UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number:   1-1185

GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)

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

Part I.   FINANCIAL INFORMATION

Item 1.    Financial Statements.

GENERAL MILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In Millions, Except per Share Data)

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GENERAL MILLS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions)

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GENERAL MILLS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In Millions)

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

(1)   Background

The accompanying consolidated financial statements 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 thethirteen weeks and the twenty-six weeks ended November 27, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending May 28, 2006.

These statements should be read in conjunction with the consolidated financial statements and footnotes included in our Form 10-K for the year ended May 29, 2005. The accounting policies used in preparing these consolidated financial statements are the same as those described in Note One to the consolidated financial statements in our Form 10-K except as noted in Note 13.

Stock-based Compensation Expense for Stock Options

We use the intrinsic value method for measuring the cost of compensation paid in shares of our common stock. This method defines our cost as the excess of the stock’s market value at the time of the grant over the amount that the employee is required to pay. Our stock option plans require that the employee’s payment (i.e., exercise price) be the market value as of the grant date. The following table illustrates the pro forma effect on net earnings and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation using the Black-Scholes option-pricing model.

These amounts reflect the expensing of share awards made to retirement-eligible employees over the expected vesting period of the award. SFAS 123(R), “Share-Based Payment,” when adopted, will require the expensing of future awards over the period to retirement eligibility, if less than the vesting period. Future share-based compensation amounts may differ from the pro forma amounts presented based on that change as well as any changes in the number of options granted or their fair values.

The weighted average fair values at grant date of the options granted were estimated as $7.82 in the second quarter and first half of fiscal 2006, and $7.62 in the second quarter and first half of fiscal 2005, using the Black-Scholes option-pricing model.

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(2)   Restructuring and Other Exit Costs

In the second quarter of fiscal 2006, we recorded restructuring and other exit costs of $2 million, primarily associated with an additional asset impairment recognized at one of our production plants.

In the second quarter of fiscal 2005, we recorded $3 million of restructuring and other exit costs associated with restructuring actions previously announced.

In the first twenty-six weeks of fiscal 2006, we recorded restructuring and other exit costs of $11 million, consisting of $10 million of charges related to an asset impairment recognized at one of our production plants and $1 million of charges associated with restructuring actions previously announced.

In the first twenty-six weeks of fiscal 2005, we recorded restructuring and other exit costs of $43 million, consisting of $38 million of charges associated with supply chain initiatives to further increase asset utilization and reduce manufacturing and sourcing costs, and $5 million of charges associated with restructuring actions previously announced.

The fiscal 2005 supply chain actions also resulted in certain associated expenses, primarily adjustments to the depreciable life of the assets necessary to reflect the shortened asset lives which coincided with final production dates. These associated expenses were recorded as cost of sales. In the second quarter of fiscal 2006, there were no associated expenses; in the second quarter of fiscal 2005, the associated expense recorded in cost of sales was $8 million. For the first twenty-six weeks of fiscal 2006, the expense recorded in cost of sales was $2 million; for the first twenty-six weeks of fiscal 2005, the expense recorded in cost of sales was $13 million.

(3)   Goodwill and Brand Intangibles

At August 28, 2005, we finalized the allocation of Goodwill and Brand Intangibles resulting from the Pillsbury acquisition within the International segment. The impact of this allocation, primarily foreign currency translation, was an increase to Goodwill and Brand Intangibles totaling $88 million and an increase to Deferred Income Tax Liabilities of $22 million. The net adjustment of $66 million was recorded in Accumulated Other Comprehensive Income.

The changes in the carrying amount of our Goodwill and Brand Intangibles for the first twenty-six weeks of fiscal 2006 were as follows:

The activity occurring in the first twenty-six weeks of fiscal 2006 is primarily foreign currency translation.

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(4)   Inventories

The components of inventories were as follows:

(5)   Stockholders’ Equity

The following table provides detail of Total Comprehensive Income:

The changes in other comprehensive income are primarily non-cash items.

