Kris Wenker - VP, IR Don Mulligan - CFO

David Palmer - UBS Terry Bivens - JPMorgan Edward Aaron - RBC Capital Markets Jonathan Feeney - Janney Montgomery Scott Alexia Howard - Sanford Bernstein Eric Katzman - Deutsche Bank Robert Moskow - Credit Suisse Kenneth Zaslow - BMO David Driscoll - Citi Chris Growe - Stifel Nicolaus Bryan Spillane - Bank of America

Welcome to the General Mills F10Q4 and full year results conference call. (Operator Instructions) It is now my pleasure to turn the conference over to Ms. Kris Wenker, Vice President of Investor Relations.

Good afternoon everybody. I’m here with Don Mulligan, our CFO, and he’s going to discuss our fourth quarter and full year fiscal '10 results and then cover the key financial targets and assumptions for fiscal '11. We hope you'll join us on Thursday as well; that's when Don, Ken Powell and our other senior leaders will provide a detailed review of our 2011 plan. That webcast will start Thursday morning at 7.45 Central, so 8.45 Eastern. Our press release on fiscal 2010 results was issued over the wire services about a half hour ago. It's also posted on our website if you still need a copy. We've put flags out on the web; they supplement Don's prepared remarks for today. And I'll remind you, those remarks include forward-looking statements based on management’s current views and assumptions. The second slide lists factors that could cause our future results to be different than our current estimates. And with that I’ll turn you over to Don.

