MANAGEMENT'S DISCUSSION AND ANALYSIS

Operating Results

The   following  discussion  addresses  the  operating  results  and  financial
condition  of the Company for the years ended December 31, 1998 (current  year)
and   1997  (prior  year).   In  these  years,  the  Company  divested  several
businesses,  including Snapple beverages, five food service  businesses  and  a
soup-cup  business.   As  a  result  of these  divestitures,  the  year-to-year
financial comparisons do not easily provide the reader with an understanding of
the operating results of ongoing businesses.  To assist in the understanding of
operating  results, this discussion will address the total Company  results  as
reported, describe the impact of divested businesses and review the results  of
ongoing businesses by operating segment.  Previously reported amounts have been
restated to conform to the current presentation.

The  discussion of business results by operating segment has been  modified  to
reflect  the  Company's  December  1998  adoption  of  Statement  of  Financial
Accounting  Standards  (SFAS)  No.  131,  "Disclosures  about  Segments  of  an
Enterprise  and  Related Information."  This Statement requires that  operating
segments   are  reported  consistent  with  how  management  assesses   segment
performance.   As a result, the Company will separately report  information  on
the following seven operating segments: U.S. and Canadian Foods; Latin American
Foods;  Other  Foods;  U.S. and Canadian Beverages; Latin  American  Beverages;
Other  Beverages;  and  Total Divested Businesses.   U.S.  and  Canadian  Foods
includes hot and ready-to-eat cereals, mixes, syrups, snacks and flavored  rice
and  pasta.  Other Foods and Other Beverages include businesses in the European
and  Asia/Pacific regions.  In determining the operating income or loss of each
segment,  restructuring  charges, asset impairment  losses  and  certain  other
expenses such as income taxes, general corporate expenses and  financing costs,
are not allocated to operating segments.  Comparative segment data is presented
in tabular form on page 38.

1998 Compared with 1997

Consolidated net sales decreased 3 percent because of the absence  of  divested
businesses.   For ongoing businesses, volume and net sales were up  10  percent
and  4  percent,  respectively, primarily driven by the U.S. and  Canadian  and
Latin  American  Beverages  segments.  Weaker exchange  rates  affected  sales,
particularly  in  the  Canadian, Latin American  and  Asia/Pacific  businesses.
Price  changes did not significantly affect the comparison of current and prior
year net sales.

The  consolidated gross profit margin was 51.0 percent in 1998 compared to 48.9
percent  in 1997, reflecting improvements across all ongoing segments  and  the
divestiture of lower-margin businesses in 1998.

Selling, general and administrative (SG&A) expenses decreased $66.4 million due
to  the absence of divested businesses.  For ongoing businesses, SG&A increased
$57.3 million, or 3 percent, driven by a 6 percent increase in advertising  and
merchandising  (A&M)  expenses,  partly  offset  by  lower  general   corporate
expenses.  Total Company A&M expenses were 25.6 percent of sales, up from  24.5
percent in the prior year, reflecting increased spending levels to support  new
snacks growth and competitive pressures in ready-to-eat cereals in the U.S. and
Canadian Foods segment.

During   1998,  the  Company  initiated  numerous  actions  to  improve  future
profitability.   These  actions  resulted in  $89.7  million  in  restructuring
charges  and  are divided into three categories: organization alignment,  plant
consolidations  and  Asian reorganization.  Charges for organization  alignment
activities totaled $41.5 million.  The Company aligned its foods and  beverages
businesses, combining sales, supply chain and certain administrative  functions
to  realize  synergies  and  maximize scale.  These  actions  resulted  in  the
elimination  of approximately 550 positions worldwide, as a layer of  executive
management was removed and sales and administrative offices and functions  were
consolidated.   Plant  consolidations in the United States  and  Latin  America
resulted  in  $19.2  million  in charges.  These actions  will  result  in  the
elimination   of  approximately  300  positions.   In  light  of  disappointing
performance   and  a  weak  economic  environment,  the  Company  revised   its
operational strategy for the Asia/Pacific region.  The focus going  forward  is
on  building  the  Gatorade  business  in  China.   Asia/Pacific  restructuring
resulted  in  $29.0  million in charges for plant and sales and  administrative
office closures, restructuring of certain joint ventures and the elimination of
approximately 450 positions.

The  1998 restructuring charges are composed of severance and other termination
benefits,  asset  write-offs,  losses on  leases  and  other  shut-down  costs.
Savings  from these actions are estimated to be $65 million annually, primarily
beginning in 1999, with approximately 90 percent of the savings in cash.   1998
and 1997 restructuring charges by operating segment were as follows:

Dollars in Millions               1998      1997
                                  
U.S. and Canadian Foods         $ 38.4    $ 49.2
Latin American Foods               9.3      10.7
Other Foods                       17.8        --
U.S. and Canadian Beverages        8.9       4.9
Latin American Beverages           2.8        --
Other Beverages                   12.5       1.1
Total Charges                   $ 89.7    $ 65.9


<25>


In 1998,the Company recognized $38.1 million of asset impairment losses related
to  ongoing  businesses.  In conjunction with the Company's ongoing  review  of
underperforming businesses, certain assets are reviewed for impairment pursuant
to  the provisions of SFAS No. 121.  During 1998, the China foods and Brazilian
pasta businesses were determined to be impaired.  Accordingly, pretax losses of
$15.1  million  and  $23.0  million on these  impaired  Chinese  and  Brazilian
businesses,  respectively, were recorded in order to adjust the carrying  value
of the long-lived assets of these businesses to fair value.  The estimated fair
value  of  these  assets  was  based  on  various  methodologies,  including  a
discounted value of estimated future cash flows and liquidation analyses.   The
Company  continues to review its business strategies and pursue  cost-reduction
activities, some of which could result in future charges.

Charges  for asset impairment losses related to divested businesses  were  also
recorded  in 1998.  The Company divested the following U.S. food businesses  in
1998  for a total of $192.7 million and realized a combined pretax loss of $0.7
million, including related impairment losses:


                                                         (Gains)         Total
                        Divestiture    Impairment        Losses         (Gains)
Dollars in Millions            Date        Losses       on Sale         Losses
                                                                  
Ardmore Farms juice     August 1998       $   --         $ (2.5)        $ (2.5)
Continental Coffee   September 1998         40.0           (5.1)          34.9
Nile Spice soup cup   December 1998         25.4            3.1           28.5
Liqui-Dri biscuit     December 1998           --          (60.2)         (60.2)
Total Losses (Gains)                      $ 65.4         $(64.7)        $  0.7



Net  financing  costs  (net  interest  expense  and  foreign  exchange  losses)
decreased  $19.4  million  in 1998, due to lower interest  expense  and  higher
interest  income  as  a result of lower debt levels and higher  cash  balances.
Debt  levels declined by $125.4 million and cash balances increased  by  $242.4
million  from  December 31, 1997, due mainly to proceeds from  divestitures,  a
$240.0  million  tax recovery related to the 1997 divestiture  of  the  Snapple
beverages business and cash flow from operations.

Excluding  the  impact of restructuring  and impairment charges and  losses and
gains on divestitures, the  effective tax rate was 36.3 percent in 1998  versus
38.1 percent in 1997.  The  decrease primarily was due  to lower non-deductible
goodwill  amortization as a result of business divestitures and a reduction  in
effective state tax rates in 1998.

Operating Segment Results

Foods
U.S. and Canadian Foods - Volume and net sales decreased 1 percent as increases
in  ready-to-eat  cereals, granola bars and new snacks  sales  were  offset  by
declines  in hot cereals and rice cakes.  The sales decline in hot cereals  was
driven by unusually mild winter weather and a change in merchandising strategy.
Competitive pressure in the snacks category continued to adversely affect  rice
cakes  sales,  although profitability improved due to lower  A&M  expenses  and
supply  chain  efficiencies.   In  addition, sales  in  Canada  were  adversely
affected  by a weaker exchange rate.  The sales increase in new snacks reflects
the  introduction  of  a  new  snacks product, Quaker  Fruit  &  Oatmeal  bars.
Operating  income  decreased 5 percent from the prior year  due  to  the  sales
decline and increased A&M spending, reflecting support of new snacks growth and
competitive pressures in ready-to-eat cereals.

Latin  American  Foods  -  Volume was up 4 percent  and  net  sales  were  down
slightly,  reflecting sales increases in Brazilian canned  fish  and  ready-to-
drink  beverages,  partly offset by a weaker exchange rate.   Operating  income
increased  19  percent,  or $4.0 million, reflecting  lower  supply  chain  and
overhead  costs,  largely  the  result of restructuring  actions.   The  recent
currency  devaluation  and anticipated slowdown in the  Brazilian  economy  are
expected to negatively affect the Company's near-term financial results,  while
the volatility in the Brazilian economy makes the long-term outlook uncertain.

Other  Foods  -  Volume  and  net sales were down  7  percent  and  1  percent,
respectively, primarily due to declines in Asia/Pacific Foods, particularly  in
China.    Operating   losses  decreased  $8.7  million,   reflecting   improved
profitability in the European cereals business  while losses continued  in  the
Asia/Pacific  region.   As a result of the restructuring actions,  the  Company
expects  a  reduced  level of operating losses from its food  business  in  the
Asia/Pacific  region going forward.  While restructuring actions  have  lowered
the  Company's currency and economic exposure in the Asia/Pacific  region,  the
long-term outlook for the region remains uncertain.

Beverages                                             
U.S. and Canadian Beverages - Volume and net sales increased 17 percent and  13
percent, respectively.  New packaging and flavors and strong growth outside the
traditional retail market, along with more favorable weather versus  the  prior
year,  contributed to the volume and sales increase, resulting in market  share
gains.   Strong sales growth and supply chain efficiencies drove an 18  percent
increase in operating income.


<26>


Latin  American  Beverages - Volume and net sales increased 22 percent  and  15
percent,  respectively, reflecting improved cold-channel distribution  and  the
successful  new  product  launch  of  Gatorade  X-plosive.   Operating   income
increased $6.3 million, driven by strong volumes and lower supply chain  costs.
The  recent  currency  devaluation and anticipated slowdown  in  the  Brazilian
economy  are  expected to negatively affect the Company's  near-term  financial
results,  while  the  volatility in the Brazilian economy makes  the  long-term
outlook uncertain.

Other Beverages - Volume was up 5 percent on nearly flat sales.  Warmer weather
contributed  to  a sales gain in Europe, while lower volumes,  particularly  in
China, and weaker exchange rates led to lower sales in the Asia/Pacific region.
An operating income increase in Europe was more than offset by continued losses
in the Asia/Pacific region.

Divested
1998  operating  results from divested businesses reflect the operating results
for the Ardmore Farms, Continental Coffee, Nile Spice  and Liqui-Dri businesses
through their divestiture dates, compared to a  full year of operating  results
in 1997.  For operating results from divested businesses see page 38.

1997 Compared with 1996

Consolidated  net  sales  decreased 4 percent due to the  absence  of  divested
businesses.   For  ongoing  businesses, sales  were  up  7  percent  driven  by
increases  in  Gatorade  thirst quencher in all beverages  operating  segments,
Latin American Foods and U.S. and Canadian Foods, particularly ready-to-eat and
hot  cereals and flavored rice and pasta.  With the exception of a ready-to-eat
cereals  price reduction in June 1996, price and currency exchange rate changes
did not significantly affect the comparison of 1997 and 1996 net sales.

Consolidated  gross  profit margin was 48.9 percent in 1997  compared  to  46.0
percent  in 1996, reflecting lower costs in most businesses and the divestiture
of the lower-margin Snapple beverages business in 1997.

SG&A expenses decreased $42.1 million, primarily due to the absence of divested
businesses.   For  ongoing businesses, SG&A increased  $185.7  million,  or  12
percent,  driven by a 14 percent increase in A&M expenses.  Total  Company  A&M
expenses  were 24.5 percent of sales, up from 23.1 percent in 1996, driven,  in
part,  by  increased  media support for Gatorade Frost  and  spending  for  new
snacks.

In  1997,  the  Company  initiated several restructuring actions  resulting  in
charges of $65.9 million.  Three foods plants were closed, two in the U.S.  and
one   in  Latin  America.   Combined  with  other  manufacturing  consolidation
activities  in the U.S. and Canadian businesses, restructuring charges  totaled
$58.1  million.   Other  actions  taken  included  an  office  closure  in  the
Asia/Pacific  region and staff reductions in the U.S. and Canadian  businesses,
resulting in charges of $1.1 million and $6.7 million, respectively.  In  1996,
the  Company  recorded restructuring charges of $23.0 million  including  $16.6
million related to the divested Snapple beverages business and $6.4 million for
plant consolidations in the U.S. and Canadian Foods businesses.

Savings realized from the 1997 and 1996 restructuring actions have been in line
with expectations.  However, there are no recurring savings to be realized from
restructuring  activities related to the divested Snapple  beverages  business.
Restructuring charges for 1997 and 1996 by operating segment were as follows:

                                                                               
Dollars in Millions             1997     1996                                  

U.S. and Canadian Foods       $ 49.2   $  6.4                                  
Latin American Foods            10.7       --                                  
U.S. and Canadian Beverages      4.9       --                                  
Other Beverages                  l.1       --                                  
Divested Businesses               --     16.6                                  
Total Charges                 $ 65.9   $ 23.0                                  


The  Company also took numerous actions in 1997 relative to its Brazilian pasta
business in light of the continuing operating losses of this business.   During
the  Company's operating planning process, an updated review of the strategies,
actions taken to date and the expected financial prospects of this business was
performed.   As a part of this review, the Company evaluated the recoverability
of the long-lived assets of this business pursuant to SFAS No. 121 and recorded
a  non-cash charge  of $39.8 million to  reduce  the carrying value of  the net
assets  of  the 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 estimated  future cash flows  and a fundamental analysis of
the  business' value.  Separately,  the Company  received a  $35.0 million cash
litigation  settlement related to this  business.  The combined charge of  $4.8
million was not included  in the operating  segment results  of Latin  American
Foods.


<27>


Consolidated 1997 operating results include a pretax loss of $1.41  billion  on
the  sale of the Snapple beverages business in May 1997.  As a result  of  this
transaction,  the Company recognized a tax benefit and recorded an  income  tax
receivable of $250.0 million related to the expected recovery of taxes paid  on
previous  capital  gains  from 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.  Consolidated  1996
operating results included $136.4 million in gains on divestitures.  See Note 3
to  the  consolidated  financial  statements  for  further  discussion  of  the
Company's divestiture activities.

Net  financing  costs  (net  interest  expense  and  foreign  exchange  losses)
decreased  $18.4  million in 1997.  Debt levels declined by over  $500  million
from  December  31,  1996, due mainly to proceeds from  the  Snapple  beverages
divestiture and cash flow from operations, resulting in lower interest expense.
Excluding  the  impact  of  restructuring  charges  and  losses  and  gains  on
divestitures  in  both years, and a non-recurring foreign tax benefit  of  $7.2
million  in  1996, the effective tax rate was 38.1 percent in 1997 versus  41.0
percent  in  1996.   The  decrease primarily was due  to  lower  non-deductible
goodwill   amortization   in  1997,  resulting  from  the   Snapple   beverages
divestiture.

Operating Segment Results

Foods
U.S.  and  Canadian  Foods - Volume and net sales increased  6  percent  and  5
percent,  respectively.   Sales  increased in  ready-to-eat  and  hot  cereals,
flavored  rice and pasta, mixes, syrup and new snacks.  An 11 percent  increase
in  ready-to-eat cereals sales was driven by volume growth in bagged and  boxed
cereals.  These sales increases more than offset lower sales in rice cakes,  as
well  as  the  adverse  effect  of  the June 1996  ready-to-eat  cereals  price
reduction.  Competitive pressure in the snacks category continued to  adversely
affect  rice cakes sales and profitability.  Plant consolidation and new  snack
product  development  were among the Company's actions taken  to  address  this
issue.  Operating income increased 4 percent from 1996, as the favorable effect
of  the  sales  gains  and lower costs was partly offset by  increases  in  A&M
expenses.   Higher A&M expenses reflect increased trade and media  spending  to
support hot cereals, grain-based snacks and flavored rice and pasta.

Latin  American Foods - Volume and net sales were up 4 percent and  8  percent,
respectively,  driven by increases in Brazilian chocolate powder and  ready-to-
drink  beverages.   Operating income increased $7.3 million, reflecting  strong
sales  growth  and  improved supply chain costs driven by the  Brazilian  pasta
plant consolidation, partly offset by increased A&M spending.

