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.

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 $45.1  million
and $45.5 million as of December 31, 1997 and 1996, 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                                  1997           1996
Last-in, first-out (LIFO)                     65%            53%
Average quarterly cost                        30%            39%
First-in, first-out (FIFO)                     5%             8%

If the LIFO method of valuing these inventories was not used, total inventories
would  have  been  $8.6 million and $15.3 million higher than  reported  as  of
December 31, 1997 and 1996, 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 value 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  various  valuation techniques, including a discounted  value  of  estimated
future cash flows and fundamental analysis.  The Company reports an asset to be
disposed  of at the lower of its carrying value or its estimated net realizable
value.

In March 1997, the Company announced that it had reached a definitive agreement
to  sell  100  percent  of  its shares of its wholly-owned  subsidiary  Snapple
Beverage Corp. (Snapple) for $300.0 million.  Under the provisions of Financial
Accounting  Standards  Board  (FASB)  Statement  #121,  "Accounting   for   the
Impairment  of Long-Lived Assets and for Long-Lived Assets to Be Disposed  Of,"
Snapple was then considered an asset held for sale and as such, the Company was
required  to  reduce the carrying value of Snapple net assets  to  fair  market
value.   Accordingly, in March 1997, the Company recognized a pretax impairment
loss of $1.40 billion and established a valuation reserve for the write-down of
the excess carrying value over the fair market value (based on the sale price).
The impairment loss, combined with a pretax loss  on the sale of $10.6 million,
is reflected in losses (gains) on divestitures on the consolidated statement of
income for the year ended December 31, 1997.

The Company has taken numerous actions relative to its Brazilian pasta business
in  light  of  the continuing operating losses of this business.   Among  these
actions, the Company announced plant consolidations in this business during the
second  quarter  of 1997 and recorded a related restructuring charge  of  $10.7
million.  During the Company's operating planning process, an updated review of
the strategies, actions taken to date, and expected financial prospects of this
business was undertaken.  As a part of this process, the Company evaluated  the
recoverability  of  the  long-lived assets of  its  Brazilian  pasta  business,
including  intangible assets, pursuant to FASB Statement #121. As the  carrying
value of the long-lived assets exceeded the estimated undiscounted future  cash
flows,  the Company was required to reduce the carrying value of the net assets
of  its  Brazilian pasta business to fair market value.  The Company's estimate
of  fair market value was based on various methodologies including a discounted
value  of  the  estimated future cash flows and a fundamental analysis  of  the
business'  value.  The asset impairment resulted in a pretax  charge  of  $39.8
million  to  reduce  the carrying value of intangible assets.   The  charge  is
reflected  in  selling, general and administrative expenses on the consolidated
statement of income for the year ended December 31, 1997.

Intangibles  -  Intangible assets consist principally of excess purchase  price
over  net  tangible  assets of businesses acquired (goodwill)  and  trademarks.
Intangible  assets are amortized on a straight-line basis over periods  ranging
from two to 40 years.

46

Intangible  assets,  net  of  amortization, and their  estimated  useful  lives
consist of the following:
                                                                             
                                                        
                                       Estimated Useful   
Dollars in Millions                    Lives (In Years)     1997       1996
Goodwill                                       10 to 40   $500.6   $1,887.1
Trademarks and other                            2 to 40     20.4      586.8
Intangible assets                                          521.0    2,473.9
Less: accumulated amortization                             170.5      236.7
Intangible assets - net of amortization                   $350.5   $2,237.2

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 1997 or 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, 1997 and 1996 were $0.1 million and  $1.5  million,
respectively.

Derivative Financial and Commodity Instruments - The Company uses a variety  of
futures,  swaps,  options and forward contracts in its  management  of  foreign
currency   exchange  rate,  commodity  price  and  interest   rate   exposures.
Instruments  used as hedges must be effective at reducing the risks  associated
with the underlying exposure and must be designated as a hedge at the inception
of  the  contract.  Accordingly, changes in the market value of the instruments
must have a high degree of inverse correlation with changes in the market value
or cash flows of the underlying hedged item.  Summarized below are the specific
accounting policies by market risk category.

Foreign  Currency  Exchange  Rate Risk - The Company  uses  forward  contracts,
purchased  options,  and  currency swap agreements to manage  foreign  currency
exchange  rate  risk  related  to  projected  operating  income  from   foreign
operations and net investments in foreign subsidiaries.  The fair value  method
is  used  to  account for these instruments.  Under the fair value method,  the
instruments are carried at fair value on the consolidated balance sheets  as  a
component  of  other  current  assets  (deferred  charges)  or  other   accrued
liabilities  (deferred  revenue).  Changes in  the  fair  value  of  derivative
instruments  which  are used to manage exchange rate risk  in  foreign-currency
denominated  operating  income  and  net  investments  in  highly  inflationary
economies  are recognized in the consolidated statements of income  as  foreign
exchange loss or gain.  Changes in the fair value of such instruments  used  to
manage  exchange rate risk on net investments in economies that are not  highly
inflationary are recognized in the consolidated balance sheets as  a  component
of  cumulative translation adjustment in common shareholders' equity.   To  the
extent an instrument is no longer effective as a hedge of a net investment  due
to  a  change  in  the  underlying exposure, losses and  gains  are  recognized
currently in the consolidated statements of income as foreign exchange loss  or
gain.

Commodity Price Risk - The Company uses commodity futures and options to reduce
price   exposures  on  commodity  inventories  or  anticipated   purchases   of
commodities.   The  deferral method is used to account  for  those  instruments
which  effectively  hedge  the  Company's  price  exposures.   For  hedges   of
anticipated  transactions, the significant characteristics  and  terms  of  the
anticipated  transaction  must  be identified,  and  the  transaction  must  be
probable  of  occurring to qualify for deferral method accounting.   Under  the
deferral method, gains and losses on derivative instruments are deferred in the
consolidated balance sheets as a component of other current assets (if a  loss)
or  other accrued liabilities (if a gain) until the underlying inventory  being
hedged is sold.  As the hedged inventory is sold, the deferred gains and losses
are  recognized in the consolidated statements of income as a component of cost
of  goods  sold.   Derivative instruments that do not meet the  above  criteria
required for deferral treatment are accounted for under the fair value  method,
with  gains  and losses recognized currently in the consolidated statements  of
income as a component of cost of goods sold.

