Exhibit 13.1                   
                   
                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis



             Transition Period Ended December 31, 1995 Compared to
                     Prior Period Ended December 31, 1994

Transition Period Summary

This  report discusses the six-month transition period ended December 31,  1995
("transition period"), as the Company changes from a June 30 fiscal-year end to
a fiscal year aligned with the calendar year beginning January 1, 1996.

Presentation

The  comparisons of the results for the six months ended December 31,  1995  to
those  of  the six months ended December 31, 1994 ("prior period") are affected
by  the significant changes the Company has made in its portfolio of businesses
since  November  1994.   Specifically, the Company  acquired  Adria  pasta  and
Snapple  beverages  in November and December 1994, respectively.   The  Company
also  divested the following businesses between March and June 1995:  U.S.  and
Canadian  pet  food, U.S. bean and chili, European pet food, Mexican  chocolate
and  Dutch  honey.  Because of these major transactions, comparative  six-month
financial results are more difficult to analyze.  To aid in the analysis,  this
discussion  will  compare financial results as reported,  then  break  out  the
impact  of  divested businesses, discuss the effect of significant acquisitions
and  compare "ongoing" business results.  Ongoing business results will exclude
the  impact of acquisitions and divestitures on both periods' financial results
and  the  restructuring  charges  on  the  transition  period's  results.   The
following  table  illustrates  the  impact  that  the  portfolio  changes   and
restructuring charges had on sales and operating income:

Dollars in Millions                        Net Sales         Operating Income
                                     Transition   Prior    Transition    Prior
                                       Period     Period     Period     Period
                                        Ended     Ended       Ended      Ended
                                      12/31/95  12/31/94    12/31/95   12/31/94
U.S.  and Canadian  Grocery Products:
Ongoing businesses                    $1,888.7  $1,823.0     $ 219.2    $ 185.8
Acquired businesses                      276.9      25.0       (49.2)      (0.2)
Divested businesses                         --     354.7          --       22.5
Restructuring charge                        --        --       (24.4)        --
Total                                 $2,165.6  $2,202.7     $ 145.6    $ 208.1
International Grocery Products:
Ongoing businesses                    $  505.5  $  464.8     $  (7.4)   $   8.0
Acquired businesses                       62.0       9.0       (16.1)      (0.3)
Divested businesses                         --     467.8          --       25.2
Restructuring charge                        --        --       (16.4)        --
Total                                 $  567.5  $  941.6     $ (39.9)   $  32.9
Total Company:                                             
Ongoing businesses                    $2,394.2  $2,287.8     $ 211.8    $ 193.8
Acquired businesses                      338.9      34.0       (65.3)      (0.5)
Divested businesses                         --     822.5          --       47.7
Restructuring charges                       --        --       (40.8)        --
Total                                 $2,733.1  $3,144.3     $ 105.7    $ 241.0
                                      
Note:  Operating income includes certain allocations of overhead
expenses.

"Ongoing businesses":  includes  the results of all of the Company's
businesses not reported as either acquired or divested businesses.
"Acquired  businesses":   includes  Adria pasta and  Snapple
beverages business results since dates of acquisition.
"Divested businesses":   includes prior period business results for
the following businesses:    U.S. and Canadian pet food and U.S.
bean and chili (U.S. and Canadian Grocery Products), and  European pet
food, Mexican chocolate, and Dutch honey (International Grocery
Products).

30

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


The Snapple Acquisition

The  acquisition of Snapple beverages in December 1994 for a tender-offer price
of  $1.7  billion  was  the largest in the Company's history.   Its  first-year
performance  fell significantly short of expectations.  Since its  acquisition,
the  Company has worked to upgrade Snapple beverages' manufacturing  standards,
integrate  its  order-entry and accounting systems, improve the efficiency  and
effectiveness of its advertising and merchandising (A&M) programs  and  improve
distributor  communications.   However, combined  with  increased  competition,
these  activities  were neither sufficient nor prompt enough to  allow  Snapple
beverages  to  achieve profitable growth in the calendar 1995 beverage  season.
Snapple  beverages  operated at a loss of $85.2 million during  the  transition
period.  The Snapple beverage operating loss includes a restructuring charge of
$24.4  million  to  reduce  excess  contract  manufacturing  capacity,  and  an
inventory charge of $19.1 million for excess and obsolete ingredients,  labels,
packaging and finished product.

In  regard  to key financial ratios, the inclusion of Snapple beverages  lowers
the Company's overall gross profit margin because of its external manufacturing
and  distribution  networks.  However, because of  the  shared  nature  of  its
merchandising expenses, the Snapple beverage business also had an  A&M-to-sales
ratio that is lower than the Company-wide historical average.