Other  Foods  -  Volume  and  net sales decreased  2  percent  and  1  percent,
respectively.  Improved profitability in the European cereals business was more
than  offset by continued losses in the Asia/Pacific business, resulting  in  a
$2.4 million increase in operating losses.

Beverages
U.S.  and Canadian Beverages - Volume and net sales increased 9 percent  and  8
percent,  respectively,  reflecting  incremental  sales  from  a  new  product,
Gatorade  Frost, and strong execution of retail in-store initiatives, resulting
in  market  share gains.  Operating income increased 4 percent as sales  growth
and  lower packaging costs were partly offset by a 15 percent increase  in  A&M
expenses  and  the  allocation of overhead costs previously  allocated  to  the
Snapple beverages business.  Higher A&M expenses were driven, in part, by media
spending for Gatorade Frost.

Latin American Beverages - Volume and net sales increased 24 percent reflecting
gains  across  all  regions.  As a result of the sales gains and  lower  supply
chain costs, operating profitability increased by $13.4 million.

Other  Beverages  -  Volume decreased 3 percent, while net  sales  increased  8
percent  reflecting a change in product mix.  Operating losses were reduced  by
$11.5 million due to improved profitability in Europe and less underwriting  in
the Asia/Pacific business.

Divested
1997  operating results from divested businesses include: the Snapple beverages
business through its May divestiture; the operating results of the food service
businesses  divested in December 1997; and the full-year operating  results  of
businesses divested in 1998. For operating results from divested businesses see
page 38.


<28>


Liquidity and Capital Resources

Net  cash  provided  by operating activities was $513.5  million  in  1998,  an
increase  of  $23.5  million  compared  to  1997,  reflecting  improvements  in
operating segment profitability.  Net cash provided by operating activities  in
1997  and  1996 was $490.0 million and $410.4 million, respectively.  Operating
cash  flow in 1997 was favorably affected by a $35.0 million non-recurring cash
litigation settlement and improved profitability of ongoing businesses compared
to 1996.

Capital expenditures were $204.7 million, $215.7 million and $242.7 million for
1998,  1997  and  1996,  respectively.  Capital expenditures  are  expected  to
continue  in  the  low  $200 million range in 1999, as  the  Company  plans  to
continue  to  invest  in  cost-reduction projects  and  expand  its  production
capacity  in  the  United  States  and Canada.   The  Company  expects  capital
expenditures and cash dividends to be financed through cash flow from operating
activities.

Cash  proceeds  from business divestitures in 1998, 1997 and 1996  were  $265.9
million, $300.0 million and $174.4 million, respectively.  Over the last  three
years,  cash proceeds from business divestitures were primarily used to  reduce
short-term  debt  and  repurchase shares of the  Company's  outstanding  common
stock.   Cash  proceeds  of $73.2 million from the 1997 sale  of  certain  food
service businesses and $240.0 million from the recovery of Federal income taxes
paid  on  previous capital gains related to the 1997 divestiture of the Snapple
beverages business were received in 1998.

Financing  activities used cash of $556.6 million, $593.4  million  and  $331.3
million in 1998, 1997 and 1996, respectively, primarily reflecting the  use  of
business divestiture proceeds to reduce short-term debt in all three years  and
to  repurchase shares in 1997 and 1998.  Short-term and long-term  debt  (total
debt) as of December 31, 1998, was $931.6 million, a decrease of $125.4 million
from  December  31, 1997.  Total debt at December 31, 1996, was $1.56  billion.
The total debt-to-total-capitalization ratio was 84.4 percent, 81.0 percent and
55.6 percent as of December 31, 1998, 1997 and 1996, respectively.  The loss on
the  Snapple  beverages divestiture and share repurchase activity in  1998  and
1997 were the main reasons for the ratio changes.

In 1998, the Company reduced the level of its revolving credit facilities by  a
total  of  $175.0  million.   The Company now has  a  $335.0  million  annually
extendible  five-year  revolving credit facility and a $165.0  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.
Amounts  available  under  credit  facilities  obtained  by  the  Company  have
decreased  significantly  over  the  last  three  years  as  commercial   paper
borrowings  supported by the revolving credit facilities were reduced.   Credit
facilities are also available for direct borrowings.  The Company's  levels  of
revolving credit facilities at December 31, 1997 and 1996, were $675.0  million
and $900.0 million, respectively.

In  April  1998, the Fitch Rating Agency upgraded the Company's long-term  debt
rating  from  BBB  to BBB+.  The improved debt rating reflects the  significant
reduction in debt levels compared to the prior year.  Other debt and commercial
paper  ratings were unchanged.  The Company's current debt and commercial paper
ratings  are as follows: Standard & Poor's (BBB+ and A2); Fitch (BBB+ and  F2);
and Moody's (Baal and P2).

During  1998,  the  Company repurchased 6.9 million shares of  its  outstanding
common  stock  for  $386.7 million, completing its 10 million share  repurchase
program  announced  in  August 1993 and initiating the  $1  billion  repurchase
program  announced  in  March  1998.  As of  December  31,  1998,  the  Company
repurchased  approximately $265 million under the $1 billion  share  repurchase
program.

Derivative Financial and Commodity Instruments

The Company actively monitors its exposure to commodity price, foreign currency
exchange  rate  and  interest  rate risks and  uses  derivative  financial  and
commodity  instruments to manage the impact of certain  of  these  risks.   The
Company  uses  derivatives only for purposes of managing risk  associated  with
underlying exposures.  The Company does not trade or use instruments  with  the
objective of earning financial gains on the commodity price, exchange  rate  or
interest  rate fluctuations alone, nor does it use instruments where there  are
not   underlying   exposures.   Complex  instruments  involving   leverage   or
multipliers  are  not  used.   Management  believes  that  its  use  of   these
instruments to manage risk is in the Company's best interest.

The Company has estimated its market risk exposures using sensitivity analyses.
Market  risk  exposure  has  been defined as the change  in  fair  value  of  a
derivative commodity or financial instrument assuming a hypothetical 10 percent
adverse  change  in  market prices or rates.  Fair value was  determined  using
quoted  market  prices, if available.  The results of the sensitivity  analyses
are summarized on page 30.  Actual changes in market prices or rates may differ
from hypothetical changes.


<29>


Commodities  - The Company uses commodity futures and options to  manage  price
exposures  on  commodity inventories or anticipated commodity  purchases.   The
Company  typically  purchases certain commodities  such  as  oats,  corn,  corn
sweetener  and wheat.  The commodity instruments sensitivity analysis  excludes
the  underlying  commodity  positions  that  are  being  hedged  by  derivative
commodity  instruments,  which have a high degree of inverse  correlation  with
changes  in the fair value of the commodity instruments.  Based on the  results
of  the sensitivity analysis, the estimated quarter-end market risk exposure on
an  average, high and low basis was $4.0 million, $6.7 million and $1.2 million
during  1998  and  $2.9  million, $4.2 million and $1.4  million  during  1997,
respectively.

Foreign  Exchange  -  The Company uses foreign currency  forwards  and  options
contracts and currency swap agreements to manage foreign currency exchange rate
risk  related  to  projected operating income from  foreign  entities  and  net
investments  in  foreign subsidiaries.  The Company's market risk  exposure  to
foreign  currency exchange rates exists primarily with the following currencies
versus  the  U.S.  dollar: Italian lira, Brazilian real, Chinese  renmimbi  and
Canadian  dollar.  The foreign exchange sensitivity analysis included  currency
forward  and  option  contracts  and other financial  instruments  affected  by
foreign  exchange  risk, including cash and foreign currency-denominated  debt.
The sensitivity analysis excluded the underlying projected operating income and
net  investment exposures, which have a high degree of inverse correlation with
the  financial  investments used to hedge them.  Based on the  results  of  the
sensitivity  analysis, the estimated quarter-end market  risk  exposure  on  an
average,  high  and low basis was $2.1 million, $2.9 million and  $0.9  million
during  1998  and  $5.9  million, $8.9 million and $2.5  million  during  1997,
respectively.

Interest Rates - The Company occasionally uses interest rate swap agreements to
manage  its exposure to fluctuations in interest rates.  The Company's interest
rate-related  financial instruments consist primarily of debt.   No  derivative
financial  instruments  related to interest rate risk were  outstanding  as  of
December  31,  1998.   Based  on the results of the sensitivity  analysis,  the
estimated  market risk exposure for interest rate-related financial instruments
was approximately $42 million and $44 million as of December 31, 1998 and 1997,
respectively.

Current and Pending Accounting Changes and Other Matters 

In  July 1997, the Financial Accounting Standards Board (FASB) issued SFAS  No.
130,  "Reporting  Comprehensive Income."  This Statement established  standards
for  reporting comprehensive income in the financial statements.   The  Company
adopted this standard in January 1998 and has elected to disclose comprehensive
income, which for the Company includes net income, foreign currency translation
adjustments and unrealized gains on investments, in the consolidated statements
of  common shareholders' equity.  As previously discussed, the Company  adopted
SFAS  No.  131,  "Disclosures  about Segments  of  an  Enterprise  and  Related
Information," in December 1998.

In  February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures  about
Pensions and Other Postretirement Benefits."  This Statement revises employers'
disclosures about pensions and other postretirement benefit plans.  It does not
change  the  measurement  or  recognition  of  those  plans  in  the  financial
statements.  The Company's adoption of this new standard in December  1998  did
not result in material changes to previously reported amounts.

In  January  1998,  Statement of Position (SOP) No. 98-1, "Accounting  for  the
Costs of Computer Software Developed or Obtained for Internal Use," was issued.
This  SOP provides guidance on the accounting for computer software costs.   In
April 1998, SOP No. 98-5, "Reporting on the Costs of Start-Up Activities,"  was
issued.  This  SOP provides guidance on accounting for  the  cost  of  start-up
activities.   The  Company  is  not required to adopt  these  Statements  until
January  1999  and  these standards are not expected to materially  affect  the
Company's financial statements.

In  June  1998,  the  FASB  issued  SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities."  The Statement establishes accounting  and
reporting  standards  requiring  that  all  derivative  instruments  (including
certain derivative instruments imbedded in other contracts) be recorded in  the
balance  sheet  as either an asset or a liability measured at its  fair  value.
The  Statement  requires  that  changes  in  the  derivative's  fair  value  be
recognized currently in earnings unless specific hedge accounting criteria  are
met.   The  accounting  provisions for qualifying hedges allow  a  derivative's
gains  and  losses to offset related results of the hedged item in  the  income
statement, and require that the Company must  formally document, designate  and
assess  the  effectiveness of transactions that qualify for  hedge  accounting.
The Company has not determined its method or timing of adopting this Statement,
but will be required to adopt it by January 2000.  When adopted, this Statement
could  increase volatility in reported earnings  and other comprehensive income
of the Company.


<30>


The  Company's Mexican operations were treated as a highly inflationary economy
through  December 31, 1998.  Thereafter, the Company will treat Mexico as  non-
highly  inflationary and accordingly, change the functional currency  from  the
U.S. dollar to the Mexican peso.  The impact of this change is not expected  to
have a material effect on the Company's financial statements.

Year 2000

The  Company  uses  software  and  other related  technologies  throughout  its
business that will be affected by the date change in the year 2000.  The  three
areas  where year 2000 issues may affect the Company include: (1) the  computer
systems,  both  hardware and software; (2) imbedded systems, such  as  computer
chips  in  machinery and process controls; and (3) third parties with  material
relationships with the Company, such as vendors, customers and suppliers.

To  address  the year 2000 issue, the Company has developed and is executing  a
detailed comprehensive readiness plan.  The first phase of the readiness  plan,
the  assessment  of  the Company's internal systems, has been  completed.   The
second  phase  involves the remediation, replacement and  testing  of  computer
systems (90 percent complete) and imbedded systems (85 percent complete) and is
scheduled  for  completion by mid-l999.  The third phase will continue  through
mid-l999 and includes the Company taking steps to assess the year 2000 plans of
its material third parties.  These steps include contacting the Company's major
service  providers,  vendors, suppliers and customers who are  believed  to  be
critical  to the business operations after January 1, 2000, to determine  their
stage  of  year  2000  compliance through questionnaires,  interviews,  on-site
visits,  testing  and  other available means.  The fourth  phase  involves  the
development  of contingency plans in the event of year 2000 non-compliance  and
is also expected to be completed by mid-1999.

While  the  Company's year 2000 readiness plans are under way, the consequences
of  non-compliance  by  the  Company,  its major  service  providers,  vendors,
suppliers  or customers, could have a material adverse effect on the  Company's
operations.   Although the Company does not anticipate any major non-compliance
issues,  it  currently  believes that the greatest risk of  disruption  in  its
business  exists in the event of non-compliance by its material third  parties.
Some  of  the  possible consequences of non-compliance by the  Company  or  its
material  third parties include, among other things: temporary plant  closings;
delays  in  the  delivery  and receipt of products and  supplies;  invoice  and
collection errors; and inventory obsolescence.  Given these risks, the  Company
is developing contingency plans intended to mitigate the possible disruption in
business operations that may result from year 2000 non-compliance.  Contingency
plans  may include stockpiling raw and packaging materials, increasing finished
goods  inventory  levels,  securing alternate suppliers  or  other  appropriate
measures.   It is currently estimated that the aggregate cost of the  Company's
year  2000 efforts will be approximately $ 12 million to $15 million, of  which
approximately  $9 million has been incurred to date.  All of  these  costs  are
being  funded  through operating cash flow.  These amounts do not  include  any
costs associated with the implementation of contingency plans, which are in the
process of being developed.

The  Company's year 2000 readiness plan is an ongoing process and the estimates
of  costs  and  completion  dates for various  components  of  the  program  as
described above are subject to change.

Subsequent Event

In  February 1999, the Company announced it had reached a definitive  agreement
to  sell  its  Brazilian  pasta business.  The sale of  this  business  is  not
expected to have a material impact on the Company's operating results.

Cautionary Statement on Forward-Looking Statements

Forward-looking statements, within the meaning of Section 21E of the Securities
Exchange  Act  of  1934, are made throughout this Management's  Discussion  and
Analysis.  Statements that are not historical facts, including statements about
expectations  or  projected  results,  are  forward-looking  statements.    The
Company's  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
factors  such  as:  actions of competitors; changes in  laws  and  regulations,
including changes in governmental interpretations of regulations and changes in
accounting  standards; customer demand; effectiveness of spending or  programs;
fluctuations  in  the cost and availability of supply chain resources;  foreign
economic  conditions, including currency rate fluctuations;  weather;  and  the
ability  of  the Company, its major service providers, vendors,  suppliers  and
customers,   to   adequately  address  the  year  2000  issue.  Forward-looking
statements speak only as of the date they were made, and the Company undertakes
no obligation to publicly update them.


<31>


THE QUAKER OATS COMPANY AND SUBSIDIARIES


<TABLE>
<CAPTION>


                                                                               Dollars in Millions (Except Per Share Data)
Consolidated             Year Ended December 31                                           1998         1997          1996
Statements of Income                                                                                
                         <S>                                                         <C>          <C>          <C>
                         Net Sales                                                   $ 4,842.5    $ 5,015.7    $  5,199.0
                         Cost of goods sold                                            2,374.4      2,564.9       2,807.5
                         Gross profit                                                  2,468.1      2,450.8       2,391.5
                         Selling, general and administrative expenses                  1,872.5      1,938.9       1,981.0
                         Restructuring charges, asset impairments and                    
                           losses (gains) on divestitures - net                          128.5      1,486.3        (113.4)
                         Interest expense                                                 69.6         85.8         106.8
                         Interest income                                                 (10.7)        (6.7)         (7.4)
                         Foreign exchange loss - net                                      11.6         10.8           8.9
                         Income (Loss) Before Income Taxes                               396.6     (1,064.3)        415.6
                         Provision (benefit) for income taxes                            112.1       (133.4)        167.7
                         Net Income (Loss)                                               284.5       (930.9)        247.9
                         Preferred dividends - net of tax                                  4.5          3.5           3.7
                         Net Income (Loss) Available for Common                      $   280.0    $  (934.4)   $    244.2
                         Per Common Share:                                                              
                          Net income (loss)                                         $    2.04    $   (6.80)   $     1.80
                          Net income (loss) - assuming dilution                     $    1.97    $   (6.80)   $     1.78
                          Dividends declared                                         $    1.14    $    1.14    $     1.14
                         Average Number of Common Shares Outstanding (in thousands)    137,185      137,460       135,466
                             
                         See accompanying notes to the consolidated financial statements.