Thanks, Kris, and hello everyone. Thanks for your interest in General Mills and for joining us this afternoon. Fiscal 2010 was a terrific year for us. We delivered high quality sales and earnings growth well above the original targets that we set for the year. We generated more than $2 billion of cash flow and we returned a significant portion of that to shareholders through share repurchases and dividends while also strengthening our balance sheet. We invested strongly in merchandizing and consumer marketing efforts throughout the year, resulting in good fourth quarter sales growth and strong momentum as we begin our new year. Now it's hard to see our fourth quarter operating performance in the reported numbers. The comparison includes one extra week of business in the final quarter of 2009. We also divested some product lines last year. So we'll provide some additional sales data on a comparable basis. Please note that our comments on slides as on an as reported basis unless otherwise noted, and our materials also reflect the recent 2-for-1 stock split. Slide 6 summarizes our results. Sales for the quarter totaled $3.6 billion, down 2%. Segment operating profit was $606 million, which was margin in line with last year, excluding mark-to-market effects and a 10% increase in media spending. Net earnings totaled $212 million and diluted earnings per share was $0.31 as reported. These reported results include (inaudible) affecting comparability. Fourth quarter 2010 earnings include a net reduction of $0.05 per share related to mark-to-market valuation of certain commodity positions. We also recorded a $0.05 non-cash tax charge related to the recently enacted healthcare legislation. Excluding these items, earnings per share for the quarter would be $0.41. In last year's fourth quarter, we recorded a $0.16 gain from mark-to-market valuation, which was partially offset by a loss in the divestiture of several bakeries and foodservice product lines. Excluding these items affecting comparability from both years, diluted earnings per share declined only slightly in the fourth quarter. That primarily reflects one less week in fiscal 2010. That extra week contributed about $0.04 per share last year. In this year, we recorded charges of about $0.04 per share in the fourth quarter related to debt refinancing activities. That action reduced our debt maturing in 2012 by $400 million. We ended the year with very strong top-line results. Slide 8 shows fourth quarter sales growth as reported, and then on a comparable weeks basis. U.S. retail sales grew 5% on a comparable basis driven by a strong increase in Pound volume. International sales grew 5% excluding the impact of the extra week. This includes 3 points of favorable foreign exchange. Volume growth drove the increase in sales on a constant currency basis. Our Bakeries and Foodservice segment reported a 5% decline in net sales on a comparable basis. But this includes the impact of divestitures and index pricing tied to wheat markets that have been below year-ago levels. Underlying performance in this business ranged quite good as you'll see with our volume results. Volume trends accelerated in the fourth quarter across all of our segments. Slide 9 shows the pound volume contributions and net sales growth with the impact of divested product lines noted below the chart. On a reported basis, pound volume contributions and net sales was unchanged versus last year, with divested products reducing growth by 1 point. The next slide shows point volume growth on a comparable basis, excluding the impact of the extra week. On this basis, U.S. retail pound volume increased 8% for the quarter. Pound volume for international was up 3% despite a 2 point reduction from divestitures. And in our bakeries and foodservice segment, pound volume excluding divested products would have increased in the quarter, well ahead of overall industry trends. On a reported basis, fourth quarter gross margin was 36.2%, down from last year, when we recorded a $170 million mark-to-market gain. Excluding mark-to-market effects, gross margin matched year-ago levels. As I mentioned earlier, we continue to reinvest to drive top-line growth. Media spending grew 10% in the fourth quarter. That's on top of a double-digit increase in the period a year ago. This investment contributed to our good sales growth in the quarter, and will help us maintain momentum as we enter 2011. Slide 13 shows our segment operating profit margins for the quarter. Following strong margin expansion through the first three quarters of this year, total segment margin declined in the fourth quarter. Some tactical increase and price promotion, and 14% increase in media spending resulted in a decline in U.S. retail margins. The international margin was down due to transaction of foreign exchange effects. In bakeries and foodservice, segment margin increased, reflecting lower input cost and continued strong mix management. After tax earnings from joint ventures increased 25%, to $15 million for the quarter, including payable foreign exchange effects. On a constant currency basis, fourth quarter sales for CPW grew 5% with good volume growth and (payable) net price realization and mix. Haagen Dazs Japan sales declined at a double-digit rate due to the challenging economic environment. Slide 15 summarizes results for 2010 in total. Sales grew 1% as reported. That's being pulled down by 3 points from divestitures and the extra week. Segment operating profits grew 8%, including a 24% increase in media spending. And diluted earnings per share, excluding certain items affecting comparability reached $2.30, up 16% from last year and well ahead of our long term growth model. We believe this represents very strong financial performance in a challenging operating environment. Our growth was driven by broad-based sales gains across our businesses. U.S. retail sales grew 3%, led by strong growth in our snacks businesses and Big G cereals. Dollar sales increased across all of our U.S. retail divisions including baking when you look at absolute dollars and that's with one less week of business. Comparable week sales growth was even stronger. Bakeries and foodservice sales trends were strong as well. Slide 17 shows fiscal 2010 results for our key channels and brands. We're outperforming foodservice and convenience store industry trends. Sales to foodservice distributors were down just 2% as reported, while convenience store food industry sales continued to decline, sales of our brands drew 3% in 2010. Our consumer branded products are leading our growth. Yogurt sales increased 1%, sales of cereals grew 4% and snack sales increased 6% in fiscal 2010. And again, comparable week sales growth was even stronger. This sales performance combined with lower supply chain costs and good productivity savings led to a significant improvement in bakers and foodservice operating profits. The operating profit margin for this segment reached 14% in fiscal 2010, well above the double digit target we've been working toward the last few years. 2010 sales growth was strong across our international markets as well. Excluding the impact of foreign currency, international net sales increased 3%. Sales in Canada were up 2% before currency benefit as we continue to drive growth in our key categories resulting in share gains in cereals and grain snacks. Asia Pacific sales grew 9% driven by good performance by Haagen-Dazs shops in Wanchai Ferry in China. Sales in Europe were up 2% led by growth for Nature Valley granola bars and Old El Paso. In Latin America, sales matched last year's levels despite the loss of sales from divested product lines. In total, our segment operating cost of margin increased by 130 basis points in 2010 in 19.3% of sales. Strong operating performance, effective cost saving initiatives and low input costs more than funded a 24% increase in media spending. International margins were down, that was due to foreign currency effects. We saw good growth in both U.S. retail and Bakeries and Foodservice. Turning to the balance sheet, we paid down more than $600 million in debt in 2010 resulting in total debt at year end of $6.4 billion in a return to our targeted BBB+ stable credit rating. Our operating cash flow to debt ratio improved to 34% and our fixed charge coverage improved 6.4 times. So, we exited 2010 with a stronger balance sheet. Our fourth quarter debt tender resulted in a $40 million pretax charge this year, but that will benefit us next year. And the rest remaining a mid single digit decline in interest expense. Core working capital was up 3% versus last year. Inventories essentially matched last year's levels. Our receivables increased ahead of sales growth due to sales timing shift before currency translation. Payables were slightly above last years levels. Our operations generate over $2 billion of cash in fiscal 2010 up almost 20% from last year driven by our strong earnings growth. We used some of that cash for capital investment. Capital spending totaled $650 million for fiscal 2010 as we added manufacturing capacity in cereal, snack bars and yogurt. We also returned cash to shareholders through share repurchases and dividends. Our average diluted shares outstanding decreased by 1% for the year and dividends per share were up 12% over those paid in 2009. We returned more than $1.3 billion to shareholders in fiscal 2010. And over the past five years, we returned more than $8 billion to shareholders of General Mills through dividend and share repurchases. We have delivered consistent quality growth in sales, segment operating profit and earnings per share. We expect fiscal 2011 to be another year of quality growth for General Mills. Our 2011 plan offer operating results in line with our long term motto. We expect volume gains to drive low single digit growth in net sales and segment operating profit to grow ahead of sales, despite renewed input cost inflation. We're projecting increase of 4% to 5% in our commodity and fuel cost next year after a 3% decline in 2010. Key drivers of our 2011 increases are energy, resin-based packaging and dairy. Our corporate unallocated expense will increase next year, driven by non-cash pension expense. The increase in fiscal 2011 is driven by a decrease in the discount rate used to calculate pension expense reflecting the low interest rate environment. Our discount rate is a complex actuarial calculation, but it begins with bond deals. If you've been watching those rates over the past year, we've seen a pretty significant decline. Slide 27 shows the average for 15 year AA industrial bond as an example. The yield is down just over 100 basis points from last year. The specific discount we used to calculate on pension expense will decrease from 7.5% in 2010 to 5.85% in 2011. Now, we don't believe the current low interest rate environment will last forever, but this discount rate decrease will drive an increase an expense of roughly $100 million in expense in non-cash pension expense next year. Further, the funded status of our qualified plans is still quite healthy and we saw a good double digit return on plan assets for 2010. Looking forward, we haven't changed our long term return assumption and we aren't required to make any cash contributions to our plans in 2011. So, to sum up our financial targets for 2011, we're expecting to deliver strong sales and operating profit growth in line with our long term model. We're targeting earnings per share of $2.46 to $2.48 before any market-to-market effects. That represents growth of 7% to 8% from this year's adjusted EPS of $2.30. And we'll continue to return strong levels of cash to our shareholders. Just yesterday, we announced a 17% increase in our perspective fiscal 2011 dividend rate to $1.12 per share. And our board approved a new 100 million share repurchase authorization. Now, we don't give quarterly guidance as you know, but if you take a look at the sell side estimates posted out there for 2011, it appears that you all do remember that we had an exceptionally strong start to 2010. Our plan doesn't assume EPS growth for first quarter, but the absolute level of earnings for the first quarter will be quite strong again. It'll put us nicely on track to achieve our full year EPS target. We'll share more of our plans for fiscal 2011 later this week. I look forward to seeing some of your in Minneapolis tomorrow night and invite all of you to join us via webcast, Thursday morning, 7:45 Central, hear our plans for driving quality growth for 2011. With that, I'd be happy to answer your questions. Operator will you get us started please?