Improving  the  financial  results  of the Snapple  beverage  business  is  the
greatest challenge facing the Company.  This will require achieving significant
profitable  sales  growth.  Achieving such growth is  dependent  on  successful
execution of new marketing and distribution strategies and is critical  to  the
future success and value of the Snapple beverage business.  The acquisition  of
Snapple  beverages  added $1.8 billion in intangible assets  to  the  Company's
balance  sheet  as  of  December  31, 1995.   The  Company  has  evaluated  the
recoverability  of  Snapple beverages' long-lived assets, including  intangible
assets, as of December 31, 1995 using its best estimates of undiscounted future
cash  flows,  and  believes  that the net carrying value  of  $1.9  billion  is
consistent  with  the  Company's accounting policies and  the  requirements  of
Financial Accounting Standards Board (FASB) Statement #121 as outlined  in  the
section  entitled "Current and Pending Accounting Changes" in this Management's
Discussion  and  Analysis.  The estimate of future cash  flows  is  subject  to
change  and management's intention is to periodically assess the recoverability
of long-lived assets using a consistent methodology.


Operating Results

Consolidated net sales during the transition period were $2.73 billion, down 13
percent  from  the  prior period, primarily due to the absence  of  sales  from
divested  businesses which contributed $822.5 million during the prior  period.
Sales  from Snapple beverages (acquired on December 6, 1994) contributed $298.1
million  in sales during the transition period as compared to $25.0 million  in
the  prior  period.   Ongoing business sales (excluding divested  and  acquired
businesses  from  the  comparison) of $2.39 billion  increased  5  percent  due
primarily  to  substantial increases in Worldwide Gatorade thirst quencher  and
Brazilian  foods.   These  increases  more than  offset  declines  in  European
cereals, U.S. ready-to-eat cereals and frozen foods.  Price increases  did  not
have a significant impact on sales.

U.S.  and Canadian Grocery Products sales decreased 2 percent to $2.17 billion.
Excluding  divested  business  sales from the comparison,  sales  increased  17
percent.   This growth was driven mainly by the addition of Snapple  beverages.
For  ongoing  businesses, sales increased 4 percent on a volume increase  of  6
percent due primarily to increases in Gatorade thirst quencher sales and volume
of  17  percent and 15 percent, respectively.  The increase in Gatorade  thirst
quencher  is due to new packaging, new flavors and warmer weather.  Sales  also
increased in Canadian foods, Golden Grain, grain-based snacks and hot  cereals,
but were partially offset by declines in ready-to-eat cereals and frozen foods.
While  sales  increased during the period in the hot cereal business,  private-
label competition increased and is expected to continue.

International  Grocery Products sales decreased 40 percent to  $567.5  million,
mainly  due  to  the absence of sales from divested businesses,  which  totaled
$467.8  million  during the prior period.  Excluding divested business  results
from the comparison, sales increased 20 percent. The newly acquired Adria pasta
and  Snapple beverage businesses added $53.0 million in sales compared  to  the
prior  period.  Sales from ongoing businesses increased 9 percent  compared  to

31

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


the prior period due to increases in: Brazil, reflecting an improved economy in
that   country;  Italian  products,  which  was  sold  in  January  1996;   and
Asia/Pacific  grain-based  foods.   European  and  Mexican  foods  and  Mexican
Gatorade thirst quencher experienced declines.  Overall, however, international
Gatorade thirst quencher sales increased  13 percent.  Transition  period sales 
from the Mexican business would have been approximately $28 million higher if 
they  had been translated into U.S.  dollars  using  the  prior  period foreign 
currency exchange  rates.   With  the  exception  of  Mexico,  foreign currency 
exchange rate fluctuations did not significantly impact  sales.  

Gross   profit  margin was 44.0 percent compared to 48.6 percent  in the  prior 
period primarily  due  to  product  mix  changes  resulting  from the portfolio 
changes, particularly due  to  the  inclusion  of  Snapple  beverages  and   an
inventory  charge  of $19.1   million  pertaining to that business.  Raw coffee
bean  price  and  manufacturing  cost  increases   reduced   the  gross  profit
margin in the food service business. In addition, for other ongoing businesses, 
costs increased for oats, wheat and packaging.

Selling, general and administrative (SG&A) expenses declined $244.4 million, or
18  percent due mainly to a 24 percent decrease in A&M expenses.  A&M  expenses
were 24.1 percent of sales in the transition period, down from 27.7 percent  in
the  prior  period.  The Company anticipates making changes in its  future  A&M
programs  with  the intention of increasing profitability.  The  Company  spent
just  over  $200  million in A&M to support divested businesses  in  the  prior
period.  During the transition period, increased efficiency in A&M spending for
ongoing  businesses  offset  increases to support  Snapple  beverages  and  the
continued  expansion  of grain-based foods and beverages  in  the  Asia/Pacific
region.   SG&A  in  the  prior period included a charge of  $18.4  million  for
estimated  litigation  costs  related to a 1984 trademark  lawsuit,  which  was
settled  during  the  transition  period.  See  Note  18  to  the  consolidated
financial statements for further discussion.