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Accumulated Other Comprehensive Income (Loss) balances, net of tax effects, were as follows:

(6)   Earnings Per Share

We adopted Emerging Issues Task Force Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8) in the third quarter of fiscal 2005. The adoption increased our diluted shares outstanding by 29 million shares to give effect to the contingent issuance of shares under our zero coupon convertible debentures issued in October 2002. Also, net earnings used for earnings per share calculations were adjusted, using the if-converted method. The adoption of EITF 04-8 reduced our previously reported diluted earnings per share by $0.05 for the second quarter of fiscal 2005 and by $0.08 for the first twenty-six weeks of fiscal 2005.

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

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In December 2005 we completed a consent solicitation and entered into a supplemental indenture related to our zero coupon convertible debentures. We also made an irrevocable election: (i) to satisfy all future obligations to repurchase debentures solely in cash and (ii) to satisfy all future conversions of debentures (a) solely in cash up to an amount equal to the accreted value of the debentures and (b) at our discretion, in cash, stock or a combination of cash and stock to the extent the conversion value of the debentures exceeds the accreted value. As a result of these actions, beginning in the third quarter of fiscal 2006, no shares of common stock underlying the debentures are considered outstanding for purposes of calculating our diluted earnings per share.

(7)   Debt

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

The components of notes payable at the end of the respective periods were as follows:

On October 21, 2005, we entered into a new $1.1 billion 364-day credit facility expiring in October 2006 and a new $1.1 billion five-year credit facility expiring in October 2010. These new facilities replaced our $1.1 billion credit facility that would have expired in January 2006 and our $750 million credit facility that would have expired in April 2006. We also have a $750 million five-year credit facility that will expire in January 2009. As of November 27, 2005, we had no outstanding borrowings under these facilities.

(8)   Share Repurchases

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

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(9)   Interest, Net

The components of net interest, including distributions to minority interest holders, were as follows:

(10)   Statements of Cash Flows

During the first twenty-six weeks of fiscal 2006, we made cash interest payments of $182 million, versus $224 million in the same period last year. In the first twenty-six weeks of fiscal 2006, we made tax payments of $146 million, versus $151 million in the same period last year.

(11)   Retirement and Other Postretirement Benefit Plans

Components of net pension and postretirement (income) expense for each fiscal period were as follows:

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(12)   Operating Segments

We operate exclusively in the consumer foods industry, with multiple operating segments organized generally by product categories.

We aggregate our operating segments into three reportable segments: 1) U.S. Retail; 2) International; and 3) Bakeries and Foodservice. Our U.S. Retail segment reflects business with a wide variety of grocery stores; specialty stores; drug, dollar and discount chains; and mass merchandisers operating throughout the United States. Our major product categories in this business segment are ready-to-eat cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt and organic foods. Our International segment includes a retail business in Canada that largely mirrors our U.S. Retail product mix, along with retail and foodservice businesses competing in key markets in Europe, Latin America and the Asia/Pacific region. Our Bakeries and Foodservice segment consists of products marketed to retail and wholesale bakeries, commercial and noncommercial foodservice distributors and operators, and convenience stores throughout the United States and Canada.

Management reviews operating results to evaluate segment performance. Segment operating profit excludes general corporate expenses, restructuring and other exit costs, interest expense, stock-based compensation costs, and income taxes, as they are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by management. Under our supply chain organization, our manufacturing, warehouse, distribution and sales activities are substantially integrated across our operations in order to maximize efficiency and productivity. As a result, fixed assets, capital expenditures, and depreciation and amortization expenses are neither maintained nor available by operating segments.

The measurement of operating segment results is consistent with the presentation of the Consolidated Statements of Earnings. Intercompany transactions between reportable operating segments were not material in the periods presented.

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(13)   New Accounting Standards

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

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

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 year ended May 29, 2005, for important background regarding, among other things, our key business drivers.

RESULTS OF OPERATIONS

Thirteen-Week Results

For the quarter ended November 27, 2005, we reported diluted earnings per share of $0.97, up 5 percent from $0.92 per share earned in the same period last year. Earnings after tax were $370 million in the second quarter of fiscal 2006, up 1 percent from $367 million last year. Net sales for the thirteen weeks ended November 27, 2005 grew 3 percent to $3.27 billion, and segment operating profits decreased 2 percent to $647 million.

