markets.

Dollars in Millions (Except Per Share Data)
                                    First        Second      Third       Fourth
1995                           Quarter(a)    Quarter(b)    Quarter   Quarter(c)
Net sales                        $1,633.5      $1,587.4   $1,553.6     $1,179.5
Cost of goods sold                  871.0         894.1      825.0        704.3
Gross profit                     $  762.5      $  693.3   $  728.6     $  475.2
Net income                       $  366.1      $  344.2   $   61.5     $  (47.8)
Per common share:                                                       
   Net income                    $   2.73      $   2.57   $   0.45     $  (0.36)
   Cash dividends declared       $  0.285      $  0.285   $  0.285     $  0.285
   Market price range:                                                       
     High                        $ 36 1/2      $ 37 1/2   $ 36         $ 37 3/8
     Low                         $ 30 1/4      $ 32 1/8   $ 30 3/4     $ 31 1/8
(a)  Includes a $513.0  million pretax gain ($322.2  million after-tax or $2.41
per  share) for the sale of the U.S. and Canadian pet food business and a  $4.9
million pretax gain ($2.8 million after-tax or $.02 per share) for the sale  of
the Dutch honey business.
(b) Includes a $487.2 million pretax gain ($272.6 million after-tax or $2.04
per share) for the sale of the European pet food business; a $74.5 million
pretax gain ($43.9 million after-tax or $.33 per share) for the sale of the
Mexican chocolate business;   a $91.2 million pretax gain ($53.1 million after-
tax or $.40 per share) for the sale of the U.S. bean and chili businesses;
pretax restructuring charges of $76.5 million ($46.1 million after-tax or $.35
per share) for cost-reduction and realignment activities; and an additional
$10.6 million pretax provision ($6.2 million after-tax or $.05 per share) for
estimated litigation costs.
(c)Includes pretax restructuring charges of $40.8 million ($24.5 million after-
tax or $.18 per share) for Snapple beverages supply chain cost reductions and
for realignment activities in Europe and Asia/Pacific.

57


Report of Independent Public Accountants



To the Shareholders of The Quaker Oats Company:

We have audited the accompanying consolidated balance sheets of The Quaker Oats
Company (a New Jersey corporation) and subsidiaries as of December 31, 1996 and
1995,  and  the related consolidated statements of income, common shareholders'
equity  and  cash flows for the years ended December 31, 1996, 1995  and  1994.
These  financial statements are the responsibility of the Company'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  audit  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 financial position of The Quaker Oats  Company  and
subsidiaries  as  of  December 31, 1996 and 1995,  and  the  results  of  their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.

As  indicated  in  Note  13, effective July 1, 1994, the  Company  changed  its
accounting for postemployment benefits.


/s/Arthur Andersen LLP
Chicago, Illinois
February 5, 1997


Report of Management



Management  is  responsible for the preparation and integrity of the  Company's
financial   statements.   The  financial  statements  have  been  prepared   in
accordance  with  generally  accepted  accounting  principles  and  necessarily
include some amounts that are based on management's estimates and judgment.

To  fulfill its responsibility, management's goal is to maintain strong systems
of  internal  controls, supported by formal policies and  procedures  that  are
communicated  throughout  the  Company.   Management  regularly  evaluates  its
systems  of internal controls with an eye toward improvement.  Management  also
maintains  a  staff  of  internal auditors who evaluate  the  adequacy  of  and
investigate the adherence to these controls, policies and procedures.

Our  independent  public accountants, Arthur Andersen  LLP,  have  audited  the
financial  statements  and  have  rendered an opinion  as  to  the  statements'
fairness  in  all  material  respects.   During  the  audit,  they  obtain   an
understanding of the Company's internal control systems and perform  tests  and
other  procedures  to  the  extent  required  by  generally  accepted  auditing
standards.

The Board of Directors pursues its oversight role with respect to the Company's
financial  statements through the Audit Committee, which is composed solely  of
non-management  directors.   The Audit Committee meets  periodically  with  the
independent public accountants, internal auditors and management to assure that
all  are  properly  discharging their responsibilities.   The  Audit  Committee
approves  the  scope  of the annual audit and reviews the  recommendations  the
independent public accountants have for improving internal accounting controls.
The  Board of Directors, on recommendation of the Audit Committee, engages  the
independent public accountants, subject to shareholder approval.

Both Arthur Andersen LLP and the internal auditors have unrestricted access  to
the Audit Committee.

58


Additional 10-K Information



Description of Property

As  of  December 31, 1996, the Company operated 57 manufacturing plants  in  19
states  and  15 foreign countries and owned or leased distribution centers  and
sales offices in 20 states and 23 foreign countries.