Consolidated  operating income was $105.7 million compared  to  $241.0  million
last  year.  Divested businesses contributed $47.7 million of operating  income
in  the prior period.  Acquired businesses reported an operating loss of  $89.7
million  in  the  transition period, including the $24.4 million  restructuring
charge to reduce Snapple beverages' contract manufacturing capacity.  Operating
income  from ongoing businesses increased 9 percent to $211.8 million  compared
to $193.8 million in the prior period.

U.S.  and Canadian Grocery Products' operating income was $145.6 million versus
$208.1  million in the prior period.  The decrease reflects the operating  loss
from Snapple beverages, the restructuring charge associated with that business,
and  the absence of $22.5 million of operating income from divested businesses.
Ongoing  U.S. and Canadian Grocery Products businesses reported an increase  in
operating   income   of   18  percent.   This  increase  reflects   significant
improvements in Gatorade thirst quencher, ready-to-eat cereals, Aunt Jemima and
frozen foods.

International  Grocery  Products reported an operating loss  of  $39.9  million
compared  with operating income of $32.9 million in the prior period.  Divested
businesses  contributed operating income of $25.2 million in the prior  period.
Transition period results also include a restructuring charge of $16.4 million.
Operating  losses  were  incurred  by the Adria  pasta  and  the  international
Gatorade  thirst  quencher businesses and to underwrite the  expansion  of  the
recently  acquired  Snapple  beverage business.   Excluding  the  restructuring
charge   and   the  impact  of  recently  divested  and  acquired   businesses,
International  Grocery  Products reported an operating  loss  of  $7.4  million
versus  $8.0 million in operating income in the prior period.  The  decline  in
ongoing businesses' operating income is primarily due to the underwriting costs
associated with the expansion of the Asia/Pacific grain-based food and beverage
businesses as well as declines in the Italian products business.

Restructuring Charges

The  Company's  cost-reduction and realignment activities announced  in  fiscal
1995  and  1994 are proceeding as planned.  The programs announced  during  the
transition period and during fiscal 1995 are intended to address the changes in
the  Company's  portfolio  and  to allow the Company  to  respond  quickly  and
effectively  to  the needs of trade customers and consumers. The  Company  will
continue to focus on worldwide efficiencies and customer service processes with
the intent of lowering costs and more effectively utilizing human and financial
resources.

32

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


Restructuring  charges  of $40.8 million were recorded  in  the  quarter  ended
December  31,  1995.   As  described in Note 3 to  the  consolidated  financial
statements, these charges included $24.4 million related to reducing the amount
of  contract manufacturing capacity in Snapple beverages' supply chain  system.
The  remaining  $16.4 million restructuring charge is for  realignment  of  the
European   beverage  and  Asia/Pacific  grain-based  food  businesses.    These
restructuring actions will result in the elimination of about 80 positions  and
allow  the  Company  to focus on the more attractive growth areas  in  Southern
Europe  and China.  Anticipated cash expenses totaling $35.1 million  were  for
costs  related  to  the reduction of Snapple beverages' contract  manufacturing
capacity,  severance  to terminated employees in Europe and  Asia/Pacific,  and
European  beverage A&M contract cancellation fees.  Non-cash  asset  write-offs
related  to  consolidation of office facilities in the  European  beverage  and
Asia/Pacific  grain-based  food  businesses totaled  $5.7  million.   Estimated
savings from the transition period restructuring activities are expected to  be
about $15 million annually beginning in 1996. Approximately 90 percent of these
savings will be in cash.  See the Fiscal 1995 Compared with Fiscal 1994 section
for discussion of fiscal 1995 restructuring charges.

Interest, Foreign Exchange and Income Taxes

Net  financing  costs (net interest expense and foreign exchange  losses)  were
$59.3  million,  an  increase of $18.9 million versus the prior  period.   This
increase  is  primarily  due  to  increased  interest  expense  resulting  from
borrowings related to the Company's fiscal 1995 acquisitions.

With  the  divestiture of the European pet food business and the  January  1996
divestiture  of  the  Italian  products business,  the  Company's  exposure  to
European  foreign currency fluctuations is significantly reduced.  The majority
of the Company's international business is now in Latin American countries like
Brazil,  where  hedging opportunities are more limited.  The  Company  finances
these   businesses  with  equity,  local  currency  borrowings,  U.S.   dollar-
denominated debt, parent company loans or a combination of all four.   The  mix
of  financing  in hyper-inflationary countries has an impact on  the  level  of
interest expense as well as the resulting foreign exchange translation gains or
losses incurred when foreign balance sheets are converted into U.S. dollars.

