GIS 10-Q Quarterly Report Nov. 28, 2010

GENERAL MILLS INC

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10-Q 1 c61873e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED November 28, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______

Commission file number: 001-01185

GENERAL MILLS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		41-0274440 (I.R.S. Employer Identification No.)

Number One General Mills Boulevard Minneapolis, Minnesota (Address of principal executive offices)		55426 (Zip Code)

(763) 764-7600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x	Accelerated filer	o
Non-accelerated o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

Number of shares of Common Stock outstanding as of December 10, 2010: 635,811,716 (excluding 118,801,612 shares held in the treasury).

General Mills, Inc.

Table of Contents


		Page
PART I – Financial Information

Item 1.	Financial Statements
	Consolidated Statements of Earnings for the quarterly and six-month periods ended November 28, 2010, and November 29, 2009		3
	Consolidated Balance Sheets as of November 28, 2010, and May 30, 2010		4
	Consolidated Statements of Total Equity and Comprehensive Income for the six-month period ended November 28, 2010, and the fiscal year ended May 30, 2010		5
	Consolidated Statements of Cash Flows for the six-month periods ended November 28, 2010, and November 29, 2009		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35

Item 4.	Controls and Procedures		35

PART II – Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 6.	Exhibits		37

Signatures			38
EX-10.1
EX-10.4
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Financial Statements

Consolidated Statements of Earnings
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)


					Six-Month
	Quarter Ended				Period Ended
	Nov. 28,		Nov. 29,		Nov. 28,		Nov. 29,
	2010		2009		2010		2009
Net sales	$	4,066.6	$	4,034.7	$	7,599.7	$	7,517.1

Cost of sales		2,432.6		2,306.4		4,441.4		4,348.0

Selling, general, and administrative expenses		810.1		824.7		1,573.0		1,573.4

Restructuring, impairment, and other exit costs		1.0		24.9		2.0		24.1


Operating profit		822.9		878.7		1,583.3		1,571.6

Interest, net		81.6		88.5		171.9		180.4


Earnings before income taxes and after-tax earnings from joint ventures		741.3		790.2		1,411.4		1,391.2

Income taxes		160.7		261.6		383.7		464.8

After-tax earnings from joint ventures		34.7		38.2		61.2		62.4


Net earnings, including earnings attributable to noncontrolling interests		615.3		566.8		1,088.9		988.8

Net earnings attributable to noncontrolling interests		1.4		1.3		2.9		2.7


Net earnings attributable to General Mills	$	613.9	$	565.5	$	1,086.0	$	986.1


Earnings per share - basic	$	0.96	$	0.86	$	1.68	$	1.50


Earnings per share - diluted	$	0.92	$	0.83	$	1.63	$	1.46


Dividends per share	$	0.28	$	0.23	$	0.56	$	0.47

See accompanying notes to consolidated financial statements.

Consolidated Balance Sheets
GENERAL MILLS, INC. AND SUBSIDIARIES
(In Millions, Except Par Value)


	Nov. 28,			May 30,
	2010			2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	566.3		$	673.2
Receivables		1,299.1			1,041.6
Inventories		1,706.0			1,344.0
Deferred income taxes		28.5			42.7
Prepaid expenses and other current assets		416.7			378.5


Total current assets		4,016.6			3,480.0

Land, buildings, and equipment		3,146.1			3,127.7
Goodwill		6,634.7			6,592.8
Other intangible assets		3,740.5			3,715.0
Other assets		840.6			763.4


Total assets	$	18,378.5		$	17,678.9


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	826.7		$	849.5
Current portion of long-term debt		11.7			107.3
Notes payable		1,169.9			1,050.1
Other current liabilities		1,725.3			1,762.2


Total current liabilities		3,733.6			3,769.1

Long-term debt		5,864.1			5,268.5
Deferred income taxes		965.2			874.6
Other liabilities		1,930.8			2,118.7


Total liabilities		12,493.7			12,030.9


Stockholders’ equity:

Common stock, 754.6 shares issued, $0.10 par value		75.5			75.5
Additional paid-in capital		1,294.9			1,307.1
Retained earnings		8,842.1			8,122.4
Common stock in treasury, at cost, shares of 114.1 and 98.1		(3,299.5	)		(2,615.2	)
Accumulated other comprehensive loss		(1,273.4	)		(1,486.9	)


Total stockholders’ equity		5,639.6			5,402.9

Noncontrolling interests		245.2			245.1


Total equity		5,884.8			5,648.0


Total liabilities and equity	$	18,378.5		$	17,678.9

See accompanying notes to consolidated financial statements.

Consolidated Statements of Total Equity and Comprehensive Income
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions, Except per Share Data)



	$.10 Par Value Common Stock
	(One Billion Shares Authorized)
	Issued							Treasury
																	Accumulated
					Additional												Other
			Par		Paid-In									Retained			Comprehensive			Noncontrolling
	Shares		Amount		Capital			Shares			Amount			Earnings			Income (Loss)			Interests			Total

Balance as of May 31, 2009		754.6	$	75.5	$	1,212.1			(98.6	)	$	(2,473.1	)	$	7,235.6		$	(877.8	)	$	244.2		$	5,416.5
Comprehensive income:
Net earnings, including earnings attributable to noncontrolling interests															1,530.5						4.5			1,535.0
Other comprehensive income (loss)																		(609.1	)		0.2			(608.9	)

Total comprehensive income																								926.1
Cash dividends declared ($0.96 per share)															(643.7	)								(643.7	)
Stock compensation plans (includes income tax benefits of $114.0)						53.3			21.8			549.7												603.0
Shares purchased									(21.3	)		(691.8	)											(691.8	)
Unearned compensation related to restricted stock unit awards						(65.6	)																	(65.6	)
Distributions to noncontrolling interest holders																					(3.8	)		(3.8	)
Earned compensation						107.3																		107.3

Balance as of May 30, 2010		754.6		75.5		1,307.1			(98.1	)		(2,615.2	)		8,122.4			(1,486.9	)		245.1			5,648.0
Comprehensive income:
Net earnings, including earnings attributable to noncontrolling interests															1,086.0						2.9			1,088.9
Other comprehensive income																		213.5			0.3			213.8

Total comprehensive income																								1,302.7
Cash dividends declared ($0.56 per share)															(366.3	)								(366.3	)
Stock compensation plans (includes income tax benefits of $56.4)						7.8			10.2			279.3												287.1
Shares purchased									(26.2	)		(963.6	)											(963.6	)
Unearned compensation related to restricted stock awards						(79.7	)																	(79.7	)
Distributions to noncontrolling interest holders																					(3.1	)		(3.1	)
Earned compensation						59.7																		59.7

Balance as of Nov. 28, 2010		754.6	$	75.5	$	1,294.9			(114.1	)	$	(3,299.5	)	$	8,842.1		$	(1,273.4	)	$	245.2		$	5,884.8

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows
GENERAL MILLS, INC. AND SUBSIDIARIES
(Unaudited) (In Millions)


	Six-Month Period Ended
	Nov. 28,			Nov. 29,
	2010			2009
Cash Flows - Operating Activities
Net earnings, including earnings attributable to noncontrolling interests	$	1,088.9		$	988.8
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		230.2			227.9
After-tax earnings from joint ventures		(61.2	)		(62.4	)
Stock-based compensation		59.7			60.4
Deferred income taxes		78.5			25.3
Tax benefit on exercised options		(56.4	)		(46.6	)
Distributions of earnings from joint ventures		24.3			31.2
Pension and other postretirement benefit plan contributions		(5.9	)		(5.3	)
Pension and other postretirement benefit plan expense (income)		36.7			(4.4	)
Restructuring, impairment, and other exit costs (income)		(1.4	)		18.9
Changes in current assets and liabilities		(736.4	)		(269.1	)
Other, net		(57.5	)		22.4


Net cash provided by operating activities		599.5			987.1


Cash Flows - Investing Activities
Purchases of land, buildings, and equipment		(284.3	)		(257.5	)
Investments in affiliates, net		(1.9	)		—
Proceeds from disposal of land, buildings, and equipment		7.2			6.6
Other, net		12.6			35.8


Net cash used by investing activities		(266.4	)		(215.1	)


Cash Flows - Financing Activities
Change in notes payable		117.8			(375.3	)
Issuance of long-term debt		500.0			—
Payment of long-term debt		(3.6	)		(3.2	)
Proceeds from common stock issued on exercised options		185.1			189.1
Tax benefit on exercised options		56.4			46.6
Purchases of common stock for treasury		(963.6	)		(235.4	)
Dividends paid		(366.3	)		(312.9	)
Other, net		(8.5	)		—


Net cash used by financing activities		(482.7	)		(691.1	)


Effect of exchange rate changes on cash and cash equivalents		42.7			27.7

Increase (decrease) in cash and cash equivalents		(106.9	)		108.6
Cash and cash equivalents - beginning of year		673.2			749.8


Cash and cash equivalents - end of period	$	566.3		$	858.4


Cash Flow from Changes in Current Assets and Liabilities:
Receivables	$	(235.3	)	$	(241.6	)
Inventories		(348.0	)		(270.2	)
Prepaid expenses and other current assets		(33.2	)		19.8
Accounts payable		16.8			(33.2	)
Other current liabilities		(136.7	)		256.1


Changes in current assets and liabilities	$	(736.4	)	$	(269.1	)

See accompanying notes to consolidated financial statements.