                                            Owned and Leased            
                    Owned and Leased            Distribution   Owned and Leased
                      Mfg. Locations                 Centers      Sales Offices
Industry Segment    U.S.     Foreign       U.S.      Foreign    U.S.    Foreign
Foods                 22          20          7           14       6         22
Beverages              7           7         --            3      18         13
Shared                --           1          2            3      12         10
Total                 29          28          9           20      36         45

The  Company owns a research and development laboratory in Barrington, Illinois
and  leases  corporate office space in downtown Chicago, Illinois.   Management
believes  manufacturing, distribution and office space  owned  and  leased  are
suitable and adequate for the business and productive capacity is appropriately
utilized.

Trademarks

The  Company and its subsidiaries own a number of trademarks and are not  aware
of  any  circumstances that could adversely affect the continued use  of  these
trademarks.  Among the most important of the domestic trademarks owned  by  the
Company  are  Quaker, Cap'n Crunch, Quaker Toasted Oatmeal, Life,  Quaker  100%
Natural  and Quaker Oatmeal Squares for breakfast cereals; Gatorade for thirst-
quenching beverages; Snapple for teas and juice drinks; Quaker and Quaker Chewy
for  grain-based  snacks; Rice-A-Roni and Near East for  value-added  rice  and
grain products; Pasta Roni for value-added pasta; Nile Spice for soup in a cup;
Golden  Grain  and Mission for pasta; Quaker and Aunt Jemima for mixes,  syrups
and  corn  goods;  Ardmore  Farms  for citrus and  fruit  juices;  Continental,
Maryland  Club  and Continental WB for coffee, and; Mrs. Richardson's  for  ice
cream toppings.  Many of the grocery product trademarks owned by the Company in
the United States are registered in foreign countries in which the Company does
substantial business.  Internationally, key trademarks owned include:   Quaker,
Cruesli, Honey Monster, Sugar Puffs and Scott's for breakfast cereals; Coqueiro
for  fish;  Toddy  and ToddYnho for chocolate beverages; and  Adria  for  pasta
products.


Worldwide Foods Description

The Company is a major participant in the competitive packaged food industry in
the  United States and is a leading manufacturer of hot cereals, pancake mixes,
grain-based  snacks, cornmeal, hominy grits and value-added rice products.   In
addition,  the Company is the second-largest manufacturer of syrups and  value-
added  pasta products and is among the five largest manufacturers of  ready-to-
eat  cereals  and dry pasta products.  The Company competes with a  significant
number  of  large and small companies on the basis of price, value, innovation,
quality  and convenience, among other attributes.  The Company's food  products
are  purchased  by  consumers through a wide range of food  distributors.   The
Company  utilizes  both its own and broker sales forces  and  has  distribution
centers  throughout the country, each of which carries an inventory of most  of
the  Company's food products.  In addition, the Company markets a line of  over
400  items  for the food service market, including Quaker hot and  ready-to-eat
cereals;  Continental  and  Maryland Club coffee;  Ardmore  Farms  single-serve
frozen fruit juices; a specialty line of custom-blended dry baking mixes; ready-
to-bake  biscuits;  Arnie's  Bagelicious Bagels and Petrofsky's  bagels;  Burry
cookies  and  crackers; and Mrs. Richardson's syrups, ice  cream  toppings  and
condiments.   Outside the United States, the Company manufactures  and  markets
its products in countries throughout Latin America, Europe and the Asia/Pacific
region.  It is the leading hot cereals producer in the United Kingdom and  many
other  countries and is a leading pasta manufacturer and canned fish  processor
in Brazil.


Worldwide Beverage Description

The  Company is the world's leading manufacturer of sports beverages.  It sells
its  sports beverages in over 45 countries around the world and is the  leading
sports   drink  distributor  in  the  United  States,  Canada,  Mexico,  Italy,
Argentina,  Brazil, Venezuela, Colombia, Indonesia and the Philippine  Islands.
It is also one of the leading sports drink brands in Korea and Australia, where
Gatorade  thirst quencher is sold through licensee arrangements.  In the  U.S.,
Gatorade  thirst quencher utilizes a combination of brokers and  the  Company's
own  sales  force  and has distribution centers throughout  the  country.   The
Company  is  also  a  leading marketer of single-serve,  alternative  beverages
(which  include ready-to-drink teas, lemonades and juice drinks) in the  United
States  and  Canada where it competes with a significant number  of  large  and
small  companies  on  the  basis  of  price,  value,  innovation,  quality  and
convenience,  among other attributes.  The Company sells Snapple  beverages  in
the  United  States  through  a  network of independent  beverage  distribution
companies  and  a  few  self-owned  distributors;  each  maintains  a  complete
inventory.




