General Mills (GIS)

FINANCIAL CONDITION

During the first thirty-nine weeks of fiscal 2006, we repurchased 17 million shares of common stock for an aggregate purchase price of $806 million. During the first thirty-nine weeks of fiscal 2005, we repurchased 17 million shares of common stock for an aggregate purchase price of $766 million.

During the first thirty-nine weeks of fiscal 2006, operating activities provided cash of $1.20 billion. This compares to cash provided by operations in the first thirty-nine weeks of fiscal 2005 of $988 million. This $208 million improvement was due primarily to a lower build of working capital in fiscal 2006 compared to fiscal 2005, and the increase in net earnings of $88 million. In the first thirty-nine weeks of fiscal 2006, current assets and liabilities included in cash flows from operations increased by $26 million compared to an increase of $170 million in fiscal 2005, a year-over-year cash flow improvement of $144 million. Seasonal increases in receivables were comparable in both years. Seasonal increases in inventories were higher in fiscal 2006 than in fiscal 2005, including new product inventories. Accounts payable remained flat in fiscal 2006, as higher marketing-related payables offset decreases in payables related to materials and manufacturing activities. This compares to a $179 million reduction in accounts payable in fiscal 2005. Other current liabilities increased in fiscal 2006, driven by a $30 million increase in accrued interest and increased accruals for employee compensation and benefits, compared to remaining relatively flat in fiscal 2005.

During the first thirty-nine weeks of fiscal 2006, investments for land, buildings and equipment and intangibles totaled $191 million. We expect to spend no more than $375 million for capital projects in fiscal 2006, primarily for fixed assets to support future growth and increase supply chain productivity.

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Our total debt balances were as follows:

Our notes payable increased from May 29, 2005 to February 26, 2006, primarily as a result of our repurchase of our zero coupon convertible debentures. We have reclassified the remaining zero coupon convertible debentures to long-term debt based on the put rights of the holders.

On October 28, 2005, we repurchased a significant portion of our zero coupon convertible debentures pursuant to the rights of the holders for an aggregate purchase price of $1.33 billion, including $77 million of accreted original issue discount. These debentures had an aggregate principal amount at maturity of $1.86 billion. There was no gain or loss to us associated with this repurchase. As of February 26, 2006, there were $371 million in aggregate principal amount at maturity of the debentures outstanding, or $266 million of current accreted value. We used the proceeds from the issuance of commercial paper to fund the purchase price of the debentures. We also have reclassified the remaining zero coupon convertible debentures to long-term debt based on the put rights of the holders.

On December 12, 2005, we completed a consent solicitation and entered into a supplemental indenture related to our zero coupon convertible debentures. We also made an irrevocable election: (i) to satisfy all future obligations to repurchase debentures solely in cash and (ii) to satisfy all future conversions of debentures (a) solely in cash up to an amount equal to the accreted value of the debentures and (b) at our discretion, in cash, stock or a combination of cash and stock to the extent the conversion value of the debentures exceeds the accreted value. As a result of these actions, no shares of common stock underlying the debentures were considered outstanding after December 12, 2005, for purposes of calculating our diluted earnings per share.

Commercial paper is a continuing source of short-term financing. We issue commercial paper in the United States, Canada and Europe. Our commercial paper borrowings are supported by a total of $2.95 billion of fee-paid committed credit lines. On October 21, 2005, we entered into a new $1.1 billion 364-day credit facility expiring in October 2006 and a new $1.1 billion five-year credit facility expiring in October 2010. These new facilities replaced our $1.1 billion credit facility that would have expired in January 2006 and our $750 million credit facility that would have expired in April 2006. We also have a $750 million five-year credit facility that will expire in January 2009. Our credit facilities support our commercial paper borrowings. As of February 26, 2006, we had no outstanding borrowings under these facilities.

We also have an effective universal shelf registration statement covering the sale of up to $5.1 billion of debt securities, common stock, preference stock, depository shares, securities warrants, purchase contracts and units.

We have $2.0 billion of long-term debt maturing in the next 12 months. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.

The series B-1 preferred membership interests in General Mills Cereals, LLC (GMC), are required to be exchanged for shares of our perpetual preferred stock upon the occurrence of certain events, including a decrease in our long-term debt rating below either Ba3 as rated by Moody’s or BB- as rated by Standard & Poor’s or Fitch, Inc., or a failure to pay a quarterly dividend on our common stock. In addition, if GMC fails to make required distributions to the holders of the B-1 interests, we will be restricted from paying any dividends (other than dividends in the form of shares of common stock) or other distributions on shares of our common stock and may not repurchase or redeem shares of our common stock until such distributions are paid. Our cash and cash equivalents include $11 million in GMC and $104 million in General Mills Capital, Inc., that are restricted from use for our general corporate purposes pursuant to the terms of our agreements with third-party minority interest investors.

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There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance-sheet arrangements during the thirty-nine week period ended February 26, 2006.

On December 12, 2005, we announced that our Board of Directors approved an increase in our quarterly dividend to 34 cents per share, payable on February 1, 2006, to shareholders of record January 10, 2006. The previous quarterly dividend rate of 33 cents per share was established with the August 1, 2005 payment. During the first thirty-nine weeks of fiscal 2006, we paid $363 million in dividends compared to $346 million in the same period last year.

FINANCIAL CONDITION

During the first half of fiscal 2006, we repurchased 16 million shares of common stock for an aggregate purchase price of $752 million. During the first half of fiscal 2005, we repurchased 17 million shares of common stock for an aggregate purchase price of $759 million.