<32>


<CAPTION>


                                                                                                                Dollars in Millions
Consolidated              Year Ended December 31                                                     1998        1997        1996 
Statements of Cash Flows                                                                                           
                          <S>                                                                    <C>         <C>          <C>
                          Cash Flows from Operating Activities:

                           Net income (loss)                                                     $  284.5    $ (930.9)    $ 247.9
                           Adjustments to reconcile net income (loss) to net cash                                  
                             provided by operating activities:                                       
                            Depreciation and amortization                                           132.5       161.4       200.6
                            Deferred income taxes                                                   (31.1)      (12.0)       14.3
                            (Gains) losses on divestitures - net of tax of $(27.4), $(269.0) and                                 
                              $54.6 in 1998,1997 and 1996, respectively                             (26.7)    1,151.4       (81.8)
                            Restructuring charges                                                    89.7        65.9        23.0
                            Asset impairment losses                                                  38.1        39.8          --
                            Loss on disposition of property and equipment                            11.9        41.6        29.0
                            Decrease  (increase) in  trade  accounts receivable                       5.6       (61.0)       62.6
                            (Increase) decrease in inventories                                      (32.8)      (24.5)       19.6
                            (Increase)  decrease  in  other  current assets                         (15.1)      (11.6)       65.1
                            Decrease in trade accounts payable                                      (20.0)       (3.2)      (53.7)
                            Increase (decrease) in other current liabilities                         21.3         9.8      (164.2)
                            Change in deferred compensation                                          32.2        20.1        21.5
                            Other items                                                              23.4        43.2        26.5
                              Net Cash Provided by Operating Activities                             513.5       490.0       410.4
                          Cash Flows from Investing Activities:                                       
                           Capital gains tax recovery                                               240.0          --          --
                           Additions to property, plant and equipment                              (204.7)     (215.7)     (242.7)
                           Business  divestitures - net of tax of $54.6 in 1996                     265.9       300.0       174.4
                           Purchase of marketable securities                                       (165.5)         --          -- 
                           Proceeds    from   sale   of   marketable securities                     143.1          --          -- 
                           Proceeds from sale of property, plant and equipment                        7.7          --          --
                           Change in other assets                                                      --          --         0.2
                              Net Cash Provided by (Used in) Investing Activities                   286.5        84.3       (68.1)
                          Cash Flows from Financing Activities:                                       
                           Cash dividends                                                          (159.7)     (159.4)     (157.0)
                           Change in short-term debt                                                (17.2)     (452.9)     (124.5) 
                           Proceeds from long-term debt                                               1.9         8.3         2.4
                           Reduction of long-term debt                                             (108.7)      (54.4)      (77.7)
                           Issuance of common treasury stock                                        112.0       121.2        31.0
                           Repurchases of common stock                                             (377.3)      (50.0)         --
                           Repurchases of preferred stock                                            (7.6)       (6.2)       (5.5)
                              Net Cash Used in Financing Activities                                (556.6)     (593.4)     (331.3)
                          Effect of Exchange Rate Changes on Cash and Cash Equivalents               (1.0)       (7.2)        6.3
                          Net Increase (Decrease) in Cash and Cash Equivalents                      242.4       (26.3)       17.3
                          Cash and Cash Equivalents - Beginning of Period                            84.2       110.5        93.2
                          Cash and Cash Equivalents - End of Period                              $  326.6    $   84.2     $ 110.5
                          
                          See accompanying notes to the consolidated financial statements.



<33>




THE QUAKER OATS COMPANY AND SUBSIDIARIES



<CAPTION>



Consolidated           December 31                                            1998         1997
Balance Sheets         
                       <S>                                              <C>           <C>
                       Assets
                       Current Assets                                                    
                        Cash and cash equivalents                       $    326.6    $    84.2
                        Marketable securities                                 27.5           --
                        Trade accounts receivable - net of allowances        283.4        305.7
                        Inventories                                                                                 
                          Finished goods                                     189.1        172.6
                          Grains and raw materials                            48.4         59.0
                          Packaging materials and supplies                    23.9         24.5
                            Total inventories                                261.4        256.1
                                                                                                    
                        Other current assets                                 216.1        487.0
                            Total Current Assets                           1,115.0      1,133.0
                                                                                                                    
                       Property, Plant and Equipment                                                                
                        Land                                                  24.1         29.1
                        Buildings and improvements                           390.2        417.2
                        Machinery and equipment                            1,404.5      1,466.8
                        Property, plant and equipment                      1,818.8      1,913.1
                        Less: accumulated depreciation                       748.6        748.4
                          Property - Net                                   1,070.2      1,164.7
                                                                                                                   
                       Intangible Assets - Net of Amortization               245.7        350.5
                       Other Assets                                           79.4         48.8
                       Total Assets                                     $  2,510.3    $ 2,697.0
                       
                       See accompanying notes to the consolidated financial statements.


<34>



<CAPTION>

                                                                              Dollars in Millions (Except Per Share Data)
                    December 31                                                                         1998        1997
                    <S>                                                                           <C>          <C>
                    Liabilities and Shareholders' Equity                                                         
                    Current Liabilities                                                                          
                     Short-term debt                                                              $     41.3   $    61.0
                     Current portion of long-term debt                                                  95.2       108.4
                     Trade accounts payable                                                            168.4       191.3
                     Accrued payroll, benefits and bonus                                               131.4       132.3
                     Accrued advertising and merchandising                                             125.6       123.0
                     Income taxes payable                                                               63.7        73.8
                     Other accrued liabilities                                                         383.5       255.9
                      Total Current Liabilities                                                      1,009.1       945.7
                                                                                                                  
                    Long-term Debt                                                                     795.1       887.6
                    Other Liabilities                                                                  533.4       578.9
                    Deferred Income Taxes                                                                 --        36.3
                                                                                                                 
                    Preferred Stock, Series B, no par value, authorized 1,750,000 shares;                         
                     issued    1,282,051   of   $5.46 cumulative convertible shares (liquidating              
                     preference of $78 per share)                                                      100.0       100.0
                    Deferred Compensation                                                              (48.4)      (57.2)
                    Treasury Preferred Stock, at cost, 302,969 and 245,147 shares, respectively        (29.9)      (22.3)
                    
                    Common Shareholders' Equity                                                                  
                     Common stock, $5 par value, authorized 400 million shares                         840.0       840.0
                     Additional paid-in capital                                                         78.9        29.0
                     Reinvested earnings                                                               555.8       431.0
                     Accumulated other comprehensive income                                            (80.1)      (82.4)
                     Deferred compensation                                                             (67.6)      (91.0)
                     Treasury common stock, at cost                                                 (1,176.0)     (898.6)
                      Total Common Shareholders' Equity                                                151.0       228.0
                    Total Liabilities and Shareholders' Equity                                     $ 2,510.3   $ 2,697.0



</TABLE>

<35>


THE QUAKER OATS COMPANY AND SUBSIDIARIES



<TABLE>
<CAPTION>


Consolidated                                                                                   
Statements of Common                                                                             
Shareholders'Equity 
                                                                               Common Stock Issued     Common Shares
                                                                               Shares       Amount       Outstanding

               <S>                                                        <C>            <C>             <C>
               Balance as of December 31, 1995                            167,978,792    $   840.0       134,806,055
                  Net income                                                      
                  Other comprehensive income:                                     
                     Foreign currency translation adjustments -                                            
                      net of allocated income tax benefits of $1.1                                      
               Total comprehensive income                                         
               Cash dividends declared on common stock                                         
               Cash dividends declared on preferred stock                                        
               Common stock issued for stock purchase and                                      
                 incentive plans                                                                           1,287,010
               Deferred compensation                                              
               Other                                                              
               Balance as of December 31, 1996                            167,978,792        840.0       136,093,065
                  Net loss                                                        
                  Other comprehensive income:                                     
                     Foreign currency translation adjustments -                                              
                      net of allocated income tax provision of $0.4                                      
               Total comprehensive income                                         
               Cash dividends declared on common stock                                        
               Cash dividends declared on preferred stock                                        
               Common stock issued for stock purchase and                                        
                 incentive plans                                                                           3,707,667
               Repurchases of common stock                                                                  (987,632)
               Deferred compensation                                              
               Other                                                              
               Balance as of December 31, 1997                            167,978,792        840.0       138,813,100
                  Net income                                                      
                  Other comprehensive income:                                     
                     Foreign currency translation adjustments -                                            
                      net of allocated income tax benefits of $0.3                                    
                     Unrealized gain on investments (b)                                          
               Total comprehensive income                                         
               Cash dividends declared on common stock                                         
               Cash dividends declared on preferred stock                                        
               Common stock issued for stock purchase and                                        
                 incentive plans                                                                           3,375,088
               Repurchases of common stock                                                                (6,865,680)
               Deferred compensation                                              
               Other                                                              
               Balance as of December 31, 1998                            167,978,792    $   840.0       135,322,508
                
                
</TABLE>

                
               (a) Cumulative translation  adjustment as of December  31, 1995,
               1996,  1997 and 1998  were  $(77.8)  million,  $(68.2)  million,
               $(82.4) million and $(80.5) million, respectively.
               (b) Reflects  the Company's investment in  preferred stock  that
               is classified  as marketable  securities in  the balance  sheet.
               Estimated income taxes were not material.
               See accompanying notes to the consolidated financial statements.




<36>
                                                                               


<TABLE>
<CAPTION>


                                                                                                    Dollars in Millions
                                                             
Additional                                                                           Accumulated Other
   Paid-In        Reinvested             Deferred         Treasury Common Stock          Comprehensive 
   Capital          Earnings         Compensation          Shares        Amount                 Income (a)        Total
   
   <C>             <C>                  <C>            <C>            <C>                     <C>             <C>
   $    --         $ 1,433.6            $  (118.1)     33,172,737     $  (998.4)              $  (77.8)       $ 1,079.3
                       247.9                                                                                      247.9
                                                                                                         
                                                                                    
                                                                                                   9.6              9.6
                                                                                                                  257.5
                      (153.3)                                                                                    (153.3)
                        (3.7)                                                                                      (3.7)
                                                                                          
      (3.0)             (3.2)                          (1,287,010)         38.6                                    32.4
                                             14.7                                                                  14.7
       3.0                                                                                                          3.0
        --           1,521.3               (103.4)     31,885,727        (959.8)                 (68.2)         1,229.9
                      (930.9)                                                                                    (930.9)
                                                                                          
                                                                                          
                                                                                                 (14.2)           (14.2)
                                                                                                                 (945.1)
                      (155.9)                                                                                    (155.9)
                        (3.5)                                                                                      (3.5)
                                                                                          
      11.2                                             (3,707,667)        111.2                                   122.4
                                                          987,632         (50.0)                                  (50.0)
                                             12.4                                                                  12.4
      17.8                                                                                                         17.8
      29.0             431.0                (91.0)     29,165,692        (898.6)                 (82.4)           228.0
                       284.5                                                                                      284.5
                                                                                          
                                                                                                   
                                                                                                   1.9              1.9
                                                                                                   0.4              0.4
                                                                                                                  286.8
                      (155.2)                                                                                    (155.2)
                        (4.5)                                                                                      (4.5)
                                                                                          
      15.7                                             (3,375,088)        109.3                                   125.0
                                                        6,865,680        (386.7)                                 (386.7)
                                             23.4                                                                  23.4
      34.2                                                                                                         34.2
   $  78.9         $   555.8            $   (67.6)     32,656,284     $(1,176.0)              $  (80.1)       $   151.0



</TABLE>

<37>


THE QUAKER OATS COMPANY AND SUBSIDIARIES


<TABLE>                                                                         
<CAPTION>                                                                       
                                                                                     Dollars in Millions  (Except Per Share Data)
                                                                                             
                                                                 
Operating Segment                                                 Net Sales (a)                     Operating Income (Loss) (b)
Information         Year Ended December 31              1998          1997          1996          1998         1997         1996
                    
                    <S>                            <C>           <C>           <C>            <C>         <C>           <C>
                    Foods                                                                                                  
                     U.S. and Canadian             $ 2,274.1     $ 2,287.8     $ 2,184.5      $  369.8    $   390.3     $  375.3
                     Latin American                    449.8         451.4         418.3          25.4         21.4         14.1
                     Other (c)                         202.9         205.7         207.2          (1.2)        (9.9)        (7.5)
                    Total Foods                      2,926.8       2,944.9       2,810.0         394.0        401.8        381.9
                                                                                                         
                                                                                                         
                    Beverages
                     U.S. and Canadian               1,338.2       1,183.3       1,095.4         214.9        182.7        176.3
                     Latin American                    267.7         232.2         187.4          25.6         19.3          5.9
                     Other (c)                         103.1         103.0          95.1          (7.4)       (15.0)       (26.5)
                    Total Beverages                  1,709.0       1,518.5       1,377.9         233.1        187.0        155.7
                    Total Ongoing Businesses         4,635.8       4,463.4       4,187.9         627.1        588.8        537.6
                    Total Divested Businesses(d)       206.7         552.3       1,011.1           0.4        (22.0)       (85.1)
                    Total Sales/Operating Income   $ 4,842.5     $ 5,015.7     $ 5,199.0      $  627.5    $   566.8     $  452.5
                                                                  
                    Less:  Restructuring charges, asset impairments,
                             losses (gains) on divestitures and other -                                                         
                             net (e)(f)(g)(h)                                                    128.5      1,491.1       (113.4)
                           General corporate expenses                                             31.9         50.1         42.0
                           Interest expense - net                                                 58.9         79.1         99.4
                           Foreign exchange loss - net                                            11.6         10.8          8.9
                    Income (Loss) before income taxes                                            396.6     (1,064.3)       415.6
                    Provision (benefit) for income taxes                                         112.1       (133.4)       167.7
                    Net Income (Loss)                                                         $  284.5    $  (930.9)    $  247.9
                    Per Common Share:                                                           
                     Net income (loss)                                                        $   2.04    $   (6.80)    $   1.80
                     Net income (loss) - assuming dilution                                      $   1.97    $   (6.80)    $   1.78
                   
</TABLE>                                                                     

                                                                          
              (a)  Intersegment revenue is not material.
              (b)  Operating  results  exclude   restructuring  and   impairment
              charges,  losses  and  gains  on  divestitures  and certain  other
              expenses  not  allocated  to operating  segments  such  as  income
              taxes, general corporate expenses and financing costs.
              (c)  Other includes European and Asia/Pacific businesses.
              (d)  1998  includes net sales and operating results  (through  the
              divestiture date) for the Ardmore Farms, Continental Coffee,  Nile
              Spice  and  Liqui-Dri  businesses.  1997 includes  net  sales  and
              operating  results (through the divestiture date) for the  Snapple
              beverages  and certain food service businesses  and the businesses
              divested  in 1998.  1996 includes net sales and operating  results
              (through  the  divestiture date) for the U.S. and Canadian  frozen
              foods   and   Italian  products  businesses   and  the  businesses
              divested in 1998 and 1997.
              (e)  1998  includes pretax restructuring charges of $89.7 million,
              or  $0.38  per  share,  pretax asset impairment losses  of   $38.1
              million,  or  $0.18  per share, and a combined pretax  divestiture
              loss  of $0.7 million, or a gain of $0.20 per share due to certain
              tax benefits.
              (f)  1997  includes pretax restructuring charges of $65.9 million,
              or  $0.27 per share, a pretax net charge of $4.8 million, or $0.02
              per  share, for an asset impairment loss partly offset by  a  cash
              litigation   settlement, and  a  combined  pretax  loss  of  $1.42
              billion, or $8.41 per share, for business divestitures.
              (g)  1996  includes pretax restructuring charges of $23.0 million,
              or  $0.14 per share, and pretax gains of $136.4 million, or  $0.60
              per share, for business divestitures.
              (h)  See  Notes  2 and 3 to the consolidated financial  statements
              for  further  discussion  of 1996 through 1998  restructuring  and
              impairment charges and losses and gains on divestitures.