Raw Materials

The  raw  materials  used in manufacturing include oats, wheat,  soy  products,
corn,  rice,  sweeteners,  tea, orange and other juice  concentrates,  almonds,
coffee beans, raisins, beef, chicken, shortening and fish, as well as a variety
of  packaging  materials.   These products are purchased  mainly  in  the  open
market.  Supplies of all raw materials have been adequate and continuous.


59


Directors

Members of the
Board of Directors

Frank C. Carlucci 1*,5,6
Chairman
The Carlyle Group
(Banking)
Washington, D.C.

Silas S. Cathcart 2*,3,5
Retired Chairman
Illinois Tool Works
(Diversified Products)
Chicago, Illinois

Kenneth I. Chenault 1,2,4,5
President and Chief Operating Officer
American Express
Company
(Financial and Travel
Services)
New York, New York

Judy C. Lewent 1,4,5,6
Senior Vice President and Chief Financial Officer
Merck & Co., Inc.
(Pharmaceuticals)
Whitehouse Station,
New Jersey

Vernon R. Loucks, Jr. 2,3,5*
Chairman and Chief
Executive Officer
Baxter International Inc.
(Medical Care Products)
Deerfield, Illinois
                                       
Thomas C. MacAvoy 1,5,6*
Paul M. Hammaker
Professor of Business
Administration
Darden Graduate
School of Business
Administration
University of Virginia
Charlottesville, Virginia

Luther C. McKinney 3
Senior Vice President
Law, Corporate Affairs and Corporate Secretary

Walter J. Salmon
4,5,6
Stanley Roth, Sr.
Professor of Retailing
Harvard Business School
Boston, Massachusetts

William D. Smithburg 3,5
Chairman, President and 
Chief Executive Officer

William L. Weiss 2,3,4*,5
Chairman Emeritus
Ameritech Corporation
(Telecommunications)
Chicago, Illinois


Board Committees
1 Audit
2 Compensation
3 Executive
4 Finance
5 Nominating
 (William D. Smithburg
 Ex Officio Member)
6 Public Responsibility
* Denotes Committee Chairman


Officers

Senior Officers


William D. Smithburg +
Age 58
Chairman, President and 
Chief Executive Officer
Joined Quaker in 1966.
Elected to present office in 1995.

Luther C. McKinney +
Age 65
Senior Vice President
Law, Corporate Affairs
and Corporate Secretary
Joined Quaker in 1974.
Elected to present office in November 1996.

Douglas J. Ralston +
Age 51
Senior Vice President
Human Resources
Joined Quaker in 1981.
Elected to present
office in 1992.

Robert S. Thomason +
Age 52
Senior Vice President
Finance and Chief
Financial Officer
Joined Quaker in 1971.
Elected to present office in 1995.


Corporate Staff
Officers

John H. Calhoun
Vice President and
Associate General 
Corporate Counsel

Penelope C. Cate
Vice President
Government and
Community Relations

Michael L. Cohen
Vice President
Human Resource Development

Janet K. Cooper +
Age 43
Vice President and Treasurer
Joined Quaker in 1978.
Elected to present office in 1992.

Margaret M. Eichman
Vice President
Investor Relations and
Corporate
Communications

Scott Gantwerker
Vice President
Quality Worldwide




Thomas L. Gettings +
Age 40
Vice President and
Corporate Controller
Joined Quaker in 1987.
Elected to present office in 1992.

Mary M. Hoskins
Assistant Treasurer

John G. Jartz +
Age 43
Vice President
General Counsel and
Business Development
Joined Quaker in 1980.
Elected to present office
in November 1996.

James E. LeGere
Vice President
Information Services

I. Charles Mathews
Vice President
Diversity Management

Mart C. Matthews
Vice President and
Associate General
Corporate Counsel

Kenneth W. Murray
Vice President
Internal Auditing


Quaker Foods
(U.S. and Canada)

Douglas W. Mills +
Age 51
Executive Vice President
Joined Quaker in 1969.
Elected to present office in 1994.

John A. Boynton 
Vice President and
Chief Customer Officer

Polly B. Kawalek
President - Hot
Breakfasts

David L. Morton
President and
Chief Executive Officer
The Quaker Oats
Company of Canada Limited

Mark A. Shapiro
President 
Golden Grain

Russell A. Young 
Vice President
Supply Chain


Worldwide Beverages


James F. Doyle +
Age 44
Executive Vice President
Joined Quaker in 1981.
Elected to present
office in 1994.

Bernardo Wolfson
President - Beverages,
Latin America and Europe

Michael B. Schott +
Age 48
Vice President and
President - Snapple
Beverages 
Joined Quaker in August 1996. 
Elected to present office in
September 1996.