GENERAL MILLS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Background

The accompanying Consolidated Financial Statements of General Mills, Inc. (we, us, our, General Mills, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the quarterly and six-month periods ended November 28, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending May 29, 2011.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2010. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 2 to the Consolidated Financial Statements in that Form 10-K, except as discussed in Notes 2, 17, and 18 to these Consolidated Financial Statements.

(2) Basis of Presentation and Reclassification

At the beginning of fiscal 2011, we revised the classification of certain revenues and expenses to better align our income statement line items with how we manage our business. We revised the classification of amounts previously reported in our Consolidated Statements of Earnings to conform to the current year presentation. These revised classifications had no effect on previously reported net earnings attributable to General Mills or earnings per share. The changes include:

• Revising the classification of certain customer logistics allowances as a reduction of net sales (previously recorded as cost of sales). The impact of this change was a decrease in net sales of $43.5 million for the quarter ended and $79.9 million for the six-month period ended November 29, 2009 with a corresponding decrease to cost of sales.

• Revising the classification of certain promotion-related costs, customer allowances, and supply chain costs as cost of sales or selling, general, and administrative (SG&A) expenses (previously recorded as a reduction of net sales or SG&A expenses). The impact of these changes was a net increase to cost of sales of $17.8 million for the quarter ended and $35.7 million for the six-month period ended November 29, 2009 with a corresponding decrease to SG&A expenses.

• Shifting allocation of certain SG&A expenses, primarily stock-based compensation, between segment operating profit and unallocated corporate items. The impact of this change was a decrease to segment operating profit of $3.5 million for the quarter ended and $8.7 million for the six-month period ended November 29, 2009 with a corresponding decrease in unallocated corporate items.

• Shifting sales responsibility for a customer from our Bakeries and Foodservice segment to our U.S. Retail segment. For the quarter ended November 29, 2009, net sales of $2.5 million and segment operating profit of $1.1 million previously recorded in our Bakeries and Foodservice segment have now been reported in the U.S. Retail segment. For the six-month period ended November 29, 2009, net sales of $5.2 million and segment operating profit of $2.2 million previously recorded in our Bakeries and Foodservice segment have now been reported in the U.S. Retail segment.

In May 2010, our Board of Directors approved a two-for-one stock split to be effected in the form of a 100 percent stock dividend to stockholders of record on May 28, 2010. The Company’s stockholders received one additional share of common stock for each share of common stock in their possession on that date. The additional shares were distributed on June 8, 2010. This did not change the proportionate interest that a stockholder maintained in the Company. All shares and per share amounts have been adjusted for the two-for-one stock split throughout this report.

(3) Acquisitions and Divestitures

During the second quarter of fiscal 2011 we reached a definitive agreement to purchase the Mountain High yogurt business for $85.0 million in cash subject to a purchase price adjustment related to inventory levels. We expect the transaction to be completed in the third quarter of fiscal 2011.

During the second quarter of fiscal 2011 we reached a definitive agreement to sell a foodservice frozen baked goods product line in our International segment for $24.6 million in cash subject to a purchase price adjustment related to inventory levels. We expect the transaction to be completed and to record an after-tax gain of approximately $13 million during the third quarter of fiscal 2011. As of November 28, 2010, $4.4 million of land, buildings and equipment associated with this product line were considered held-for-sale.

(4) Restructuring, Impairment, and Other Exit Costs

Restructuring, impairment, and other exit costs (income) were as follows:


					Six-Month
	Quarter Ended				Period Ended
	Nov. 28,		Nov. 29,		Nov. 28,		Nov. 29,
In Millions	2010		2009		2010		2009

Discontinuation of kids’ refrigerated yogurt beverage and microwave soup product lines	$	0.9	$	24.1	$	1.8	$	24.1
Sale of Contagem, Brazil bread and pasta plant		—		0.2		—		(0.8	)
Charges associated with restructuring actions previously announced		0.1		0.6		0.2		0.8

Total	$	1.0	$	24.9	$	2.0	$	24.1

In the second quarter of fiscal 2011, we did not undertake any new restructuring actions. During the second quarter of fiscal 2010, we decided to exit our kids’ refrigerated yogurt beverage product line at our Murfreesboro, Tennessee plant and our microwave soup product line at our Vineland, New Jersey plant to rationalize capacity for more profitable items. Our decisions to exit these U.S. Retail segment products resulted in a $24.1 million non-cash charge against the related long-lived assets. No employees were affected by these actions. During the six-month period ended November 29, 2009, we also recorded a net gain of $0.8 million related to the closure and sale of our Contagem, Brazil bread and pasta plant.

(5) Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during fiscal 2011 were as follows:


					Bakeries and		Joint
In Millions	U.S. Retail		International		Foodservice		Ventures		Total

Balance as of May 30, 2010	$	5,098.3	$	122.0	$	923.0	$	449.5	$	6,592.8
Other activity, primarily foreign currency translation		—		6.6		—		35.3		41.9

Balance as of Nov. 28, 2010	$	5,098.3	$	128.6	$	923.0	$	484.8	$	6,634.7

The changes in the carrying amount of other intangible assets during fiscal 2011 were as follows:


						Joint
In Millions	U.S. Retail			International		Ventures		Total

Balance as of May 30, 2010	$	3,206.6		$	445.3	$	63.1	$	3,715.0
Other activity, primarily foreign currency translation		(1.6	)		26.8		0.3		25.5

Balance as of Nov. 28, 2010	$	3,205.0		$	472.1	$	63.4	$	3,740.5

(6) Inventories

The components of inventories were as follows:


	Nov. 28,			May 30,
In Millions	2010			2010

Raw materials and packaging	$	293.7		$	247.5
Finished goods		1,351.2			1,131.4
Grain		214.0			107.4
Excess of FIFO or weighted-average cost over LIFO cost		(152.9	)		(142.3	)

Total	$	1,706.0		$	1,344.0

(7) Financial Instruments, Risk Management Activities, and Fair Values

Financial Instruments. The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of November 28, 2010, and May 30, 2010, a comparison of cost and market values of our marketable debt and equity securities is as follows:


	Cost				Market Value				Gross Gains				Gross Losses
	Nov. 28,		May 30,		Nov. 28,		May 30,		Nov. 28,		May 30,		Nov. 28,		May 30,
In Millions	2010		2010		2010		2010		2010		2010		2010		2010

Available for sale:
Debt securities	$	11.5	$	11.8	$	11.6	$	11.9	$	0.2	$	0.1	$	—	$	—
Equity securities		6.5		6.1		14.0		15.5		7.5		9.4		0.1		—

Total	$	18.0	$	17.9	$	25.6	$	27.4	$	7.7	$	9.5	$	0.1	$	—

Earnings include insignificant realized gains from sales of available-for-sale marketable securities. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period, the security’s maturity date, or both. The aggregate unrealized gains and losses on available-for-sale securities, net of tax effects, are classified in accumulated other comprehensive income (loss) (AOCI) within stockholders’ equity. Scheduled maturities of our marketable securities are as follows:


	Available for Sale
			Market
In Millions	Cost		Value

Under 1 year (current)	$	5.2	$	5.2
From 1 to 3 years		0.4		0.4
From 4 to 7 years		4.8		4.8
Over 7 years		1.1		1.2
Equity securities		6.5		14.0

Total	$	18.0	$	25.6

Marketable securities with a market value of $2.3 million as of November 28, 2010, were pledged as collateral for certain derivative contracts.

The fair values and carrying amounts of long-term debt, including the current portion, were $6,535.2 million and $5,875.8 million, respectively, as of November 28, 2010. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments.

Risk Management Activities. As a part of our ongoing operations, we are exposed to market risks such as changes in interest rates, foreign currency exchange rates, and commodity prices. To manage these risks, we may enter into various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies.

Commodity Price Risk. Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close to our planned cost as possible.

We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings.

Although we do not meet the criteria for cash flow hedge accounting, we nonetheless believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items.

Unallocated corporate items for the quarterly and six-month periods ended November 28, 2010, and November 29, 2009, included:


						Six-Month
	Quarter Ended					Period Ended
	Nov. 28,			Nov. 29,		Nov. 28,			Nov. 29,
In Millions	2010			2009		2010			2009

Net gain (loss) on mark-to-market valuation of commodity positions	$	49.7		$	17.5	$	89.8		$	(11.2	)
Net (gain) loss on commodity positions reclassified from unallocated corporate items to segment operating profit		(20.3	)		34.1		(13.1	)		60.6
Net mark-to-market revaluation of certain grain inventories		(1.4	)		15.8		23.2			3.2

Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items	$	28.0		$	67.4	$	99.9		$	52.6

As of November 28, 2010, the net notional value of commodity derivatives was $344.5 million, primarily related to agricultural inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

Interest Rate Risk. We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, LIBOR, and commercial paper rates in the United States and Europe. We use interest rate swaps and forward-starting interest rate swaps to hedge our exposure to interest rate changes, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount.

