General Mills (GIS)

(14)   New Accounting Standards

In the quarter ended November 27, 2005, we adopted SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29.” SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. The adoption of SFAS 153 did not have any impact on our results of operations or financial condition.

(13)   New Accounting Standards

In the quarter ended November 27, 2005, we adopted SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29.” SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. The adoption of SFAS 153 did not have any impact on our results of operations or financial condition.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(10)   New Accounting Standards

The Financial Accounting Standards Board (FASB) ratified on October 13, 2004, the Emerging Issues Task Force Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8). EITF 04-8 was effective for us in the third quarter of fiscal 2005. See Note Five - Earnings Per Share for discussion and impact on diluted shares and diluted earnings per share.

In addition, the FASB issued SFAS No. 123(R), “Share-Based Payment” in December 2004, which will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values and recognized over the vesting period. SFAS No. 123(R) will become effective for us in the second quarter of fiscal 2006. An illustration of the impact on the Company from using a Black-Scholes methodology is presented in the “Stock-based Compensation Expense for Stock Options” section of Note One. The Company has not yet determined whether it will use Black-Scholes in its final adoption of SFAS 123(R).

(9)   New Accounting Standards

The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) has published Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8). EITF 04-8 will be effective for General Mills in the third quarter of fiscal 2005. The adoption of EITF 04-8 will increase our diluted shares outstanding by 29 million shares to give effect to the contingent issuance of shares under our zero coupon convertible debentures issued in October 2002. Also, the net earnings used for earnings per share calculations will be adjusted, using the if-converted method. Restatement of previously issued financial statements is required, accordingly our diluted shares outstanding and earnings per share calculations for fiscal 2003, 2004 and 2005 will be restated to present comparable information.

If EITF 04-8 had been effective in our current quarter, the effect of these adjustments would be to reduce second quarter diluted earnings per share by approximately $0.05 for fiscal 2004 and 2005, to reduce first half diluted earnings per share by approximately $0.08 for fiscal 2004 and 2005, and to reduce annual diluted earnings per share by approximately $0.08 for fiscal 2003 and $0.15 for fiscal 2004.

When we issued these convertible debentures, we simultaneously purchased call options to purchase 29 million shares to directly offset the shares that are contingently issuable under the debentures. Under current accounting principles, the offsetting effect of these call options cannot be considered when determining the dilutive effect of the contingently issuable shares.

We can call these debentures as early as October 2005, and we have the option to pay the repurchase price in cash or in stock. Accordingly, the dilutive effect on earnings per share also could be affected by our ability to repurchase the debentures in fiscal 2006.