Worldwide Quaker
Food Service

A. Stephen Diamond +
Age 51
Executive Vice President 
Joined Quaker in 1993.
Elected to present office in November 1996.

Ronald L. Bane
Vice President and
Business Leader
Continental Coffee

Dale W. Tremblay
Vice President and
Business Leader -
McDonald's and In-Store
Bakery Business Units


International 
Food Products

Barbara R. Allen +
Age 44
Executive Vice President
Joined Quaker in 1977.
Elected to present office in 1995.

Europe

George F. Sewell
President -
Cereals, Europe

Pacific

Cassian Cheung
President - 
Pacific International Foods

+ also Executive Officers as defined by Securities and Exchange Commission
regulations.  Such Executive Officers serve at the pleasure of the Board of
Directors. All Executive Officers (except Michael B. Schott, who joined the 
Company in August 1996 and was formerly the Vice President of Nantucket Nectars
[1996], Chief Operating Officer of Arizona Beverages [1993-1996], and General
Manager of Don Lee Distributor, Inc. [1991-1993], and A. Stephen Diamond, who 
joined the Company in August 1993 and was formerly President of Pillsbury 
Europe and Managing Director of Grand Met Food Group UK) have been
employed by The Quaker Oats Company in an executive capacity for five years or
more.




Shareholder Information


Dividend Reinvestment and Stock Purchase Plan

Owners of Quaker Oats common stock may use the Company's Dividend Reinvestment
and Stock Purchase Plan to purchase additional shares through automatic dividend
reinvestment and/or optional cash investments.  A booklet describing the Plan
and enrollment procedures is available on request from the Harris Bank.
(Telephone and address are listed on page 65.)


Dividends

Cash dividends on Quaker common stock have been paid for 91 consecutive years.
Dividends are generally declared on a quarterly basis, with holders as of the
record date being entitled to receive the cash dividend on the payable date.


Shareholder Services

Harris Trust and Savings Bank acts as transfer agent and registrar for the
Company stock and maintains all primary shareholder records.  Shareholders may
obtain information relating to their share positions, dividends, stock transfer
requirements, lost certificates, dividend reinvestment accounts and other
related matters by telephoning the Shareholder Hotline toll-free at 1-800-344-
1198.


Form 10-K

This Annual Report includes all financial statements and notes required by
Form 10-K.  If you request a Form 10-K, you will receive the annual report,
proxy statement, and the Form 10-K cover page, exhibit list and conformed
signature page.

Annual Meeting

Shareholders are cordially invited to attend the Annual Meeting, which will
be held at the Rosemont Theatre, 5400 North River Road in Rosemont, Illinois,
May 14, 1997, at 9:30 a.m. (CST).

Investor Relations

Security analysts, investment professionals and shareholders should direct
their business-related inquiries to:

Investor Relations - Suite 27-7
or call (312) 222-7818


Media Relations

Copies of Press Releases are available at no charge through PR Newswire's
Company News On-Call fax service.
Call 1-800-758-5804, extension 103689.

Press and media related inquiries should be addressed to:

Media Relations - Suite 27-6
or call (312) 222-7388


Consumer Affairs

Inquiries regarding our products should be addressed to:

Consumer Affairs
The Quaker Oats Company
P.O. Box 049003
Chicago, Illinois 60604-9003

For information about a specific product, call the toll-free number shown 
on the package.

The Quaker Oats Company was incorporated in 1901
under the laws of the state of New Jersey.

Ticker Symbol:  OAT

Internet address:  www.quakeroats.com




Corporate Headquarters Mailing Address:      Street Address:
                       The Quaker Oats       Quaker Tower
                       Company               321 North Clark Street
                       P.O. Box 049001       Chicago, Illinois 60610-4714
                       Chicago, Illinois     (312) 222-7111
                       60604-9001
                       
                       
Transfer Agent,        Harris Trust and Savings Bank, Shareholder Services
Registrar and Dividend Division
Disbursing Agent       P.O. Box 755, 311 West Monroe 
                       Chicago, Illinois 60690-0755
                       1-800-344-1198
                       
Dividend Reinvestment  Harris Trust and Savings Bank, Dividend Reinvestment
and                    and Stock Purchase Plan
Stock Purchase Plan    P.O. Box A3309
                       Chicago, Illinois 60690-3309
                       1-800-344-1198
                     
Independent Public     Arthur Andersen LLP
Accountants            33 West Monroe
                       Chicago, Illinois  60603
                       (312) 580-0033

Shares Listed          New York Stock Exchange
                       Chicago Stock Exchange
                       Pacific Stock Exchange
                       The Stock Exchange, London