Floating Interest Rate Exposures — Except as discussed below, floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million as of November 28, 2010.

Fixed Interest Rate Exposures — Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. Ineffective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was $1.2 million as of November 28, 2010.

During the fourth quarter of fiscal 2010, in advance of a planned debt financing, we entered into $500 million of treasury lock derivatives with an average fixed rate of 4.3 percent. All of these treasury locks were cash settled for $17.1 million coincident with the issuance of our $500 million 30-year fixed-rate notes, which settled during the first quarter of fiscal 2011. As of November 28, 2010, a $16.5 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

During the second quarter of fiscal 2010 we entered into $700.0 million of interest rate swaps to convert $700.0 million of 5.65 percent fixed-rate notes to floating rates. In May 2010, we repurchased $179.2 million of our 5.65 percent notes, and as a result, we received $2.7 million to settle a portion of these swaps that related to the repurchased debt.

In anticipation of our acquisition of The Pillsbury Company (Pillsbury) and other financing needs, we entered into pay-fixed interest rate swap contracts during fiscal 2001 and 2002 totaling $7.1 billion to lock in our interest payments on the associated debt. As of November 28, 2010, we still owned $1.6 billion of Pillsbury-related pay-fixed swaps that were previously neutralized with offsetting pay-floating swaps in fiscal 2002.

In advance of a planned debt financing in fiscal 2007, we entered into $700.0 million pay-fixed, forward-starting interest rate swaps with an average fixed rate of 5.7 percent. All of these forward-starting interest rate swaps were cash settled for $22.5 million coincident with our $1.0 billion 10-year fixed-rate note offering on January 24, 2007. As of November 28, 2010, a $13.8 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

The following table summarizes the notional amounts and weighted-average interest rates of our interest rate swaps. As discussed above, we have neutralized all of our Pillsbury-related pay-fixed swaps with pay-floating swaps; however, we cannot present them on a net basis in the following table because the offsetting occurred with different counterparties. Average floating rates are based on rates as of the end of the reporting period.


	Nov. 28,			May 30,
In Millions	2010			2010

Pay-floating swaps - notional amount	$	2,146.6		$	2,155.6
Average receive rate		4.8	%		4.8	%
Average pay rate		0.3	%		0.3	%
Pay-fixed swaps - notional amount	$	1,600.0		$	1,600.0
Average receive rate		0.3	%		0.3	%
Average pay rate		7.3	%		7.3	%

The swap contracts mature at various dates from fiscal 2011 to 2013 as follows:


In Millions	Pay Floating		Pay Fixed

2011	$	8.7	$	—
2012		1,603.3		850.0
2013		534.6		750.0

Total	$	2,146.6	$	1,600.0

Foreign Exchange Risk. Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to foreign-dominated commercial paper, third party purchases, intercompany loans, and product shipments. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, and Mexican peso. We mainly use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our foreign-dominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency; the gains or losses on these derivatives offset the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months forward.

The amount of hedge ineffectiveness was less than $1 million as of November 28, 2010.

We also have many net investments in foreign subsidiaries that are denominated in euros. We hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. As of November 28, 2010, we had deferred net foreign currency transaction losses of $95.7 million in AOCI associated with hedging activity.

Fair Value Measurements and Financial Statement Presentation

We categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:


Level 1:		Unadjusted quoted prices in active markets for identical assets or liabilities.


Level 2:		Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3:		Unobservable inputs reflecting management’s assumptions about the inputs used in pricing the asset or liability.

The fair values of our assets, liabilities, and derivative positions recorded at fair value as of November 28, 2010, were as follows:


	Fair Values of Assets								Fair Values of Liabilities
In Millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2			Level 3		Total

Derivatives designated as hedging instruments:
Interest rate contracts (a) (b)	$	—	$	11.1	$	—	$	11.1	$	—	$	—		$	—	$	—
Foreign exchange contracts (c) (d)		—		3.6		—		3.6		—		(8.2	)		—		(8.2	)

Total		—		14.7		—		14.7		—		(8.2	)		—		(8.2	)


Derivatives not designated as hedging instruments:
Interest rate contracts (a) (b)		—		102.9		—		102.9		—		(130.9	)		—		(130.9	)
Foreign exchange contracts (c) (d)		—		23.2		—		23.2		—		(1.3	)		—		(1.3	)
Commodity contracts (c) (e)		3.5		14.9		—		18.4		—		(1.7	)		—		(1.7	)

Total		3.5		141.0		—		144.5		—		(133.9	)		—		(133.9	)


Other assets and liabilities reported at fair value:
Marketable investments (a) (f)		14.0		11.6		—		25.6		—		—			—		—
Grain contracts (c) (e)		—		38.1		—		38.1		—		(19.9	)		—		(19.9	)

Total		14.0		49.7		—		63.7		—		(19.9	)		—		(19.9	)

Total assets, liabilities, and derivative positions recorded at fair value	$	17.5	$	205.4	$	—	$	222.9	$	—	$	(162.0	)	$	—	$	(162.0	)


(a)		These contracts and investments are recorded as other assets or as other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents.

(b)		Based on LIBOR and swap rates.

(c)		These contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position.

(d)		Based on observable market transactions of spot currency rates and forward currency prices.

(e)		Based on prices of futures exchanges and recently reported transactions in the marketplace.

(f)		Based on prices of common stock and bond matrix pricing.

We did not significantly change our valuation techniques from prior periods.

Information related to our cash flow hedges, net investment hedges, and other derivatives not designated as hedging instruments for the quarterly and six-month periods ended November 28, 2010 and November 29, 2009, were as follows:


	Interest Rate						Foreign Exchange										Commodity
	Contracts						Contracts						Equity Contracts				Contracts					Total
	Quarter Ended						Quarter Ended						Quarter Ended				Quarter Ended					Quarter Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,			Nov. 28,		Nov. 29,		Nov. 28,		Nov. 29,			Nov. 28,			Nov. 29,
In Millions	2010			2009			2010			2009			2010		2009		2010		2009			2010			2009

Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)	$	—		$	2.6		$	—		$	(6.6	)	$	—	$	—	$	—	$	—		$	—		$	(4.0	)
Amount of loss reclassified from AOCI into earnings (a) (b)		(3.3	)		(3.8	)		(3.9	)		(2.5	)		—		—		—		—			(7.2	)		(6.3	)
Amount of gain recognized in earnings (c) (d)		—			—			—			(0.1	)		—		—		—		—			—			(0.1	)

Derivatives in Fair Value Hedging Relationships:
Amount of net gain recognized in earnings (e)		1.2			1.8			—			—			—		—		—		—			1.2			1.8

Derivatives Not Designated as Hedging Instruments:
Amount of gain recognized in earnings (e)		3.3			1.5			17.0			—			—		—		49.7		17.5			70.0			19.0


	Interest Rate						Foreign Exchange										Commodity
	Contracts						Contracts						Equity Contracts				Contracts					Total
	Six-Month						Six-Month						Six-Month				Six-Month					Six-Month
	Period Ended						Period Ended						Period Ended				Period Ended					Period Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,			Nov. 28,		Nov. 29,		Nov. 28,		Nov. 29,			Nov. 28,			Nov. 29,
In Millions	2010			2009			2010			2009			2010		2009		2010		2009			2010			2009

Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)	$	—		$	3.0		$	(7.4	)	$	(8.6	)	$	—	$	—	$	—	$	—		$	(7.4	)	$	(5.6	)
Amount of gain (loss) reclassified from AOCI into earnings (a) (b)		(6.6	)		(7.6	)		(9.5	)		0.8			—		—		—		—			(16.1	)		(6.8	)
Amount of (gain) loss recognized in earnings (c) (d)		—			—			0.3			(0.3	)		—		—		—		—			0.3			(0.3	)

Derivatives in Fair Value Hedging Relationships:
Amount of net gain recognized in earnings (e)		1.2			1.8			—			—			—		—		—		—			1.2			1.8

Derivatives Not Designated as Hedging Instruments:
Amount of gain (loss) recognized in earnings (e)		(0.9	)		4.0			13.4			—			—		0.1		89.8		(11.2	)		102.3			(7.1	)


(a)		Effective portion.

(b)		Gain (loss) reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.


(c)		All gain (loss) recognized in earnings is related to the ineffective portion of the hedging relationship. No amounts were reported as a result of being excluded from the assessment of hedge effectiveness.

(d)		Loss recognized in earnings is reported in SG&A expenses for foreign exchange contracts.

(e)		Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts.

Amounts Recorded in Accumulated Other Comprehensive Loss. Unrealized losses from interest rate cash flow hedges recorded in AOCI as of November 28, 2010, totaled $21.0 million after tax. These deferred losses are primarily related to interest rate swaps we entered into in contemplation of future borrowings and other financing requirements and are being reclassified into net interest over the lives of the hedged forecasted transactions. Unrealized losses from foreign currency cash flow hedges recorded in AOCI as of November 28, 2010, were $3.0 million after-tax. The net amount of pre-tax gains and losses in AOCI as of November 28, 2010, that we expect to be reclassified into net earnings within the next 12 months is $10.9 million of expense.