Interest  Rate  Risk  - The Company has used interest rate swap  agreements  to
reduce its exposure to changes in interest rates and to balance the mix of  its
fixed  and  floating  rate debt.  Currently, there are no  interest  rate  swap
agreements outstanding.  The settlement costs of terminated swap agreements are
reported in the consolidated balance sheets as a component of other assets  and
are  being  amortized  over  the  life of the original  swap  agreements.   The
amortization  of  the  settlement  amounts  is  reported  in  the  consolidated
statements of income as a component of interest expense.

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
statements of income.

Advertising  Costs  -  In  accordance with  Statement  of  Position  No.  93-7,
"Reporting on Advertising Costs," the Company expenses all advertising expenses
as  incurred  except for production costs which are deferred and expensed  when

47

advertisements air for the first time.  The amount of production costs deferred
and  included  in the consolidated balance sheets as of December 31,  1997  and
1996 was $5.4 million and $7.5 million, respectively.

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 $170.6 million of the $188.8 million of unremitted
earnings  from  foreign  subsidiaries.  Taxes  are  not  provided  on  earnings
expected to be indefinitely reinvested.

Current  and  Pending  Accounting Changes - In  March  1997,  the  FASB  issued
Statement   #128,  "Earnings  per  Share."   This  Statement   simplifies   the
computation  of  earnings per share and makes the computation  more  consistent
with  International Accounting Standards.  The Company's adoption of  this  new
standard  at  December  31,  1997  has  not significantly  impacted  previously
reported earnings per share.  See Note 17 for related disclosures.

In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income,"
and  Statement #131, "Disclosures about Segments of an Enterprise  and  Related
Information."  Statement #130 establishes standards for reporting comprehensive
income in financial statements and Statement #131 expands certain reporting and
disclosure  requirements for segments from current standards.  The  Company  is
not  required  to  adopt these Statements until 1998 and does  not  expect  the
adoption  of  these new standards to result in material changes  to  previously
reported amounts or disclosures.

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

In December 1997, the Company completed the sale of the Richardson toppings and
condiments business and signed a definitive agreement to sell its food  service
bagel  businesses.  These transactions resulted in a combined pretax charge  of
$5.8  million,  reflecting the sale and a write-down of assets to  fair  market
value.  Cash proceeds from these transactions were received in January 1998.

On May 22, 1997, the Company completed the sale of 100 percent of its shares of
Snapple  to  Triarc Companies, Inc. for $300.0 million.  Of the total  loss  on
divestiture  of $1.41 billion, $10.6 million was recorded at the date  of  sale
and  $1.40  billion  for a related impairment loss was recorded  in  the  first
quarter of 1997.  See Note 1 for discussion of the impairment loss.

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.

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 purchased the Nile Spice variety  soup-in-a-
cup  business in the United States.  Pro forma information for this acquisition
was not material.

The  following  table  presents  sales and operating  (loss)  income  from  the
businesses  divested  in  1997, 1996 and 1995 through  the  divestiture  dates.
Operating  (loss) income includes certain allocations of overhead expenses  and
excludes  losses  and gains on divestitures and restructuring  charges  in  all
years.

Dollars in Millions                           1997         1996         1995
Sales:                                                                      
   U.S. and Canadian                        $260.5      $ 697.0     $1,034.9
   International                               6.8         35.5        466.6
Sales from divested businesses              $267.3      $ 732.5     $1,501.5
Operating (loss) income:                                         
   U.S. and Canadian                        $(13.4)     $(73.9)     $  (52.1)
   International                              (1.7)       (8.6)          4.6
Operating (loss) from divested businesses   $(15.1)     $(82.5)     $  (47.5)

48

Note 3
Restructuring Charges

During  1997, the Company recorded pretax restructuring charges totaling  $65.9
million.   In  the  U.S. and Canadian Foods business restructuring  charges  of
$44.3  million were recorded for various plant consolidations, including  $30.7
million  for  the  closing of a rice cakes plant in Gridley,  California,  $5.9
million  for the closing of a Near East plant in Leominster, Massachusetts  and
$3.6  million  and $4.1 million for manufacturing consolidations  in  the  food
service  and  hot  cereals businesses, respectively.  A Brazilian  pasta  plant
consolidation  in  the International Foods business resulted  in  restructuring
charges  of  $10.7 million.  In Worldwide Beverages, restructuring  charges  of
$3.1  million  and  $1.1  million were recorded to  reconfigure  U.S.  Gatorade
manufacturing  lines  and to close an office in Singapore,  respectively.   The
Company  also  recorded $4.9 million and $1.8 million of restructuring  charges
related  to  staffing reductions in the U.S. and Canadian Foods  and  Beverages
businesses,  respectively.  The restructuring charges are  comprised  of  asset
write-offs, loss on leases, severance and termination benefits and other  shut-
down  costs.   Savings from these actions substantially began in 1997  and  are
estimated  to be about $29 million annually, with approximately 90  percent  in
cash.   While  the  restructuring actions taken during  the  current  year  are
expected  to result in the elimination of much of the overhead costs previously
allocated to the Snapple beverages business, certain costs will remain.   These
costs  have been reallocated to the ongoing businesses and represent  resources
for future growth.

In  1996,  the Company recorded restructuring charges of $23.0 million.   These
charges included $16.6 million to change how the Company sold Snapple beverages
in  certain Texas markets and $6.4 million for plant consolidations in the U.S.
and Canadian Foods business.  Savings realized from these restructuring actions
have been in line with expectations.

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 for Snapple beverages 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.

With  the  1997  divestiture of the Snapple beverages business,  there  are  no
remaining  reserves  and  no  recurring  savings  to  be  realized   from   the
restructuring activities related to that business.