(Operator Instructions) Our first question comes from the line of David Palmer with UBS. David Palmer - UBS: Just a quick question on the environment. I know folks are wondering about, why it seems so difficult, just meeting a lot of the companies that we've seen lately, privately they'll say it's maybe the most difficult environment they've seen in a long time. I don't know if you share the same sentiment about the environment. What is different today? Clearly we see protracted lack of inflation that's out there at least in terms of retail prices and the lack of traffic at retail. But in terms of package food manufacturer, how is it different today? And then maybe give the texture of what we see in the measured channels versus what you see across all channels?

Certainly. I think your view of the environment is maybe colored a little bit I think by the categories that you play in and the positions you have in those categories. And what we see in our categories is, while there is certainly some challenge on pricing given the deflationary environment that most of us have experienced in the past year, what we also see is that volume traffic into our categories continues. And as we bring new products, as we increase our brand support, we continue to see traffic in our categories which you'll see when you look at our pound movement that I just spoke to, or if you look at our baseline growth that's measured in Nielsen. So it is a challenging environment in terms of the deflationary aspects and certainly from a recession standpoint, some of the pressure and the consumer. But as we look at our categories, we see opportunity grow, we've seen that growth. Again, as we continue to play our game plan along new products, along bringing customer benefits to drive traffic into their stores, and then the growth that we expect to see and some flexibility I guess I should say, essentially in pricing as inflation begins to return, as we talked about we expect for 2011. In terms of the split between measured and non-measured, we continue to see more rapid growth in non-measured channels, in club stores, in Wal-Mart. That's a continuation of a trend; you see that in our numbers as well, the split between the Nielsen and the non-measured growth. We don't see that difference necessarily changing as we look forward. We certainly continue to expect to see growth in the traditional channels, but we expect to see the non-measured continue to grow at a slightly more rapid rate, just given the slightly different offering that they have for the consumer. David Palmer - UBS: Is it your gut that by the second half of your fiscal year that you'll start to see that pricing realization, and maybe not so much in the first half of your fiscal year, is that the general way you think it'll play out?

Yes, I think that's a fair assessment. As we look at our year, we think the rest of the calendar 2010 is going to be a bit more like what you've seen for the last couple of quarters. We think if people start seeing inflation that will begin to change in the back part of our fiscal year. That's what our plans would look like.

Our next question comes from the line of Terry Bivens. Terry Bivens - JPMorgan: My questions go to the gross margin. I think certainly relative to what we were looking for, that's where we were a little bit surprised. Two parts; I think the price investment here; I hear what you say about the advertising, Don. But it seems to us that maybe the price investment was a little bit steeper than we expected to get this kind of volume growth. So the question would be, is this the kind of price investment do you think that we will see as we go into fiscal '11. And the other side of things was, I just want to ask you quickly about any possible mix effects here from selling? It looks like your canned veggies perked up a little bit, at least in the recent going. If there was any kind of negative mix benefit from that, just those two things?

A couple of things on the gross margin. The largest dynamic in the quarter for the margin was clearly the fact that we went from a positive price mix last year about 5% as we still continue to see some carryover pricing from earlier in 2009 to minus 3% this quarter, which was clearly a reflection of where inflation was going to a great extent. I think the important thing also I understand is that as we look at our price mix over an extended period of time, we have been pretty restrained in that and we've been able to because of HMM. In the past year our gross margin has improved by 330 basis points. Over two years that's over 400, almost 450 basis points. And that's largely driven by HMM pricing. Nielsen, for example over those two years, we've taken less than a percent of pricing, and our peers, which are about 2%, and actually retailer brands which are close to the 5%. So what you saw in the fourth quarter was a bit of us making sure that we had our merchandized levels right, as we exit the year and enter the New Year. And that's something we had anticipated as 2009 unfolded. We talked about that I think prior to media meeting, when we looked at the environment, is that we always try and get more promotion on the back half as everyone is seeing deflation. We're not going to lead pricing, but we have to be in a certain price zone to beat competitors. And that's what you saw us do really in the last half of the year. As we look to next year, as I just mentioned to Dave, we expect to see some pricing opportunity as the year unfolds, as inflation is being seen by our competitors and by our retailers for their retail brand. So we would expect that complexion to change as fiscal 2011 unfolds. Terry Bivens - JPMorgan: Well you know the (say) among investors is clearly that higher promotional levels are going to be the rule of the day going forward. So I guess what you're saying is, they showed up that way in the fourth quarter, but don't necessarily look at this as kind of a run rate sort of picture. Is that a fair statement?