Credit-Risk-Related Contingent Features. Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on November 28, 2010, was $0.8 million. We would be required to post this amount of collateral to the counterparties if the contingent features were triggered.

Counterparty Credit Risk. We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges.

The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is $73.1 million against which we hold $22.7 million of collateral. Under the terms of master swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults.

(8) Debt

The components of notes payable were as follows:


	Nov. 28,		May 30,
In Millions	2010		2010

U.S. commercial paper	$	1,054.2	$	973.0
Euro commercial paper		0.3		—
Financial institutions		115.4		77.1

Total	$	1,169.9	$	1,050.1

To ensure availability of funds, we maintain bank credit lines sufficient to cover our outstanding short-term borrowings. Commercial paper is a continuing source of short-term financing. We issue commercial paper in the United States and Europe. Our commercial paper borrowings are supported by $2.9 billion of fee-paid committed credit lines, consisting of a $1.8 billion facility expiring in October 2012 and a $1.1 billion facility expiring in October 2013. We entered into the $1.1 billion three-year credit agreement in October 2010 to replace an expiring five-year credit agreement. As of November 28, 2010, we did not have any outstanding borrowings under these credit lines. We also have $293.1 million in uncommitted credit lines that support our foreign operations.

In June 2010, we issued $500.0 million aggregate principal amount of 5.4 percent notes due 2040. The proceeds of these notes were used to repay a portion of our outstanding commercial paper. Interest on these notes is payable semi-annually in arrears. These notes may be redeemed at our option at any time for a specified make whole amount. These notes are senior unsecured, unsubordinated obligations that include a change of control repurchase provision.

In May 2010, we paid $437.0 million to repurchase in a cash tender offer $400.0 million of our previously issued debt. We repurchased $220.8 million of our 6.0 percent notes due 2012 and $179.2 million of our 5.65 percent notes due 2012. We issued commercial paper to fund the repurchase.

Our credit facilities and certain of our long-term debt and noncontrolling interests agreements contain restrictive covenants. As of November 28, 2010, we were in compliance with all of these covenants.

(9) Stockholders’ Equity

The following table provides details of total comprehensive income:


	Quarter Ended									Quarter Ended
	Nov. 28, 2010									Nov. 29, 2009
In Millions	Pretax			Tax			Net			Pretax			Tax			Net

Net earnings attributable to General Mills							$	613.9								$	565.5
Net earnings attributable to noncontrolling interests								1.4									1.3

Net earnings, including earnings attributable to noncontrolling interests							$	615.3								$	566.8

Other comprehensive income (loss):
Foreign currency translation	$	94.0		$	—		$	94.0		$	111.1		$	—		$	111.1
Other fair value changes:
Securities		(0.1	)		0.1			—			(0.5	)		0.2			(0.3	)
Hedge derivatives		—			—			—			(4.0	)		1.2			(2.8	)
Reclassification to earnings:
Hedge derivatives		7.2			(0.5	)		6.7			6.3			(2.4	)		3.9
Amortization of losses and prior service costs		27.2			(10.4	)		16.8			4.9			(1.9	)		3.0

Other comprehensive income in accumulated other comprehensive loss		128.3			(10.8	)		117.5			117.8			(2.9	)		114.9
Other comprehensive income attributable to noncontrolling interests		(0.4	)		—			(0.4	)		—			—			—

Other comprehensive income	$	127.9		$	(10.8	)	$	117.1		$	117.8		$	(2.9	)	$	114.9

Total comprehensive income							$	732.4								$	681.7


	Six-Month Period Ended									Six-Month Period Ended
	Nov. 28, 2010									Nov. 29, 2009
In Millions	Pretax			Tax			Net			Pretax			Tax			Net

Net earnings attributable to General Mills							$	1,086.0								$	986.1
Net earnings attributable to noncontrolling interests								2.9									2.7

Net earnings, including earnings attributable to noncontrolling interests							$	1,088.9								$	988.8

Other comprehensive income (loss):
Foreign currency translation adjustments	$	176.1		$	—		$	176.1		$	149.7		$	—		$	149.7
Other fair value changes:
Securities		(2.1	)		0.8			(1.3	)		(0.2	)		0.1			(0.1	)
Hedge derivatives		(7.4	)		0.1			(7.3	)		(5.6	)		1.0			(4.6	)
Reclassification to earnings:
Hedge derivatives		16.1			(3.9	)		12.2			6.8			(2.6	)		4.2
Amortization of losses and prior service costs		54.5			(20.7	)		33.8			9.5			(3.7	)		5.8

Other comprehensive income in accumulated other comprehensive loss		237.2			(23.7	)		213.5			160.2			(5.2	)		155.0
Other comprehensive income attributable to noncontrolling interests		0.3			—			0.3			0.2			—			0.2

Other comprehensive income	$	237.5		$	(23.7	)	$	213.8		$	160.4		$	(5.2	)	$	155.2

Total comprehensive income							$	1,302.7								$	1,144.0

Except for reclassifications to earnings, changes in other comprehensive income (loss) are primarily non-cash items.

Accumulated other comprehensive loss balances, net of tax effects, were as follows:


	Nov. 28,			May 30,
In Millions	2010			2010

Foreign currency translation adjustments	$	371.0		$	194.9
Unrealized gain (loss) from:
Securities		4.3			5.6
Hedge derivatives		(24.0	)		(28.9	)
Pension, other postretirement, and postemployment benefits:
Net actuarial loss		(1,607.5	)		(1,611.0	)
Prior service costs		(17.2	)		(47.5	)

Accumulated other comprehensive loss	$	(1,273.4	)	$	(1,486.9	)

(10) Stock Plans

All shares and per share amounts have been adjusted for the two-for-one stock split on May 28, 2010.

We have various stock-based compensation programs under which awards, including stock options, restricted stock, and restricted stock units, may be granted to employees and non-employee directors. These programs and related accounting are described on pages 78 to 81 of our Annual Report on Form 10-K for the fiscal year ended May 30, 2010.

Compensation expense related to stock-based payments recognized in the Consolidated Statements of Earnings was as follows:

Six-Month

Quarter Ended

Period Ended

Nov. 28,

Nov. 29,

Nov. 28,

Nov. 29,

In Millions

2010

2009

2010

2009

Compensation expense related to stock-based payments

30.0

38.4

86.6

97.4

As of November 28, 2010, unrecognized compensation expense related to non-vested stock options and restricted stock units was $246.1 million. This expense will be recognized over 24 months, on average.

Net cash proceeds from the exercise of stock options less shares used for withholding taxes and the intrinsic value of options exercised were as follows:


	Six-Month
	Period Ended
	Nov. 28,		Nov. 29,
In Millions	2010		2009

Net cash proceeds	$	185.3	$	189.0
Intrinsic value of options exercised	$	134.0	$	118.8

We estimate the fair value of each option on the grant date using the Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, and dividend yield. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our method of selecting the other valuation assumptions is explained on page 79 in our Annual Report on Form 10-K for the fiscal year ended May 30, 2010.

The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:


	Six-Month Period Ended
	Nov. 28,			Nov. 29,
	2010			2009

Estimated fair values of stock options granted	$	4.12		$	$3.20
Assumptions:
Risk-free interest rate		2.9	%		3.7	%
Expected term	8.5 years			8.5 years
Expected volatility		18.5	%		18.9	%
Dividend yield		3.0	%		3.4	%

Information on stock option activity follows:


						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Options			Exercise		Contractual		Value
	(Thousands)			Price		Term (Years)		(Millions)

Balance as of May 30, 2010		81,104.6		$	25.17
Granted		5,233.0			37.38
Exercised		(8,830.7	)		21.72
Forfeited or expired		(70.0	)		31.30

Outstanding as of Nov. 28, 2010		77,436.9		$	26.38		4.79	$	687.9

Exercisable as of Nov. 28, 2010		49,022.1		$	23.71		3.03	$	559.9

Information on restricted stock unit activity follows:


	Equity Classified					Liability Classified
	Share-			Weighted-		Share-			Weighted-		Cash-Settled			Weighted-
	Settled			Average		Settled			Average		Share-Based			Average
	Units			Grant-Date		Units			Grant-Date		Units			Grant-Date
	(Thousands)			Fair Value		(Thousands)			Fair Value		(Thousands)			Fair Value

Non-vested as of May 30, 2010		10,209.8		$	28.49		424.3		$	28.64		3,703.7		$	29.65
Granted		2,245.8			37.32		111.4			37.40		1,219.2			37.40
Vested		(2,773.9	)		26.27		(71.5	)		28.99		(87.3	)		31.41
Forfeited		(167.9	)		30.52		(25.4	)		28.83		(163.9	)		31.54

Non-vested as of Nov. 28, 2010		9,513.8		$	31.18		438.8		$	30.80		4,671.7		$	31.57

The total grant-date fair value of restricted stock unit awards that vested in the six-month period ended November 28, 2010 was $77.7 million, and restricted stock units with a grant-date fair value of $18.2 million vested in the six-month period ended November 29, 2009.

