Building Our Brands

MIDYEAR REPORT 2003

BUILDING OUR BRANDS

SEE PAGE 1 DEAR SHAREHOLDERS: General Mills reported strong results for flexibility. As a result, we have increased the second quarter of fiscal 2003, our fiscal 2003 earnings target to a range providing the clearest signal yet of the of $2.60 to $2.62 per share before unusual power of combining Pillsbury and items. This goal represents strong General Mills. Net sales in the quarter recovery from last year’s $1.70 earnings grew 60 percent, per share before unusual items. For more reflecting a full detailed financial results, turn to pages 4 13-week through 8 of this report. contribution At its December meeting, your board of from the directors elected a new member. Hilda Pillsbury Ochoa-Brillembourg, CFA, is president and businesses chief executive officer of Strategic compared to just Investment Group (SIG) and managing three weeks included in last year’s second director, Emerging Markets Investment quarter. Earnings per share increased Corporation and Emerging Markets 22 percent to 77 cents before unusual Management. With the addition of Ochoa- items. Including unusual items, which Brillembourg, the General Mills board will primarily reflect expenses associated have 14 members, three of whom are with the Pillsbury acquisition, earnings officers of the company. The board also per share totaled 73 cents, a 78 percent declared a quarterly dividend at the increase. Through the first half of fiscal prevailing rate of $.275 per share, payable 2003, our earnings per share before Feb. 3, 2003, to shareholders of record on unusual items were up 7 percent to $1.33. Jan. 10, 2003. General Mills has now paid Strong unit volume performance is uninterrupted dividends without reduction driving our growth. On a comparable basis, for 104 years. as if we had owned Pillsbury for all of last Our increasing momentum reflects the year, unit volume for our U.S. Retail efforts of our 28,000 employees around businesses was up 3 percent for the half. the globe. Their talent and commitment Bakeries and Foodservice volume was up make General Mills a great company. 1 percent, outpacing the broader foodservice industry. And international Sincerely, volumes were up 2 percent, including continued growth by our joint ventures. In addition to delivering solid operating performance through the first half, we also successfully refinanced much of the short- STEPHEN W. SANGER term debt added with the Pillsbury Chairman of the Board and transaction. We did so at favorable rates, Chief Executive Officer which has given us added financial January 8, 2003

This report to shareholders contains forward-looking statements based on management’s current views and assumptions. Actual events may differ. Please refer to our 2002 Form 10-K for further discussion of these matters. GETTING GROWTH

WHAT’S THE REAL KEY to keeping General Mills’ expanded portfolio of leading brands healthy? “Listening to the consumer is what it’s all about,” says Natalia Franco, marketing director in the Pillsbury USA division. “We’ve grown the Pillsbury brand by creating new products consumers want and by improving our existing product lines.” Most recently, Franco worked with Vivian Milroy Callaway, director of Consumer Insights, to make a better ready-to-bake chocolate chip cookie. “Consumers like to see Natalia Franco (left) and Vivian Milroy Callaway Pillsbury USA the chips in their cookies,” Callaway says, “so we worked closely with manufacturing to put the chips on top of the dough. This might seem like a small change, but we made a significant capital investment to do it, and it is reaping big benefits.” We made this improvement to our Ready To Bake! cookies and to several flavors of Big Deluxe Classics, a line of larger- sized, ready-to-bake cookies. Since making the change, sales for these cookies have increased 50 percent. And the Pillsbury brand has captured the No. 1 dollar share

1 position in the ready-to-bake cookie segment, where retail sales have grown 20 percent this fiscal year. Product improvements are driving sales growth for Progresso soup, too. Research and Development Manager Erica Flynn and her team are focusing on improving existing flavors to suit changing tastes. “Consumers like the quality and convenience of our ready- to-serve soup. But we’re working to make them even better,” Flynn explains. “We’ve made our New England Clam Chowder and our Beef and Vegetable soup thicker with a more robust taste. In testing, consumers told us they prefer these improved soups over the leading condensed soup.” We’ve also added several new flavors to the line, including Grilled Steak and Grilled Chicken Italiano. These new flavors, along with product improvements, are driving 5 percent sales growth for the entire Progresso line so far this fiscal year. In addition to improving existing product lines, we also build our brands by introducing entirely new products. For example, Yoplait recently introduced several new yogurt lines with much success. Yoplait Whips!, a line of mousse-like yogurts, was rolled out last January, and it was so popular that supply couldn’t keep up with demand. Last fall, we installed additional production lines, so now there is enough Whips! yogurt to go around. Watch for new Blueberry Mist and Strawberry Banana Bliss flavors coming to stores in March. Yoplait Nouriche yogurt smoothies offer the nourish-