The  effective tax rate for the transition period ended December 31,  1995  was
46.5 percent compared to 41.9 percent in the prior period.  The increase in the
effective  tax  rate  is due primarily to the lower income  tax  rate  for  the
restructuring  charges  and  the  magnitude of  the  restructuring  charges  in
relation  to net income.  Excluding the income tax effect of transition  period
restructuring  charges, the effective tax rate for the  transition  period  was
42.5  percent.  The Company has evaluated its deferred tax assets and  believes
that  future taxable income will be sufficient to realize a majority  of  these
assets.   A  valuation allowance has been provided for the deferred tax  assets
that are not expected to be realized.


                     Fiscal 1995 Compared with Fiscal 1994

See  Note  2  to the consolidated financial statements for sales and  operating
income  from  the  businesses divested in fiscal 1995 through  the  divestiture
dates.

Operating Results

Consolidated  net sales for fiscal 1995 were $6.37 billion, up 7  percent  from
fiscal  1994.   The  increase  in net sales reflects  a  10  percent  worldwide
increase  in  volume, including acquisitions and divestitures, and a  favorable
impact  of translating European currencies into U.S. dollars.  Sales for fiscal
1995  would  have  been  $96.7  million lower if European  exchange  rates  had
remained  stable  with  the  prior  year.   Price  increases  did  not  have  a
significant  impact on sales.  Businesses divested during the year  contributed
$1.32 billion in sales.

U.S.  and Canadian Grocery Products sales increased 9 percent to $4.62  billion
on a volume increase of 12 percent.  Sales and volume growth were driven mainly
by  the  acquisition of Snapple beverages in December 1994 and by increases  in
Gatorade  thirst quencher, food service and grain-based snacks, partly  reduced
by  decreases in hot cereals and the divestitures of the pet food and bean  and
chili  businesses,  which  were  completed in March  1995  and  in  June  1995,

33

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


respectively.  Gatorade thirst quencher volume grew 7 percent despite the  fact
that  two  major  soft  drink competitors broadened the distribution  of  their
sports  beverages  throughout the United States, which  is  currently  Gatorade
thirst quencher's largest market.  Hot cereals sales were 10 percent lower than
in  the  prior year primarily due to continued volume weakness caused  by  warm
winter weather and increased competition from private-label products.

International  Grocery  Products sales increased 2 percent  to  $1.74  billion.
Volume  increased  6 percent, primarily in Gatorade thirst quencher  throughout
Asia/Pacific  and Latin America.  Volume also increased in Brazil  due  to  the
November 1994 acquisition of the Adria pasta business and the positive  effects
of  the  new  economic plan in that country.  These increases more than  offset
declines due to the divestitures of the European pet food and Mexican chocolate
businesses in the fourth quarter of fiscal 1995.

Gross  profit margins decreased to 46.9 percent from 50.9 percent in the  prior
year  primarily due to the inclusion of the Snapple beverage business.  Because
of  its  use  of  external  manufacturing and  distribution  networks,  Snapple
beverages'  gross  profit  margin  was  inherently  lower  than  the  Company's
historical average.  In addition, packaging costs in the United States  reduced
Gatorade  thirst quencher gross profit margin while raw coffee bean  price  and
manufacturing  cost  increases reduced the gross  profit  margin  in  the  food
service business.

SG&A  expenses  rose  7  percent to $2.60 billion due mainly  to  a  6  percent
increase  in  A&M  expenses.  A&M expenses were 26.3 percent of  net  sales  in
fiscal  1995,  down  slightly  from 26.6 percent in  fiscal  1994.  Significant
spending  increases occurred within the U.S. Gatorade thirst quencher  business
as  the  Company focused on growing in a highly competitive market, and in  the
cereal,   Aunt   Jemima,  Golden  Grain  and  frozen  food   businesses   where
merchandising  spending increased.  As a result, profits declined  in  each  of
these  product  lines. SG&A expenses for fiscal 1995 included  a  provision  of
$29.0 million for estimated costs related to a 1984 trademark lawsuit involving
Gatorade thirst quencher advertising.

Consolidated operating income was $1.55 billion compared to $537.2  million  in
the  prior year.  Excluding gains on divestitures and restructuring charges  in
both years, operating income was $456.0 million compared to $645.8 million.  On
that same basis, U.S. and Canadian Grocery Products operating income was $417.6
million  versus  $543.8  million in fiscal 1994.  The decrease  of  23  percent
reflects  significant profit declines due to the divestitures of the  pet  food
and  bean  and  chili businesses and due to significant spending  increases  as
discussed  above.  These profit declines were partially offset by the  increase
in operating income in grain-based snacks.

