General Mills (GIS)

Components of Net Sales Growth – Fiscal 2005 vs. 2004

Cost of sales was up $57 million in the quarter versus last year. Cost of sales as a percent of sales increased from 60.6 percent to 61.1 percent. This primarily reflects increased raw material and energy costs. A smaller factor was the $3 million of accelerated depreciation expense associated with the restructuring actions described in Note Two above.

Selling, general and administrative expense (SG&A) was down $9 million in the quarter versus last year. SG&A as a percent of sales in the quarter decreased from 21.8 percent last year to 20.9 percent this year. The primary factor for this decrease is lower media expense for the period.

Third-quarter results for fiscal 2005 and 2004 included restructuring and other exit costs, described in Note Two above. In the third quarter of fiscal 2005, we recorded restructuring and other exit costs of $3 million associated with restructuring actions previously announced compared to restructuring and other exit costs of $5 million recorded in the third quarter of fiscal 2004. These initiatives are expected to contribute future productivity savings as we increase asset utilization and reduce manufacturing and sourcing costs.

Interest expense for the quarter totaled $107 million, lower than last year’s third quarter amount of $123 million, due to lower debt levels and $12 million of interest income from the third-quarter resolution of certain tax issues. The effective tax rate was 46.5 percent for the third quarter, including the impact of taxes of $45 million associated with the recent disposition of our interest in the SVE joint venture referred to in Note Eight above. Excluding the SVE-related taxes, the effective tax rate was 34.9 percent, essentially the same as fiscal 2004.

Reported net earnings were $230 million in the third quarter of fiscal 2005 as compared to $242 million last year. In October 2004, we repurchased approximately 17 million shares of General Mills common stock from Diageo plc. As a result, average diluted shares outstanding for the third quarter were 405 million compared

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to 412 million shares last year. Basic earnings per share of 63 cents for the third quarter ended February 27, 2005, were down 2 percent from 64 cents a year earlier. Diluted earnings per share of 58 cents for the third quarter of fiscal 2005 were down 3 percent from the 60 cents per share earned in the same period last year.

Components of Net Sales Growth – Fiscal 2005 vs. 2004

Cost of sales was up $92 million in the quarter versus last year. Cost of sales as a percent of sales increased from 58.7 percent to 59.6 percent. This primarily reflects increased raw material and energy costs. A smaller factor was the $8 million of accelerated depreciation expense associated with our restructuring actions (described in Note Two above).

Selling, general and administrative expense (SG&A) as a percent of sales in the quarter decreased from 22.1 percent last year to 20.1 percent this year. SG&A expense for the quarter totaled $637 million, down $40 million versus a year ago. Last year’s second quarter SG&A included $19 million of merger-related costs associated with the integration of Pillsbury (consulting, system conversions, relocation, training and communications). Excluding these costs, this year’s second quarter SG&A expense is $21 million lower than last year. The primary factor for this decrease is lower media expense for the period.

Second-quarter results for fiscal 2005 included restructuring and other exit costs, described in Note Two above. In the second quarter of fiscal 2005, we recorded restructuring and other exit costs of $3 million associated with restructuring actions previously announced. These initiatives are expected to contribute future productivity savings as we increase asset utilization and reduce manufacturing and sourcing costs.

Interest expense for the quarter totaled $125 million, slightly lower than last year’s second quarter amount of $127 million, due to lower debt levels. The effective tax rate was 33 percent for the second quarter compared to 35 percent in the second quarter of fiscal 2004. The lower rate was driven by a $9 million reduction in taxes due primarily to the resolution of certain tax issues for which liabilities had previously been established.