Net sales growth during the second quarter of fiscal 2006 was the result of 2 points of volume growth, primarily in International and U.S. Retail, and 1 point of growth from net price realization (defined as the impact of list and promoted price increases net of increases in trade promotion costs) and product mix across all of our businesses. Promotional spending and foreign currency exchange effects were flat compared to the same period in fiscal 2005.

Cost of sales was up $39 million in the quarter versus last year. Cost of sales increased $47 million primarily due to unit volume increases, as supply chain efficiencies largely offset cost increases due to inflation. The second quarter of fiscal 2005 also included $8 million of additional expense, primarily accelerated depreciation, associated with certain exit activities. Cost of sales as a percent of sales decreased from 59.6 percent to 58.9 percent.

Selling, general and administrative expense (SG&A) was up $63 million in the quarter versus last year. SG&A as a percent of sales in the quarter increased from 20.1 percent last year to 21.4 percent this year. The increase in SG&A from the second quarter of fiscal 2005 is largely the result of an increase in consumer marketing spending, primarily advertising, of $41 million over last year, and increased customer freight costs, up $24 million from a year ago primarily due to increased fuel costs.

Interest expense for the quarter totaled $103 million, 18 percent below last year’s second quarter amount of $125 million, primarily as the result of last year’s debt pay down.

In the second quarter of fiscal 2006, we recorded restructuring and other exit costs of $2 million, primarily associated with an additional asset impairment recognized at one of our production plants. This compares to restructuring and other exit costs of $3 million recorded in the second quarter of fiscal 2005. The costs associated with previously announced restructuring actions included in cost of sales also decreased during the quarter. In the second quarter of fiscal 2006, there was no associated expense recorded in cost of sales and in the second quarter of fiscal 2005, the associated expense recorded in cost of sales was $8 million.

The effective tax rate was 35.4 percent for the second quarter of fiscal 2006. This compares to 33.3 percent in the second quarter of fiscal 2005. Last year’s second-quarter tax rate was lower primarily due to the resolution of certain tax items.

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Earnings after tax from joint ventures totaled $21 million in the second quarter, down from $24 million a year earlier due to the absence of earnings from the divested Snack Ventures Europe (SVE) joint venture, which was terminated on February 28, 2005. Earnings from SVE were $8 million in the second quarter of fiscal 2005. Cereal Partners Worldwide (CPW), our joint venture with Nestlé, posted a 4 percent net sales gain for the period. Net sales for our Häagen-Dazs ice cream joint ventures in Asia also were up 4 percent from the fiscal 2005 second quarter. 8^thContinent, our soy products joint venture with DuPont, achieved 9 percent net sales growth in the quarter.

Average diluted shares outstanding decreased by 22 million from the second quarter of fiscal 2005 due to the impact of our fiscal 2006 repurchases of 16 million shares, our repurchase of 17 million shares from Diageo plc in October 2004, and the repurchase of our contingently convertible debentures in October 2005, partially offset by the issuance of shares upon stock option exercises.

Twenty-six Week Results

For the twenty-six weeks ended November 27, 2005, we reported diluted earnings per share of $1.60, up 18 percent from $1.36 per share earned in the same period last year. Earnings after tax were $622 million in the first half of fiscal 2006, up 13 percent from $550 million last year. Net sales for the twenty-six weeks ended November 27, 2005 grew 3 percent to $5.94 billion, and segment operating profits increased 7 percent to $1.15 billion.

Net sales growth during the first half of fiscal 2006 was the result of 2 points of volume growth, primarily in International and U.S. Retail, and 1 point of growth from net price realization and product mix across all of our businesses. Promotional spending and foreign currency exchange effects were flat compared to the same period in fiscal 2005.

Cost of sales was up $15 million in the first half versus last year. Cost of sales increased $31 million primarily due to unit volume increases, as manufacturing efficiencies largely offset cost increases due to inflation. Cost of sales decreased by $16 million versus last year as the result of an $11 million year-over-year decrease in expense from accelerated depreciation associated with exit activities, as described below, and $5 million of product recall costs incurred in fiscal 2005. Cost of sales as a percent of sales decreased from 60.3 percent to 58.7 percent.