International Grocery Products operating income was $575.6 million compared  to
$106.3   million   in  fiscal  1994.   Excluding  gains  on  divestitures   and
restructuring  charges  in  both years, operating  income  decreased  to  $38.4
million from $102.0 million in the prior year.  The decrease was mainly due  to
lower operating income in Brazil, which was primarily caused by the effects  of
reduced  inflation and currency changes.  However, net financing costs in  that
country  declined  to  a level that more than offset the decline  in  operating
income.  In addition, operating income declined due to the divestitures of  the
European  pet food and Mexican chocolate businesses as well as due to  declines
in  the  Italian  products business and in the Asia/Pacific  region  where  the
Company  is  expanding  Gatorade  thirst  quencher  and  grain-based  products.
Operating  losses decreased significantly in European Gatorade thirst  quencher
compared  to the prior year as funding increased for expansion of that business
into the Asia/Pacific region.

Gains on Divestitures

In  fiscal 1995, the Company realized gains on divestitures of:  $513.0 million
on the sale of the North American pet food business; $487.2 million on the sale
of  the European pet food business; $91.2 million on the sale of the U.S.  bean
and  chili  businesses;  $74.5 million  on the sale of  the  Mexican  chocolate
business; and $4.9 million on the sale of the Dutch honey business.

See  the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal
1994 gains on divestitures.

34
                   
                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


Restructuring Charges

In fiscal 1995, the Company announced cost-reduction and realignment activities
in  order  to address the changes in its portfolio and to allow  it to  quickly
and  effectively  respond to the needs of trade customers  and  consumers.   As
described  in  Note 3 to the consolidated financial statements,  these  changes
primarily  included  the  realignment of the  corporate,  shared  services  and
business   unit  structures,  the  European  cereal  business  and   the   U.S.
distribution  center network.  As a result, the Company recorded  restructuring
charges   of  $76.5  million  in  the  fourth  quarter.  Restructuring  charges
associated  with the cost-reduction and realignment activities  included  $41.0
million  in  cash  expenses  for  severance and termination  benefits  for  the
elimination of approximately 850 positions.  Non-cash asset write-offs  related
to  European  cereals manufacturing, the U.S. distribution center  network  and
other assets were $19.0 million.  Cash expenses for losses on headquarters  and
distribution  center  leases and other associated  costs  were  $16.5  million.
Estimated   savings  from  the  fiscal  1995  cost-reduction  and   realignment
activities are expected to be about $50 million annually beginning in  calendar
1996.  Approximately 90 percent of the annual savings will be in cash.

See  the Fiscal 1994 Compared with Fiscal 1993 section for discussion of fiscal
1994 restructuring charges.

Interest, Foreign Exchange and Income Taxes

Net  financing costs were $114.9 million, a decrease of $1.0 million versus the
prior  year.  This reduction resulted mainly from lower net financing costs  in
Brazil  compared  to  the prior year, which more than offset  the  increase  in
interest  expense resulting from borrowing related to the Company's significant
acquisition activities. See Note 7 to the consolidated financial statements for
further discussion of foreign currency hedging.

The  effective  tax  rate  for fiscal 1995 was 40.7 percent  compared  to  38.9
percent in fiscal 1994.  Excluding the effects of certain gains on divestitures
and  restructuring  charges from the prior year, the  effective  tax  rate  for
fiscal 1994 was 39.4 percent.  The increase resulted mainly from non-deductible
amortization of intangibles. A valuation allowance has been provided  for  that
portion of the deferred tax assets that is not expected to be realized.
                                       
                                       
                     Fiscal 1994 Compared with Fiscal 1993

See  Note  2  to the consolidated financial statements for sales and  operating
income  from  the  businesses divested in fiscal 1995 through  the  divestiture
dates.

Operating Results

Consolidated  net sales for fiscal 1994 were $5.95 billion, up 4  percent  from
fiscal  1993.   The  increase  in net sales reflected  a  4  percent  worldwide
increase  in  volume  and  an improved product mix.   Significantly  offsetting
higher  sales was the negative impact of translating European sales  into  U.S.
dollars.   Sales  for  fiscal 1994 would have been  $140.1  million  higher  if
European  exchange  rates  had remained stable  with  the  prior  year.   Price
increases did not have a significant impact on sales.

U.S.  and Canadian Grocery Products sales increased 8 percent to $4.25  billion
on a volume increase of 6 percent.  Volume growth for Gatorade thirst quencher,
ready-to-eat  cereals, grain-based snacks and Golden Grain products  more  than
offset decreases in food service volume.  International Grocery Products  sales
decreased  5  percent  to $1.70 billion, although overall  volume  increased  1
percent.   Weaker European currencies and lower volume of European  pet  foods,
cereals and Italian products contributed to the decline.