Restructuring  provisions were determined based on estimates  prepared  at  the
time  the  restructuring actions were approved by management and the  Board  of
Directors.   The  1997 and 1996 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, 1997
                                         Amounts Charged         Amounts  Remaining
Dollars in Millions                  Cash   Non-Cash    Total   Utilized    Reserve
1997                                                                         
<S>                                <C>         <C>     <C>        <C>         <C>
Severance and termination benefits $ 12.6      $  --   $ 12.6     $  4.0      $ 8.6
Asset write-offs                       --       49.1     49.1       35.9       13.2
Loss on lease and other               4.2         --      4.2        0.9        3.3
Subtotal                             16.8       49.1     65.9       40.8       25.1
1996                                                                         
Severance and termination benefits    1.4         --      1.4        1.2        0.2
Asset write-offs                       --       18.9     18.9       18.2        0.7
Loss on lease and other               2.6        0.1      2.7        2.5        0.2
Subtotal                              4.0       19.0     23.0       21.9        1.1
1995                                                                
Severance and termination benefits   48.8         --     48.8       48.8         --
Loss on reduction of contract                                               
  manufacturing capacity             22.5        1.9     24.4       24.4         --
Asset write-offs                      0.1       22.8     22.9       22.9         --
Contract cancellation fees, loss                                               
  on leases and other                21.2         --     21.2       14.4        6.8
Subtotal                             92.6       24.7    117.3      110.5        6.8
Total                              $113.4      $92.8   $206.2     $173.2      $33.0
                                      
</TABLE>

49

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

Dollars in Millions                                   1997      1996       1995
Operating (loss) income as reported               $ (924.3)  $ 565.9   $1,415.0
Restructuring charges:                                                 
   Foods                                              59.9       6.4       70.4
   Beverages                                           6.0        --       22.5
Ongoing Businesses                                    65.9       6.4       92.9
Divested Businesses                                     --      16.6       24.4
Subtotal                                              65.9      23.0      117.3
Losses (gains) on divestitures                     1,420.4    (136.4)  (1,170.8)
Operating loss from Divested Businesses               15.1      82.5       47.5
Subtotal                                           1,435.5     (53.9)  (1,123.3)
Operating income excluding restructuring                              
  charges, losses, gains and Divested Businesses  $  577.1   $ 535.0   $  409.0


Note 4
Trade Accounts Receivable Allowances

Dollars in Millions                                     1997     1996
Balance at beginning of year                           $29.3    $26.8
Provision for doubtful accounts                          4.2     12.3
Provision for discounts and allowances                  25.0     32.2
Write-offs of doubtful accounts - net of recoveries     (5.5)    (8.4)
Discounts and allowances taken                         (26.5)   (28.0)
Effect of divestitures                                  (3.8)    (5.3)
Effect of exchange rate changes                         (0.4)    (0.3)
Balance at end of year                                 $22.3    $29.3

Note 5
Financial Instruments

The Company uses various financial instruments in the course of its operations,
including  certain  components  of  working  capital  such  as  cash  and  cash
equivalents,  trade  accounts  receivable  and  trade  accounts  payable.    In
addition,  the  Company uses short-term and long-term debt  to  fund  operating
requirements and derivative financial and commodity instruments to  manage  its
exposure  to foreign currency exchange rate, commodity price and interest  rate
risk.   The counterparties to the Company's financial instruments are primarily
major   financial   institutions.   The  Company  continually   evaluates   the
creditworthiness  of  these  major  financial  institutions   and   has   never
experienced,   nor  does  it  anticipate,  nonperformance  by  any   of   these
institutions.

Debt Instruments -

Revolving Credit Facilities and Short-term Debt - In 1997, the Company  reduced
the level of its revolving credit facilities by a total of $225.0 million.  The
Company now has a $450.0 million annually extendible five-year revolving credit
facility  and  a  $225.0 million 364-day extendible revolving  credit  facility
which  may,  at the Company's option, be converted into a two-year  term  loan.
Both  facilities are with various banks.  The facilities support the  Company's
commercial  paper  borrowings  and are also available  for  direct  borrowings.
There  were  no  direct  borrowings in 1997 or in 1996.  The  revolving  credit
facilities  require the Company and certain domestic subsidiaries  to  maintain
certain financial ratios.

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, 1997 and 1996 were $5.0 million  and
$438.6  million, respectively.  Notes payable to banks were $56.0  million  and
$78.4  million  as  of December 31, 1997 and 1996, respectively.  The  carrying
value of short-term debt approximates fair value due to the short-term maturity
of  the  instruments.  Weighted average interest rates on all  short-term  debt
outstanding as of December 31, 1997 and 1996 were 7.2 percent and 5.8  percent,
respectively.   This increase in rates was due to a change in the  mix  of  the
outstanding international and domestic debt.  Nominal interest rates in  highly
inflationary countries have been adjusted for currency devaluation  to  express
interest rates in U.S. dollar terms.

Long-term  Debt  -  The  carrying value of long-term  debt,  including  current
maturities, as of December 31, 1997 and 1996 is summarized below.

Dollars in Millions                                                1997     1996
7.76% Senior ESOP notes due through 2001                         $ 57.2  $  64.9
8.0% Senior ESOP notes due through 2001                            82.5    100.3
                                                                      
7.75%-7.9% Series A medium-term notes due through 2000             41.5     41.5
8.63%-9.34% Series B medium-term notes due through 2019           178.7    185.6
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    400.0
                                                       
6.63% deutsche mark swap matured in 1997                             --     18.1
11.7% Chinese renmimbi notes due 2001                               4.8       --
5.7%-6.63% Industrial Revenue Bonds due through 2009, tax-exempt   19.4     24.9
                                              
Non-interest bearing installment note due 2014                      7.0      6.1
Other                                                               4.9      3.2
Subtotal                                                          996.0  1,044.6
Less: current portion of long-term debt                           108.4     51.1
Long-term debt                                                   $887.6  $ 993.5

50

The  fair  value  of  long-term debt, including current maturities,  was  $1.06
billion  and $1.07 billion as of December 31, 1997 and 1996, 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.

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, 1996, the Company had issued all of the
Series D medium-term notes.

The  non-interest bearing installment note for $55.5 million had an unamortized
discount  of $48.5 million and $49.4 million as of December 31, 1997 and  1996,
respectively, based on an imputed interest rate of 13 percent.