Yes, that's a fair statement. And I think you'll get probably get a kind of much better feel for our broader plans on Thursday, when you have a chance to hear from Ian, and Kris, and John and many of our division Presidents. And our plan for next year is founded on the same kind of growth that drove us this year, which is around new products, ever more impactful advertising. And that's where we're going to be leading into next year. It's not going to be a price game.

One other piece of context that might be helpful. We usually give you guideline to trade cost per case, and as you know for us it has been coming down for several years. We started the year this year with a goal to hold it flat. At mid-year we told that, no, we're going to have to make some tactical changes here. We ended up, up 1%. So it's a modest increase in cost per case, and you can see we got volume response to that. And the overall levels, if we look at next year, we see that trade environment probably moderating as the year goes on.

Yes, Terry, there's one other aspect, I think as you look at our fourth quarter particulars is, last year fourth quarter was one of our lighter quarters from a merchandizing standpoint. So there's a bit of a year-over-year comparison. If you look at the quarter alone, I think that kind of the full year trends that Chris was alluding to, but if we look at F10 and as we think about F11, are probably more representative of where you'll see us go.

Our next question comes from the line of Ed Aaron with RBC Capital Markets. Edward Aaron - RBC Capital Markets: I was hoping if you could just elaborate a little bit on the inflation outlook for 4% to 5%. It's a bit higher than we were looking for. And just wondering, how much of the year is hedged at this point. And then also, when you consider your productivity expectations for the year ahead, do you think you could see some modest growth margin expansion or should we be careful about modeling for that?

As far as inflation, many of the items that we saw favorably impacted this year are starting to reverse in the energy markets. As they flow through that we'll see it resin packaging, we see it in the dairy market, a little bit in sugar as well. Those are the key drivers as we look at the inflation. Quite obvious, as we look at our buying in 2010, the positions that we took played out quite well for us and we actually, as we then audited our position for 2010, there are many markets, many categories where we bought below market. And so as you model us versus market, you really end up taking up kind of hedge positions favorably impacted our 2010 cost, which then have a knockout effect in 2011. That's how you get to the 4% and 5%. As far as your hedge, we're about 50% hedged as we enter the year. We have a pretty good line of sight on where that is; it does leave about half the year open. Edward Aaron - RBC Capital Markets: And then on just briefly on the cereal category, obviously a lot of talk recently about the competitive pricing activity there, can you just maybe share an updated view on when that might ease up in that category specifically, because couple of your competitor that have been promoting for you might call a company specific reasons that one would hope would be short-lived. So just curious to get any perspective there.

Well, I'll start with fact with the fact that we don't think there's anything wrong with the cereal category. The pound volume actually is up in the category. Clearly, some (inaudible) particularly has been promotional. They have probably said they are going to stop some of the more inefficient spending they've seen, which we believe they will do. We're fine in our position; in our base lines we are growing, our core brands are healthy, our new products are performing well, our share is up, we feel very good about the category and our place in it.

Our next question comes from the line of Jonathan Feeney with Janney Montgomery Scott. Jonathan Feeney - Janney Montgomery Scott: Two questions, first, I wanted to follow up on Terry's question, Don, can you give us a sense to the extent your comfortable what actually the mix was on the quarter versus price?

I don't have the (inaudible) breakout for you in front of me Jonathan, I'll see if we can get it. Jonathan Feeney - Janney Montgomery Scott: What, I mean, do you kind of, off the top of your head know whether it was positive or negative? Just trying to get a sense of what the total price impact was across the company?

I don't have that number. Jonathan Feeney - Janney Montgomery Scott: Okay that's fine. We can follow up. And the second question I had relates to the 4% to 5% cost outlook, when you are talking about you expect to have inflation, may be in the second half of the year kind of comeback in a little bit more broadly, are talking about across all your inputs, or just the kind of dairy and fuel that are kind of driving the inflation as you're guiding it this year? Kind of alluded to expecting an improvement in inflationary environment where we're kind of seeing is a deterioration in that environment like input costs on a weighted average basis, down fairly substantially since March. So I guess what we are specifically referring to as far as expecting improved, better or worse depending whether you're buying or selling I guess, in increased inflation environment for the second half of your fiscal?