Gross  profit margins increased to 50.9 percent from 49.9 percent in the  prior
year  primarily due to an improved product mix and cost-containment initiatives
in  the  United States, which more than offset commodity and distribution  cost
increases.  SG&A expenses rose 5 percent to $2.43 billion due mainly  to  an  8
percent increase in A&M expenses.  A&M expenses were 26.6 percent of net  sales
in fiscal 1994, up from 25.7 percent in fiscal 1993.

35

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


Consolidated  operating income was $537.2 million in fiscal 1994 versus  $575.2
million  in  fiscal  1993.  Excluding gains on divestitures  and  restructuring
charges  in  both  years,  operating income was $645.8  million  versus  $595.7
million.   On  that same basis, U.S. and Canadian Grocery Products fiscal  1994
operating income was $543.8 million versus $485.6 million in fiscal 1993.   The
12 percent increase reflected increases from Gatorade thirst quencher, ready-to-
eat cereals and Aunt Jemima partially offset by decreases in food service.

International Grocery Products fiscal 1994 operating income decreased to $102.0
million  versus $110.1 million in fiscal 1993, excluding gains on  divestitures
and  restructuring charges in both years.  European operating  income  declined
$14.9  million  mainly  due  to volume declines in  the  pet  food  and  cereal
businesses.   Latin American and Asia/Pacific operating income  increased  $6.8
million  primarily due to volume increases in Mexico and the hyper-inflationary
effects  of  translating  Brazil's results into U.S.  dollars.   The  operating
income improvement in Brazil was more than offset by higher net financing costs
in that country.

Gains on Divestitures

In  fiscal  1994, the Company realized a $9.8 million gain on  the  sale  of  a
Venezuelan detergent additive business.  In fiscal 1993, the Company realized a
$17.4  million  gain on the sale of two Italian businesses and a $10.4  million
gain on the sale of a business in the United Kingdom.

Restructuring Charges

In  fiscal  1994,  the Company recorded restructuring charges  totaling  $118.4
million to eliminate positions at its headquarters and research and development
facilities,  to  realign its U.S. sales force, to consolidate manufacturing  in
its  bean and chili, rice cake and Aunt Jemima syrup product lines and to close
a  Canadian  pet  food  facility,  as well as to  pursue  other  cost-reduction
initiatives.  These changes eliminated approximately 1,500 positions, resulting
in   severance  and  termination  expenses  totaling  $44.7  million.   Charges
associated  with plant consolidations and sales office closures  totaled  $38.3
million,  of  which  80  percent  represented asset  write-offs.   Product-line
discontinuations  resulted in charges of $35.4 million,  of  which  90  percent
represented  asset write-offs.  Cash outlays related to severance,  termination
benefits  and  other expenses occurred mostly in fiscal 1995  and  were  funded
through   operating  cash  flows.   Savings  realized  were   consistent   with
expectations  and cash outlays and asset write-offs have been  consistent  with
amounts originally provided.

In  fiscal  1993, operating income included a charge of $38.6 million  for  the
consolidation of production facilities at a U.S. pet food plant and a charge of
$9.7  million  for European cost-reduction programs.  With the divestitures  of
the  North American and European pet food businesses during fiscal 1995,  there
are  no  remaining reserves and no recurring savings to be realized from  these
restructuring activities.

See  Note 3 to the consolidated financial statements for further discussion  of
restructuring charges.

Interest, Foreign Exchange and Income Taxes

Net  interest expense of $89.7 million increased $34.6 million versus the prior
year.   An  increase of $22.1 million came from higher levels of local currency
borrowing  in Brazil at significantly higher interest rates.  In addition,  the
Company  issued  $200.0 million of medium-term notes and  increased  commercial
paper  borrowings  during the year, which accounted for most of  the  remaining
increase  in  interest  expense.   The foreign exchange  loss  increased  $11.1
million  from  the  prior year, primarily reflecting small losses  on  European
currency hedges in fiscal 1994 versus gains in fiscal 1993.