ment of a meal in a bottle. This yogurt drink contains Erica Flynn 20 vitamins and minerals, plus protein and fiber, and Research & Development

2 has been well received by consumers in West Coast markets. Nouriche will be available nationally in March. Berry Burst Cheerios cereal is our latest addition to the popular Cheerios line. This new cereal is available in two flavors featuring real strawberries, blueberries and raspberries. “Food retailers look to General Mills for innovative, new products Ellen Siebenborn-Forsyth and Pat Brennan Consumer Foods Sales and like it when we introduce a new version of a popular brand,” says Pat Brennan, director, National Retail Organization, Consumer Foods Sales. “Berry Burst Cheerios has been well received nationally by our accounts, and our retail sales representatives are working hard to secure great merchandising in stores across the country.” Ellen Siebenborn-Forsyth manages the Midwest region of the company’s National Retail Organization and says, “Whenever we introduce a new product or a new flavor, our retail sales reps are the ones that make sure it is displayed on your grocer’s shelves.” We know that good in-store merchandising can drive sales growth, so we have doubled the size of our organization to include 450 retail sales representatives. “We’ve introduced over 80 new products in the first half of this fiscal year, and we’ve got more coming in the second half,“ says Siebenborn-Forsyth, “so we’re going to be busy.”

3 CONSOLIDATED STATEMENTS OF EARNINGS Unaudited 13 Weeks Ended 26 Weeks Ended In Millions, Except Per Share Data Nov. 24, 2002 Nov. 25, 2001 Nov. 24, 2002 Nov. 25, 2001 Net Sales $ 2,953 $ 1,842 $ 5,315 $ 3,246 Costs and Expenses: Cost of sales 1,768 1,040 3,154 1,761 Selling, general and administrative 623 415 1,156 787 Interest, net 140 69 282 118 Unusual items 21 109 76 94 Total Costs and Expenses 2,552 1,633 4,668 2,760 Earnings before Taxes and Earnings from Joint Ventures 401 209 647 486 Income Taxes 139 81 226 176 Earnings from Joint Ventures 14 3 31 12 Earnings before Cumulative Effect of Change in Accounting Principle 276 131 452 322 Cumulative Effect of Change in Accounting Principle - - - (3) Net Earnings $ 276 $ 131 $ 452 $ 319 Earnings per Share - Basic Earnings before cumulative effect of change in accounting principle .75 .43 1.23 1.09 Cumulative effect of change in accounting principle - - - (.01) Earnings per Share - Basic $ .75 $ .43 $ 1.23 $ 1.08 Average Number of Common Shares 368 307 368 296 Earnings per Share - Diluted Earnings before cumulative effect of change in accounting principle .73 .41 1.20 1.05 Cumulative effect of change in accounting principle - - - (.01) Earnings per Share - Diluted $ .73 $ .41 $ 1.20 $ 1.04 Average Number of Common Shares - Assuming Dilution 377 318 376 307 Dividends per Share $ .275 $ .275 $ .55 $ .55