Selling, general and administrative expense was up $94 million in the first half versus last year. SG&A as a percent of sales in the first half increased from 21.7 percent last year to 22.6 percent this year. The increase in SG&A from the first half of fiscal 2005 is primarily the result of an increase in customer freight costs of $47 million over a year ago, largely due to increased fuel costs, and an increase in consumer marketing spending, primarily advertising, of $32 million over last year.

Interest expense for the first half totaled $193 million, lower than last year’s first half amount of $238 million, primarily as the result of last year’s debt pay down and the maturation of interest rate swaps.

In the first twenty-six weeks of fiscal 2006, we recorded restructuring and other exit costs of $11 million, consisting of $10 million of charges related to an asset impairment recognized at one of our production plants and $1 million of charges associated with restructuring actions previously announced. This compares to restructuring and other exit costs of $43 million recorded in the first half of fiscal 2005. The costs associated with previously announced restructuring actions included in cost of sales also decreased during the first half of fiscal 2006 to $2 million, down from $13 million in the first half of fiscal 2005.

The effective tax rate was 35.5 percent for the first half of fiscal 2006. This compares to 33.7 percent in the first half of fiscal 2005. The increase in the tax rate from fiscal 2005 is primarily the result of the resolution of certain tax items last year.

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Earnings after tax from joint ventures totaled $39 million in the first half, compared to $50 million a year earlier. Earnings from SVE were $18 million in the first half of fiscal 2005. Net sales for CPW were up 6 percent. Net sales for our Häagen-Dazs ice cream joint ventures in Asia grew 2 percent from the fiscal 2005 first half. 8^th Continent achieved 18 percent net sales growth in the first half.

Average diluted shares outstanding decreased by 18 million from the first half of fiscal 2005 due to the impact of our fiscal 2006 repurchase of 16 million shares, our repurchase of shares from Diageo plc in October 2004, and the repurchase of our contingently convertible debentures in October 2005, partially offset by the issuance of shares upon stock option exercises.

U.S. Retail Segment Results

Net sales for our U.S. Retail operations were up 3 percent in the second quarter to $2.34 billion, reflecting 2 percent unit volume growth and 1 percent net price realization. Operating profits for the quarter totaled $545 million, down 4 percent from prior-year operating profits that were up 5 percent from fiscal 2004 levels.

For the first half, net sales for our U.S. Retail operations were $4.14 billion, up 2 percent from last year, and operating profits for the period improved 3 percent from $921 million last year to $951 million this year.

U.S. Retail Net Sales and Volume Growth – Fiscal 2006 vs. 2005

The Meals division made the strongest dollar contribution to net sales growth in the second quarter of fiscal 2006, with a 9 percent increase driven by Progresso soup and Helper dinner mixes. Yoplait net sales grew 16 percent, reflecting continued strong performance from core product lines and new Chocolate Whips! yogurt. Snacks net sales grew 8 percent, led by Nature Valley granola bars and Chex Mix. Baking Products net sales rose 3 percent in the second quarter, reflecting price realization and favorable mix, including strong performance from new Warm Delights single-serve microwaveable desserts. Big G Cereals net sales were 2 percent below prior-year results, driven by a 1 percent decline in unit volume and 1 point from pricing and product mix. Pillsbury USA net sales declined 4 percent for the quarter, primarily due to lower unit volume in refrigerated cookies, reflecting increased competitive activity, and Totino’s.

Consumer retail purchases of our products were up 4 percent for the quarter and up 3 percent for twenty-six weeks as compared to last year in ACNielsen-measured channels including projections for Wal-Mart.

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General Mills Retail Dollar Sales Growth – Fiscal 2006 vs. 2005

International Segment Results

Net sales for our International segment were up 8 percent in the second quarter to $472 million. This increase was primarily the result of unit volume, which increased 5 percent with increases in all geographic regions. Favorable foreign currency effects contributed 2 points of sales growth. Operating profits for the quarter grew to $56 million in fiscal 2006, up 14 percent from $49 million last year, reflecting the effects of volume and favorable currency, as well as improved productivity.