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

Dollars in Millions        1998     1999      2000     2001     2002
Required payments        $108.4    $95.4     $81.4    $53.2    $46.5

Derivative Instruments - The primary derivative instruments used by the Company
are  foreign exchange forward contracts, purchased foreign currency options and
commodity  options  and futures contracts.  The Company actively  monitors  its
exposure  to foreign currency exchange rate, commodity price and interest  rate
risks  and  uses derivative financial and commodity instruments to  manage  the
impact  of  these  risks.  The Company uses derivatives only  for  purposes  of
managing 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  where  there  are  not  underlying  exposures.   Complex
instruments  involving  leverage  or  multipliers  are  not  used.   Management
believes  that  its  use of derivative financial and commodity  instruments  to
reduce risk is in the Company's best interest.

During  1997,  the  Company  executed certain  hedging  instruments  to  manage
exposure  to Canadian, European, Brazilian and Mexican currency movements.   As
of  December  31,  1997, there were no Brazilian, Canadian or Mexican  currency
hedges  outstanding.   As  of December 31, 1996, there  were  no  Brazilian  or
Mexican  currency  hedges  outstanding; however, there  were  $9.5  million  of
Canadian  currency hedges outstanding at December 31, 1996.  The  Company  will
continue  to  use  foreign currency hedge instruments,  where  appropriate,  to
manage  exposure to potentially significant currency movements.  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.

Balance Sheet Hedges -

Net Investment Hedges - The Company's significant net investment hedges and the
related  foreign currency net investments and net exposures as of December  31,
1997 were as follows:

Dollars in Millions      Net Investment     Net Hedge    Net Exposure
Currency:                                                
   British pounds                $ 17.9         $ 4.9          $ 13.0
   Dutch guilders                $ 17.8         $13.5          $  4.3
   German  marks                 $ 17.5         $13.9          $  3.6
   Italian lira                  $ 23.5         $ 3.8          $ 19.7

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.

As of December 31, 1997, the Company had net foreign exchange forward contracts
to  sell  various  European  currencies for $14.4  million  to  hedge  its  net
investments.   These contracts will mature in 1998.  As of December  31,  1996,
the Company had such contracts to sell various European and Canadian currencies
for $35.3 million, which matured in 1997.  Unrealized losses as of December 31,
1997  and  1996 were $0.1 million and $0.2 million, respectively.  The carrying
value of these contracts approximated fair value.

Foreign  Currency Swaps - In 1987, 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
required 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.

Income Statement Hedges -

Foreign Currency Hedges - The Company uses foreign currency options and forward
contracts  to manage the impact of foreign currency fluctuations recognized  in
the  Company's  operating results.  Included in the consolidated statements  of
income  were  losses from foreign currency hedge instruments of  $2.5  million,
$1.0 million and $3.5 million in 1997, 1996 and 1995, respectively.

51

Commodity Options and Futures - The Company uses commodity options and  futures
contracts  to  manage price exposures on commodity inventories  or  anticipated
purchases  of  commodities.  The Company regularly hedges  purchases  of  oats,
corn, corn sweetener, wheat, coffee beans and orange juice concentrate.  Of the
$2.56 billion in cost of goods sold, approximately $230 million to $280 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,  1997  and 1996, approximately 36  percent  and  32  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, 1997 and 1996 were $0.1 million.  Realized  gains
charged  to  cost of goods sold in 1997, 1996 and 1995 were $6.6 million,  $5.1
million  and  $0.3 million, respectively.  The fair values of  these  commodity
instruments  as  of December 31, 1997 and 1996, based on quotes  from  brokers,
were net losses of $0.8 million and $2.9 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, 1997 and 1996 were $7.1 million and $8.9 million, respectively, of
prepaid  interest  expense  as  settlement  of  all  the  interest  rate   swap
agreements.   Prepaid  interest  expense  is  recognized  in  the  consolidated
statements  of income 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.  Included  in  interest
expense was $1.8 million, $1.9 million and $1.1 million related to the interest
rate swap agreements in 1997, 1996 and 1995, respectively.


Note 6
Capital Stock

During  1997, the Company repurchased 987,632 shares of its outstanding  common
stock  for  $50.0 million under a 10 million share repurchase program announced
in August 1993.  The Company has approximately 2.3 million shares remaining for
repurchase under this program.

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 9 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, 1997, 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.

The  Company  is  also  authorized to issue one million  shares  of  redeemable
preference stock, none of which had been issued as of December 31, 1997.


Note 7
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 in  long-term  debt  on  the
Company's  consolidated balance sheets.  See Note 5 for further  discussion  on
the ESOP notes.

Deferred  compensation  of $148.2 million as of December  31,  1997,  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                    1997       1996
Principal payments                    $25.5      $22.1
Interest payments                      12.9       14.7
Total ESOP payments                   $38.4      $36.8

As of December 31, 1997, 4,272,906 shares of common stock and 494,217 shares of
preferred stock were held in the accounts of ESOP participants.

52

Note 8
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.

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.  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,
1997, 705 persons held such options.

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 the 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 (loss)  income  and  net  (loss)
earnings per share would have been the pro forma amounts indicated below:

Dollars in Millions                                    1997       1996     1995
Net (Loss) Income:                                                  
  As reported                                       $(930.9)    $247.9   $724.0
  Pro forma                                         $(940.7)    $242.0   $720.7
Net (loss) earnings per share:                                      
  As reported                                       $ (6.80)    $ 1.80   $ 5.39
  Pro forma                                         $ (6.87)    $ 1.76   $ 5.37
Net (loss) earnings per share - assuming dilution:                        
  As reported                                       $ (6.80)    $ 1.78   $ 5.23
  Pro forma                                         $ (6.87)    $ 1.74   $ 5.21

The  fair value of each option granted during the year is estimated on the date
of  grant using the Black-Scholes option-pricing model with the following range
of assumptions:


                                    1997               1996                1995
Dividend yield               2.4% - 3.1%      3.3 % - 3.4 %               3.2 %
Expected volatility        16.3% - 22.5%    14.4 % - 20.1 %     20.6 % - 20.9 %
Risk-free interest rates     5.9% - 6.7%      5.7 % - 6.8 %        5.8 % - 6.2%
Expected lives              3 to 8 years       2 to 8 years        2 to 8 years