OPERATING SEGMENTS Unaudited 13 Weeks Ended 26 Weeks Ended In Millions Nov. 24, 2002 Nov. 25, 2001 Nov. 24, 2002 Nov. 25, 2001 Net Sales: U.S. Retail $ 2,145 $ 1,512 $ 3,755 $ 2,692 Bakeries and Foodservice 483 240 921 395 International 325 90 639 159 To tal 2,953 1,842 5,315 3,246 Operating Profit Before Unusual Items: U.S. Retail $ 494 $ 356 $ 855 $ 653 Bakeries and Foodservice 51 38 104 64 International 21 6 43 9 Unallocated Corporate Items (4) (13) 3 (28) To tal 562 387 1,005 698 Operating Profit Including Unusual Items: U.S. Retail $ 497 $ 272 $ 850 $ 589 Bakeries and Foodservice 50 38 70 64 International 21 6 43 9 Unallocated Corporate Items (27) (38) (34) (58) 4 To tal $ 541 $ 278 $ 929 $ 604 CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (Unaudited) In Millions Nov. 24, 2002 Nov. 25, 2001 May 26, 2002 ASSETS Current Assets: Cash and cash equivalents $ 1,747 $ 853 $ 975 Receivables 1,236 1,219 1,010 Inventories: Valued primarily at FIFO 419 423 335 Valued at LIFO (FIFO value exceeds LIFO by $31, $30 and $31, respectively) 861 656 720 Prepaid expenses and other current assets 155 223 156 Deferred income taxes 264 62 241 Assets held for sale - 641 - Total Current Assets 4,682 4,077 3,437 Land, Buildings and Equipment, at Cost 4,590 4,581 4,618 Less accumulated depreciation (1,867) (1,764) (1,854) Net Land, Buildings and Equipment 2,723 2,817 2,764 Goodwill 6,369 8,377 8,473 Other Intangible Assets 3,611 83 90 Other Assets 1,891 1,770 1,776 To tal Assets $ 19,276 $ 17,124 $ 16,540

LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 1,499 $ 1,184 $ 1,217 Current portion of long-term debt 100 584 248 Notes payable 2,379 7,220 3,600 Other current liabilities 848 821 682 Total Current Liabilities 4,826 9,809 5,747 Long-term Debt 7,480 2,206 5,591 Deferred Income Taxes 1,665 418 336 Deferred Income Taxes - Tax Leases 69 75 71 Other Liabilities 1,128 1,063 1,066 Total Liabilities 15,168 13,571 12,811 Minority Interest 299 9 153 Stockholders’ Equity: Cumulative preference stock, none issued – – – Common stock, 502 shares issued 5,672 5,689 5,733 Retained earnings 2,818 2,630 2,568 Less common stock in treasury, at cost, shares of 134, 137 and 135, respectively (4,250) (4,351) (4,292) Unearned compensation (55) (54) (57) Accumulated other comprehensive income (376) (370) (376) To tal Stockholders’ Equity 3,809 3,544 3,576 Total Liabilities and Equity $ 19,276 $ 17,124 $ 16,540

See accompanying notes to consolidated condensed financial statements.

5 CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited 26 Weeks Ended In Millions Nov. 24, 2002 Nov. 25, 2001 Cash Flows - Operating Activities: Net earnings $ 452 $ 319 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization 180 114 Deferred income taxes 55 17 Changes in current assets and liabilities excluding effects from businesses acquired (14) (117) Tax benefit on exercised options 10 25 Cumulative effect of change in accounting principle - 3 Unusual items expense 76 94 Other, net (79) (45) Cash provided by continuing operations 680 410 Cash used by discontinued operations (1) (1) Net Cash Provided by Operating Activities 679 409 Cash Flows - Investment Activities: Purchases of land, buildings and equipment (211) (143) Investments in businesses, intangibles and affiliates, net of investment returns and dividends (54) (3,593) Purchases of marketable securities (59) (96) Proceeds from sale of marketable securities 38 46 Proceeds from disposal of land, buildings and equipment 1 8 Proceeds from disposition of businesses - 299 Other, net (44) (4) Net Cash Used by Investment Activities (329) (3,483) Cash Flows - Financing Activities: Change in notes payable (1,216) 6,362 Issuance of long-term debt 1,985 7 Payment of long-term debt (248) (23) Proceeds from minority investors, net 147 - Common stock issued 53 76 Purchases of common stock for treasury (20) (2,409) Dividends paid (202) (157) Other, net (77) 7 Net Cash Provided by Financing Activities 422 3,863 Increase in Cash and Cash Equivalents $ 772 $ 789 Cash Flows from Changes in Current Assets and Liabilities, Excluding Effects from Businesses Acquired: Receivables (223) 69 Inventories (227) (46) Prepaid expenses and other current assets - 11 Accounts payable 284 (90) Other current liabilities 152 (61) Changes in Current Assets and Liabilities $ (14) $ (117)

See accompanying notes to consolidated condensed financial statements.