During the first twenty-six weeks of fiscal 2006, operating activities provided cash of $763 million. This compares to cash provided by operations in the first twenty-six weeks of fiscal 2005 of $523 million. This $240 million improvement was due primarily to a lower build of working capital in fiscal 2006 compared to fiscal 2005, and the increase in net earnings of $72 million. In the first twenty-six weeks of fiscal 2006, working capital increased by $77 million compared to an increase of $271 million in fiscal 2005, a year-over-year improvement of $194 million. Seasonal increases in receivables and inventories were partially offset by increases in accounts payable (primarily marketing-related) and other current liabilities, primarily related to the timing of tax payments.

During the first twenty-six weeks of fiscal 2006, investments for land, buildings and equipment and intangibles totaled $113 million. We expect to spend approximately $400 million for capital projects in fiscal 2006, primarily for fixed assets to support future growth and increase supply chain productivity.

On October 28, 2005, we repurchased our zero coupon convertible debentures pursuant to the rights of the holders for an aggregate purchase price of $1.33 billion, including $77 million of accreted original issue discount. These debentures had an aggregate principal amount at maturity of $1.86 billion. There was no gain or loss to us associated with this repurchase. Following this repurchase, there are $371 million in aggregate principal amount at maturity of the debentures, or $265 million of current accreted value, still outstanding. We used the proceeds from the issuance of commercial paper to fund the purchase price of the debentures. We also have reclassified the remaining zero coupon convertible debentures to long-term debt based on the put rights of the holders.

In December 2005 we completed a consent solicitation and entered into a supplemental indenture related to our zero coupon convertible debentures. We also made an irrevocable election: (i) to satisfy all future obligations to repurchase debentures solely in cash and (ii) to satisfy all future conversions of debentures (a) solely in cash up to an amount equal to the accreted value of the debentures and (b) at our discretion, in cash, stock or a combination of cash and stock to the extent the conversion value of the debentures exceeds the accreted value. As a result of these actions, no shares of common stock underlying the debentures are considered outstanding after December 12, 2005, for purposes of calculating our diluted earnings per share.

Commercial paper is a continuing source of short-term financing. We issue commercial paper in the United States, Canada and Europe. Our commercial paper borrowings are supported by a total of $2.95 billion of fee-paid committed credit lines. On October 21, 2005, we entered into a new $1.1 billion 364-day credit facility expiring in October 2006 and a new $1.1 billion five-year credit facility expiring in October 2010. These new facilities replaced our $1.1 billion credit facility that would have expired in January 2006 and our $750 million credit facility that would have expired in April 2006. We also have a $750 million five-year credit facility that will expire in January 2009. As of November 27, 2005, we had no outstanding borrowings under these facilities.

We also have an effective universal shelf registration statement covering the sale of up to $5.1 billion of debt securities, common stock, preference stock, depository shares, securities warrants, purchase contracts and units.

We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months.

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Our total debt balances were as follows:

Our notes payable increased since our fiscal year-end primarily as a result of our repurchase of our zero coupon convertible debentures, and our share repurchases earlier this year. We have reclassified the remaining zero coupon convertible debentures to long-term debt based on the put rights of the holders.

The series B-1 preferred membership interests in General Mills Cereals, LLC (GMC), are required to be exchanged for shares of our perpetual preferred stock upon the occurrence of certain events, including a decrease in our long-term debt rating below either Ba3 as rated by Moody’s or BB- as rated by Standard & Poor’s or Fitch, Inc., or a failure to pay a quarterly dividend on our common stock. In addition, if GMC fails to make required distributions to the holders of the B-1 interests, we will be restricted from paying any dividends (other than dividends in the form of shares of common stock) or other distributions on shares of our common stock, and may not repurchase or redeem shares of our common stock, until such distributions are paid. Our cash and cash equivalents include $11 million in GMC and $104 million in General Mills Capital, Inc. that are restricted from use for our general corporate purposes pursuant to the terms of our agreements with third-party minority interest investors.

There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance-sheet arrangements during the twenty-six week period ending November 27, 2005.

On December 12, 2005, we announced that our Board of Directors approved an increase in our quarterly dividend to 34 cents per share, payable on February 1, 2006, to shareholders of record January 10, 2006. The previous quarterly dividend rate of 33 cents per share was established with the August 1, 2005 payment. During the first twenty-six weeks of fiscal 2006, we paid $241 million in dividends.

FINANCIAL CONDITION

During the first half of fiscal 2005, operating activities provided cash of $523 million. This compares to cash provided by operations in the first half of fiscal 2004 of $250 million. This $273 million improvement was due primarily to a reduction in the use of working capital year over year of $279 million.

During the first half of fiscal 2005, investments for land, buildings and equipment and intangibles totaled $153 million. The Company expects to spend approximately $450-500 million for capital projects in fiscal 2005, primarily for fixed assets to support further growth and increase supply chain productivity.

On June 23, 2004, we filed a Universal Shelf Registration Statement with the Securities and Exchange Commission covering the potential sale of up to $5.9 billion of debt securities, common stock, preference stock, depository shares, securities warrants, purchase contracts, purchase units and units. As of November 28, 2004, approximately $5.2 billion remained available under the shelf registration statement for future issuances.

Commercial paper is a continuing source of short-term financing. We issue commercial paper in the United States and Canada, as well as in Europe. Our commercial paper borrowings are supported by $1.85 billion in fee-paid committed credit lines, consisting of a $1.1 billion multi-year facility expiring in January 2006, and a $750 million facility expiring in January 2009. As of November 28, 2004, the Company had no outstanding borrowings under these facilities.

We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs.

There were no material changes outside the ordinary course of our business in our contractual obligations during the first twenty-six weeks of fiscal 2005.