Yes. The 4% to 5% was average it up '11 versus the average graph '10. What we bought in F10 is based on the (inaudible) positions that we would have taken to early in calendar 2009. If you look at the 12 months of fiscal 2010 compared to the outlook for the markets for our fiscal 2011 you can see that those categories that I mentioned energy, dairy, resin packaging, sugar, are up year-over-year. Some of the grains are kind of, there is a mixed bag of the probably close to the neutral. And so, we'll see that throughout the year, this isn't what I mentioned about, our expectation is that you will probably see less promotion and maybe a little bit of pricing in the back part of the year. That wasn't to infer our inflation is necessarily is back loaded. We think that's when the pricing will be more likely to come through. Jonathan Feeney - Janney Montgomery Scott: I see. It seems awfully coincidental that you've seen an increase in promotional activity. I know you called out (inaudible) a driver and they seem to be more eager than others to resuscitate some of that post volume but it seems the category more probably has become more priced driven and your own merchandise cost for case have gone up (inaudible) with that decline in commodities. Do you think we need to see a better, particularly grain commodity input cost environment like, to scare people out some of this discounting.

I don't know if I'd go there, but certainly if there is going to be deflation, as we and others have experienced is not surprising that in a recessionary environment some of that is going to be returning to the consumer in terms of some merchandise activity, promotional activity. But in the long term, we believe that the environment is going to be inflationary, we're again projected to see that started in 2011. It's an industry that has seen pricing even when inflation has been relatively low and it's not just driven by cost necessarily, it's not just cost plus, it's because new benefits are being brought to brands and into products. And I think you will continue to see that. And so this is more of a return to the norm than it is with the last two to three years is been, which has been very volatile with both cost and as we love prices going up and down a little bit more sharply than we've seen historically.

Your next question comes from the line of Alexia Howard with Sanford Bernstein. Alexia Howard - Sanford Bernstein: So, I just wanted to ask a couple of quick questions on marketing and I guess the uncertain nature of the retail environment. On the marketing side, do you have rough guidance of how much you expect marketing spending to increase as in the SG&A line this year?

Well, in line with sales is how I tell you to think about advertising growth. Alexia Howard - Sanford Bernstein: And then I guess coming back to this question of the retail environment, a number of other package food companies have been talking about just how turbulent the retail environment is out there particularly in the last couple of months. Given that you are talking about maybe lower EPS growth in the front half of the year, would you say that this a more uncertain year as you stand here today versus maybe where you have been over the last couple of years and if so, what are the real puts and takes, what do you feel comfortable with, what are the key risks and where might there be upside opportunities as well?

We are in a very competitive environment. So, every year you go into as a CFO I always have some concerns about how the year is going to unfold. But what I can tell you is, coming out of what is three to four years now a very strong performance, we have tremendous momentum and that's not just in the financial results, it's beyond that, it's what the consumers in terms of our share position, our brand equity with the consumers is certainly in our relationship with customer and a role of replay with them which is reflected in everything from the category (captaincies) we earn, the distribution gains we have, the kind of results we get in Cannondale surveys for example. And that's across all three of our business segments; takes different forms, but it's across USRO bakeries and foodservice and international. And that's why we showed you the split of businesses by division or by geography, international or by segment within bakeries and food service you see growth across all of our businesses and that momentum which has earned over time is not easily reversed and that's what gives me confidence as we come into the year that we're well positioned to deliver on our model.

Our next question comes from the line of Eric Katzman with Deutsche Bank. Eric Katzman - Deutsche Bank: I guess a couple of detailed questions. First, just so I understand it, in the $0.41 excluding unusual items, you are including $0.04 of debt refinancing?

That's correct. Eric Katzman - Deutsche Bank: Okay. And then you expect the benefit of the debt refinancing and what you paid down to kind of show up in interest expense in fiscal '11?

Correct, and a couple of things I'd add to that. one is we expect to see a reduction in our interest expense next year, because we will not have that $0.04 or $40 million charge in our numbers next year. We will expect to see lower interest expense because we took out debt that was causing us 5.5% to 5.8% and refinance with CP, but the offset to that if you recall, we did a 30 year bond offering at the end of May. And that was $500 million which is at 5.4% that's going to offset the savings on the refinancing. Essentially the way to think about it is we had debt to hedge two years of maturity and we refinanced it for after 28 years at a slightly lower interest rate. And we did that because interest environment is so attractive right now, we want to tap in and actually do our first ever 30 year bond.

So, if you put it all together, Eric, then you model interest expense for next year down mid single digit. That should put you in the hunt. Eric Katzman - Deutsche Bank: But that including the $40 million roughly…

That's off of this year as reported 402. Eric Katzman - Deutsche Bank: And then I guess the second question has to do with the pension expense. Bear with me on my pension accounting because it's been a little while. So you've lowered your discount rate and therefore the present value of your future liabilities are greater and therefore that's what's triggering the expense recognition even though it's not a cash item. And I think you said you didn't adjust your return on asset assumption. So that part of it isn't changing. And you said, I guess that your pension is funded sufficiently. Is it a tax issue as to why you wouldn't contribute cash to offset the fact that the liabilities are now greater and you wouldn't have the expense running through the P&L?