6 SUMMARY NOTES TO FINANCIAL STATEMENTS

For complete notes pertaining to these financial statements as well as management’s discussion and analysis, see our 10-Q report, available at www.generalmills.com in the Investor Information section under SEC filings. Copies also can be obtained by calling General Mills Investor Relations Department at (800) 245-5703.

BACKGROUND share equal to the difference between $49 and the These consolidated condensed financial General Mills stock trading price, up to a statements do not include certain information and maximum of $5 per share. disclosures required by accounting principles The allocation of the purchase price was generally accepted in the United States for completed in the second quarter of fiscal 2003. comprehensive financial statements. However, in Intangible assets included in the final allocation of the opinion of management, all adjustments the purchase price were acquired brands totaling considered necessary for a fair presentation have $3.5 billion and goodwill of $5.6 billion. been included and are of a normal recurring Deferred income taxes of $1.3 billion, associated nature. Operating results for the 26 weeks ended with the brand intangibles, also were recorded. Nov. 24, 2002, are not necessarily indicative of In the course of completing the purchase price the results that may be expected for the fiscal year allocation during the first six months of fiscal ending May 25, 2003. 2003, adjustments were made as management These statements should be read in finalized plans to exit certain Pillsbury facilities as conjunction with the consolidated financial part of consolidating manufacturing, warehouse statements and footnotes included in our annual and distribution activities into fewer locations. In report for the year ended May 26, 2002.The the first half, we announced that we would close accounting policies used in preparing these plants in Hillsdale, Mich.; Eden Prairie, Minn.; consolidated condensed financial statements are St. Louis, Mo.; Lithonia, Ga.; and Denison,Texas. the same as those described in Note 1 of our annual report, except as described in Form 10-Q UNUSUAL ITEMS Note 10,“Accounting Rules Adopted.” In the second quarter of fiscal 2003, we recorded Certain amounts in the prior year consolidated unusual items of $21 million pretax expense, financial statements have been reclassified to $14 million after tax ($.04 per diluted share). In conform to the current year presentation. last year's second quarter, we recorded unusual items totaling $109 million pretax expense, ACQUISITION $68 million after tax ($.22 per diluted share). On Oct. 31, 2001, we acquired the worldwide For the six months ended Nov. 24, 2002, Pillsbury operations from Diageo plc (Diageo). unusual items totaled $76 million pretax expense, The total acquisition consideration (exclusive $49 million after tax ($.13 per diluted share), of direct acquisition costs) was approximately representing $41 million pretax charges associated $9,724 million. Under terms of the agreement, with the closure of our St. Charles, Ill., plant, and Diageo holds contingent value rights that may $38 million of expenses related to relocating require payment to Diageo on April 30, 2003, of production from former Pillsbury facilities being up to $395 million, depending on the General closed and other Pillsbury transaction and Mills stock price and the number of General integration costs.These costs were partially offset Mills shares that Diageo continues to hold on that by additional insurance settlements of $3 million date. If the General Mills stock price averages less pretax covering a 1994 oats handling incident. than $49 per share for the 20 trading days prior For the six months last year, unusual items to that date, Diageo will receive an amount per totaled $94 million pretax expense, $59 million