The  effective  tax  rate  for fiscal 1994 was 38.9 percent  compared  to  38.7
percent  in  fiscal 1993.  Excluding the effects of gains on  divestitures  and
restructuring charges in both years, the effective tax rate increased  to  39.4
percent  from 38.4 percent.  The higher U.S. statutory tax rate, including  the
legislated  retroactive adjustment to January 1, 1993, caused the overall  rate
to increase.
                                       
36

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


                        Liquidity and Capital Resources
                                       
Short-term and long-term debt (total debt) increased $111.8 million during  the
transition period to $1.76 billion at December 31, 1995.  Total debt  increased
$635.8  million  to  $1.65 billion from June 30, 1994  to  June  30,  1995  and
increased $206.7 million to $1.02 billion from June 30, 1993 to June 30,  1994.
On  December 6, 1994, the Company acquired Snapple Beverage Corp. for a  tender
offer  price  of  $1.7  billion.  The acquisition was initially  financed  with
commercial  paper  borrowings.   During  fiscal  1995,  the  Company   divested
businesses  for  approximately $1.7 billion.  The  after-tax  proceeds  on  the
fiscal  1995  divestitures of $1.25 billion were used to reduce the  commercial
paper  borrowings.   The  total  debt-to-total capitalization  ratio  was  61.7
percent, 59.0 percent, 68.8 percent and 59.0 percent as of December 31,1995 and
as of June 30, 1995, 1994 and 1993, respectively.

The  Company's  revolving credit facilities now consist  of  a  $600.0  million
annually  extendible five-year revolving credit facility and a  $900.0  million
364-day  annually  extendible  revolving credit  facility  which  may,  at  the
Company's option, be converted into a two-year term loan.

The  increase in debt, substantial change in the mix of the Company's portfolio
to  businesses  with  greater seasonality, and disappointing  net  income  from
acquired and ongoing businesses and Snapple beverages' poor performance reduced
the  Company's  free  cash flow during fiscal 1995.  As a  result,  the  credit
rating  agencies placed the Company's credit rating on "watch" or  "review"  in
July  1995.  Moody's confirmed the Company's debt rating of A3 in October 1995.
Standard & Poor's (S&P) removed the Company from "watch" status and lowered the
long-term  debt and commercial paper ratings from A to A- and from  A1  to  A2,
respectively, in February 1996. The new ratings and removal from "watch" status
reflect  the Company's leading market positions and strong cash flows generated
by  its grain-based food and Gatorade thirst quencher businesses, offset by the
increased  concentration  of sales and earnings in  beverages  which  increased
overall  Company  business risk. S&P assigned the Company  a  negative  ratings
outlook,  which  reflects uncertainties relating to the  Company's  ability  to
significantly  improve overall financial results, particularly in  the  Snapple
beverage  business, given  its  weak  performance  in  calendar  1995.  Fitch's
removed  the  Company  from  "review" status and lowered the long-term debt and 
commercial paper ratings from A to A- and from F1 to F2, respectively, in March 
1996.  The new ratings and removal from "review" status reflects the challenges
of integrating Snapple beverages and generating historical operating cash  flow
margin levels.

Net  cash provided by operating activities was $84.3 million and $152.7 million
for the six months ended December 31, 1995 and 1994, respectively. The decrease 
in net cash provided by operating  activities  in  the  transition  period   as 
compared to the prior  period  is  due  to  lower  net  income  and  changes in 
working  capital  items,  primarily  current  liabilities,  which reflects  the
remaining tax payments related to the gains from the fiscal 1995  divestitures,
and accounts  payable.  Net  cash  provided  by operating activities was $475.5
million, $450.8 million and  $558.2 million during fiscal 1995, 1994  and 1993,
respectively.  The decrease  in  net cash  provided by operating activities  in
fiscal 1994 compared to  fiscal 1993 resulted  mainly  from  changes in working
capital  items,  primarily  accounts  receivable  and inventories.  The Company
used cash flow from operating activities and debt financing to cover transition 
period capital expenditures  and  cash  dividends.  The  Company used cash flow 
from operating  activities,  cash  proceeds  from  the  divestitures  and  debt 
financing to cover fiscal 1995  capital expenditures, cash  dividends  and  the 
purchase of Snapple  Beverage  Corp. Capital  expenditures  for  the transition 
period and for fiscal 1995,  1994 and 1993 were $145.0 million, $275.5 million, 
$175.1 million and $172.3 million, respectively. During the transition  period, 
the Company had proceeds from investing activities  related to the  disposition 
of assets  and  payments  for business  acquisitions  of $25.3 million and $8.0 
million, respectively. The Company expects that its future capital expenditures 
and cash dividends  will  be  financed  through a combination of cash flow from 
operating activities and  debt financing.  Capital expenditures are expected to 
continue at current levels  in the near term as the Company has plans to invest 
in the worldwide expansion of production  capacity  for beverages in the United 
States  and  for  grain-based products in the United States and China.

In  April  1995, the Company filed a prospectus supplement with the  Securities
and  Exchange Commission (SEC) for the intended issuance of $400.0  million  of
medium-term notes, under a shelf registration covering $600.0 million  of  debt
securities  filed  in fiscal 1990.  As of December 31, 1995,  the  Company  has
issued $331.0 million in medium-term notes.  