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

<TABLE>
<CAPTION>
                                     1997                  1996                  1995
                                       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         14,264,030    $34.42  16,724,814    $33.99  14,706,033    $33.78
Granted                      3,205,250    $40.61     152,150    $33.93   4,038,115    $33.13
Exercised                    3,661,269    $33.00   1,260,977    $24.66     927,371    $22.97
Forfeited                      790,390    $36.05   1,351,957    $38.14   1,091,963    $37.36
Outstanding at end of year  13,017,621    $36.25  14,264,030    $34.42  16,724,814    $33.99
Exercisable at end of year   9,403,675    $35.70  10,947,837    $34.33  10,150,528    $34.00
Weighted-average fair    
  value of options granted                                                          
  during the year                $9.03                 $5.97                 $6.38

</TABLE>

The  following  summarizes  information  about  stock  options  outstanding  at
December 31, 1997:

                          Options Outstanding           Options Exercisable
                                Average   Weighted-                 Weighted-
Range of                      Remaining     Average                   Average
Exercise                    Contractual    Exercise                  Exercise
Prices              Shares         Life       Price       Shares        Price
$22.79-34.53     6,134,323   5.78 Years      $31.60    5,075,327       $31.27
$35.35-48.03     6,883,298   7.10 Years      $40.40    4,328,348       $40.88
$22.79-48.03    13,017,621   6.48 Years      $36.25    9,403,675       $35.70

53

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 time  they  may  not  be  sold,
assigned, pledged or otherwise encumbered.  The number of shares or stock units
of  the  Company's  common stock awarded in 1997, 1996 and 1995  were  178,475,
55,600  and 19,400, respectively.  Restrictions on these awards lapse  after  a
period  of  time  designated  by the Compensation Committee  of  the  Board  of
Directors.


Note 9
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.


Note 10
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                               1997       1996       1995
Service cost (benefits earned during the year)   $30.9      $34.0      $53.5
Interest cost on projected benefit obligation     74.5       70.0       63.3
Return on plan assets                            (86.3)     (72.4)     (69.0)
Net amortization and deferral                     (6.6)      (8.7)      (7.3)
Multi-employer plans                               0.5        0.5        0.4
Net pension costs                                $13.0      $23.4      $40.9

The decline in the Company's 1997 and 1996 pension expense is due primarily to 
an increase in the 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>
<CAPTION>

                                                     Overfunded           Underfunded
Dollars in Millions                                1997       1996       1997      1996
<S>                                             <C>         <C>        <C>       <C>
Vested benefits                                 $ 799.1     $702.5     $ 76.0    $ 65.6
Non-vested benefits                                19.5       25.0        0.8       0.9
Accumulated benefit obligation                    818.6      727.5       76.8      66.5
Effect of projected future salary increases        87.3       65.1       10.3      10.5  
Projected benefit obligation                      905.9      792.6       87.1      77.0
Plan assets at market value                     1,045.4      880.4       29.7      26.9
Projected benefit obligation less                                         
  (greater) than plan assets                      139.5       87.8      (57.4)    (50.1)
Unrecognized net (gain) loss                     (193.8)    (135.7)      (1.8)      1.5
Unrecognized prior service cost                    13.6       16.4        4.6       4.2
Unrecognized net (asset) liability at transition     --       (9.9)       0.8       0.9                                         
Accrued pension costs                           $ (40.7)    $(41.4)    $(53.8)   $(43.5)
Assumptions (reflecting averages across all plans): Weighted average discount
rate: 7.0%, Rate of future compensation increases: 4.5%, Long-term rate of 
return on plan assets:  9.75%.

</TABLE>

54

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                           1997        1996        1997        1996
<S>                                          <C>         <C>        <C>         <C>
Vested benefits                              $93.1       $95.1      $  9.5      $ 14.0
Non-vested benefits                             --          --         0.9         0.6
Accumulated benefit obligation                93.1        95.1        10.4        14.6
Effect of projected future salary increases   34.8        29.0         0.8         0.7
Projected benefit obligation                 127.9       124.1        11.2        15.3
Plan assets at market value                  143.9       139.0         0.2         0.1
Projected benefit obligation less                                        
  (greater) than plan assets                  16.0        14.9       (11.0)      (15.2)
Unrecognized net (gain) loss                  (7.1)       (4.7)        0.8         0.5
Unrecognized prior service cost                4.1         2.7          --          -- 
Unrecognized net asset at transition          (6.1)       (7.3)       (0.1)       (0.1)
Prepaid (accrued) pension costs              $ 6.9       $ 5.6      $(10.3)     $(14.8)
Assumptions (reflecting averages across all plans): Weighted average discount 
rate: 7.5%, Rate  of future compensation increases:  6.0%, Long-term rate of 
return on plan assets:  8.0%.

</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  $3.4 million and $6.7 million as of December 31, 1997  and  1996,
respectively.

Note 11
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.


The components of postretirement benefit costs were as follows:

Dollars in Millions                               1997     1996     1995
Service cost (benefits earned during the year)   $ 6.3    $ 6.7    $ 6.9
Interest cost on projected benefit obligation     18.6     17.3     19.4
Amortization                                       0.4      0.4      0.2
Total postretirement benefit costs               $25.3    $24.4    $26.5

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

Dollars in Millions                                 1997              1996
Current retirees                                  $166.3            $132.3
Current active employees - fully eligible           11.8              11.7
Current active employees - not fully eligible      102.6             105.1
Accumulated postretirement benefit obligations     280.7             249.1
Unrecognized net gain (loss)                         5.9              27.1
Unrecognized prior service cost                     (4.7)             (5.2)
Accrued postretirement benefit costs              $281.9            $271.0
Assumptions:                                                     
     Weighted average discount rate:  7.0%                       
     Health care trend rates (varies by plan):      1998   2008 and Beyond
        Pre-age 65                                  8-9%              4-5%
        Age 65 and over                             7-9%              4-5%

If   the   health  care  trend  rates  were  increased  one  percentage  point,
postretirement  benefit costs for the year ended December 31, 1997  would  have
been  $3.9 million higher and the accumulated postretirement benefit obligation
as of December 31, 1997 would have been $40.2 million higher.


Note 12
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
$38.0 million, $36.4 million and $36.3 million for the years ended December 31,
1997,  1996  and  1995,  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, 1997.

Dollars in Millions   1998    1999    2000    2001    2002  Thereafter   Total
Total payments       $27.5   $24.8   $23.4   $22.4   $17.5       $41.1  $156.7
                                                      

The  Company  enters into executory contracts to obtain inventory  and  promote
various  products.   As  of December 31, 1997, future commitments  under  these
contracts amounted to $145.8 million.