7 after tax ($.19 per diluted share), representing On Nov. 20, 2002, we sold $350 million 7 $30 million pretax of Pillsbury transaction and of 3 /8 percent fixed-rate notes due Nov. 30, 2007, integration costs; $87 million pretax of cereal and $135 million of 3.901 percent fixed-rate reconfiguration charges; $4 million pretax charges notes due Nov. 30, 2007. for the exit from the Squeezit beverage business; Commercial paper is a continuing source of and $3 million pretax, net of insurance recovery, short-term financing.We can issue commercial associated with a flash flood at our Cincinnati, paper in the United States and Canada, as well as Ohio, cereal plant; partially offset by additional in Europe. Our commercial paper borrowings are insurance settlements of $30 million pretax supported by $2.1 billion in fee-paid committed covering the 1994 oats handling incident. credit lines.As part of our core facilities, we have $1.05 billion in 364-day facilities that expire in DEBT AND MINORITY INTEREST January 2003, which we expect to renew in At the end of the first half, our adjusted debt January 2003 for an additional year, and plus minority interest totaled $9.1 billion. $1.05 billion in five-year facilities that expire in Approximately 74 percent of our debt was long January 2006.As of Nov. 24, 2002, the company term, 19 percent was short term (excluding the had no outstanding borrowings under these impact of reclassification from our long-term facilities.Additionally, we have $41 million in credit facility), and the balance was leases and tax- uncommitted credit lines available. benefit leases.This reflects refinancing of We believe that cash flows from operations approximately $5.8 billion in commercial paper together with available short- and long-term debt with longer-term debt and minority interest since financing will be adequate to meet our liquidity February 2002. and capital needs. During fiscal 2002, General Mills filed a shelf As of Nov. 24, 2002, we have recorded registration statement with the Securities and approximately $300 million of minority interest Exchange Commission covering the sale of up to financing on our balance sheet. In May 2002, we $8.0 billion in debt securities.As of Nov. 24, sold a minority interest in a subsidiary to an 2002, approximately $4.0 billion remained unrelated third-party investor for $150 million. available under the shelf registration statement for This subsidiary holds some of our manufacturing future debt issuance. On Sept. 18, 2002, we began assets and trademarks. In the first quarter of 2003, a new medium-term note program for the sale to we sold a minority interest in another subsidiary individual investors of up to $750 million of for $150 million.We did not recognize any gain notes with maturities of nine months or more.As or loss in connection with the issuance of the of Nov. 24, 2002, we had issued approximately minority interests.All assets, liabilities and results $17 million of notes under the program. of operations of these subsidiaries are reflected in On Oct. 28, 2002, we sold zero coupon our financial statements, and the third party’s convertible debentures with a face value of investment is reflected as minority interest on our approximately $2.23 billion for gross proceeds of balance sheet. approximately $1.50 billion.

8 BRIEFLY NOTED

CPW GOES TO CHINA CHAMPIONING YOUTH In November, Cereal NUTRITION AND FITNESS Partners Worldwide, our The General Mills joint venture with Nestlé, Foundation, in partnership introduced its first cereals with the American Dietetic in Beijing and Shanghai, Association Foundation and China. These cereals are the President’s Challenge, designed to suit the tastes has formed an initiative to of Chinese consumers. For A HOT NEW FROZEN LINE improve the nutrition and example, Honey Stars, sold Pillsbury’s Home Baked fitness of U.S. children. The in other international mar- Classics line of frozen Foundation will be award- kets, was changed to Milk baked goods is popular ing 50 grants of up to and Egg Stars, imitating a with consumers. But don’t $10,000 each to nonprofit favorite children’s breakfast. take our word for it. organizations that help our Adapting cereals to local Retailers polled by Frozen youth develop good nutri- market tastes is a key to Food Age magazine, a lead- tion and fitness habits. To CPW’s rapid growth around ing trade publication, learn more about this pro- the world. CPW is just named this line one of the gram and others supported starting its 13th year of 10 best new products in by the Foundation, go to 2002. our Community Action page The frozen baked goods on www.generalmills.com/ category is now $800 mil- foundation, or write to lion in retail sales. Pillsbury request our Corporate is the leading brand in this Citizenship Report at: growing market with a General Mills Community Action P.O. Box 1113 19 percent dollar share. Minneapolis, MN 55440-1113 operation with a presence This fall, we added new in over 130 countries. In Butterflake dinner rolls and calendar 2002, it posted Flaky Layers biscuits to the another year of solid results line. Sales for Home Baked with unit volume increasing Classics frozen dough have 7 percent. And CPW has a grown 68 percent so far 22 percent share of the this fiscal year. global cereal market, which means one out of every five boxes of cereal sold outside North America is a CPW brand.

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