Yes, it's a good question. First of all your macro view of the accounting is right. The discount rate that essentially increases the liability, the present value of the future liabilities on today's books and triggers that higher non-cash expense next year. The reason we didn't fund it with cash, quite honestly because it is being driven by abnormally and historically low discount rates or interest rates. And we're expecting every major bank expects long-term rates to be higher a year from now or two years from now. And if that interest rate increases our discount rates increase the liability hence the expense will decrease. So if you will, the fact that we had a higher liability now is a little bit transitory in nature as interest rates we were to I think were historically normal levels. Eric Katzman - Deutsche Bank: I guess maybe it's a question of whether it's tax efficiency because you're buying -- like right you announced the other day a big dividend increase in a $100 million share repo which is billons of dollars over the next couple of years. So I'm just trying to understand kind of how this is like this use of cash is being determined that we can make sense to put it into the pension now as opposed to the dividend or the share repo.

Yes, I guess, fundamentally as I said, our pension as interest rates increase, our pension will be fully funded. And as we look at where we want to put cash, we think there's a higher return in buying GIS as there is in putting cash into the pension. Eric Katzman - Deutsche Bank: Okay. So that's kind of the non-operating question. So last one on the operating. I mean, you probably don't have access, but aftermarket your stock's trading down about 5%, and so maybe that has to do with the difference between consensus and this roughly $0.10 a share pension expense. But in terms of the gross margin, you went from I think ex that write off for the expensive hammers or whatever it was. In the third quarter, you had like 700 basis point of gross margin expansion. And well, yes, you had the extra week for this quarter to be basically flat. I mean, it just seems like how is that if cereal is doing well and all these other highest margin businesses are doing so well. It's just hard to bridge why there is such a change in the gross margin from the third quarter expansion to the fourth quarter being flat.

It was really fourth quarter last year, margins expanded, Kris check me this 450 points, 475 points. So we are starting to lap when we started seeing real step up in our gross margins. And it allows a combination of inflation was decelerating at that point and we still had some of the residual pricing benefit from earlier in the year versus this quarter, where our deflation is lower and we have some of that negative price fix that we talked about that is really some of the tactical promotion activity. That's the major driver between the two years. Eric Katzman - Deutsche Bank: We'll talk obviously over the next two days in more detail. I'll pass on.

Our next question comes from the line of Robert Moskow with Credit Suisse. Robert Moskow - Credit Suisse: I wanted to ask about the comment you made, Don, earlier about how your category seem to be performing pretty well in terms of overall sales growth. I remember last year, you gave a number on your category growth being pretty strong, I think it was like 4.5%, this year I didn't see that number in the presentation, maybe we're going to see it tomorrow. But do you any idea what the gross rate is in your categories. Because I think people like your stock, because it's exposed as in good categories.

I don't have that number in front on me Rob. I'm confident if you look at us versus the food and bev, you'll still see a higher growth rate, but I don't have the number in front of me right now to make the comparison.

Yes, I'm trying to think that. I think we had our USRO categories consolidated for (inaudible) time period. And I want to say, going three'ish, does that feel about right? Robert Moskow - Credit Suisse: This year or last year, which one?

This year at (inaudible), sorry I have the fourth quarter numbers in my hand, not so much category stuff. Robert Moskow - Credit Suisse: And let me drill down to one category…

I don't have the total food and bev university. So can we get the last full year our fiscal year growth was around 2% in dollars, 2.5% in units, and this is all measured. So you would obviously add up two points roughly to that to get the total universe. And then in last four weeks at least, kind of, roughly the same dollar growth in units up almost 4% that speaks to the effectiveness of the promotional activity. So again, you'd add probably couple of points to get to the total universe growth rate. Robert Moskow - Credit Suisse: May be better if I followed up offline on this. And then one other comment. I noticed you said that your sales growth is higher at Wal-Mart. I've heard from a lot of food companies that in particular they've been having trouble with this channel to what do you attribute your growth there I mean there's even been a management change in the U.S. just announced today, sounds like they're really struggling.

Our relationship with Wal-Mart remains very strong. You know that we really seen that relationship develop for the last six or seven years and it's focused on growing the categories and their business and helping them grow their food business, which is now obviously a majority of their sales in the U.S. It's the formula that we've been using with all of our retail partners, i.e. bringing our category our sales capabilities, category management shopper insights to help drive category growth and drive shoppers into their store. (inaudible) where they can work and we have some events whether it's back to school or the box tops events. And with the focus on supporting our brands through new products to grant investment so we're driving baseline growth, which should get us more profitable for us and for them. And that formula has worked well with Wal-mart for a number of years and works well across many of our retail partners. Robert Moskow - Credit Suisse: Still growing well at Wal-mart. Okay, thank you.

Our next question comes from the line of Kenneth Zaslow, of BMO.

Just two non-operating questions one is, when you're looking at the forecast, I'm assuming your taking into account the current foreign exchange environment so, I'm assuming that's just an easy yes question. BMO: Just two non-operating questions one is, when you're looking at the forecast, I'm assuming your taking into account the current foreign exchange environment so, I'm assuming that's just an easy yes question.

Yes.