55

Note 13
Supplementary Income Statement Information

Dollars in Millions                      1997        1996        1995
Advertising, media and production    $  292.7    $  289.8    $  271.5
Merchandising                           933.7       913.5     1,192.7
Total advertising and merchandising  $1,226.4    $1,203.3    $1,464.2
Depreciation expense                 $  122.0    $  119.1    $  115.3
Amortization of intangibles          $   35.6    $   78.5    $   86.7
Research and development             $   34.9    $   33.0    $   40.4


Note 14
Interest Expense

Dollars in Millions                1997         1996        1995
Interest expense                  $89.8       $113.0      $135.9
Interest expense capitalized       (4.0)        (6.2)       (4.3)
Subtotal                           85.8        106.8       131.6
Interest income                    (6.7)        (7.4)       (6.2)
Interest expense - net            $79.1       $ 99.4      $125.4

Interest paid in the years ended December 31, 1997, 1996 and 1995 was $83.2
million, $109.0 million and $129.9 million, respectively.


Note 15
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."  Income tax (benefits) provisions were as follows:

Dollars in Millions                     1997       1996       1995      
Currently (receivable) payable:                                        
   Federal                           $(140.1)    $ 99.4     $339.1
   Foreign                              21.9       10.2      131.7
   State                                 4.2       26.6       54.9
Total currently (receivable) payable  (114.0)     136.2      525.7
Deferred - net:                                             
   Federal                              (3.0)      15.9      (19.8)
   Foreign                             (13.6)      10.4       (7.3)
   State                                (2.8)       5.2       (2.1)
Total deferred - net                   (19.4)      31.5      (29.2)
Income tax (benefit) provision       $(133.4)    $167.7     $496.5

As  a  result  of the loss on the divestiture of Snapple in 1997,  the  Company
expects  to  recover approximately $250 million ($240 million Federal  and  $10
million   State)  in  taxes  paid  on  previous  capital  gains  from  business
divestitures.  This tax benefit has been reflected in other current  assets  on
the consolidated balance sheet as of December 31, 1997.

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

Dollars in Millions                              1997      1996      1995
Accelerated tax depreciation                   $ 12.8    $  3.7    $(23.8)
Postretirement benefits                         (10.9)      0.6      (6.5)
Accrued expenses including                                        
  restructuring charges                            --      40.6      12.6
Loss carryforwards                               (4.6)     (7.1)      3.5
Foreign gain deferral                            (4.3)      9.8        --
Other                                           (12.4)    (16.1)    (15.0)
(Benefit) provision for deferred income taxes  $(19.4)   $ 31.5    $(29.2)

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

Dollars in Millions                 1997      1996       1995
Continuing operations            $(133.4)   $167.7     $496.5
Items charged directly to                                 
  common shareholders' equity    $ (21.0)   $ (8.4)    $(11.4)

The sources of pretax (loss) income were as follows:

Dollars in Millions                      1997        1996         1995     
U.S. sources                        $(1,087.7)     $362.8     $  925.4
Foreign sources                          23.4        52.8        295.1
(Loss) income before income taxes   $(1,064.3)     $415.6     $1,220.5

56

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

<TABLE>
<CAPTION>

Dollars in Millions                    1997               1996               1995
                                            % of               % of               % of
                                          Pretax             Pretax             Pretax
                                  Amount    Loss     Amount  Income     Amount  Income
<S>                              <C>       <C>       <C>       <C>      <C>       <C>
Tax (benefit) provision based  
  on the Federal statutory rate  $(372.5)   35.0%    $145.5    35.0%    $427.2    35.0%
State and local income tax
  (benefit) provision - net of
  Federal income taxes              (7.1)    0.7       20.7     5.0       34.3     2.8
Repatriation of foreign earnings     1.9    (0.2)     (11.3)   (2.7)      18.9     1.5
Foreign tax rate differential        0.1      --        2.1     0.5       21.1     1.7
Snapple valuation allowance        253.1   (23.8)        --      --         --      --
Miscellaneous items                 (8.9)    0.8       10.7     2.6       (5.0)   (0.3)
Income tax (benefit) provision   $(133.4)   12.5%    $167.7    40.4%    $496.5    40.7%

</TABLE>

Deferred tax assets and deferred tax liabilities were as follows:

Dollars in Millions                   1997                   1996
                                Assets  Liabilities    Assets  Liabilities
Depreciation and amortization  $  20.3       $218.9    $ 56.9       $400.1
Postretirement benefits          129.8           --     100.3           --
Other benefit plans               50.2          5.7      60.8          9.2
Accrued expenses including                                         
  restructuring charges           92.5         11.5      80.3          7.9
Loss carryforwards               328.5           --      14.5           --
Other                              4.1         15.9      13.3         33.2
Subtotal                         625.4        252.0     326.1        450.4
Valuation allowance             (319.2)          --     (14.2)          --
Total                          $ 306.2       $252.0    $311.9       $450.4

As of December 31, 1997, as a result of the loss on divestiture of Snapple, the
Company  had approximately $790 million of capital loss carryforwards available
to  reduce future capital gains in the United States for up to five  years.   A
valuation  allowance has been provided for the full value of the  deferred  tax
assets related to these loss carryforwards.

As of December 31, 1997, the Company had $39.5 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
international loss carryforwards have no expiration restrictions.   Those  with
restrictions  expire primarily in five years.  A valuation allowance  has  been
provided for approximately one-half of the deferred tax assets related  to  the
loss carryforwards.

Included in other current assets were deferred tax assets of $90.5 million  and
$99.9  million  as of December 31, 1997 and 1996, respectively.   Income  taxes
paid  during 1997, 1996 and 1995 were $92.9 million, $161.1 million and  $434.7
million, respectively.


Note 16
Litigation

On  November  1, 1995, the Company filed suit against Borden, Inc.  in  Federal
District  Court in New York related to the Company's November 1994  acquisition
of  a  Brazilian pasta business.  The suit was settled in August 1997 for $35.0
million.

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 past 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.