<38>


<TABLE>
<CAPTION>

                                                                                                              Dollars in Millions
Operating Segment Data                                                                                       
                                                    Identifiable                   Capital                    Depreciation and
                                                       Assets                    Expenditures                   Amortization
             Year Ended December 31          1998       1997       1996     1998     1997      1996        1998     1997     1996
                                                                                                            
             <S>                        <C>        <C>        <C>        <C>      <C>       <C>         <C>      <C>      <C>
             Foods
              U.S. and Canadian         $ 1,187.0  $ 1,056.9  $ 1,089.1  $ 102.7  $  76.6   $  90.4     $  65.2  $  69.4  $  66.6
              Latin American                205.2      207.4      255.9     13.4     15.7      14.8         9.5     13.4     14.1
              Other (a)                      92.1      121.5      128.5      5.7     18.0      17.3         6.3      5.7      6.7
              Total Foods                 1,484.3    1,385.8    1,473.5    121.8    110.3     122.5        81.0     88.5     87.4
             Beverages
              U.S. and Canadian             464.2      364.5      368.2     57.6     55.1      81.3        31.5     28.7     23.8
              Latin American                 94.6       81.9       83.7     12.1      5.6       5.4         5.8      6.5      4.7
              Other (a)                     109.5       98.2       85.9      5.5     24.2      10.6         4.7      4.2      3.7
             Total Beverages                668.3      544.6      537.8     75.2     84.9      97.3        42.0     39.4     32.2
             Total Ongoing Businesses     2,152.6    1,930.4    2,011.3    197.0    195.2     219.8       123.0    127.9    119.6
             Total Divested Businesses (b)     --      250.9    2,162.3      7.7     20.5      22.9         8.6     31.8     79.5
             Total Operating Segments     2,152.6    2,181.3    4,173.6    204.7    215.7     242.7       131.6    159.7    199.1
             Corporate (c)                  357.7      515.7      220.8       --       --        --         0.9      1.7      1.5
             Total Consolidated         $ 2,510.3  $ 2,697.0  $ 4,394.4  $ 204.7  $ 215.7   $ 242.7     $ 132.5  $ 161.4  $ 200.6
          
          
</TABLE>


          (a) Other includes European and Asia/Pacific businesses.
          (b)  Includes the following Divested Businesses: 1998 (Ardmore  Farms,
          Continental Coffee, Nile Spice and Liqui-Dri); 1997 (Snapple,  certain
          food  service  businesses and the businesses divested in  1998);  1996
          (U.S.  and Canadian frozen foods and Italian products businesses,  and
          the businesses divested in 1998 and 1997).
          (c)   Includes   corporate  cash  and  cash  equivalents,   short-term
          investments and miscellaneous receivables and investments.

<39>



THE QUAKER OATS COMPANY AND SUBSIDIARIES



<TABLE>
<CAPTION>


                                                                                     Dollars in Millions
Enterprise Information    Year Ended December 31                      1998           1997           1996
                          
                          <S>                                    <C>            <C>            <C>
                          Net Sales (a)                                          
                          U.S. Hot Cereals                       $   430.8      $   462.0      $   439.9
                          U.S. Ready-to-Eat Cereals                  711.9          692.9          626.3
                          U.S. Grain-based Snacks                    290.8          268.5          284.6
                          U.S. Flavored Rice and Pasta               340.5          343.1          315.5
                          U.S. Other Foods                           318.3          327.6          325.4
                          Total U.S. Foods                         2,092.3        2,094.1        1,991.7
                          Canadian Foods                             181.8          193.7          192.8
                          Latin American Foods                       449.8          451.4          418.3
                          European and Asia/Pacific Foods            202.9          205.7          207.2
                          Total Foods                              2,926.8        2,944.9        2,810.0
                          U.S. Beverages                           1,306.8        1,153.2        1,066.0
                          Canadian Beverages                          31.4           30.1           29.4
                          Latin American Beverages                   267.7          232.2          187.4
                          European and Asia/Pacific Beverages        103.1          103.0           95.1
                          Total Beverages                          1,709.0        1,518.5        1,377.9
                          Total Ongoing Businesses                 4,635.8        4,463.4        4,187.9
                          U.S. Divested                              206.7          545.5          975.6
                          Foreign Divested                              --            6.8           35.5
                          Total Divested Businesses                  206.7          552.3        1,011.1
                          Total Consolidated                     $ 4,842.5      $ 5,015.7      $ 5,199.0
                                                           
                          (a) Represents net sales to unaffiliated customers.



</TABLE>

<40>

                                                                                

<TABLE>
<CAPTION>

                                                                                    Dollars in Millions
Geographic Information    Year Ended December 31                1998              1997             1996
                          <S>                              <C>               <C>                 <C>
                          Net Sales (a)                    
                          Total U.S.                       $ 3,605.8         $ 3,792.8        $ 4,033.3
                          Total Foreign                      1,236.7           1,222.9          1,165.7
                          Total Consolidated               $ 4,842.5         $ 5,015.7        $ 5,199.0


<CAPTION>

                          Year Ended December 31                1998              1997             1996       
                                                                
                          <S>                              <C>               <C>              <C>     
                          Long-lived Assets (b)            
                          Total U.S.                       $ 1,078.1         $ 1,227.2        $ 3,110.8
                          Total Foreign                        237.8             288.0            327.1
                          Total Consolidated               $ 1,315.9         $ 1,515.2        $ 3,437.9
                     
                     
                          (a) Represents net sales to unaffiliated customers.
                          (b) Long-lived  assets include net intangible  assets  and
                          net  property,  plant  and equipment. 1997  assets  include
                          assets  related to businesses divested in 1998; 1996 assets
                          include  assets related to businesses divested in 1997  and
                          1998.


</TABLE>

<41>





THE QUAKER OATS COMPANY AND SUBSIDIARIES



<TABLE>
<CAPTION>



                                                                                          
Six-Year          Year Ended December 31                             1998       1997        1996        1995       1994       1993
Selected          Operating Results (a)(b)(c)(d)(e)(f)(g)(h)            
Financial                        
Data              <S>                                           <C>        <C>         <C>         <C>        <C>        <C>
                  Net sales                                     $ 4,842.5  $ 5,015.7   $ 5,199.0   $ 5,954.0  $ 6,211.1  $ 5,791.9
                  Gross profit                                    2,468.1    2,450.8     2,391.5     2,659.6    3,088.4    2,920.0
                  Income (loss) before income taxes and                                                                           
                    cumulative effect of accounting changes         396.6   (1,064.3)      415.6     1,220.5      320.4      495.0
                  Provision (benefit) for income taxes              112.1     (133.4)      167.7       496.5      127.3      190.4
                  Income (loss) before cumulative effect of                                                     
                    accounting changes                              284.5     (930.9)      247.9       724.0      193.1      304.6
                  Cumulative effect of accounting
                    changes - net of tax                               --         --          --          --       (4.1)        --
                  Net income (loss)                             $   284.5  $  (930.9)  $   247.9   $   724.0  $   189.0  $   304.6
                  Per common share:                                                                                     
                    Income (loss) before cumulative effect of
                      accounting changes                        $    2.04  $   (6.80)  $    1.80   $    5.39  $    1.41  $    2.14
                    Cumulative effect of accounting changes            --         --          --          --      (0.03)        --
                    Net income (loss)                           $    2.04  $   (6.80)  $    1.80   $    5.39  $    1.38  $    2.14
                    Net income (loss) - assuming dilution       $    1.97  $   (6.80)  $    1.78   $    5.23  $    1.36  $    2.09
                  Dividends declared:                                                                                 
                    Common stock                                $   155.2  $   155.9   $   153.3   $   150.8  $   145.8  $   138.2
                    Per common share                            $    1.14  $    1.14   $    1.14   $    1.14  $    1.10  $    1.01
                    Convertible preferred and redeemable    
                      preference stock                          $     4.5  $     3.5   $     3.7   $     4.0  $     4.0  $     4.1
                  Average number of common shares                                                                               
                    outstanding (in thousands)                    137,185    137,460     135,466     134,149    133,709    139,833
                 
                 
</TABLE>              
                 
                 
                 (a) 1998 operating results include pretax restructuring
                 charges of $89.7 million, or $0.38 per share, pretax asset
                 impairment losses of $38.1 million, or $0.18 per share, and a
                 combined pretax divestiture loss of $0.7 million, or a gain of
                 $0.20 per share due to certain tax benefits.
                 (b) 1997 operating results include pretax restructuring
                 charges of $65.9 million, or $0.27 per share, and a combined
                 pretax loss of $1.42 billion, or $8.41 per share, for business
                 divestitures.
                 (c) 1996 operating results include pretax restructuring
                 charges of $23.0 million, or $0.14 per share, and pretax gains
                 of $136.4 million, or $0.60 per share, for business
                 divestitures.
                 (d) 1995 operating results include pretax restructuring
                 charges of $117.3 million, or $0.53 per share, and pretax
                 gains of $1.17 billion, or $5.20 per share, for business
                 divestitures.
                 (e) 1994 operating results include pretax restructuring
                 charges of $118.4 million, or $0.55 per share, and a pretax
                 gain of $9.8 million, or $0.07 per share, for a business
                 divestiture.
                 (f) See Notes 2 and 3 to the consolidated financial statements
                 for further discussion of 1996 through 1998 restructuring and
                 impairment charges and losses and gains on divestitures.
                 (g) 1994 cumulative effect of accounting changes includes an
                 after-tax charge of $4.1 million for the adoption of SFAS
                 No. 112.
                 (h) Per share data and average number of common shares
                 outstanding reflect the 1994 two-for-one stock split-up.

<42>                                                 
                                                 
                                                 
<TABLE>                                                 
<CAPTION>
                                                                                     Dollars in Millions (Except Per Share Data)
            Year Ended December 31                             1998        1997        1996        1995        1994        1993
            Financial Statistics                                                                                                
                  
            <S>                                           <C>         <C>         <C>         <C>         <C>         <C>
            Current ratio                                       1.1         1.2         0.7         0.6         0.5         0.9
            Working capital                               $   105.9   $   187.3   $  (465.0)  $  (621.6)  $(1,616.9)  $   (89.4)
            Property, plant and equipment - net           $ 1,070.2   $ 1,164.7   $ 1,200.7   $ 1,167.8   $ 1,333.1   $ 1,222.0
            Depreciation expense                          $   116.3   $   122.0   $   119.1   $   115.3   $   133.1   $   132.3
            Total assets                                  $ 2,510.3   $ 2,697.0   $ 4,394.4   $ 4,620.4   $ 5,061.1   $ 2,805.2
            Long-term debt                                $   795.1   $   887.6   $   993.5   $ 1,051.8   $ 1,025.9   $   708.4
            Convertible preferred stock (net of                                                                                
             deferred compensation) and redeemable                                              
             preference stock                             $    21.7   $    20.5   $    19.0   $    17.7   $    17.0   $    13.1
            Common shareholders' equity                   $   151.0   $   228.0   $ 1,229.9   $ 1,079.3   $   452.7   $   437.4
            Net cash provided by operating activities     $   513.5   $   490.0   $   410.4   $   407.1   $   415.8   $   506.6
            Operating return on assets (a)                    29.0%       17.8%       10.6%        7.9%       16.0%       23.6%
            Gross profit as a percentage of sales             51.0%       48.9%       46.0%       44.7%       49.7%       50.4%
            Advertising and merchandising as a                                                      
             percentage of sales                              25.6%       24.5%       23.1%       24.6%       27.2%       25.9%
            Income (loss) before cumulative effect of                          
             accounting changes as a percentage of sales       5.9%      (18.6%)       4.8%       12.2%        3.1%        5.3%
            Total debt-to-total-capitalization ratio (b)      84.4%       81.0%       55.6%       61.7%       86.3%       69.9%
            Common dividends per share as a percentage                                                       
             of income (loss) available for common                                           
             shares (excluding cumulative effect of                             
             accounting changes)                              55.9%      (16.8%)      63.3%       21.2%       78.0%       47.2%
            Number of common shareholders                    26,352      27,838      29,690      30,353      28,142      28,237
            Number of employees worldwide                    11,860      14,123      14,800      16,100      20,753      20,207
            Market price range of common stock:                                                                                 
             High (c)                                     $ 65 9/16   $  55 1/8   $  39 1/2   $  37 1/2   $  42 1/2   $ 38 1/2
             Low  (c)                                     $ 48 1/2    $  34 3/8   $  30 3/8   $  30 1/4   $  29 3/4   $ 30 3/16
                 
                 
</TABLE>                 
                 
            (a) Operating income divided by average identifiable assets
            of the consolidated total (excluding corporate).
            (b) Total debt divided by total debt plus total
            shareholders' equity including convertible preferred stock
            (net of deferred compensation) and redeemable preference
            stock.
            (c) Per share data reflect the 1994 two-for-one stock split-
            up.


<43>
          

                                                                                

THE QUAKER OATS COMPANY AND SUBSIDIARIES


<TABLE>
<CAPTION>



Eleven-Year                                               
Selected Financial Data                                                 
                                                      
                                                                                           Year Ended December 31        
                                                                                        1998        1997        1996
                <S>                                                                <C>         <C>         <C>   
                Operating Results(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)(k)(l)
                Net sales                                                          $ 4,842.5   $ 5,015.7   $ 5,199.0
                Gross profit                                                         2,468.1     2,450.8     2,391.5
                Income (loss) from continuing operations before income taxes
                 and cumulative effect of accounting changes                           396.6    (1,064.3)      415.6
                Provision (benefit) for income taxes                                   112.1      (133.4)      167.7
                Income (loss) from continuing operations before cumulative
                 effect of accounting changes                                          284.5      (930.9)      247.9
                (Loss) income from discontinued operations - net of tax                   --          --          --
                Cumulative effect of accounting changes - net of tax                      --          --          --
                Net income (loss)                                                  $   284.5   $  (930.9)  $   247.9
                Per common share:                                                                           
                 Income (loss) from continuing operations before cumulative                                 
                  effect of accounting changes                                     $    2.04   $   (6.80)  $    1.80
                 (Loss) income from discontinued operations                               --          --          --
                 Cumulative effect of accounting changes                                  --          --          --
                 Net income (loss)                                                 $    2.04   $   (6.80)  $    1.80
                 Net income (loss) - assuming dilution                             $    1.97   $   (6.80)  $    1.78
                Dividends declared:                                                                                 
                 Common stock                                                      $   155.2   $   155.9   $   153.3
                 Per common share                                                  $    1.14   $    1.14   $    1.14
                 Convertible preferred and redeemable preference stock             $     4.5   $     3.5   $     3.7
                Average number of common shares outstanding (in thousands)           137,185     137,460     135,466
               

</TABLE>



                (a) 1998 operating results include pretax restructuring  charges
                of $89.7  million, or $0.38 per share, pretax  asset  impairment
                losses  of  $38.1  million, or $0.18 per  share, and a  combined
                pretax  divestiture loss of $0.7 million, or a gain of $0.20 per
                share due to certain tax benefits.
                (b) 1997 operating results include pretax restructuring  charges
                of $65.9 million, or $0.27 per share, and a combined pretax loss
                of $1.42 billion, or $8.41 per share, for business divestitures.
                (c) 1996  operating results include pretax restructuring charges
                of $23.0 million, or $0.14 per share, and pretax gains of $136.4
                million, or $0.60 per share, for business divestitures.
                (d) See  Notes  2 and 3 to the consolidated financial statements
                for further discussion  of 1996 through 1998  restructuring  and
                impairment charges and losses and gains on divestitures.
                (e) 1995 transition period reflects only six months of operating
                results.
                (f)  1995  transition  period  operating  results include pretax
                restructuring charges of $40.8 million, or $0.18 per share.
              