(11) Earnings Per Share

Basic and diluted earnings per share (EPS) were calculated using the following:


					Six-Month
	Quarter Ended				Period Ended
	Nov. 28,		Nov. 29,		Nov. 28,		Nov. 29,
In Millions, Except per Share Data	2010		2009		2010		2009

Net earnings attributable to General Mills	$	613.9	$	565.5	$	1,086.0	$	986.1


Average number of common shares - basic EPS		642.1		657.4		644.7		655.2
Incremental share effect from: (a)
Stock options		17.1		18.0		17.4		16.2
Restricted stock, restricted stock units, and other		5.3		5.8		5.4		5.6

Average number of common shares - diluted EPS		664.5		681.2		667.5		677.0

Earnings per share - basic	$	0.96	$	0.86	$	1.68	$	1.50
Earnings per share - diluted	$	0.92	$	0.83	$	1.63	$	1.46


(a)		Incremental shares from stock options and restricted stock units are computed by the treasury stock method. Stock options and restricted stock units excluded from our computation of diluted EPS because they were not dilutive were as follows:

Six-Month

Quarter Ended

Period Ended

Nov. 28,

Nov. 29,

Nov. 28,

Nov. 29,

In Millions

2010

2009

2010

2009

Anti-dilutive stock options and restricted stock units

5.2

4.6

5.1

12.6

(12) Share Repurchases

On June 28, 2010, our Board of Directors approved an authorization for the repurchase of up to 100,000,000 shares of our common stock.

During the second quarter of fiscal 2011, we repurchased 4.8 million shares of common stock for an aggregate purchase price of $175.2 million. During the six-month period ended November 28, 2010, we repurchased 26.2 million shares of common stock for an aggregate purchase price of $963.6 million.

During the second quarter of fiscal 2010, we repurchased 50 thousand shares of common stock for an aggregate purchase price of $1.5 million. During the six-month period ended November 29, 2009, we repurchased 8.6 million shares of common stock for an aggregate purchase price of $235.4 million.

(13) Interest, Net

The components of interest were as follows:


							Six-Month
	Quarter Ended						Period Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,
Expense (Income), in Millions	2010			2009			2010			2009

Interest expense	$	84.9		$	91.3		$	178.7		$	186.6
Capitalized interest		(1.7	)		(1.2	)		(3.8	)		(2.3	)
Interest income		(1.6	)		(1.6	)		(3.0	)		(3.9	)

Interest, net	$	81.6		$	88.5		$	171.9		$	180.4

(14) Statements of Cash Flows

During the six-month period ended November 28, 2010, we made net cash interest payments of $161.1 million, compared to $192.9 million in the same period last year. Also, in the six-month period ended November 28, 2010, we made tax payments of $355.1 million, compared to $301.1 million in the same period last year.

(15) Retirement and Postemployment Benefits

Components of net pension, other postretirement, and postemployment expense (income) were as follows:


	Defined Benefit						Other Postretirement						Postemployment
	Pension Plans						Benefit Plans						Benefit Plans
	Quarter Ended						Quarter Ended						Quarter Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,			Nov. 28,		Nov. 29,
In Millions	2010			2009			2010			2009			2010		2009

Service cost	$	25.1		$	17.8		$	4.7		$	3.2		$	2.0	$	1.8
Interest cost		57.6			57.6			15.0			15.4			1.2		1.4
Expected return on plan assets		(101.8	)		(100.1	)		(8.2	)		(7.3	)		—		—
Amortization of losses		20.3			2.2			3.6			0.5			0.6		0.3
Amortization of prior service costs (credits)		2.2			1.7			(0.1	)		(0.4	)		0.6		0.6
Other adjustments		—			—			—			—			2.0		2.4

Net expense (income)	$	3.4		$	(20.8	)	$	15.0		$	11.4		$	6.4	$	6.5


	Defined Benefit						Other Postretirement						Postemployment
	Pension Plans						Benefit Plans						Benefit Plans
	Six-Month						Six-Month						Six-Month
	Period Ended						Period Ended						Period Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,			Nov. 28,		Nov. 29,
In Millions	2010			2009			2010			2009			2010		2009

Service cost	$	50.5		$	35.5		$	9.3		$	6.4		$	4.0	$	3.6
Interest cost		115.2			115.2			30.0			30.8			2.5		2.8
Expected return on plan assets		(204.0	)		(199.9	)		(16.5	)		(14.6	)		—		—
Amortization of losses		40.7			4.2			7.2			1.0			1.1		0.5
Amortization of prior service costs (credits)		4.5			3.4			(0.2	)		(0.8	)		1.2		1.2
Other adjustments		—			—			—			—			4.0		4.9

Net expense (income)	$	6.9		$	(41.6	)	$	29.8		$	22.8		$	12.8	$	13.0

(16) Income Taxes

The following table sets forth changes in our total gross unrecognized tax benefit liabilities for the six-month period ended November 28, 2010:


In Millions

Balance as of May 30, 2010	$	552.9
Tax positions related to current year:
Additions		4.2
Reductions		—
Tax positions related to prior years:
Additions		14.9
Reductions		(111.4	)
Settlements		(5.8	)
Lapses in statutes of limitations		—

Balance as of November 28, 2010	$	454.8

During the second quarter of fiscal 2011, we reached a settlement with the Internal Revenue Service (IRS) concerning corporate income tax adjustments for fiscal years 2002 to 2008. The adjustments primarily relate to the amount of capital loss, depreciation, and amortization we reported as a result of the sale of noncontrolling interests in our General Mills Cereals, LLC subsidiary. As a result, we recorded a $108.1 million reduction in our total liabilities for uncertain tax positions. We expect to make a payment of approximately $420 million in fiscal 2011 related to this settlement.

During the second quarter of fiscal 2011, the Superior Court of the State of California issued an adverse decision concerning our state income tax apportionment calculations. As a result, we recorded an $11.5 million increase in our total liabilities for uncertain tax positions. We believe our positions are supported by substantial technical authority and intend to appeal this opinion. We will not make a payment related to this matter until the final resolution is reached.

We recorded an $88.9 million net reduction in income tax expense in the second quarter of fiscal 2011 related to the two matters discussed above. This amount differs from the net reduction to total liabilities noted above due to federal tax benefits associated with the deduction of state taxes, and changes in accrued interest and deferred tax liabilities.

(17) Business Segment Information

We operate in the consumer foods industry. We have three operating segments by type of customer and geographic region as follows: U.S. Retail; International; and Bakeries and Foodservice.

Our U.S. Retail segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, and drug, dollar and discount chains operating throughout the United States. Our major product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a wide variety of organic products including soup, granola bars, and cereal.

In Canada, our major product categories are ready-to-eat cereals, shelf stable and frozen vegetables, dry dinners, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza snacks, and grain and fruit snacks. In markets outside North America, our product categories include super-premium ice cream, grain snacks, shelf stable and frozen vegetables, dough products, and dry dinners. Our International segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities are reported in the region or country where the end customer is located.

In our Bakeries and Foodservice segment our major product categories are cereals, snacks, yogurt, unbaked and fully baked frozen dough products, baking mixes, and flour. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries. Substantially all of this segment’s operations are located in the United States.

Operating profit for these segments excludes unallocated corporate expense, restructuring, impairment, and other exit costs, and divestiture gains and losses. Unallocated corporate expense includes variances to planned corporate overhead expenses, variances to planned domestic employee benefits and incentives, annual contributions to the General Mills Foundation, and other items that are not part of our measurement of segment operating performance. These include gains and losses arising from the revaluation of certain grain inventories and gains and losses from mark-to-market valuation of certain commodity positions until passed back to our operating segments. These items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by executive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets and depreciation and amortization expenses are neither maintained nor available by operating segment.

As discussed in Note 2, at the beginning of fiscal 2011 we revised certain SG&A expense classifications between segment operating profit and corporate items and shifted selling responsibility for a customer from our Bakeries and Foodservice segment to the U.S. Retail segment. All prior period amounts have been restated to conform to the current period presentation.

Our operating segment results were as follows:


						Six-Month
	Quarter Ended					Period Ended
	Nov. 28,		Nov. 29,			Nov. 28,		Nov. 29,
In Millions	2010		2009			2010		2009

Net sales:
U.S. Retail	$	2,850.1	$	2,859.5		$	5,296.7	$	5,259.1
International		748.8		719.2			1,408.6		1,376.1
Bakeries and Foodservice		467.7		456.0			894.4		881.9

Total	$	4,066.6	$	4,034.7		$	7,599.7	$	7,517.1

Operating profit:
U.S. Retail	$	687.4	$	717.2		$	1,302.0	$	1,351.5
International		88.7		70.7			150.7		133.6
Bakeries and Foodservice		77.1		88.7			149.6		153.9

Total segment operating profit		853.2		876.6			1,602.3		1,639.0

Unallocated corporate items		29.3		(27.0	)		17.0		43.3
Restructuring, impairment, and other exit costs		1.0		24.9			2.0		24.1

Operating profit	$	822.9	$	878.7		$	1,583.3	$	1,571.6

(18) New Accounting Pronouncements

In the first quarter of fiscal 2011 we adopted new accounting guidance on the consolidation model for variable interest entities (VIEs). The guidance requires companies to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the company (1) has the power to direct matters that most significantly impact the VIE’s economic performance, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The adoption of the guidance did not have any impact on our results of operations or financial condition.