37

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis


The consolidated balance sheet  as of  December 31, 1995 included the  reclass-
ification 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.

During  the  first quarter of fiscal 1995, 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 has  not  been
active in its share repurchase program since August 1994.
                                       
                                       
                    Current and Pending Accounting Changes
                                       
Effective  July  1, 1994, the Company adopted FASB Statement #112,  "Employers'
Accounting for Postemployment Benefits."  The cumulative effect of adoption was
a  $4.1  million  after-tax charge in the first quarter of  fiscal  1995.   The
adoption of this Statement did not have a material effect on operating  results
or  cash flows in fiscal 1995, nor is it expected to have a material effect  in
future years.  See Note 13 to the consolidated financial statements for further
discussion.

Included in the net income of fiscal 1993 was the cumulative effect of adopting
FASB  Statement #106, "Employers' Accounting for Postretirement Benefits  Other
Than  Pensions"  and FASB Statement #109, "Accounting for Income  Taxes."   The
combined  cumulative  effect  of adoption was an  after-tax  charge  of  $115.5
million.   See  Notes  13 and 17 to the consolidated financial  statements  for
further discussion.

During  the  transition  period,  the  Company  adopted  FASB  Statement  #121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed  Of."   This  Statement  requires that  long-lived  assets,  including
certain  identifiable intangibles and goodwill related to those  assets  to  be
held  and  used,  be  reviewed for impairment whenever  events  or  changes  in
circumstances  indicate  that the carrying amount  of  the  asset  may  not  be
recoverable.   This  Statement requires that a forecast of undiscounted  future
operating cash flows, including disposal value if any, produced by the asset be
compared to its 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 should be based on the best  information
available,  including considering prices for similar assets and the results  of
valuation techniques to the extent available.

FASB   Statement  #121  also  requires  that  long-lived  assets  and   certain
identifiable intangibles to be disposed of that are not covered by 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," be 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.

In  October  1995, the FASB issued Statement #123, "Accounting for  Stock-Based
Compensation."   The Company is required to adopt this Statement no later  than
December  31,  1996.  This Statement encourages companies to recognize  expense
for  stock options at an estimated fair value based on an option pricing model.
If  expense  is not recognized for stock options, pro forma footnote disclosure
is required of what net income and earnings per share would have been under the
Statement's approach to valuing and expensing stock options.  Certain other new
disclosures  will  be required.  The Company will implement the  provisions  of
this  Statement in 1996, but has decided that it will not recognize the expense
related  to stock options in the financial statements.  The impact of this  new
Statement  has not yet been completely evaluated.

                               Subsequent Event

On December 6, 1995, the Company announced a definitive agreement to sell its
Italian  products business.  The transaction was completed on January 15, 1996.

38

                   The Quaker Oats Company and Subsidiaries
                     Management's Discussion and Analysis

On March 12, 1996, the Company announced its intention to sell its North
American frozen foods business, which includes Aunt Jemima frozen breakfast
products and Celeste frozen pizza products.  The combined sales of the Aunt
Jemima frozen products and Celeste frozen pizza businesses are approximately
$175 million.  The planned divestiture does not include the Aunt Jemima syrup,
corn product and pancake mix businesses.


              Cautionary Statement on Forward-Looking Statements
                                       
Forward-looking statements, within the meaning of Section 21E of the Securities
and  Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis,  in the accompanying Chairman's Letter to Shareholders,  and  in  the
other sections of this transition period report.

Total  Company  results may differ materially from those in the forward-looking
statements.  Forward-looking statements are based on management's current views
and  assumptions, and involve risks and uncertainties that could  significantly
affect  expected results.  For example, operating results may  be  affected  by
external  factors  such  as:   actions of  competitors;  changes  in  laws  and
regulations, including changes in accounting standards; distributor  relations;
customer demand; effectiveness of spending or programs; consumer perception  of
health-related  issues;  fluctuations in the cost and availability  of  supply-
chain  resources;  and  foreign economic conditions,  including  currency  rate
fluctuations.

The Company's expected earnings improvement in 1996 is based on its analysis of
current  financial  and  operating conditions, which  it  reviews  and  updates
quarterly through its planning process.  This process includes an assessment of
current  operating conditions and the competitive environment, as well  as  the
projected outcome of supply-chain management programs, the effectiveness  of  a
change  in  its  advertising and merchandising support, and  new marketing  and
promotional programs.  Specifically for the Snapple business, the likelihood of
significant improvement in 1996 depends in part on the success of the Company's
new  operating procedures, promotional programs, packaging and advertising,  as
well  as the streamlining of its manufacturing structure and removal of  excess
inventories.

39