<44>

<TABLE>
<CAPTION>
                                                                              Dollars in Millions (Except Per Share Data)
   Transition    Fiscal Year                                                                                            
 Period Ended          Ended
  December 31        June 30
         1995           1995          1994           1993           1992         1991        1990        1989        1988
    <C>            <C>           <C>            <C>            <C>          <C>         <C>         <C>         <C>
    
    $ 2,733.1      $ 6,365.2     $ 5,955.0      $ 5,730.6      $ 5,576.4    $ 5,491.2   $ 5,030.6   $ 4,879.4   $ 4,508.0
      1,203.8        2,983.7       3,028.8        2,860.6        2,745.3      2,652.7     2,350.3     2,229.0     2,114.6
                                                                                                                          
         25.6        1,359.9         378.7          467.6          421.5        411.5       382.4       239.1       314.6
         11.9          553.8         147.2          180.8          173.9        175.7       153.5        90.2       118.1
                                                                                                                          
         13.7          806.1         231.5          286.8          247.6        235.8       228.9       148.9       196.5
           --             --            --             --             --        (30.0)      (59.9)       54.1        59.2
           --           (4.1)           --         (115.5)            --           --          --          --          --
    $    13.7      $   802.0     $   231.5      $   171.3      $   247.6    $   205.8   $   169.0   $   203.0   $   255.7
                                                                      
                                                                                                                          
    $    0.09      $    6.00     $    1.68      $    1.96      $    1.63    $    1.53   $    1.47   $    0.94   $    1.23
           --             --            --             --             --        (0.20)      (0.40)       0.34        0.37
           --          (0.03)           --          (0.79)            --           --          --          --          --
    $    0.09      $    5.97     $    1.68      $    1.17      $    1.63    $    1.33   $    1.07   $    1.28   $    1.60
    $    0.09      $    5.80     $    1.65      $    1.14      $    1.59    $    1.30   $    1.05   $    1.25   $    1.57
                                                                                                                          
    $    75.7      $   150.8     $   140.6      $   136.1      $   128.6    $   118.7   $   106.9   $    95.2   $    79.9
    $    0.57      $    1.14     $    1.06      $    0.96      $    0.86    $    0.78   $    0.70   $    0.60   $    0.50
    $     2.0      $     4.0     $     4.0      $     4.2      $     4.2    $     4.3   $     3.6          --          --
      134,355        133,763       135,236        143,948        149,762      151,808     153,074     158,614     159,670



</TABLE>


(g)  Fiscal 1995 operating results include pretax restructuring charges of $76.5
million,  or  $0.35 per share, and pretax gains of $1.17 billion, or  $5.20  per
share, for business divestitures.
(h)   Fiscal  1994  operating results include pretax  restructuring  charges  of
$118.4 million, or $0.55 per share, and a pretax gain of $9.8 million, or  $0.07
per share, for a business divestiture.
(i)   Fiscal 1995 cumulative effect of accounting changes includes an  after-tax
charge of $4.1 million for the adoption of SFAS No. 112.
(j)   Fiscal 1993 cumulative effect of accounting changes includes an  after-tax
charge of $125.4 million for the adoption of SFAS No. 106 and a $9.9 million tax
benefit for the adoption of SFAS No. 109.
(k)   Fiscal  1989  operating results include pretax  restructuring  charges  of
$124.3  million,  or  $0.50  per share, for plant  consolidations  and  overhead
reductions, and  a pretax charge  of $25.6 million, or $0.10  per  share,  for a
change to the  LIFO  method of  accounting  for  the majority  of U.S. Foods and
Beverages inventories.
(l)   Per share data and average number of common shares outstanding reflect the
fiscal 1995 two-for-one stock split-up.


<45>


THE QUAKER OATS COMPANY AND SUBSIDIARIES




<TABLE>
<CAPTION>


                                                                                        
Eleven-Year                                                                  
Selected Financial Data                                          
                                                                                               Year Ended December 31
                                                                                                1998        1997        1996
                     <S>                                                                   <C>         <C>         <C>
                     Financial Statistics (a)(b)(c)                                           
                     Current ratio                                                               1.1         1.2         0.7
                     Working capital                                                       $   105.9   $   187.3   $  (465.0)
                     Property, plant and equipment - net                                   $ 1,070.2   $ 1,164.7   $ 1,200.7
                     Depreciation expense                                                  $   116.3   $   122.0   $   119.1
                     Total assets                                                          $ 2,510.3   $ 2,697.0   $ 4,394.4
                     Long-term debt                                                        $   795.1   $   887.6   $   993.5
                     Convertible preferred stock (net of deferred compensation) and                
                      redeemable preference stock                                          $    21.7   $    20.5   $    19.0
                     Common shareholders' equity                                           $   151.0   $   228.0   $ 1,229.9
                     Net cash provided by operating activities                             $   513.5   $   490.0   $   410.4
                     Operating return on assets (d)                                            29.0%       17.8%       10.6%
                     Gross profit as a percentage of sales                                     51.0%       48.9%       46.0%
                     Advertising and merchandising as a percentage of sales                    25.6%       24.5%       23.1%
                     Income (loss) from continuing operations before cumulative effect of                   
                      accounting changes as a percentage of sales                               5.9%      (18.6%)       4.8%
                     Total debt-to-total-capitalization ratio (e)                              84.4%       81.0%       55.6%
                     Common dividends per share as a percentage of income (loss)                 
                      available for common shares (excluding cumulative effect of                    
                      accounting changes)                                                      55.9%      (16.8%)      63.3%
                     Number of common shareholders                                            26,352      27,838      29,690
                     Number of employees worldwide                                            11,860      14,123      14,800
                     Market price range of common stock:                                     
                       High (f)                                                            $ 65 9/16   $  55 1/8   $  39 1/2
                       Low  (f)                                                            $ 48 1/2    $  34 3/8   $  30 3/8
                   
                   

</TABLE>


                   
                   (a)  Income-related   statistics   exclude   the  results  of
                   businesses  reported  as  discontinued  operations.   Balance
                   sheet amounts and related statistics have  not  been restated
                   for discontinued operations,  other than Fisher-Price, due to
                   materiality.
                   (b)  1995  transition  period reflects  only  six  months  of
                   results.
                   (c)  Effective fiscal 1991, common shareholders'  equity  and
                   the  number of employees worldwide were reduced as  a  result
                   of the Fisher-Price spin-off.


<46>


<TABLE>
<CAPTION>


                                                                                    Dollars in Millions (Except Per Share Data)
   Transition         Fiscal                                                                                
 Period Ended     Year Ended
  December 31        June 30                                                                                 
         1995           1995          1994         1993          1992          1991         1990           1989           1988
                                                           
    <C>            <C>          <C>           <C>           <C>           <C>          <C>            <C>           <C>
          0.6            0.7           1.0          1.0           1.2           1.3          1.3            1.8            1.4
    $  (621.6)     $  (496.3)   $     (5.5)   $   (37.5)    $   168.7     $   317.8    $   342.8      $   695.8     $    417.5
    $ 1,167.8      $ 1,113.4    $  1,214.2    $ 1,228.2     $ 1,273.3     $ 1,232.7    $ 1,154.1      $   959.6     $    922.5
    $    59.2      $   125.4    $    133.3    $   129.9     $   129.7     $   125.2    $   103.5      $    94.2     $     88.3
    $ 4,620.4      $ 4,826.9    $  3,043.3    $ 2,815.9     $ 3,039.9     $ 3,060.5    $ 3,377.4      $ 3,125.9     $  2,886.1
    $ 1,051.8      $ 1,103.1    $    759.5    $   632.6     $   688.7     $   701.2    $   740.3      $   766.8     $    299.1
                                                                                                                     
                                                                                                                          
    $    17.7      $    18.8    $     15.3    $    11.4     $   7.9       $     4.8    $     1.8             --             --
    $ 1,079.3      $ 1,128.8    $    445.8    $   551.1     $   842.1     $   901.0    $ 1,017.5      $ 1,137.1     $  1,251.1
    $    84.3      $   475.5    $    450.8    $   558.2     $   581.3     $   543.2    $   460.0      $   408.3     $    320.8
         3.3%          12.4%         23.9%        21.8%         18.8%         19.1%        19.8%          19.5%          19.6%
        44.0%          46.9%         50.9%        49.9%         49.2%         48.3%        46.7%          45.7%          46.9%
        24.1%          26.3%         26.6%        25.7%         26.0%         25.6%        23.8%          23.4%          24.9%
                                                                                                                          
         0.5%          12.7%          3.9%         5.0%          4.4%          4.3%         4.6%           3.1%           4.4%
        61.7%          59.0%         68.8%        59.0%         48.7%         47.4%        52.3%          44.2%          33.8%
                                                                                                                          
                                                                                                                          
       633.3%          19.0%         63.1%        48.9%         52.9%         58.9%        65.1%          46.9%          31.3%
       30,353         29,148        28,197       33,154        33,580        33,603       33,859         34,347         34,231
       16,100         17,300        20,000       20,200        21,100        20,900       28,200         31,700         31,300
                                                                                                                          
    $  37 3/8      $  42 1/2    $  41         $  38 1/2     $  37 7/8     $  32 7/16   $ 34 7/16      $  33 1/8     $ 28 11/16
    $  30 3/4      $  29 3/4    $  30 15/16   $  28 1/16    $  25 1/8     $  20 7/8    $ 22 9/16      $  21 5/16    $ 15 1/2
 
 
 
</TABLE>
 
 
 (d) Operating   income  divided  by  average  identifiable  assets   of   the
 consolidated total (excluding corporate).
 (e) Total debt divided by total debt plus total shareholders' equity including
 convertible  preferred  stock  (net of deferred  compensation)  and  redeemable
 preference stock.
 (f) Per share data reflect the fiscal 1995 two-for-one stock split-up.


<47>


THE QUAKER OATS COMPANY AND SUBSIDIARIES

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.  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 totaled $40.8  million  and
$45.1 million as of December 31, 1998 and 1997, 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                      1998        1997
Last-in, first-out (LIFO)         52%         65%
Average quarterly cost            46%         30%
First-in, first-out (FIFO)         2%          5%


If  the LIFO method of valuing these inventories was not used, total inventories
would  have  been  $5.9  million and $8.6 million higher  than  reported  as  of
December 31, 1998 and 1997, 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, pursuant to the provisions  of  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."  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.

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.

Intangible assets, net of amortization and their estimated useful lives consist
of the following at December 31, 1998 and 1997:

                                Estimated Useful                             
Dollars in Millions              Lives (In Years)         1998          1997
Goodwill                                10 to 40        $385.3        $500.6
Trademarks and other                     2 to 40          25.4          20.4
Intangible assets                                        410.7         521.0
Less:  accumulated amortization                          165.0         170.5
Intangible assets - net of amortization                 $245.7        $350.5


Property  and Depreciation - Property, plant and equipment are carried  at  cost
and  depreciated primarily 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 1998 or 1997.  Amounts  deferred
are  amortized  over a three-year period beginning with a project's  completion.
Net  deferred software costs as of December 31, 1997, were $0.1 million.  As  of
December 31, 1998, all deferred software costs were fully amortized.

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.


<48>

    
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 in 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 that 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 accumulated  other  comprehensive
income 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  that
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 SOP No. 93-7, "Reporting on  Advertising
Costs," the Company expenses all advertising expenditures as incurred except for
production costs which are deferred and expensed when advertisements run for the
first  time.   The  amount  of production costs deferred  and  included  in  the
consolidated  balance sheets as of December 31, 1998 and 1997, was $5.6  million
and $5.4 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.   Current
deferred  tax  assets  and  liabilities are netted in the  consolidated  balance
sheets as are long-term deferred tax assets and liabilities.  Income taxes  have
been  provided  on  $207.8 million of the $219.6 million of unremitted  earnings
from  foreign subsidiaries.  Taxes are not provided on earnings expected  to  be
indefinitely reinvested.  Income taxes have also been provided for potential tax
assessments and the related tax accruals are in the consolidated balance sheets.
To  the  extent  tax  accruals differ from actual payments or  assessments,  the
accruals will be adjusted through the provision for income taxes.


<49>


Segment  Reporting  -  In  December 1998, the  Company  adopted  SFAS  No.  131,
"Disclosures  about  Segments of an Enterprise and  Related  Information."   The
adoption  of  this  standard  requires that  reportable  segments  are  reported
consistent  with how management assesses segment performance.  As a result,  the
Company  will  separately  report information on the following  seven  operating
segments: U.S. and Canadian Foods; Latin American Foods; Other Foods;  U.S.  and
Canadian  Beverages;  Latin  American  Beverages;  Other  Beverages;  and  Total
Divested  Businesses.   U.S. and Canadian Foods includes  hot  and  ready-to-eat
cereals,  mixes,  syrups, snacks and flavored rice and pasta.  Other  Foods  and
Beverages  include  businesses  in the European and  Asia/Pacific  regions.   In
determining the operating income or loss of each segment, restructuring charges,
asset impairment losses and certain other expenses,such as income taxes, general
corporate expenses and financing costs, are not allocated to operating segments.
Comparative segment data is presented in tabular form on page 38.

Other  Current and Pending  Accounting Changes - In  July 1997, the FASB  issued
SFAS  No.  130, "Reporting  Comprehensive Income."  This  Statement  established
standards for  reporting  comprehensive income in the financial statements.  The
Company  adopted  this  standard in January 1998,  and has  elected  to disclose
comprehensive  income,  which  for the  Company  includes  net  income,  foreign
currency  translation adjustments  and unrealized gains on  investments, in  the
consolidated statement of common shareholders' equity.

In  February  1998, the FASB issued SFAS No. 132, "Employers' Disclosures  about
Pensions  and Other Postretirement Benefits."  This Statement revises employers'
disclosures about pensions and other postretirement benefit plans.  It does  not
change   the  measurement  or  recognition  of  those  plans  in  the  financial
statements.   The Company's adoption of this new standard in December  1998  did
not  result in material changes to previously reported amounts.  See Note 10 for
further discussion.

In  January  1998, SOP No. 98-1, "Accounting for the Costs of Computer  Software
Developed or Obtained for Internal Use," was issued.  This SOP provides guidance
on  the  accounting for computer software costs.  In April 1998, SOP  No.  98-5,
"Reporting on the Costs of Start-Up Activities," was issued.  This SOP  provides
guidance on accounting for the cost of start-up activities. The Company  is  not
required  to adopt these Statements until January 1999, and these standards  are
not expected to materially affect the Company's financial statements.

In  June  1998,  the  FASB  issued  SFAS No.  133,  "Accounting  for  Derivative
Instruments  and Hedging Activities."  The Statement establishes accounting  and
reporting standards requiring that all derivative instruments (including certain
derivative  instruments imbedded in other contracts) be recorded in the  balance
sheet  as  either  an  asset or a liability measured at  its  fair  value.   The
Statement  requires  that changes in the derivative's fair value  be  recognized
currently  in earnings unless specific hedge accounting criteria are  met.   The
accounting  provisions  for qualifying hedges allow  a  derivative's  gains  and
losses to offset related results on the hedged item in the income statement  and
require  that  the  Company  must formally document, designate  and  assess  the
effectiveness  of transactions that qualify for hedge accounting.   The  Company
has not determined its method or timing of adopting this Statement, but will  be
required  to  adopt  it  by January 2000.  When adopted,  this  Statement  could
increase volatility in reported earnings and other comprehensive income  of  the
Company.

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.


<50>


Note 2
Restructuring Charges

During   1998,  the  Company  initiated  numerous  actions  to  improve   future
profitability.  These actions resulted in $89.7 million in restructuring charges
and   are   divided   into  three  categories:  organization  alignment,   plant
consolidations  and  Asian reorganization.  Charges for  organization  alignment
activities  totaled $41.5 million.  The Company aligned its foods and  beverages
businesses,  combining sales, supply chain and certain administrative  functions
to  realize  synergies  and  maximize scale.   These  actions  resulted  in  the
elimination  of approximately 550 positions worldwide, as a layer  of  executive
management  was removed and sales and administrative offices and functions  were
consolidated.   Plant  consolidations in the United  States  and  Latin  America
resulted  in  $19.2  million  in charges.  These  actions  will  result  in  the
elimination   of  approximately  300  positions.   In  light  of   disappointing
performance and a weak economic environment, the Company revised its operational
strategy  for the Asia/Pacific region.  The focus going forward is  on  building
the  Gatorade  business in China.  This Asia/Pacific restructuring  resulted  in
$29.0 million in charges for plant and sales and administrative office closures,
restructuring of certain joint ventures and the elimination of approximately 450
positions.

The  1998 restructuring charges are composed  of severance and other termination
benefits, asset write-offs, losses on leases and other shut-down costs.  Savings
from these actions are estimated to be $65 million annually, primarily beginning
in 1999, with approximately 90 percent of the savings in cash.

In  1997,  the  Company  initiated several restructuring  actions  resulting  in
charges  of  $65.9 million.  Three foods plants were closed, two in  the  United
States   and   one   in  Latin  America.   Combined  with  other   manufacturing
consolidation  activities  in  the U.S. and Canadian  businesses,  restructuring
charges  for these actions totaled $58.1 million.  Other actions taken  included
an  office closure in the Asia/Pacific region and staff reductions in  the  U.S.
and  Canadian businesses, resulting in charges of $1.1 million and $6.7 million,
respectively.