57

Note 17
Earnings per Share

Reconciliations  of  basic earnings per share (EPS)  to  diluted  EPS  were  as
follows:

<TABLE>
<CAPTION>
                        
Dollars in Millions (Except Per Share Data)
For the year ended December 31,      1997                1996               1995
                               Income    Shares    Income    Shares   Income    Shares
<S>                           <C>       <C>        <C>      <C>       <C>      <C>
Net (loss) income             $(930.9)             $247.9             $724.0    
Less: Preferred dividends         3.5                 3.7                4.0       
Net (loss) income available                                                      
  for common                  $(934.4)  137,460    $244.2   135,466   $720.0   134,149
Net (loss) income per                                                      
  common share                $ (6.80)             $ 1.80             $ 5.39     
Net (loss) income available                                                      
  for common                  $(934.4)  137,460    $244.2   135,466   $720.0   134,149
Effect of dilutive securities:
  Stock options                    --        --        --     1,000       --     1,253
  ESOP Convertible                                                        
    Preferred Stock                --        --       2.9     2,441      2.9     2,586
  Non-vested awards                --        --        --        83       --        73
                              $(934.4)  137,460    $247.1   138,990   $722.9   138,061
Net (loss) income per                                                      
  common share - assuming        
  dilution                    $ (6.80)             $ 1.78             $ 5.23  

</TABLE>

As  the Company incurred a net loss for the year ended December 31, 1997, there
were no adjustments for potentially dilutive securities as the adjustments would
have  been antidilutive.  Adjustments to income and shares for such potentially
dilutive  securities  in 1997, had the Company earned net  income,  would  have
resulted in a $2.9 million increase to net income available for common  and  an
increase of 5.1 million shares.

As  of December 31, 1996 and 1995, certain stock options were excluded from the
computation  of  diluted EPS because the exercise prices were higher  than  the
average market price.  At the end of 1997, all exercise prices were lower  than
the  average  market  price.   See Note 8 for more information  on  outstanding
options.   Historical adjustments for potentially dilutive securities  are  not
necessarily indicative of future trends.


Note 18
Quarterly Financial Data (Unaudited)

Dollars in Millions (Except Per Share Data)
                                                            
                               First         Second        Third       Fourth
1997                         Quarter(a)     Quarter(b)   Quarter(c)   Quarter(d)
Net sales                  $ 1,201.7       $1,395.5     $1,370.7     $1,047.8
Cost of goods sold             627.7          704.1        674.1        559.0
Gross profit               $   574.0       $  691.4     $  696.6     $  488.8
Net (loss) income          $(1,109.8)      $   75.8     $   77.5     $   25.6
Per common share:                                                 
  Net (loss) income        $   (8.15)      $   0.57     $   0.58     $   0.20
  Net (loss) income -                                              
    assuming dilution      $   (8.15)      $   0.57     $   0.58     $   0.20
  Cash dividends declared  $   0.285       $  0.285     $  0.285     $  0.285
  Market price range:                   
    High                   $  40 3/8       $ 45 1/8     $ 53         $ 55 1/8
    Low                    $  34 3/8       $ 35 7/8     $ 44 3/8     $42 1/16 
                      
(a) Includes a $1.40 billion pretax impairment loss ($1.14 billion after-tax or
$8.39 per share) for the Snapple beverages business.
(b)  Includes a $10.6 million pretax loss ($5.5 million after-tax or  $.02  per
share)  for the sale of the Snapple beverages business and pretax restructuring
charges  of  $11.8  million  ($7.9 after-tax  or  $.06  per  share)  for  plant
consolidations  in  the  International Foods business and  the  closing  of  an
International beverages office.
(c)  Includes a $4.8 million pretax net charge ($3.4 million after-tax or  $.02
per  share) for an impairment loss partly offset by a litigation settlement  in
the  International  Foods business and pretax restructuring  charges  of  $46.9
million ($28.2 million after-tax or $.19 per share) for plant consolidations in
the U.S. and Canadian Foods business and staffing reductions.
(d) Includes a $5.8 million combined pretax loss ($1.9 million after-tax or  an
immaterial  per  share impact) for the sale of certain food service  businesses
and  pretax restructuring charges of $7.2 million ($4.3 after-tax or  $.02  per
share)  for manufacturing reconfigurations in the U.S. and Canadian  Foods  and
Beverages business.

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
   Net income - assuming                                                   
     dilution              $   0.23      $   0.46    $   0.97      $   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) for plant consolidations in the U.S. and Canadian Foods business and
a change in how the Company sold Snapple beverages in certain Texas markets.

58

Additional 10-K Information

Description of Property

As  of  December 31, 1997, the Company operated 55 manufacturing plants  in  18
states  and  14 foreign countries and owned or leased distribution centers  and
sales offices in 21 states and 21 foreign countries.

                                                                        
                 Owned and Leased       Owned and Leased    Owned and Leased
                   Mfg. Locations   Distribution Centers       Sales Offices
Industry Segment   U.S.   Foreign         U.S.   Foreign      U.S.   Foreign
Foods                20        20            2         6         8        18
Beverages             7         7           --         4        11        13
Shared               --         1            6        12         6         8
Total                27        28            8        22        25        39

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 materially 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; 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; Near East and Nile Spice for meals 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; and Continental,  Maryland
Club  and  Continental WB for coffee.  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; Gatorade for thirst-quenching beverages;  and  Adria  for
pasta products.

U.S. and Canadian 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  to  the food service market, including Quaker hot and  ready-to-eat
cereals;  Continental  coffee;  and Ardmore Farms  single  serve  frozen  fruit
juices;  a  specialty  line of custom-blended dry baking  mixes;  ready-to-bake
biscuits; and Burry cookies and crackers.

International Foods Description

The  Company  is  broadly  diversified in  the  packaged  food  industry,  both
geographically and by product line.  The Company manufactures and  markets  its
products  in  many  countries throughout Europe, Latin  America  and  the Asia/
Pacific  region.   It is the leading brand-name hot cereals  producer  in  many
countries  and has other leading market positions for products in an number  of
countries.   In  Brazil, the Company is the leading producer of  ready-to-drink
chocolate beverages and the leading canned fish processor.

Worldwide Beverage Description

The  Company is the world's leading manufacturer of sports beverages.  It sells
its sports beverages in 47 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
is  sold through licensee arrangements.  In the United States, Gatorade  thirst
quencher  utilizes a combination of brokers and the Company's own  sales  force
and has distribution centers throughout the country.