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

INTRODUCTION

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2010, for important background regarding, among other things, our key business drivers. Significant trademarks and service marks used in our business are set forth in italics herein. Certain terms used throughout this report are defined in a glossary on pages 33-34 of this report.

CONSOLIDATED RESULTS OF OPERATIONS

Second Quarter Results

For the second quarter of fiscal 2011, net sales grew 1 percent to $4,067 million and total segment operating profit of $853 million was 3 percent lower than the second quarter of fiscal 2010. Diluted earnings per share (EPS) was up 11 percent and diluted EPS excluding certain items affecting comparability decreased 1 percent compared to the second quarter of fiscal 2010. (See pages 32-33 for a discussion of measures not defined by GAAP).

Net sales growth of 1 percent for the second quarter of fiscal 2011 was the result of 3 percentage points of contributions from volume growth, partially offset by 2 percentage points from net price realization and mix.

Components of net sales growth

Second Quarter of Fiscal 2011 vs.

Bakeries and

Combined

Second Quarter of Fiscal 2010

U.S. Retail

International

Foodservice

Segments

Contributions from volume growth (a)

3 pts

8 pts

-1 pt

3 pts

Net price realization and mix

-3 pts

-1 pt

4 pts

-2 pts

Foreign currency exchange

-3 pts

Flat

Net sales growth

Flat

4 pts

3 pts

1 pt


(a)		Measured in tons based on the stated weight of our product shipments.

Cost of sales increased $126 million from the second quarter of fiscal 2010 to $2,433 million. This increase was primarily driven by a $55 million increase attributable to higher volume and $32 million of higher input costs and product mix. In the second quarter of fiscal 2011, we recorded a $28 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories compared to a net decrease of $67 million in the second quarter of fiscal 2010.

Selling, general, and administrative (SG&A) expenses were down $15 million to $810 million in the second quarter of fiscal 2011 versus the same period in fiscal 2010. SG&A expenses as a percent of net sales in the second quarter of fiscal 2011 were down 50 basis points compared with fiscal 2010. Advertising and media expense declined 15 percent, partially offset by an increase in pension expense.

Restructuring, impairment, and other exit costs were $1 million for the second quarter of fiscal 2011 and $25 million for the same period of fiscal 2010. In the second quarter of fiscal 2011, we did not undertake any new restructuring actions. During the second quarter of fiscal 2010, we decided to exit our kids’ refrigerated yogurt beverage product line and our microwave soup product line in our U.S. Retail segment to rationalize capacity for more profitable items. Our decisions to exit these products resulted in a $24 million non-cash charge against the related long-lived assets. In addition, in fiscal 2010, we recorded $1 million of costs related to previously announced restructuring actions.

Interest, net for the second quarter of fiscal 2011 totaled $82 million, a $7 million decrease from the same period of fiscal 2010. Average interest rates decreased 90 basis points, due to a shift to short-term debt from long-term debt versus the same period last year, generating a $14 million decrease in net interest. Average interest bearing instruments increased $472 million, due to an increase in share repurchases versus the same period last year, leading to a $7 million increase in net interest.

The effective tax rate for the second quarter of fiscal 2011 was 21.7 percent compared to 33.1 percent for the second quarter of fiscal 2010. The 11.4 percentage point decrease was primarily due to a $100 million reduction to tax expense related to a settlement with the Internal Revenue Service (IRS) concerning corporate income tax adjustments for fiscal years 2002 to 2008. The adjustments primarily relate to the amount of capital loss, depreciation, and amortization we reported as a result of the sale of noncontrolling interests in our General Mills Cereals, LLC subsidiary. This was partially offset by an $11 million increase in income taxes related to an adverse decision from the Superior Court of the State of California concerning our state income tax apportionment calculations.

After-tax earnings from joint ventures decreased to $35 million compared to $38 million in the same quarter last fiscal year, as higher advertising and media spending, along with this year’s increased service cost allocations to Cereal Partners Worldwide (CPW), offset volume gains. In the second quarter of fiscal 2011, net sales for CPW increased 1 percent due to volume growth. Net sales for our Häagen-Dazs joint venture in Japan (HDJ) increased 9 percent, primarily due to favorable foreign exchange.

Average diluted shares outstanding decreased by 17 million in the second quarter of fiscal 2011 from the same period a year ago due primarily to share repurchases, offset by the issuance of common stock due to stock option exercises.

Net earnings attributable to General Mills were $614 million in the second quarter of fiscal 2011, up 9 percent from $566 million last year. Diluted EPS was $0.92 in the second quarter of fiscal 2011, up 11 percent from $0.83 last year. These results include the effects from the mark-to-market valuation of certain commodity positions and grain inventories and the net benefit from decisions affecting two uncertain tax matters in the second quarter of fiscal 2011. Diluted EPS excluding these items affecting comparability, a non-GAAP measure used for management reporting and incentive compensation purposes, was $0.76 in the second quarter of fiscal 2011, down 1 percent compared to $0.77 in the second quarter of fiscal 2010 (see the “Non-GAAP Measures” section below for our use of this measure and our discussion of the items affecting comparability).

Six-month Results

For the six-month period ended November 28, 2010, net sales grew 1 percent to $7,600 million and total segment operating profit of $1,602 million was 2 percent lower than $1,639 million in the six-month period ended November 29, 2009. Diluted EPS was up 12 percent and diluted EPS excluding certain items affecting comparability declined 1 percent compared to the six-month period ended November 29, 2009. (See pages 32-33 for a discussion of measures not defined by GAAP).

Net sales grew 1 percent for the six-month period ended November 28, 2010. Volume contributed 3 percentage points of growth, partially offset by 1 percentage point of decline from net price realization and mix and 1 percentage point of unfavorable foreign exchange.

Components of net sales growth

Six-Month Period Ended Nov. 28, 2010 vs.

Bakeries and

Combined

Six-Month Period Ended Nov. 29, 2009

U.S. Retail

International

Foodservice

Segments

Contributions from volume growth (a)

2 pts

6 pts

1 pt

3 pts

Net price realization and mix

-1 pt

Flat

-1 pt

Foreign currency exchange

-4 pts

Flat

-1 pt

Net sales growth

1 pt

2 pts

1 pt


(a)		Measured in tons based on the stated weight of our product shipments.

Cost of sales increased $93 million from the six-month period ended November 29, 2009, to $4,441 million. The increase in cost of sales was primarily driven by a $101 million increase attributable to higher volume and a $39 million increase related to higher input costs and product mix. In the six-month period ended November 28, 2010, we recorded a $100 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories compared to a net decrease of $53 million in the six-month period ended November 29, 2009.

SG&A expenses were flat in the six-month period ended November 28, 2010, versus the same period in fiscal 2010. SG&A expenses as a percent of net sales in fiscal 2011 decreased by 20 basis points compared to fiscal 2010. An increase in pension expense was partially offset by a 5 percent decline in advertising and media expense.

Restructuring, impairment, and other exit costs were $2 million for the six-month period ended November 28, 2010, and $24 million for the same period of fiscal 2010. In the six-month period ended November 28, 2010, we did not undertake any new restructuring actions. During the second quarter of fiscal 2010, we decided to exit our kids’ refrigerated yogurt beverage product line and our microwave soup product line in our U.S. Retail segment to rationalize capacity for more profitable items. Our decisions to exit these products resulted in a $24 million non-cash charge against the related long-lived assets. In addition, during the six-month period ended November 29, 2009, we recorded a net gain of $1 million related to the closure and sale of our Contagem, Brazil bread and pasta plant.

Interest, net for the six-month period ended November 28, 2010, totaled $172 million, a $9 million decrease from the same period of fiscal 2010. Average interest rates decreased 40 basis points generating a $12 million decrease in net interest due to a shift to short-term debt from long-term debt versus the same period last year. Average interest bearing instruments increased $112 million, leading to a $3 million increase in net interest, due to an increase in share repurchases versus the same period last year.

The effective tax rate for the six-month period ended November 28, 2010, was 27.2 percent compared to 33.4 percent for the six-month period ended November 29, 2009. The 6.2 percentage point decrease was primarily due to a $100 million reduction to tax expense related to a settlement with the IRS concerning corporate income tax adjustments for fiscal years 2002 to 2008. The adjustments primarily relate to the amount of capital loss, depreciation, and amortization we reported as a result of the sale of noncontrolling interests in our General Mills Cereals, LLC subsidiary. This was partially offset by an $11 million increase in income taxes related to an adverse decision from the Superior Court of the State of California concerning our state income tax apportionment calculations.

After-tax earnings from joint ventures for the six-month period ended November 28, 2010, decreased to $61 million compared to $62 million in the same period in fiscal 2010. In the six-months ended November 28, 2010, net sales for CPW increased 1 percentage point resulting from 2 percentage points of volume growth offset by 1 percentage point of unfavorable foreign exchange. Net sales for HDJ increased 4 percent driven by 8 percentage points of favorable foreign exchange, partially offset by a 3 percentage point decrease from net price realization and mix and a 1 percentage point decline in volume.

Average diluted shares outstanding decreased by 10 million shares for the six-month period ended November 28, 2010, from the same period a year ago, due primarily to the repurchase of 39 million shares since November 30, 2009, partially offset by the issuance of common stock due to stock option exercises.