In  1996,  the Company recorded restructuring charges of $23.0 million including
$16.6  million  related  to  the divested Snapple beverages  business  and  $6.4
million for plant consolidations in the U.S. and Canadian Foods business.

Savings realized from the 1997 and 1996 restructuring actions have been in  line
with  expectations.  However, there are no recurring savings to be realized from
restructuring activities related to the divested Snapple beverages business.

1998, 1997 and 1996 restructuring charges by operating segment were as follows:

Dollars in Millions                          1998      1997       1996
U.S. and Canadian Foods                   $  38.4   $  49.2     $  6.4
Latin American Foods                          9.3      10.7         --
Other Foods                                  17.8        --         --
U.S. and Canadian Beverages                   8.9       4.9         --
Latin American Beverages                      2.8        --         --
Other Beverages                              12.5       1.1         --
Divested Businesses                            --        --       16.6
Total Charges                             $  89.7   $  65.9     $ 23.0

Restructuring provisions were determined based on estimates prepared at the time
the  restructuring  actions  were  approved  by  management  and  the  Board  of
Directors.   The  1998  and 1997 restructuring reserve balances  are  considered
adequate to cover committed restructuring actions.


<51>


The restructuring charges and utilization to date were as follows:

<TABLE>
<CAPTION>
                                                                                  As of December 31, 1998
                                                  Amounts Charged                  Amounts      Remaining
Dollars in Millions                       Cash      Non-Cash          Total       Utilized        Reserve          
<S>                                     <C>           <C>           <C>             <C>            <C>
1998                                                                                  
Severance and termination benefits      $ 41.3        $   --        $  41.3         $ 12.6         $ 28.7
Asset write-offs                            --          29.6           29.6            1.7           27.9
Loss on leases and other                  17.8           1.0           18.8             --           18.8
Subtotal                                  59.1          30.6           89.7           14.3           75.4
1997                                                                                  
Severance and termination benefits        12.6            --           12.6            8.8            3.8
Asset write-offs                            --          49.1           49.1           44.4            4.7
Loss on leases and other                   4.2            --            4.2            2.3            1.9
Subtotal                                  16.8          49.1           65.9           55.5           10.4
1996                                                                                  
Severance and termination benefits         1.4            --            1.4            1.4             --
Asset write-offs                            --          18.9           18.9           18.9             --
Loss on leases and other                   2.6           0.1            2.7            2.7             --
Subtotal                                   4.0          19.0           23.0           23.0             --
Total                                   $ 79.9        $ 98.7        $ 178.6         $ 92.8         $ 85.8

</TABLE>


Note 3
Asset Impairments and Divestitures

In  1998, the Company recorded $38.1 million of asset impairment losses  related
to  ongoing  businesses.  In conjunction with the Company's  ongoing  review  of
underperforming businesses, certain assets are reviewed for impairment, pursuant
to  the  provisions of SFAS No. 121.  During 1998, the China foods and Brazilian
pasta businesses were determined to be impaired.  Accordingly, pretax losses  of
$15.1  million  and  $23.0  million  on these  impaired  Chinese  and  Brazilian
businesses, respectively, were recorded in order to adjust the carrying value of
the  long-lived  assets of these businesses to fair value.  The  estimated  fair
value of these assets was based on various methodologies, including a discounted
value  of  estimated  future cash flows and liquidation analyses.   The  Company
continues  to  review  its business strategies and pursue  other  cost-reduction
activities, some of which could result in future charges.

The  Company  took  numerous actions in 1997 relative  to  its  Brazilian  pasta
business.  During the Company's operating planning process, an updated review of
the  strategies, actions taken to date and the expected financial  prospects  of
this  business was undertaken.  As a part of this review, the Company  evaluated
the  recoverability of the long-lived assets of this business pursuant  to  SFAS
No.  121  and recorded a non-cash charge of $39.8 million to reduce the carrying
value  of  the net assets of the 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 estimated future cash flows and a  fundamental
analysis  of  the  business' value.  Separately, the Company  received  a  $35.0
million  cash  litigation  settlement related to this  business.   The  combined
charge  of  $4.8  million was not included in the operating segment  results  of
Latin American Foods.

Charges  for  asset impairment losses related to divested businesses  were  also
recorded  in  1998.  The Company divested the following U.S. food businesses  in
1998  for a total of $192.7 million and realized a combined pretax loss of  $0.7
million, including related impairment losses:

<TABLE>
<CAPTION>
                                                                       
                           Divestiture    Impairment   (Gains) Losses            Total      
Dollars in Millions               Date        Losses          on Sale   (Gains) Losses
<S>                     <C>                   <C>              <C>              <C>
Ardmore Farms juice        August 1998        $   --           $ (2.5)          $ (2.5)
Continental Coffee      September 1998          40.0             (5.1)            34.9
Nile Spice soup cup      December 1998          25.4              3.1             28.5
Liqui-Dri biscuit        December 1998            --            (60.2)           (60.2)
Total Losses (Gains)                          $ 65.4           $(64.7)          $  0.7

</TABLE>


<52>


During 1997, the Company divested the Snapple beverages, Richardson toppings and
condiments  and food service bagel businesses for a total of $373.2 million  and
realized a combined pretax loss of $1.42 billion.


                        Divestiture    Impairment      Losses           Total
Dollars in Millions            Date        Losses     on Sale          Losses

Snapple beverages          May 1997     $ 1,404.0     $  10.6       $ 1,414.6
Richardson/Bagels     December 1997            --         5.8             5.8
Total Losses                            $ 1,404.0     $  16.4       $ 1,420.4
                                                                       

In  1996, the Company completed the sale of its frozen foods business for $185.8
million  and  realized  a gain of $133.6 million.  The  Company  also  sold  its
Italian  products business in 1996 and recorded a pretax gain of  $2.8  million.
For operating results from divested businesses, see page 38.

Note 4
Trade Accounts Receivable Allowances

Dollars in Millions                                        1998       1997
Balance at beginning of year                            $  22.3    $  29.3
Provision for doubtful accounts                             4.0        4.2
Provision for discounts and allowances                     30.0       25.0
Write-offs of doubtful accounts - net of recoveries        (3.6)      (5.5)
Discounts and allowances taken                            (31.0)     (26.5)
Effect of divestitures                                     (0.3)      (3.8)
Effect of exchange rate changes and other                  (0.2)      (0.4)
Balance at end of year                                  $  21.2    $  22.3

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.

Marketable Securities -

During  1998,  the  Company  made investments in marketable  securities.   These
marketable  securities are available for sale and consisted  of  investments  in
mutual funds and preferred stock.  As of December 31, 1998, only investments  in
preferred  stock were outstanding.  These investments are expected  to  be  held
less  than  12  months  and  are  classified as  marketable  securities  in  the
consolidated balance sheet.  In 1998, the Company recorded a net unrealized gain
of  $0.4  million on its investments in preferred stock to adjust  the  carrying
value  of this investment to fair value.  This gain is classified as a component
of  shareholders' equity and is included in comprehensive income.  The Company's
investments  in  mutual  funds  were sold during  the  fourth  quarter  of 1998,
resulting  in a realized gain of $4.7 million included in selling,  general  and
administrative expenses.

Debt Instruments -

Revolving  Credit Facilities and Short-term Debt - In 1998, the Company  reduced
the  level of its revolving credit facilities by a total of $175.0 million.  The
Company now has a $335.0 million annually extendible five-year revolving  credit
facility and a $165.0 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. Amounts available under  credit  facilities
obtained  by the Company have decreased significantly over the last three  years
as commercial paper borrowings supported by the revolving credit facilities were
reduced.   Credit  facilities are also available for direct  borrowings.   There
were  no  direct borrowings in 1998 or in 1997.  The revolving credit facilities
require  the  Company  and  certain domestic subsidiaries  to  maintain  certain
financial ratios.


<53>


Short-term  debt  consists  primarily of  notes  payable  to  banks  in  foreign
countries  and commercial paper borrowings in the United States.  Notes  payable
to  banks were $41.3 million and $56.0 million as of December 31, 1998 and 1997,
respectively.  Commercial paper borrowings outstanding as of December  31,  1997
were  $5.0  million.   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,  1998  and
1997,  were 9.6 percent and 7.2 percent, respectively.  This increase  in  rates
was  due  primarily  to an increase in international borrowing  rates.   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, 1998 and 1997, is summarized below.

Dollars in Millions                                                1998     1997
7.76% Senior ESOP notes due through 2001                         $ 48.4  $  57.2
8.0% Senior ESOP notes due through 2001                            62.1     82.5
                                                                      
7.75%-7.9% Series A medium-term notes due through 2000             25.5     41.5
8.63%-9.34% Series B medium-term notes due through 2019           166.4    178.7
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           350.0    400.0
                                                                      
11.7% Chinese renmimbi notes due 2001                               4.8      4.8
5.7%-6.63% Industrial Revenue Bonds due through 2009, tax-exempt   19.4     19.4

Non-interest bearing installment note due 2014                      7.9      7.0
Other                                                               5.8      4.9
Subtotal                                                          890.3    996.0
Less:  current portion of long-term debt                           95.2    108.4
Long-term debt                                                  $ 795.1  $ 887.6

The  fair  value  of  long-term debt, including current  maturities,  was  $1.01
billion  and  $1.06 billion as of December 31, 1998 and 1997, respectively,  and
was  based  on market prices for the same or similar issues, or on  the  current
rates offered to the Company for similar debt of the same maturities.

The non-interest bearing  installment  note for $55.5 million had an unamortized
discount of  $47.6  million and $48.5 million as of  December 31, 1998 and 1997,
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       1999       2000       2001        2002        2003
Required payments        $95.2      $82.1      $53.3       $46.7       $28.1

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  certain  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 use instruments where there are not underlying exposures.   Complex
instruments involving leverage or multipliers are not used.  Management believes
that  its  use  of  these instruments to manage risk is in  the  Company's  best
interest.

During 1998, the Company executed certain hedging instruments to manage exposure
to  Canadian,  European  and  Brazilian currency movements.   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.


<54>


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,
1998, were as follows:

Dollars in Millions      Net Investment       Net Hedge     Net Exposure
Currency:                                                   
   Brazilian real               $  26.9        $    3.0          $  23.9
   British pounds               $  26.0        $    5.0          $  21.0
   Dutch guilders               $  16.5        $   12.4          $   4.1
   German  marks                $  19.9        $   13.9          $   6.0
   Italian lira                 $  31.1        $    4.1          $  27.0

The Company actively monitors its net exposures and adjusts the hedge amounts as
appropriate.   The net hedges above are stated on an after-tax basis.   The  net
exposures  are  subject  to  gain  or loss if foreign  currency  exchange  rates
fluctuate.

As  of December 31, 1998, the Company had net foreign exchange forward contracts
to  sell  various  European currencies and Brazilian real for $18.9  million  to
hedge its net investments.  These contracts will mature in 1999.  As of December
31,  1997, the Company had such contracts to sell various European and  Canadian
currencies for $14.4 million, which matured in 1998.  Unrealized (gains)  losses
as  of  December  31, 1998  and  1997, were $(0.2)  million  and  $0.1  million,
respectively.   The carrying value of these contracts approximated  fair  value,
except for the Brazilian real contracts, which have a fair value of $0.8 million
less than the book value at December 31, 1998.

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.

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  (gains) losses from foreign currency hedge instruments  of  $(0.8)
million, $2.5 million and $1.0 million in 1998, 1997 and 1996, respectively.

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  and  wheat.   Of  the $2.37 billion  in  cost  of  goods  sold,
approximately $140 million to $190 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,  1998  and   1997,
approximately  28 percent and 36 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, 1998  and
1997, were $0.2 million and $0.1 million, respectively.  Realized losses (gains)
charged to cost of goods sold in 1998, 1997 and 1996 were $13.5 million,  $(6.6)
million  and  $(5.1) million, respectively.  The fair values of these  commodity
instruments as of December 31, 1998 and 1997, based on quotes from brokers, were
net losses of $2.2 million and $0.8 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,
1998  and  1997,  were $5.7 million and $7.1 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 $1.4  million,  $1.8
million  and $1.9 million related to the interest rate swap agreements in  1998,
1997 and 1996, respectively.


<55>


Note 6
Capital Stock

During  1998,  the  Company repurchased 6.9 million shares  of  its  outstanding
common  stock  for  $386.7  million completing its 10 million  share  repurchase
program  announced  in  August 1993 and initiating  the  $1  billion  repurchase
program  announced  in  March  1998.   As of  December  31,  1998,  the  Company
repurchased  approximately $265 million under the $1  billion  share  repurchase
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. Four  million
shares  of Series C Junior Participating Preferred Stock have been reserved  for
issuance in connection with the 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, 1998, 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, 1998.

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  in  the
Company's  consolidated balance sheets.  See Note 5 for  further  discussion  of
ESOP notes.

Deferred  compensation  of  $116.0 million as of December  31,  1998,  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         1998         1997
Principal payments       $  29.2      $  25.5
Interest payments           10.9         12.9
Total ESOP payments      $  40.1      $  38.4

As  of December 31, 1998, 4,528,701 shares of common stock and 538,608 shares of
preferred stock were held in the accounts of ESOP participants.

Note 8
Employee Stock Option and Award Plans

In  May  1998, the Company's shareholders adopted The Quaker Long Term Incentive
Plan of 1999 (Plan) to replace The Quaker Long Term Incentive Plan of 1990.  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.  Approximately 12 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,  1998,
669 persons held such options.


<56>


The  Company  has  elected to disclose the pro forma effects of  SFAS  No.  123,
"Accounting  for Stock-Based Compensation."  As allowed under the provisions  of
the Statement, the Company will continue to apply APB Opinion No. 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 SFAS No. 123,
the  Company's net income (loss) and net income (loss) per share would have been
the pro forma amounts indicated below:

Dollars in Millions                                 1998        1997      1996
Net income (loss):                                         
  As reported                                     $284.5     $(930.9)   $247.9
  Pro forma                                       $272.5     $(940.7)   $242.0
Net income (loss) per share:                            
  As reported                                     $ 2.04     $ (6.80)   $ 1.80
  Pro forma                                       $ 1.95     $ (6.87)   $ 1.76
Net income (loss) per share - assuming dilution: 
  As reported                                     $ 1.97     $ (6.80)   $ 1.78
  Pro forma                                       $ 1.89     $ (6.87)   $ 1.74

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:

                                    1998              1997                1996
Dividend yield               1.9% - 2.0%       2.4% - 3.1%       3.3 % - 3.4 %
Expected volatility        18.6% - 20.8%     16.3% - 22.5%     14.4 % - 20.1 %
Risk-free interest rates     4.7% - 5.7%       5.9% - 6.7%       5.7 % - 6.8 %
Expected lives              3 to 8 years      3 to 8 years        2 to 8 years


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

<TABLE>
<CAPTION>
                                       1998                        1997                      1996
                                            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                     13,017,621      $36.25    14,264,030      $34.42     16,724,814      $33.99
Granted                        2,399,000      $57.16     3,205,250      $40.61        152,150      $33.93
Exercised                      3,326,292      $33.88     3,661,269      $33.00      1,260,977      $24.66
Forfeited                        481,435      $45.13       790,390      $36.05      1,351,957      $38.14
Outstanding at end of year    11,608,894      $40.88    13,017,621      $36.25     14,264,030      $34.42
Exercisable at end of year     7,842,314      $36.44     9,403,675      $35.70     10,947,837      $34.33
                                                                                    
Weighted-average fair                                                                                
 value of options granted                                                         
 during the year                              $13.84                    $ 9.03                     $ 5.97

</TABLE>


The following summarizes information about stock options outstanding at December
31, 1998:

<TABLE>
<CAPTION>                                                                                  
                                       Options Outstanding                               Options Exercisable
                                              Average            Weighted-                               Weighted-
Range of                                    Remaining             Average                                 Average
Exercise                                  Contractual            Exercise                                Exercise
Prices                     Shares                Life               Price              Shares               Price
<C>                    <C>                 <C>                     <C>              <C>                    <C>
$22.79-$34.53           4,096,066          5.19 Years              $32.23           4,084,544              $32.23
$35.35-$40.35           3,830,858          6.15 Years              $38.49           2,713,800              $39.00
$44.18-$60.41           3,681,970          8.33 Years              $52.99           1,043,970              $46.25
$22.79-$60.41          11,608,894          6.50 Years              $40.88           7,842,314              $36.44

</TABLE>

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 1998, 1997 and 1996 were 55,981, 178,475  and
55,600, respectively.  Restrictions on these awards lapse after a period of time
designated by the Compensation Committee of the Board of Directors.