Raw Materials

Raw  materials  used in manufacturing include oats, wheat, soy products,  corn,
rice,  sweeteners, 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, Inc.
(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

John H. Costello 1,5,6
Senior Executive
Vice President - Marketing
Sears, Roebuck and Co.
(Retail Marketing)
Hoffman Estates, Illinois

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

Robert S. Morrison 3,5
Chairman, President and
Chief Executive Officer

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

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
(Robert S. Morrison
Ex. Officio Member)
6 Public Responsibility
* Denotes Committee Chairman


Officers

Senior Officers

Robert S. Morrison +
Age 55
Chairman, President and
Chief Executive Officer
Joined Quaker in October
1997.
Elected to present office in October 1997.

John G. Jartz +
Age 44
Senior Vice President
General Counsel, Business Development and Corporate Secretary
Joined Quaker in 1980.
Elected to present office in July 1997.

Douglas J. Ralston +
Age 52
Senior Vice President
Human Resources
Joined Quaker in 1981.
Elected to present
office in 1992.

Robert S. Thomason +
Age 53
Senior Vice President
Finance and Chief
Financial Officer
Joined Quaker in 1971.
Elected to present office
in 1995.


Corporate Staff
Officers

Michael D. Annes
Vice President
Business Development
and Counsel Law

John H. Calhoun
Vice President and Associate
General Corporate Counsel

Penelope C. Cate
Vice President
Public Affairs

Janet K. Cooper +
Age 44
Vice President
Treasurer and Tax
Joined Quaker in 1978.
Elected to present office in July 1997.

Margaret M. Eichman +
Age 39
Vice President
Investor Relations and
Corporate Affairs
Joined Quaker in 1980.
Elected to present office
in July 1997.

62

Thomas L. Gettings +
Age 41
Vice President and
Corporate Controller
Joined Quaker in 1987.
Elected to present office
in 1992.

Douglas A. James
Assistant Treasurer

James E. LeGere
Vice President
Information Services
U.S. Foods

I. Charles Mathews
Vice President
Diversity Management

Kenneth W. Murray
Vice President
Audit Services and
Chief Ethics Officer

Michael T. Welch
Vice President
U.S. Foods and
Litigation Counsel


U.S. and Canadian
Quaker Foods Products

Douglas W. Mills +
Age 52
Executive Vice President
Joined Quaker in 1969.
Elected to present office
in 1994.

John A. Boynton
Vice President and
Chief Customer Officer

Harry M. Dent III
Vice President
Ready-to-Eat Cereals

Polly B. Kawalek
President  
Hot Breakfast

Charles I. Maniscalco
Vice President
Snacks

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 45
Executive Vice President
Joined Quaker in 1981.
Elected to present office
in 1994.

Susan D. Wellington
Vice President
Gatorade Marketing

Bernardo Wolfson
President - Beverages,
Latin America and Europe


Quaker International
Food Products

Barbara R. Allen +
Age 45
Executive Vice President
Joined Quaker in 1975.
Elected to present office in 1995.

Europe

George F. Sewell
President 
Cereals, Europe

Latin America

Otavio J. Franco
Regional Vice President
Latin America South

Pacific

Cassian K. Cheung
President - Pacific


+ 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 Robert S. Morrison, who joined the
Company in October 1997, and was formerly the Chairman and CEO of Kraft Foods,
Inc. North America of Philip Morris Companies, Inc. [1994-1997] and President of
General Foods U.S.A. of Philip Morris Companies, Inc. [1991-1994], have been
employed by The Quaker Oats Company in an executive capacity for five years or
more.

63

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, 1997 and
1996,  and  the related consolidated statements of income, common shareholders'
equity  and  cash flows for the years ended December 31, 1997, 1996  and  1995.
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  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 financial position of The Quaker Oats  Company  and
subsidiaries  as  of  December 31, 1997 and 1996,  and  the  results  of  their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.


/s/Arthur Andersen LLP

Chicago, Illinois
February 4, 1998



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.

64

Corporate and Shareholder Information

Corporate Headquarters
Mailing Address:
The Quaker Oats Company
P.O. Box 049001
Chicago, Illinois  60604-9001

Street Address:
Quaker Tower
321 North Clark Street
Chicago, Illinois  60610-4714
(312) 222-7111

Internet Homepage
www.quakeroats.com

Consumer Affairs
Inquiries regarding our products
should be addressed to:
Consumer Affairs
The Quaker Oats Company
P.O. Box 049003
Chicago, Illinois  60604-9003
or call 1-800-494-7843

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

Press and media related inquiries
should be addressed to:
Media Relations - Suite 27-6
or call (312) 222-6914

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 and other related matters
by telephoning the Shareholder Hotline
toll-free at 1-800-344-1198.

Harris DOCS (Direct Ownership
of Corporate Shares) Program
Quaker common stock may be purchased through automatic dividend reinvestment,
automatic checking/savings account debits, and/or optional cash investments
through the Harris DOCS Program.  This program replaced the Quaker Dividend
Reinvestment and Stock Purchase Plan in January 1998.  A brochure describing
the Program and an enrollment form are available by calling
1-800-524-8580.  Current shareholders should call Harris Bank directly at
1-800-344-1198.

Harris DOCS
The Quaker Oats Company
Administrator
P.O. Box A3309
Chicago, Illinois  60690-3309
1-800-344-1198

Investor Relations
Security analysts, investment professionals and shareholders should direct
their business-related inquires to:
Investor Relations - Suite 27-7
or call (312) 222-7818

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 certain additional Form 10-K information.

Transfer Agent, Registrar and
Dividend Disbursing Agent
Harris Trust and Savings Bank,
Shareholder Services Division
P.O. Box A3504, 311 West Monroe
Chicago, Illinois  60690-3504
1-800-344-1198

Independent Public Accountants
Arthur Andersen LLP
33 West Monroe
Chicago, Illinois  60603
(312) 580-0033

Annual Meeting
Shareholders are cordially invited to attend the Annual Meeting, which will be
held at the Rosemont Convention Center, 5555 North River Road, in Rosemont,
Illinois, May 13, 1998, at 9:30 a.m. (CDT).

Dividends
Cash dividends on Quaker common stock have been paid for 92 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.

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

Ticker Symbol:  OAT

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