Net earnings attributable to General Mills were $1,086 million in the six-month period ended November 28, 2010, up 10 percent from $986 million in the same period last year. Diluted EPS was $1.63 in the six-month period ended November 28, 2010, up 12 percent from $1.46 last year. These results include the effects from the mark-to-market valuation of certain commodity positions and grain inventories and the net benefit from decisions affecting two uncertain tax matters in the second quarter of fiscal 2011. Diluted EPS excluding these items affecting comparability, a non-GAAP measure used for management reporting and incentive compensation purposes, was $1.40 for the six-month period ended November 28, 2010, down 1 percent, compared to $1.41 in the same period of fiscal 2010 (see the “Non-GAAP Measures” section below for our use of this measure and our discussion of the items affecting comparability).

SEGMENT OPERATING RESULTS

U.S. Retail Segment Results

Net sales for our U.S. Retail operations of $2,850 million in the second quarter of fiscal 2011 were essentially flat compared to the second quarter of fiscal 2010. Pound volume contributed 3 percentage points of growth, offset by 3 percentage points of unfavorable net price realization and mix.

Net sales for our U.S. Retail operations grew 1 percent in the six-month period ended November 28, 2010, to $5,297 million, with pound volume contributing 2 percentage points of growth, offset by 1 percentage point of unfavorable price realization and mix.

U.S. Retail Net Sales Percentage Change by Division


				Six-Month
	Quarter Ended			Period Ended
	Nov. 28,			Nov. 28,
	2010			2010

Big G		(2	)%		1	%
Meals		1			2
Pillsbury		(3	)		(3	)
Yoplait		4			4
Snacks		(3	)		1
Baking Products		(1	)		(3	)
Small Planet Foods		15			15

Total		Flat			1	%

During the second quarter of fiscal 2011, net sales for Big G cereals declined 2 percent from last year’s second-quarter sales, which grew 10 percent. Meals division net sales increased 1 percent with gains from Green Giant frozen vegetables, Old El Paso Mexican products, and Wanchai Ferry and Macaroni Grill frozen entrees. Pillsbury net sales declined 3 percent due to a decrease in Totino’s pizza, partially offset by frozen hot snacks and Pillsbury refrigerated baked goods. Net sales for Yoplait grew 4 percent, led by Original Style Yoplait, Yoplait Light , and Go-GURT product lines. Snacks net sales declined 3 percent, driven by volume declines in Fiber One bars and Nature Valley clusters varieties. Net sales for Baking Products declined 1 percent. Small Planet Food’s net sales increased 15 percent, led by Cascadian Farm cereals and frozen vegetables, and Lärabar fruit and nut energy bars.

Segment operating profit decreased 4 percent to $687 million in the second quarter of fiscal 2011 versus the same period a year ago driven by $87 million of unfavorable net price realization and mix and $6 million of higher supply chain costs, partially offset by $35 million of volume growth and a 17 percent reduction in advertising and media expense from year-ago levels that grew 29 percent.

Segment operating profit decreased 4 percent to $1.3 billion in the six-month period ended November 28, 2010, versus the same period a year ago, primarily driven by unfavorable net price realization and mix of $71 million and higher supply chain costs of $59 million, partially offset by $51 million of volume growth and a 7 percent reduction in advertising and media expense from year-ago levels that grew 24 percent.

International Segment Results

Net sales for our International segment of $749 million increased 4 percent in the second quarter of fiscal 2011 compared to fiscal 2010. Volume contributed 8 percentage points of growth, offset by 3 percentage points of unfavorable foreign currency exchange and 1 percentage point of unfavorable net price realization and mix.

Net sales for our International segment were up 2 percent in the six-month period ended November 28, 2010, to $1,409 million. This increase was driven by 6 percentage points of volume growth, partially offset by 4 percentage points of unfavorable foreign currency exchange.

International Net Sales Percentage Change by Geographic Region


				Six-Month
	Quarter Ended			Period Ended
	Nov. 28,			Nov. 28,
	2010			2010

Europe		2	%	Flat
Canada		3			5	%
Asia/Pacific		15			13
Latin America		(11	)		(15	)

Total		4	%		2	%

For the second quarter of fiscal 2011, net sales in Europe grew 2 percent driven by growth in Häagen Dazs in France and the United Kingdom, Old El Paso in France and Spain, and Nature Valley in the United Kingdom offset by unfavorable foreign exchange. Net sales in Canada increased 3 percent due to strong cereal performance and favorable foreign exchange. In the Asia/Pacific region, net sales grew 15 percent driven by growth in China’s Häagen-Dazs and Wanchai Ferry brands, and the launch of Nature Valley in Australia. Latin America net sales decreased 11 percent primarily driven by unfavorable foreign exchange largely related to the 2010 devaluation of the Venezuelan currency, partially offset by Diablitos growth in Venezuela.

Segment operating profit grew 25 percent to $89 million in the second quarter of fiscal 2011, driven by volume growth and favorable foreign currency effects.

Segment operating profit grew 13 percent to $151 million in the first six-month period of fiscal 2011 versus the same period a year ago, driven by volume growth and favorable foreign currency effects.

Bakeries and Foodservice Segment Results

Net sales for our Bakeries and Foodservice segment increased 3 percent to $468 million in the second quarter of fiscal 2011 compared to fiscal 2010. Net price realization and mix contributed 4 percentage points of net sales growth, reflecting higher prices indexed to commodity markets. This increase was partially offset by a 1 percentage point decrease in volume, including a 2 percentage point reduction from a divested product line.

Net sales for our Bakeries and Foodservice segment increased 1 percent to $894 million in the six-month period ended November 28, 2010. Volume grew 1 percentage point, including a 2 percentage point reduction from a divested product line.

Bakeries and Foodservice Net Sales Percentage Change by Customer Segment


				Six-Month
	Quarter Ended			Period Ended
	Nov. 28,			Nov. 28,
	2010			2010

Foodservice Distributors		Flat			Flat
Convenience Stores		10	%		12	%
Bakeries and National Restaurant Accounts		3			Flat

Total		3	%		1	%

Segment operating profit for the second quarter of fiscal 2011 was $77 million, down from $89 million in the second quarter of fiscal 2010, primarily due to lower grain merchandising earnings and timing of administrative costs.

Segment operating profit for the six-month period ended November 28, 2010, was $150 million, down from $154 million in the six-month period ended November 29, 2009. The decrease was due to timing of administrative costs.

UNALLOCATED CORPORATE ITEMS

Unallocated corporate items totaled $29 million of expense in the second quarter of fiscal 2011 compared to $27 million of income in the same period in fiscal 2010. In the second quarter of fiscal 2011 we recorded a $28 million net decrease in expense related to the mark-to-market valuation of certain commodity positions and grain inventories, compared to a $67 million net decrease in expense in the second quarter of fiscal 2010. Pension expense also increased $16 million in the second quarter of fiscal 2011 compared to last year’s second quarter.

Unallocated corporate expense totaled $17 million in the six-month period ended November 28, 2010, compared to $43 million in the same period last year. In the six-month period ended November 28, 2010, we recorded a $100 million net decrease in expense related to the mark-to-market valuation of certain commodity positions and grain inventories, compared to a $53 million net decrease in expense in the same period a year ago. Pension expense also increased $32 million in the six-month period ended November 28, 2010 compared to the same period a year ago.

LIQUIDITY

During the six-month period ended November 28, 2010, our operations generated $600 million of cash, primarily driven by net earnings, adjusted for depreciation and amortization, offset by an increase in net current assets and liabilities. This cash generation was $388 million less than the amount generated in the same period last year, mainly reflecting changes in current assets and liabilities. Inventories increased in the six-month periods in both years, but increased more in the six-month period ended November 28, 2010, primarily reflecting increased input costs. Other current liabilities accounted for a $393 million decrease in cash from operations for the six-month period ended November 28, 2010 compared to the same six-month period last year, primarily reflecting changes in the timing of marketing activities and related accruals, and changes in accrued income taxes as a result of audit settlements and court decisions.

Cash used by investing activities during the six-month period ended November 28, 2010, was $266 million, a $51 million increase over the same period in fiscal 2010. We invested $284 million in land, buildings, and equipment in the six-month period ended November 28, 2010, an increase of $27 million over the six-month period last year.

Cash used by financing was $483 million in the six-month period ended November 28, 2010 a decrease of $208 million from the same period a year ago. We used $728 million more cash to repurchase shares in the six-month period ended November 28, 2010, than the same period last year. In addition, we paid $366 million of dividends in the six-month period ended November 28, 2010, $53 million more than the prior year. We also issued $618 million of notes payable and long-term debt in the six-month period ended November 28, 2010 versus a $375 million net repayment in fiscal 2010.

CAPITAL RESOURCES

Our capital structure was as follows:


	Nov. 28,		May 30,
In Millions	2010		2010

Notes payable	$	1,169.9	$	1,050.1
Current portion of long-term debt		11.7		107.3
Long-term debt		5,864.1		5,268.5

Total debt		7,045.7		6,425.9
Noncontrolling interests		245.2		245.1
Stockholders’ equity		5,639.6		5,402.9

Total capital	$	12,930.5	$	12,073.9

We have $11.7 million of long-term debt maturing in the next 12 months that is classified as current. We expect to make a payment of approximately $420 million in fiscal 2011 related to the IRS settlement described in Note 16 of the Consolidated Financial Statements. 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.