For twenty-six weeks, net sales for our International segment were $918 million, up 9 percent. Unit volume for the first twenty-six weeks was up 6 points. Favorable foreign currency effects contributed 3 points of sales growth. Operating profits for twenty-six weeks grew to $117 million in fiscal 2006, up 38 percent from $85 million last year.

Bakeries and Foodservice Segment Results

Second quarter net sales for our Bakeries and Foodservice segment increased 2 percent to $465 million. This increase was primarily the result of net price realization and favorable product mix. Second-quarter unit volume for Bakeries and Foodservice essentially matched prior-year levels. Operating profits for the segment of $46 million also matched last year’s second quarter.

For twenty-six weeks, net sales for our Bakeries and Foodservice segment increased 1 percent to $882 million, as net price realization and product mix offset a 1 percent decline in volume. Operating profits for the segment were $79 million, up 14 percent from $69 million last year.

Unallocated Corporate Items

Corporate unallocated expense in the second quarter totaled $2 million. In last year’s second quarter, corporate unallocated expense totaled $20 million, including $8 million of expense, primarily accelerated depreciation associated with restructuring and exit activities. For twenty-six weeks, corporate unallocated expense items were essentially unchanged.

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FINANCIAL CONDITION

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

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

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

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

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

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

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

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

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Our total debt balances were as follows:

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

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

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

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

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note One to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 29, 2005. The accounting policies used in preparing our interim fiscal 2006 consolidated financial statements are the same as those described in our Form 10-K.

Our critical accounting policies are those that have meaningful impact on the reporting of our financial condition and results, and that require significant management judgment and estimates. These policies include our accounting for trade and consumer promotion activities, asset impairments, income taxes, and pension and postretirement liabilities.

Trade and Consumer Promotion Activities

We report sales net of certain coupon and trade promotion costs. The trade promotion costs include payments to customers to perform merchandising activities on our behalf, such as advertising or in-store displays, discounts to our list prices to lower retail shelf prices, and payments to gain distribution of new products.

The amount and timing of expense recognition for trade and consumer promotion activities involve management judgment related to estimated participation and performance levels. The vast majority of year-end liabilities associated with these activities are resolved within the following fiscal year and therefore do not require highly uncertain long-term estimates. For interim reporting, we estimate the annual trade promotion expense and recognize pro rata period expense generally in proportion to revenue, adjusted for estimated year-to-date expenditures.

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Promotional funds for our retail businesses are initially established at the beginning of each year, and paid out over the course of the year based on the customer’s performance of agreed-upon merchandising activity. During the year, additional funds may also be used in response to competitive activities, as a result of changes in the mix of our marketing support, or to help achieve interim unit volume targets.

We set annual sales objectives and interim targets as a regular practice to manage our business. Our sales employees are salaried, and are eligible for annual cash incentives based on performance against objectives set at the start of the year. These objectives include goals for unit volume and the trade promotion cost per unit required to achieve the unit volume goal. Our sales employees have discretion to plan and adjust the timing of merchandising activity over the course of the year, and they also have some discretion to adjust the level of trade promotion funding applied to a particular event.

Our unit volume in the last week of each quarter has been consistently higher than the average for the preceding weeks of the quarter. In comparison to the average daily shipments in the first 12 weeks of a quarter, the final week of each quarter has approximately two to four days’ worth of incremental shipments (based on a five-day week), reflecting increased promotional activity at the end of the quarter. This increased activity includes promotions to assure that our customers have sufficient inventory on hand to support major marketing events or increased seasonal demand early in the next quarter, as well as promotions intended to help achieve interim unit volume targets. This increased sales activity results in shipments that are in direct response to orders from customers or authorized pursuant to pre-arranged inventory-management agreements, and accordingly are recognized as revenue within that quarter. The two to four day range of increased unit volume in the last week of each quarter has been generally consistent from quarter to quarter over the last three years.