I am not fully understanding the interest expenses, it seems like it would go down by more than mid single digit if you have that $25 million plus it seems like another $40 million and then just a lower debt base and low interest expense. I am sorry I just didn't fully understand why it's only mid single digit down? BMO: I am not fully understanding the interest expenses, it seems like it would go down by more than mid single digit if you have that $25 million plus it seems like another $40 million and then just a lower debt base and low interest expense. I am sorry I just didn't fully understand why it's only mid single digit down?

We have embedded in our interest expense this year the $40 million for the debt tender for the refinancing that will reoccur next year. Next year we do plan to grow our debt. And we do plan for commercial paper rates to increase as the year unfolds, which is essentially where the forward market is. So those two are going to increase interest expense. The net of all that is the single digit decrease in total interest expense.

Okay. And then just questions one is how do you see the private label gap changing both in cereal as well as in your other category, have they reset to some sense, will they stay at these level? How do you see them both in cereal as well as in other categories? BMO: Okay. And then just questions one is how do you see the private label gap changing both in cereal as well as in your other category, have they reset to some sense, will they stay at these level? How do you see them both in cereal as well as in other categories?

In terms of their share --

Private labels on price gap. So your price gap relative to private label, across your categories. BMO: Private labels on price gap. So your price gap relative to private label, across your categories.

Well as I mentioned earlier, as we look across our categories on a two year basis. And our prices are up less than 1% and private labels up almost 5%. So we've seen that gap narrow, one of the areas that we have been very focused on is insuring that we have the right price gaps, whether it's versus private label or versus our key branded competitors. In most of our categories we are largely where we want to be and will continue to make sure we're in that zone during 2011.

And then the second part is on the international front can you talk about, how you expect to see 2011 play out in terms of where you get the challenges, where do you see that you are actually gaining share. Just give us a little color to how the international, I know we focus little bit on cereal today, but if you can give us some international outlook as well. That would be helpful? BMO: And then the second part is on the international front can you talk about, how you expect to see 2011 play out in terms of where you get the challenges, where do you see that you are actually gaining share. Just give us a little color to how the international, I know we focus little bit on cereal today, but if you can give us some international outlook as well. That would be helpful?

Yes. Sure I think I got to get around a map. Canada had a tremendously strong 2010. The business in Canada from a category standpoint is a little bit narrow, but is probably the closest we have in the U.S. in terms of multiple categories, being led this year by cereal, grain snacks. We picked up a whole percentage point of share in cereal during the course of the year. And the game plan there again is similar to what we do on a company wide basis, which is driving HMM reinvesting back in the business. In brand advertising and new product launches. And that has been the successful in Canada, is what we've seen in our larger U.S. business. China has been a tremendously strong performer for us as well. We have two great lines of business there between Haagen-Dazs and Wanchai Ferry. In emerging business in snacks both in bugles and in fruit snacks. And in combination of both penetration in the core markets that we've been in as well as geographic expansion has continued to allow that business to grow at 20% plus on the top-line and again at a profitable pace as well. And that continues unabated, the economy in China continues to be robust. And in Western Europe, it's clearly a tougher goal; the economy is much choppier, but we did as I showed you in 2010, we did drive sales growth on a constant currency basis in Europe. So we feel good about that. We feel good about the portfolio of businesses that we have in the brands that we have in Europe, and we expect to drive growth again in 2011 in Europe as well as the other markets I just talked about as well. So I talked too about what gives me confidence as we come into the year. It's the broad strength we have across our portfolio that's in the divisions in the U.S., it's in the customer segments in our bakeries and foodservice business and it's across our geographies internationally.

You want to think about sort of level of growth for the international segments of '11, you know you want to think about sales growth mid-single digit operating profit, double digit.

Our next question comes from the line of David Driscoll with Citi. David Driscoll - Citi: Congratulations on a very successful F10. Certainly a number of questions here though poised for F11. I think they have been well hit by a couple of folks, but a couple of follow-ups. The first thing is, you guys laid out earlier this year the plan for, I believe it was $4 billion in cost of goods sold over the next ten years, $1 billion of the $4 billion in the current three-year period, F10, '11, and '12. Don, can you tell us how we did in F10 on that metric, and then also specifically, did we see a significant amount of cost saves in the fourth quarter?

Well, we did stay on track in 2011, we are going to continue on that track. Our cost savings are pretty widespread, so that's necessarily lumpy, we are going to see a big change from quarter to quarter. Let's say, Q4 should be represented what we saw in the prior three quarters.

To the specific question, yes, and you're going to hear John Church sort of re-endorse those three and ten-year HMM goals on Thursday, and you'll probably hear each of the operators talk a little bit about HMM and feeling good about it in their plans.

Yeah, that's very fundamental to our business model, and the commitments that we made in January remain very valid for us today. We're on track to deliver them. David Driscoll - Citi: Apologies if you did say this; so I know you gave the (inaudible) inflation number for the full year. That's I believe negative 3. Can you say what it was for the quarter?