<57>


Note 9
Shareholder Rights Plan

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
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
percent  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 and Postretirement Plans

The  Company has various pension plans covering substantially all U.S. employees
and  certain foreign employees.  Plan benefits (Pension 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   Company  also  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
(Postretirement Benefits) for retired employees who meet certain service-related
eligibility  requirements.   The  Company funds  only  the  plans'  annual  cash
requirements.

The following discussion has been modified and expanded to reflect the Company's
adoption   of   SFAS  No.  132,  "Employers'  Disclosures  about  Pensions   and
Postretirement  Benefits."  This Statement revises employers' disclosures  about
pensions  and  other  postretirement benefit  plans.   It  allows  for  combined
disclosures for those benefits and requires more detailed information about  the
changes  in  employers'  obligations  and  funded  assets  than  was  previously
reported.   It does not change the measurement or recognition of those  benefits
in  the  financial statements.  The Company's adoption of this new  standard  in
December 1998 did not result in material changes to previously reported amounts.

Total  Company Benefit Costs - The components of net periodic benefit costs  for
the plans were as follows:

                                                     Pension Benefits
Dollars in Millions                             1998        1997       1996
Components of net periodic benefit costs:                     
  Service cost                               $  33.7     $  28.9    $  31.4
  Interest cost                                 76.3        74.5       69.5
  Expected return on plan assets              (102.5)      (86.3)     (72.3)
  Amortization of prior service cost             4.2         4.2        4.0
  Amortization of transitional asset            (0.9)      (10.7)     (12.6)
  Recognized net actuarial gain                 (0.8)       (0.1)      (0.1)
  Multi-employer plans                           0.3         0.5        0.5
  Loss from curtailment                          1.1          --         --
Net periodic benefit costs                   $  11.4     $  11.0    $  20.4
                                         
                                                  Postretirement Benefits
Dollars in Millions                             1998        1997       1996
Components of net periodic benefit costs:
  Service cost                               $   7.2     $   6.3    $   6.7
  Interest cost                                 19.5        18.6       17.3
  Amortization of prior service cost             0.6         0.5        0.5
  Recognized net actuarial gain                 (0.1)       (0.1)      (0.1)
  Gain from curtailment                         (0.1)         --         --
Net periodic benefit costs                   $  27.1     $  25.3    $  24.4


<58>


The decline in the Company's pension expense from 1996 to 1997 was primarily due
to an increase in the rate of return on the plans' net assets and a reduction in
the number of active employees.  The Company incurred $5.3 million, $5.5 million
and  $4.5  million  in costs in 1998, 1997 and 1996, respectively,  for  defined
contribution  benefit plans.  These costs are not included in the  net  periodic
benefit costs summarized on page 58.

Domestic  Obligations and Funded Status - The changes in the benefit obligations
and the reconciliations of the funded status of the Company's domestic plans  to
the statement of financial position were as follows:

<TABLE>
<CAPTION>
                                                  Pension Benefits        Postretirement Benefits
Dollars in Millions                             1998          1997          1998             1997
<S>                                        <C>           <C>            <C>              <C>
Change in benefit obligations:
  Benefit obligation at beginning of year  $   993.0     $   869.6      $  271.3         $  238.5
  Service cost                                  25.6          22.6           6.8              6.0
  Interest cost                                 65.8          64.2          18.9             17.9
  Benefits paid                                (48.6)        (43.7)        (15.0)           (14.8)
  Actuarial loss                                14.0          80.3           9.2             22.5
  Plan participant contributions                  --            --           1.3              1.2
Benefit obligation at end of year          $ 1,049.8     $   993.0      $  292.5         $  271.3

Change in plan assets:                                                                                                  
  Fair value of plan assets                                                       
     at beginning of year                  $ 1,075.1     $   907.3      $     --         $     --
  Actual return on assets                      109.9         209.5            --               --
  Company contributions                          5.0           2.0          13.7             13.6
  Benefits paid                                (48.6)        (43.7)        (15.0)           (14.8)
  Plan participant contributions                  --            --           1.3              1.2
Fair value of plan assets at end of year   $ 1,141.4     $ 1,075.1      $     --         $     --
Fair value of plan assets greater (less)                                             
  than benefit obligation                  $    91.6     $    82.1      $ (292.5)        $ (271.3)
Unrecognized net actuarial (gain) loss        (199.7)       (195.6)          4.9             (4.4)
Unrecognized prior service cost                 14.3          18.2           3.8              4.3
Unrecognized net liability at transition         0.6           0.8            --               --
Net amounts recognized                     $   (93.2)    $   (94.5)     $ (283.8)        $ (271.4)
Net amounts recognized consist of:                                                                                            
  Accrued benefit liability                $   (93.2)    $   (94.5)     $ (283.8)        $ (271.4)
Net amounts recognized                     $   (93.2)    $   (94.5)     $ (283.8)        $ (271.4)

</TABLE>

The  projected benefit obligation, accumulated benefit obligation and fair value
of  plan  assets for the defined benefit pension plans with accumulated  benefit
obligations in excess of plan assets were $95.2 million, $82.1 million and $31.4
million, respectively, as of December 31, 1998, and $87.1 million, $76.8 million
and $29.7 million, respectively, as of December 31, 1997.

<TABLE>
<CAPTION>
                                                     Pension Benefits      Postretirement Benefits
Weighted average assumptions as of December 31         1998      1997               1998      1997   
<S>                                                   <C>       <C>                <C>       <C>
Discount rate                                         6.75%     7.00%              6.75%     7.00%
Expected long-term rate of return on plan assets      9.75%     9.75%                N/A       N/A
Rate of future compensation increases                 4.50%     4.50%                N/A       N/A
N/A: Not applicable

</TABLE>

For  measurement  purposes, a 7.0 percent annual rate of  increase  in  the  per
capita cost of covered health care benefits was assumed for 1999.  The rate  was
assumed  to decrease gradually to 4.0 percent for 2005 and remain at that  level
beyond.

If the health care trend rate was increased one percentage point, postretirement
benefit costs for the year ended December 31, 1998, would have been $4.1 million
higher, and the accumulated postretirement benefit obligation as of December 31,
1998,  would have been $42.1 million higher.  If the health care trend rate  was
decreased one percentage point, postretirement benefit costs for the year  ended
December  31,  1998,  would have been $3.3 million lower,  and  the  accumulated
postretirement benefit obligation as of December 31, 1998, would have been $34.6
million lower.


<59>


Foreign  Obligations and Funded Status - The changes in the benefit  obligations
and  the reconciliations of the funded status of the Company's foreign plans  to
the statement of financial position were as follows:

<TABLE>
<CAPTION>

                                                        Pension Benefits      Postretirement Benefits
Dollars in Millions                                     1998        1997         1998            1997
<S>                                                 <C>         <C>          <C>             <C>
Change in benefit obligations:
  Benefit obligation at beginning of year           $  139.6    $  138.4     $    9.4        $   10.6
  Service cost                                           8.1         6.3          0.4             0.3
  Interest cost                                         10.5        10.3          0.6             0.7
  Benefits paid                                        (10.9)      (13.5)        (0.2)           (0.2)
  Actuarial loss (gain)                                 23.2         3.5          0.1            (1.6)
  Plan participant contributions                         0.6         0.6           --              --
  Plan amendments                                         --         1.7          0.6              --
  Foreign currency exchange rate change                 (2.9)       (7.7)        (0.7)           (0.4)
  Plan curtailments                                      0.8          --         (0.1)             --
Benefit obligation at end of year                   $  169.0    $  139.6     $   10.1        $    9.4

Change in plan assets:                                                             
  Fair value of plan assets at beginning of year    $  144.1    $  139.1     $     --        $     --
  Actual return on assets                               20.3        14.7           --              --
  Company contributions                                  7.4         9.5          0.2             0.2
  Benefits paid                                        (10.9)      (13.5)        (0.2)           (0.2)
  Plan participant contributions                         0.5         0.5           --              --            
  Foreign currency exchange rate changes                (3.1)       (6.2)          --              --
Fair value of plan assets at end of year            $  158.3    $  144.1     $     --        $     --
Fair value of plan assets (less)  greater                                                      
  thanbenefit obligation                            $  (10.7)   $    4.4     $  (10.1)       $   (9.4)
Unrecognized net actuarial loss (gain)                   5.8        (6.3)        (1.3)           (1.5)
Unrecognized prior service cost                          3.4         4.1          0.9             0.4
Unrecognized net asset at transition                    (4.9)       (6.2)          --              --
Net amounts recognized                              $   (6.4)   $   (4.0)    $  (10.5)       $  (10.5)
Net amounts recognized consist of:                                                               
  Accrued benefit liability                         $  (13.9)   $  (10.9)    $  (10.5)       $  (10.5)
  Prepaid benefit costs                                  7.5         6.9           --              --
Net amounts recognized                              $   (6.4)   $   (4.0)    $  (10.5)       $  (10.5)

</TABLE>

The  projected benefit obligation, accumulated benefit obligation and fair value
of  plan  assets for the defined benefit pension plans with accumulated  benefit
obligations in excess of plan assets were $28.5 million, $27.9 million and $19.0
million,  respectively, as of December 31, 1998, and $7.8 million, $7.1  million
and $0.2 million, respectively, as of December 31, 1997.

<TABLE>
<CAPTION>
                                                     Pension Benefits   Postretirement Benefits
Weighted average assumptions as of December 31         1998      1997           1998       1997
<S>                                                   <C>       <C>            <C>        <C>
Discount rate                                         5.50%     7.50%          6.25%      7.00%
Expected long-term rate of return on plan assets      7.60%     8.00%            N/A        N/A
Rate of future compensation increases                 4.00%     6.00%            N/A        N/A
N/A: Not applicable

</TABLE>


For  measurement  purposes, a 7.5 percent annual rate of  increase  in  the  per
capita cost of covered health care benefits was assumed for 1999.  The rate  was
assumed  to decrease gradually to 4.5 percent for 2002 and remain at that  level
beyond.

If the health care trend rate was increased one percentage point, postretirement
benefit costs for the year ended December 31, 1998, would have been $0.3 million
higher, and the accumulated postretirement benefit obligation as of December 31,
1998,  would have been $1.7 million higher.  If the health care trend  rate  was
decreased one percentage point, postretirement benefit costs for the year  ended
December  31,  1998,  would have been $0.3 million lower,  and  the  accumulated
postretirement benefit obligation as of December 31, 1998, would have been  $1.7
million lower.


<60>


Note 11
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
$38.5 million, $38.0 million and $36.4 million for the years ended December  31,
1998, 1997 and 1996, 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, 1998.

Dollars in Millions      1999   2000   2001   2002   2003   Thereafter    Total
Total payments          $25.1  $23.5  $22.3  $17.1  $13.5        $30.4   $131.9

The  Company  enters  into executory contracts to obtain inventory  and  promote
various  products.   As  of  December 31, 1998, future commitments  under  these
contracts were $348.5 million.

Note 12
Supplementary Income Statement Information

Dollars in Millions                          1998         1997         1996
Advertising, media and production       $   281.9    $   292.7    $   289.8
Merchandising                               959.9        933.7        913.5
Total advertising and merchandising     $ 1,241.8    $ 1,226.4    $ 1,203.3
Depreciation expense                    $   116.3    $   122.0    $   119.1
Amortization of intangibles             $    12.8    $    35.6    $    78.5
Research and development                $    31.0    $    34.9    $    33.0

Note 13
Interest Expense

Dollars in Millions                          1998         1997         1996
Interest expense                        $    72.0    $    89.8    $   113.0
Interest expense capitalized                 (2.4)        (4.0)        (6.2)
Subtotal                                     69.6         85.8        106.8
Interest income                             (10.7)        (6.7)        (7.4)
Interest expense - net                  $    58.9    $    79.1    $    99.4

Interest paid in the years ended December 31, 1998, 1997 and 1996, was $68.8
million, $83.2 million and $109.0 million, respectively.

Note 14
Income Taxes

The  Company  uses an asset and liability approach to financial  accounting  and
reporting  for  income  taxes in accordance with SFAS No. 109,  "Accounting  for
Income Taxes."  Income tax provisions (benefits) were as follows:

Dollars in Millions                          1998         1997         1996
Currently payable (receivable):                                         
   Federal                              $   147.4    $  (140.1)   $    99.4
   Foreign                                   21.2         21.9         10.2
   State                                     27.0          4.2         26.6
Total currently payable (receivable)        195.6       (114.0)       136.2
Deferred - net:                                  
   Federal                                  (62.7)        (3.0)        15.9
   Foreign                                  (12.6)       (13.6)        10.4
   State                                     (8.2)        (2.8)         5.2
Total deferred - net                        (83.5)       (19.4)        31.5
Income tax provision (benefit)          $   112.1    $  (133.4)    $  167.7


As  a  result  of  the loss on the divestiture of Snapple in 1997,  the  Company
recovered  $240.0 million in Federal taxes paid on previous capital  gains  from
business  divestitures  and expects to recover an additional  $10.0  million  in
state  taxes.  Included in other current assets as a tax receivable  related  to
these recoveries is $10.0 million and $250.0 million as of December 31, 1998 and
1997, respectively.


<61>


Income  taxes (refunded) paid during 1998, 1997 and 1996 were $(110.4)  million,
$92.9 million and $161.1 million, respectively.  The net amount refunded in 1998
includes  the $240.0 million recovery of Federal taxes paid on previous  capital
gains.

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

Dollars in Millions                                 1998        1997       1996
Accelerated tax depreciation                    $  (10.9)   $   12.8    $   3.7
Postretirement benefits                             (3.9)       (8.4)*      0.6
Accrued expenses including                                    
  restructuring charges                            (34.6)         --       40.6 
Loss carryforwards, net of valuation allowances      4.4        (4.6)      (7.1)
Foreign gain deferral                               (3.7)       (4.3)       9.8
Impairment losses                                  (39.8)       (1.6)*       --
Other                                                5.0       (13.3)*    (16.1)
(Benefit) provision for deferred income taxes   $  (83.5)   $  (19.4)   $  31.5
* Restated to conform to current presentation.


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

Dollars in Millions                                 1998        1997       1996
Continuing operations                           $  112.1    $ (133.4)   $ 167.7
Items charged directly to                       
   common shareholders' equity                  $  (43.8)   $  (21.0)   $  (8.4)

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

Dollars in Millions                                 1998        1997        1996
U.S. sources                                    $  435.3   $(1,087.7)   $  362.8
Foreign sources                                    (38.7)       23.4        52.8
Income (loss) before income taxes               $  396.6   $(1,064.3)   $  415.6


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

<TABLE>
<CAPTION>

Dollars in Millions                         1998                  1997                1996
                                                 % of                 % of                  % of
                                               Pretax               Pretax                Pretax
                                       Amount  Income        Amount   Loss       Amount   Income   
<S>                                  <C>         <C>      <C>         <C>      <C>          <C>        
Tax provision (benefit) based                                             
   on the Federal statutory rate     $  138.8    35.0%    $  (372.5)  35.0%    $  145.5     35.0%
State and local income tax                                                
   Provision (benefit) - net of                                   
   Federal income taxes                   9.2     2.3          (7.1)   0.7         20.7      5.0
Repatriation of foreign earnings         (2.9)   (0.7)          1.9   (0.2)       (11.3)    (2.7)
Foreign tax rate differential             3.5     0.9           0.1     --          2.1      0.5
Capital loss valuation allowance        (25.4)   (6.4)        253.1  (23.8)          --       --
Miscellaneous items                     (11.1)   (2.8)         (8.9)   0.8         10.7      2.6
Income tax provision (benefit)       $  112.1    28.3%    $  (133.4)  12.5%    $  167.7     40.4%

Deferred tax assets and deferred tax liabilities were as follows:

<CAPTION>

Dollars in Millions                          1998                             1997
                                      Assets       Liabilities        Assets       Liabilities
<S>                                 <C>               <C>           <C>               <C>
Depreciation and amortization       $   37.4          $  183.2      $   20.3          $  218.9
Postretirement benefits                118.4                --         114.5*               --
Other benefit plans                     62.8               5.8          65.5*              5.7*
Accrued expenses including                                                   
  restructuring charges                122.5               9.7          92.5              11.5
Loss carryforwards                     316.7                --         328.5                --
Other                                   12.0               9.0           4.1              15.9
Subtotal                               669.8             207.7         625.4             252.0
Valuation allowance                   (314.0)               --        (319.2)               --
Total                               $  355.8          $  207.7      $  306.2          $  252.0
*Restated to conform to current presentation.