We have an effective shelf registration statement on file with the Securities and Exchange Commission (SEC) covering the sale of debt securities. The shelf registration statement will expire in December 2011.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

There were no material changes outside the ordinary course of our business in our contractual obligations or off-balance sheet arrangements during the second quarter of fiscal 2011.

SIGNIFICANT ACCOUNTING ESTIMATES

Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 30, 2010. The accounting policies used in preparing our interim fiscal 2011 Consolidated Financial Statements are the same as those described in our Form 10-K, except as discussed in Notes 2, 17 and 18 to our Consolidated Financial Statements included in this Form 10-Q.

Our significant accounting estimates are those that have meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for promotional expenditures, intangible assets, stock compensation, income taxes, and defined benefit pension, other postretirement, and postemployment benefits. The assumptions and methodologies used in the determination of those estimates as of November 28, 2010, are the same as those described in our Annual Report on Form 10-K for the fiscal year ended May 30, 2010.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There have been no accounting pronouncements recently issued that will affect our Consolidated Financial Statements.

NON-GAAP MEASURES

We have included in this report measures of financial performance that are not defined by GAAP. Each of the measures is used in reporting to our executive management and as a component of the Board of Director’s measurement of our performance for incentive compensation purposes. Management and the Board of Directors believe that these measures provide useful information to investors, and include these measures in other communications to investors.

For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why our management or the Board of Directors believes the non-GAAP measure provides useful information to investors, and any additional purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure.

Total Segment Operating Profit

Management and the Board of Directors believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate segment performance. A reconciliation of this measure to operating profit, the relevant GAAP measure, is included in Note 17 to the Consolidated Financial Statements in this report.

Diluted EPS Excluding Certain Items Affecting Comparability

Management and the Board of Directors believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-over-year basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-over-year assessment of operating results.

The reconciliation of diluted EPS excluding certain items affecting comparability to diluted EPS, the relevant GAAP measure, follows:


							Six-Month
	Quarter Ended						Period Ended
	Nov. 28,			Nov. 29,			Nov. 28,			Nov. 29,
Per Share Data	2010			2009			2010			2009

Diluted earnings per share, as reported	$	0.92		$	0.83		$	1.63		$	1.46
Mark-to-market effects (a)		(0.03	)		(0.06	)		(0.10	)		(0.05	)
Uncertain tax items (b)		(0.13	)		—			(0.13	)		—

Diluted earnings per share, excluding certain items affecting comparability	$	0.76		$	0.77		$	1.40		$	1.41


(a)		Net gain from mark-to-market valuation of certain commodity positions and grain inventories. See Note 7 to the Consolidated Financial Statements in this report.

(b)		Reduction to income taxes related to an IRS settlement of an uncertain tax item, partially offset by an increase in income taxes related to an adverse opinion in the State of California. See Note 16 to the Consolidated Financial Statements in this report.

GLOSSARY

AOCI . Accumulated other comprehensive income (loss).

Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and stock prices.

Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements.

Goodwill. The difference between the purchase price of acquired companies and the related fair values of net assets acquired.

Hedge accounting. Accounting for qualifying hedges that allows changes in a hedging instrument’s fair value to offset corresponding changes in the hedged item in the same reporting period. Hedge accounting is permitted for certain hedging instruments and hedged items only if the hedging relationship is highly effective, and only prospectively from the date a hedging relationship is formally documented.

Interest bearing instruments. Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets.

LIBOR. London Interbank Offered Rate.

Mark-to-market. The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item.

Net mark-to-market valuation of certain commodity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings.

Net price realization. The impact of list and promoted price changes, net of trade and other price promotion costs.

Noncontrolling interests. Interests of subsidiaries held by third parties.

Notional principal amount. The principal amount on which fixed-rate or floating-rate interest payments are calculated.

OCI. Other Comprehensive Income.

Total debt. Notes payable and long-term debt, including current portion.

Translation adjustments. The impact of the conversion of our foreign affiliates’ financial statements to U.S. dollars for the purpose of consolidating our financial statements.

Variable interest entities (VIEs). A legal structure that is used for business purposes that either (1) does not have equity investors that have voting rights and share in all the entity’s profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entity’s activities.

Working Capital. Current assets and current liabilities, all as of the last day of our reporting period.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our filings with the SEC and in our reports to stockholders.

The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “plan,” “project” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements.

Our future results could be affected by a variety of factors, such as: competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disruptions or inefficiencies in the supply chain; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure of our information technology systems; resolution of uncertain income tax matters; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war.

You should also consider the risk factors that we identify in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended May 30, 2010, and in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2010, which could also affect our future results.

We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

The estimated maximum potential value-at-risk arising from a one-day loss in fair value for our interest rate and commodity market-risk-sensitive instruments outstanding as of November 28, 2010, was $27 million and $5 million, respectively. The $1 million decrease in interest rate value-at-risk during the six-month period ended November 28, 2010, was due to decreased interest rate market volatility in fiscal 2011. The commodity value-at-risk was flat compared to May 30, 2010. For additional information, see Item 7A of our Annual Report on Form 10-K for the fiscal year ended May 30, 2010.


Item 4.		Controls and Procedures.

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of November 28, 2010, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our fiscal quarter ended November 28, 2010, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

On May 3, 2010, our Board of Directors approved a two-for-one stock split to be effected in the form of a 100 percent stock dividend to stockholders of record on May 28, 2010. The Company’s stockholders received one additional share of common stock for each share of common stock in their possession on that date. The additional shares were distributed on June 8, 2010. This did not change the proportionate interest that a stockholder maintained in the Company. All shares and per share amounts set forth in this report have been adjusted for the two-for-one stock split.

The following table sets forth information with respect to shares of our common stock that we purchased during the fiscal quarter ended November 28, 2010:


	Total		Average		Total Number of		Maximum Number of
	Number		Price		Shares Purchased as		Shares that may yet be
	of Shares		Paid Per		Part of a Publicly		Purchased Under the
Period	Purchased (a)		Share		Announced Program (b)		Program (b)

August 30, 2010- October 3, 2010		2,820,237	$	36.45		2,820,237		89,097,151

October 4, 2010- October 31, 2010		1,654,197		37.02		1,654,197		87,442,954

November 1, 2010- November 28, 2010		304,161		36.91		304,161		87,138,793

Total		4,778,595	$	36.67		4,778,595		87,138,793


(a)		These shares were purchased in the open market.

(b)		On June 28, 2010, our Board of Directors approved and we announced an authorization for the repurchase of up to 100,000,000 shares of our common stock. Purchases can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization.


Item 6.		Exhibits.

10.1		Executive Incentive Plan.

10.2		Amendment No. 2, dated as of October 21, 2010, to Five-Year Credit Agreement, dated as of October 9, 2007, among General Mills, Inc., the several financial institutions from time to time party to the agreement and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 27, 2010).

10.3		Three-Year Credit Agreement, dated as of October 21, 2010, among General Mills, Inc., the several financial institutions from time to time party to the agreement and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed October 27, 2010).

10.4*		Twelfth Amendment to the Yoplait Manufacturing and Distribution License Agreement, dated November 11, 2010, between SODIMA and the Registrant.

12.1		Computation of Ratio of Earnings to Fixed Charges.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarterly and six-month periods ended November 28, 2010, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Total Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.


*		Confidential information has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the SEC pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		GENERAL MILLS, INC.

		(Registrant)

Date December 17, 2010		/s/ Roderick A. Palmore

		Roderick A. Palmore
		Executive Vice President,
		General Counsel and Secretary

Date December 17, 2010		/s/ Richard O. Lund

		Richard O. Lund
		Vice President, Controller
		(Principal Accounting Officer)

Exhibit Index

Exhibit No.


Item 6.		Exhibits.

10.1		Executive Incentive Plan.

10.4*		Twelfth Amendment to the Yoplait Manufacturing and Distribution License Agreement, dated November 11, 2010, between SODIMA and the Registrant.

12.1		Computation of Ratio of Earnings to Fixed Charges.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarterly and six-month periods ended November 28, 2010, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Total Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.


*		Confidential information has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the SEC pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

TABLE OF CONTENTS

Part I. Financial Informationprint Item 1. Financial Statementsprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II. Other Informationprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 6. Exhibitsprint

Exhibits

EX-10.1 EX-10.4 EX-12.1 EX-31.1 EX-31.2 EX-32.1 EX-32.2

Customer name	Ticker
CSX Corporation	CSX
Raytheon Technologies Corporation	RTX
Hormel Foods Corporation	HRL
Yum! Brands, Inc.	YUM

Supplier name	Ticker
Honeywell International Inc.	HON
Thermo Fisher Scientific Inc.	TMO
CSX Corporation	CSX
Illinois Tool Works Inc.	ITW
3M Company	MMM
CME Group Inc.	CME

GIS 10-Q Quarter ended Nov. 28, 2010

Exhibits