I know it was down, not as much as the full year, I don't believe. David Driscoll - Citi: So I'm going to go back to Terry's question on margins, and I think Eric's question on margins. So bring something together for me. So if we don't have lumpy cost savings, and in the fourth quarter we got cost savings like we've seen. If input cost inflation is somewhat deflationary, generally you're just stopping right there, I believe that that's been sort of the magic elixir for the food companies and we've seen really great gross margin improvement. But when we add on top of that, I think in the quarter, your comparable volumes in U.S. retail were up 8%. So when I think of a number like that Don, I think that we should see very significant volume leverage across the manufacturing operations of the company, and that generally leaves the nice margin expansion. So these components all seem extremely favorable, yet of course we didn't margin expansion. And I'm curious, if you can take one more pass at this. Apologies, I know you have answered this now like three times, but putting those factors together, what is it that I'm getting so wrong here that would lead to flattish margins?

Well, as I said, the primary reason is a change in inflation from one year to the other; you know, decelerating last year, accelerating this year and then the price mix movement as well, which again we had carryover benefits in Q4 last year which I'll describe, you know 450 plus basis point improvement in gross margin where we had some negative price mix this year. Those are the primary drivers. In this we had other smaller things. We mentioned some capital projects; they are underway. Those come with some project expenses. Those are going to come through the P&L as well, and that type of expense can be lumpy quarter to quarter. But the primary is what I mentioned earlier in terms of the dynamic between the large increase we saw in gross margin last year in the fourth quarter, because the inflation pricing relationship versus our fourth quarter this year. David Driscoll - Citi: Is the pension expense outlook for F11, is that included or excluded from your input cost inflation figure of 4% to 5%?

It's excluded. That's outside of that. David Driscoll - Citi: Okay. I'll save the rest of my questions for the Analyst Day because I know we've got a good data coming up.

There'll be room for more. On the swing in pension expense, nobody has quite put their finger on this, but I want to make sure you should have had income from pension and post-retirement in this year, so we're talking about a $100 million swing into next year. David Driscoll - Citi: Thanks for the clarification, and I look forward to seeing you in March.

Our next question comes from the line of Chris Growe with Stifel Nicolaus. Chris Growe - Stifel Nicolaus: First off, and again I hope this is not to that same gross margin question. Kind of looking forward here, in a period of increased promotional spending, one of the things that helps your gross margin earlier in fiscal 2010 was stronger throughput in the plants. So we assume that improving volume trend in 2011 would be good for your gross margin. Have you given a gross margin forecast for 2011?

It will be beneficial to the margin. As we look at next year, with inflation being in that 4% to 5% range, you see where the HMM benefit has been, you see a way to basically comparable gross margins that we had this year on a full year basis. Chris Growe - Stifel Nicolaus: I'm sure you're not going to give a timing around the share repurchase authorization. Do you have certain plans for the coming fiscal year that we should know that you could talk about or is it meant to be built in over several years? Give any color there?

There was no termination date for the authorization, but our business model is based on reducing our share count by 2% a year, and that's what we expect during 2011. Chris Growe - Stifel Nicolaus: And then my last question is just on the restructuring cost, the one-time costs you put in, in your earnings. Are those flat, again, $30 million, is that a good number to use?

For 2011? Chris Growe - Stifel Nicolaus: Fiscal '11, sorry, yes.

No, actually we'll be down in 2011, probably down in the single digits. The primary reason is the fact that as we look at our portfolio and the work that we've done over the past four or five years, we're very happy with our portfolio and there isn't a lot that we see that needs to be fueled off or restructured at this point. So we are budgeting actually for a much smaller restructuring number in 2011. Chris Growe - Stifel Nicolaus: So you're going to have that benefit coming through as well as like the spare parts inventory benefit coming through as well. Those are the incremental benefits to your EPS growth for the coming year, right?

Correct. So we have a number of benefits, and then we obviously have the pension offset, which allows us to still deliver on model for the full year.

We're a little bit over. Let's take one more, and then of course you'll have us (to dial) again on Thursday.

Our final question comes from the line of Bryan Spillane with Bank of America. Bryan Spillane - Bank of America: Corporate and allocated expense was I think if I calculated it right was down year-on-year in the fourth quarter by about $30 million or so. Can you just talk about what was running through that line in the fourth quarter, and then if there's anything we should think about for fiscal '11.

That number is typically looked at better on a full year basis. What it does, it captures a lot of variances from what charge-out rate is to the division. But if you look at it, where you actually see a similar dynamic, where if you take out the mark-to-market, it's down about $25 million. And the primary driver of that is that we had some corporate investments that were losses last year and gains this year. So we had about $35 million in losses in 2009 and about $13 million in gains in 2010, so about $50 million or $48 million swing. That explains most of that. We also had the recovery of our Argentine plant insurance settlement in 2009, which was $41 million. So if you had to net all that out, you're essentially flat for the year within $10 or $15 million of being flat year-over-year. Bryan Spillane - Bank of America: And the gains on the corporate investments, those are like foreign exchange swap that type of thing?

They're typically small holdings we may have in some strategic investments that we may have that are providing some capabilities for us, and they provide capabilities for a certain amount of time and then we'll monetize that investment.

Thank you everybody. Appreciate your time and sorry we're not getting through everybody here but we're up to the hour. So save those good questions and we'll see you on Wednesday night/Thursday morning if you're coming in. Otherwise you'll catch us on the webcast Thursday morning. Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.