</TABLE>

Included in other current assets were deferred tax assets of $116.6 million and
$90.5 million as of December 31, 1998 and 1997, respectively.  Included in other
assets were deferred tax assets of $31.5 million as of December 31, 1998.

<62>

As of December 31, 1998 and 1997, the Company had approximately $760 million and
$790  million, respectively, of capital loss carryforwards available  to  reduce
future  capital gains in the United States.  The capital loss carryforwards  are
primarily  the  result  of  Quaker's  1997  loss  on  divestiture  of   Snapple.
Therefore,  the  majority of those capital loss carryforwards  expire  in  2002.
During 1998, the amount of available capital loss carryforwards decreased  as  a
result  of  business divestitures.  A valuation allowance has been provided  for
the full value of the deferred tax assets related to these carryforwards.

As  of December 31, 1998, the Company had $41.2 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 50 percent of the deferred tax assets related to  the
loss carryforwards.

Note 15
Litigation

The  Company  is  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.

Note 16
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,                           1998                     1997                       1996
                                                   Income      Shares       Income      Shares         Income     Shares
<S>                                              <C>          <C>        <C>           <C>           <C>         <C>
Net income (loss)                                $  284.5                $  (930.9)                  $  247.9
Less:  Preferred dividends                                        4.5                      3.5                       3.7
Net income (loss) available                                                                                              
   for common                                    $  280.0     137,185    $  (934.4)    137,460       $  244.2    135,466
Net income (loss) per                                                                                      
   common share                                  $   2.04                $   (6.80)                  $   1.80   
Net income (loss) available for common                                                                     
   for common                                    $  280.0     137,185    $  (934.4)    137,460       $  244.2    135,466
Effect of dilutive securities:                                                                             
   Stock options                                       --       3,613           --          --             --      1,000
   ESOP Convertible                                                                                         
      Preferred Stock                                 2.0       2,180           --          --            2.9      2,441
   Non-vested awards                                   --         219           --          --             --         83
                                                 $  282.0     143,197    $  (934.4)    137,460       $  247.1    138,990
Net income (loss) per                                                                                  
   common share - assuming                                                                                    
   dilution                                      $   1.97                $   (6.80)                  $   1.78  

</TABLE>

As  of December 31, 1998 and 1996, 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.

As  the Company incurred a net loss for the year ended December 31, 1997,  there
was  no  adjustment for potentially dilutive securities as the adjustment  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.

<63>

Note 17
Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>

Dollars in Millions (Except Per Share Data)
                                       First          Second           Third         Fourth
1998                                 Quarter (a)     Quarter (b)     Quarter (c)    Quarter (d)
<S>                                <C>             <C>             <C>            <C>
Net sales                          $ 1,092.3       $ 1,381.7       $ 1,405.2      $   963.3
Cost of goods sold                     552.2           676.5           663.4          482.3
Gross profit                       $   540.1       $   705.2       $   741.8      $   481.0
Net income                         $    47.0       $    56.5       $   107.8      $    73.2
Per common share:                                                               
  Net income                       $    0.33       $    0.41       $    0.78      $    0.52
  Net income - assuming                                                      
        dilution                   $    0.32       $    0.40       $    0.75      $    0.50
  Cash dividends declared          $   0.285       $   0.285       $   0.285      $   0.285
  Market price range:                                                      
        High                       $  60 3/8       $ 58 7/16       $  63          $ 65 9/16
        Low                        $  48 1/2       $ 50 5/8        $  51 3/4      $ 55 1/8

</TABLE>

(a)  Includes pretax restructuring charges of $9.1 million ($5.5 million  after-
tax or $0.04 per share) for organization alignment.
(b)  Includes pretax impairment losses of $63.0 million ($39.4 million after-tax
or  $0.28  per  share)  related to the Continental Coffee  and  Brazilian  pasta
businesses,  and pretax restructuring  charges  of $15.6  million ($11.1 million
after-tax or $0.08 per share) for organization alignment.
(c)  Includes pretax impairment losses of $40.5 million ($24.3 million after-tax
or  $0.18  per  share) related to the Nile Spice and China Foods  businesses,  a
combined pretax gain of $7.6 million ($7.6 million after-tax or $0.05 per share)
for  the sale of the Ardmore Farms and Continental Coffee businesses and  pretax
restructuring  charges  of $9.0 million ($5.4 million  after-tax  or  $0.04  per
share) for organization alignment.
(d) Includes pretax restructuring charges of $56.0 million ($30.1 million after-
tax  or  $0.22  per share) for organization alignment, plant consolidations  and
Asian  reorganization, a pretax loss of $3.1 million ($1.9 million after-tax  or
$0.01  per share) for the sale of the Nile Spice business  and a pretax gain  of
$60.2  million ($60.2 million after-tax or $0.44 per share) for the sale of  the
Liqui-Dri business.

<TABLE>
<CAPTION>

Dollars in Millions (Except Per Share Data)
                                         First           Second            Third          Fourth
1997                                   Quarter (a)      Quarter (b)      Quarter (c)     Quarter (d)
<S>                                 <C>              <C>              <C>             <C>
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

</TABLE>

(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  $0.02  per
share)  for  the sale of the Snapple beverages business and pretax restructuring
charges  of $11.8 million ($7.9 million after-tax or $0.06 per share) for  plant
consolidations  in  the  Latin American Foods business  and  the  closing  of  a
Singapore beverages office.
(c)  Includes a $4.8 million pretax net charge ($3.4 million after-tax or  $0.02
per  share)  for an impairment loss partly offset by a litigation settlement  in
the  Latin  American Foods business and pretax restructuring  charges  of  $46.9
million ($28.2 million after-tax or $0.19 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  million  after-tax  or
$0.02  per  share) for manufacturing reconfigurations in the U.S.  and  Canadian
Foods and Beverages businesses.

Note 18
Subsequent Event

In February 1999, the Company announced it had reached a definitive agreement to
sell its Brazilian pasta business.  The sale of this business is not expected to
have a material impact on the Company's operating results.

<64>


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, 1998 and
1997,  and  the related consolidated statements of income, common shareholders'
equity  and  cash flows for the years ended December 31, 1998, 1997  and  1996.
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, 1998 and 1997,  and  the  results  of  their
operations and their cash flows for the years ended December 31, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
Chicago, Illinois
February 2, 1999



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.


<65>


ADDITIONAL 10-K INFORMATION



Description of Property

As  of  December 31, 1998, the Company operated 46 manufacturing  plants  in  13
states  and  14 foreign countries and owned or leased distribution  centers  and
sales offices in 22 states and 20 foreign countries.

<TABLE>
<CAPTION>

                                                      Foods     Beverages     Shared      Total
<S>                                                      <C>           <C>        <C>        <C>
Owned and Leased Manufacturing Locations:
     U.S. and Canadian                                   13             8         --         21
     Latin American                                      12             3          1         16
     Other                                                5             4         --          9
Owned and Leased Distribution Centers:
     U.S. and Canadian                                    1            --          8          9
     Latin American                                       2             1         16         19
     Other                                               --             2         --          2
Owned and Leased Sales Offices:                            
     U.S. and Canadian                                   11            13          6         30
     Latin American                                       4             3         13         20
     Other                                                6             7         --         13

</TABLE>

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. Production  capacity  is appropriately
utilized.  The  Company  is in the  process of terminating  certain sales office
leases in light of its recent restructuring actions.

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 and Gatorade
Frost  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; Golden Grain and Mission for pasta; and Quaker  and
Aunt  Jemima  for  mixes, syrups and corn goods.  Many of  the  grocery  product
trademarks  owned by the Company in the United States are registered in  foreign
countries in which the Company does substantial business.  Internationally,  key
trademarks  owned  include:  Quaker, Cruesli, Honey  Monster,  Sugar  Puffs  and
Scott's  for  breakfast  cereals; Coqueiro for  fish;  Toddy  and  ToddYnho  for
chocolate beverages; and Gatorade for thirst-quenching beverages.

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 syrups,
grain-based  snacks, cornmeal, hominy grits and value-added rice  products.   In
addition,  the Company is the second-largest manufacturer of pancake  mixes  and
value-added pasta products and is among the four largest manufacturers of ready-
to-eat  cereals  and  five largest manufacturers of branded 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.

<66>

Latin American Foods Description

The  Company manufactures and markets its products in many countries  throughout
Latin  America  and is broadly diversified by product line.  It is  the  leading
brand-name hot cereals producer in many countries and has other leading category
positions for products in a number of countries.  In Brazil, the Company is  the
leading  producer of ready-to-drink chocolate beverages and the  leading  canned
fish processor.

Other Foods Description

The Company is broadly diversified, both geographically and by product line,  in
the  packaged food industry.  The Company manufactures and markets its  products
in  many  countries  throughout Europe and Asia.  It is the  leading  brand-name
cereals  producer  in  many European countries and has  other  leading  category
positions for products in a number of countries.

U.S. and Canadian Beverages Description

The  Company is the leading manufacturer and distributor of sports beverages  in
the  United States and Canada and accounts for more than 80 percent of sales  in
the  sports  drink  category.  The Company uses both its own  and  broker  sales
forces to sell Gatorade thirst quencher and has distribution centers around  the
country.   Over  60  percent of Gatorade sales occur in  the  second  and  third
quarters during the spring and summer beverage season.

Latin American and Other Beverages Description

The  Company also manufactures and markets Gatorade in Latin America, Europe and
Asia.   Gatorade is sold in more than 45 countries outside of North America  and
is the leading sports drink distributor in Mexico, Argentina, Brazil, Venezuela,
Colombia, the Philippine Islands and Italy.  Gatorade is also one of the leading
sports  drink  brands in Korea and Australia, where it is sold  through  license
arrangements.

Raw Materials

Raw materials used in manufacturing include oats, wheat, corn, rice, sweeteners,
almonds, fruit, cocoa, vegetable oil 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.

<67>


DIRECTORS

Members of the
Board of Directors

Frank C. Carlucci 1*,4,5
Chairman
The Carlyle Group
(Banking)
Washington, D.C.

Kenneth I. Chenault 1,3
President and
Chief Operating Officer
American Express Company
(Financial and Travel Services)
New York, New York

John H. Costello 1,2,4
President
Republic Industries, Inc.
(Automotive Retailing and Rental)
Fort Lauderdale, Florida

W. James Farrell 1,3,4
Chairman and
Chief Executive Officer
Illinois Tool Works, Inc.
(Component Manufacturer)
Glenview, Illinois

Judy C. Lewent 1,3,5
Senior Vice President and
Chief Financial Officer
Merck & Co., Inc.
(Pharmaceuticals)
Whitehouse Station,
New Jersey

J. Michael Losh 1,2,5
Executive Vice President and
Chief Financial Officer
General Motors Corporation
(Automotive Manufacturing)
Detroit, Michigan

Vernon R. Loucks, Jr. 2,3*,5
Chairman
Baxter International Inc.
(Medical Care Products)
Deerfield, Illinois

Robert S. Morrison 2,4
Chairman, President and
Chief Executive Officer

Walter J. Salmon 2*,5
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 Board Affairs
  (Robert S. Morrison
   Ex Officio Member)
3 Compensation
4 Executive
5 Finance
* Denotes Committee Chairman



OFFICERS

Operating Committee

Robert S. Morrison+
Age 56
Chairman, President and
Chief Executive Officer
Joined Quaker in October 1997.
Elected to present office
in October 1997.

Cassian K.S. Cheung+
Age 43
Vice President and President
Quaker Asia
Joined Quaker in 1994.
Elected to present office
in March 1998.

Harry M. Dent+
Age 41
Vice President and President
Ready-to-Eat Cereals
Joined Quaker in 1983.
Elected to present office
in March 1998.

Margaret M. Eichman+
Age 40
Vice President
Investor Relations and
Corporate Affairs
Joined Quaker in 1980.
Elected to present office
in July 1997.

Pamela S. Hewitt+
Age 46
Senior Vice President
Human Resources
Joined Quaker in 1992.
Elected to present office
in May 1998.

John G. Jartz+
Age 45
Senior Vice President
General Counsel, Business
Development and
Corporate Secretary
Joined Quaker in 1980.
Elected to present office
in July 1997.

Polly B. Kawalek+
Age 44
Vice President and President
Hot Breakfast
Joined Quaker in 1979.
Elected to present office
in March 1998.


<70>



Charles I. Maniscalco+
Age 45
Vice President and President
Snacks
Joined Quaker in 1980.
Elected to present office
in March 1998.

Terence D. Martin+
Age 55
Senior Vice President and
Chief Financial Officer
Joined Quaker in 1998.
Elected to present office
in November 1998.

Terrence B. Mohr+
Age 55
Senior Vice President
Customer Organization
Joined Quaker in 1987.
Elected to present office
in March 1998.

David L. Morton
Age 54
President and
Chief Executive Officer
The Quaker Oats Company
Of Canada, Ltd.

George F. Sewell
Age 52
President
Cereals, Europe

Mark A. Shapiro+
Age 43
Vice President and President
Golden Grain Company
The Quaker Oats Company
of Canada, Ltd.
Joined Quaker in 1983.
Elected to present office
in March 1998.

Susan D. Wellington+
Age 40
Vice President and President
U.S. Beverages
Joined Quaker in 1981.
Elected to present office
in March 1998.

Bernardo Wolfson+
Age 45
Vice President and President
Quaker Latin America
Joined Quaker in 1983.
Elected to present office
in March 1998.

Russell A. Young+
Age 50
Senior Vice President
Supply Chain
Joined Quaker in 1971.
Elected to present office
in March 1998.

Corporate Staff
Officers

Michael D. Annes
Vice President
Business Development
and Counsel Law

Penelope C. Cate
Vice President
Public Affairs

Thomas L. Gettings+
Age 42
Vice President
Treasurer and Tax
Joined Quaker in 1987.
Elected to present office
in May 1998.

Richard M. Gunst+
Age 42
Vice President and
Corporate Controller
Joined Quaker in 1992.
Elected to present office
in May 1998.

Douglas A. James
Assistant Treasurer

James E. LeGere
Vice President
Information Systems

I. Charles Mathews
Vice President
Organization Effectiveness

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

Edward H. Stassen
Vice President
Planning, Analysis and
Controls

Michael T. Welch
Vice President
Legal Services

+ 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. of Philip Morris
Companies, Inc. [1994-1997] and
President of General Foods U.S.A. of
Philip Morris Companies, Inc. [1991-
1994], and Terence D. Martin, who
joined the Company in November
1998, and was formerly the Executive
Vice President and Chief Financial
Officer of General Signal Corporation
[1995-1998] and  Chief Financial
Officer of American Cyanamid
Company [1991-1995]) have been
employed by The Quaker Oats
Company in an executive capacity for
five years or more.



<71>


CORPORATE AND SHAREHOLDER INFORMATION

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 (800) 494-7843

Media Relations

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

News media-related inquiries
should be addressed to:
Corporate Communications
Suite 27-6
or call (312) 222-7399

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

Shareholder Services

Harris Trust and Savings Bank acts as
transfer agent and registrar for Quaker
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 (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 (800) 524-8580.  Current
shareholders should call Harris Bank
directly at (800) 344-1198.

Harris DOCS
The Quaker Oats Company
Administrator
P.O. Box A33090
Chicago, Illinois 60690-3309
(800) 344-1198

Form 10-K

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

Annual Meeting

Shareholders are cordially invited to
attend the Annual Meeting, which will
be held at the Rosemont Convention
Center, 5555 North River Road, in
Rosemont, Illinois, at 9:30 a.m. (CDT),
on May 12, 1999.

Dividends

Cash dividends on Quaker common
stock have been paid for 93
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.


<72>

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 Web Site Address

www.quakeroats.com

Shares Listed

New York Stock Exchange
Chicago Stock Exchange

Ticker Symbol: OAT

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