As part of our effort to assess the results of our promotional activities, we regularly estimate the amount of “retailer inventory” in the system — defined as product that we have shipped to our customers that has not yet been purchased from our customers by the end-consumer. While it is not possible for us to measure the absolute level of inventory, we are able to estimate the change that occurs each month by comparing our shipments to retail customers with their sales to end-consumers (“takeaway”) as reported by ACNielsen including panel projections for Wal-Mart. Our estimate indicates inventory levels peak in November when retailers have increased inventories to meet seasonal demand for products like refrigerated dough and ready-to-serve soup. This seasonal trend is generally consistent from year to year, even as retailers have taken actions to reduce their ongoing inventory levels.

We also assess the effectiveness of our promotional activities by evaluating the end-consumer purchases of our products subsequent to the reporting period. If, due to quarter-end promotions or other reasons, our customers purchase more product in any reporting period than end-consumer demand will require in future periods, then our sales level in future reporting periods would be adversely affected.

As part of our ongoing evaluation of sales, we also monitor customer returns. We generally do not allow a right of return on our products. However, on a limited case-by-case basis with prior approval, we may allow customers to return products in saleable condition for redistribution to other customers or outlets. These returns are recorded as reductions of net sales in the period of the return. Monthly returns are consistently below 1 percent of sales, and have averaged approximately 0.5 percent of total monthly shipments over the last three years.

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Asset Impairments

Evaluating the impairment of long-lived assets — including property, plant and equipment, goodwill, and other intangible assets — involves management judgment in estimating the fair values and future cash flows related to these assets, as well as assessing our plans for their future use. Although the predictability of long-term cash flows may be somewhat uncertain, and assuming our plans for future use remain unchanged, our evaluations indicate fair values of assets significantly in excess of stated book values. Therefore, we believe the risk of unrecognized impairment is low.

Income Taxes

Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments of the ultimate resolution of tax issues have been reasonably accurate. The current open tax issues are not dissimilar in size or substance from historical items, except for the accounting for losses recorded as part of the Pillsbury transaction.

Pension Accounting

The accounting for pension and other postretirement liabilities requires the estimation of several critical factors. The assumptions used in the determination of those liabilities are unchanged from May 29, 2005.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment,” in December 2004, which will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values and recognized over the vesting period. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the compliance dates for SFAS 123(R). The new rule allows companies to implement SFAS 123(R) at the beginning of their fiscal year that begins after June 15, 2005. Under the new rule, SFAS 123(R) will become effective for us in the first quarter of fiscal 2007. We are still evaluating the impact of adopting SFAS 123(R) on our consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – An Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 is effective for the fiscal year beginning after June 15, 2005, and is effective for us in the first quarter of fiscal 2007. We do not expect SFAS 151 to have a material impact on our results of operations or financial condition.

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

In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” (FSP 109-2). FSP 109-2 provides guidance with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 on income tax expense and deferred tax liability. FSP 109-2 includes a one year reduced tax rate on repatriation of foreign earnings and a phased-in tax deduction provided for qualifying domestic production activities. We are currently evaluating the impact of repatriation provisions as Treasury guidance is provided. However, the range of reasonably possible amounts of unremitted earnings that is being considered for repatriation in fiscal year 2006 is between $0 and $60 million with the respective income tax impact ranging from $0 to $3 million based on a 5.25 percent tax rate.

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In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” (FIN 47). FIN 47 requires that liabilities be recognized for the fair value of a legal obligation to perform asset retirement activities that are conditional on a future event if the amount can be reasonably estimated. We will adopt FIN 47 at the end of fiscal 2006 and do not expect it to have a material impact on our results of operations or financial condition.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in such statements. We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

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; actions of competitors other than as described above; economic conditions, including changes in inflation rates, interest rates or tax rates; 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 changes in accounting standards and labeling and advertising regulations; changes in customer 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; 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; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. We undertake no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk during the twenty-six weeks ended November 27, 2005. For additional information, see “Market Risk Management” on pages 22-23 of our Form 10-K for the year ended May 29, 2005.

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 27, 2005, 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 recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 

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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 27, 2005, that have 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.

The following table sets forth information with respect to shares of our common stock that we purchased during the three fiscal months ended November 27, 2005.

Item 4.    Submission of Matters to a Vote of Security Holders.

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Item 6.    Exhibits.

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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.

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Exhibit Index

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