Ladies and gentlemen, thank you standing by, and welcome tothe second quarter fiscal 2008 results conference call. (Operator Instructions) And I would now like to turn the conference over to KrisWenker, Vice President, Investor Relations. Please go ahead, ma'am.

Thanks, Jennifer. Good morning, everybody. I'm here with KenPowell, our Chief Executive Officer; Don Mulligan; our CFO; and Chris O'Leary,Chief Operating Officer for our International business. I'll turn you over toall of them in just a minute. First, I've got to cover my usual housekeepingitems. The press release for our second quarter results was issuedover the wire services earlier this morning. It's posted on our website, if youstill need a copy. We've also posted slides on the website that supplement theprepared remarks we're making this morning. This conference call will include forward-looking statementsthat are based on management's current views and assumptions. The second slidein today's presentation lists factors that could cause our future results to bedifferent than our current estimates. And with all of that, I'll turn you over to Don.

Thanks, Kris. And thanks to all of you who have joined usthis morning. As you can see from the financial result that we have releasedtoday, General Mills continues to generate good growth and operating momentumin fiscal 2008. Slide 4 summarizes results for the quarter. Net sales grew7%. Segment operating profit essentially matched last year's second quarterresult. Earnings after-tax were up 1% and earnings per share grew 6% to $1.14for the quarter. These results include significant input cost inflation,expenses associated with our November product recall of frozen pepperoni pizzaand double-digit growth in our consumer marketing investment. Let me take you through the income statement and cover thosedetails. Our 7% sales growth from the quarter reflects a strong contributionfrom price and mix of six percentage points. Foreign exchange added anotherpoint of growth. Each of our three business segments contributed to the salesincrease. US Retail sales were up 3%, International segment posted 22% growth,and Bakeries and Foodservice sales grew 8%. Our second quarter gross margin of 36% was below thecomparable period a year ago. Cost of goods for the quarter included $17million of accelerated depreciation expense related to restructuring actions.It also includes virtually all of the expenses related to our voluntary recallof pepperoni pizzas on November 1st. Total recall expense, including the costbooked in SG&A, was $20 million pre-tax and $0.04 per share. We resumedshipment of pepperoni pizza SKUs at the end of November and sales of our otherpizza varieties were not interrupted. Our results for the quarter also included 10% increase inconsumer marketing expense. We believe this strong investment in our brandswill help fuel continued growth in sales, particularly baseline or non promotedsales. Through the first half of this year, combined baseline sales for ourmajor USretail businesses are up 3% in measured channels. Slide 9 shows the detail of our segment operatingperformance…

So thanks, Don, and good morning to all. The second quarterresults Don just shared with you, build on a strong first quarter for GeneralMills. And we expect our broad base sales momentum to continue in the secondhalf of this year. Our key challenge will continue to be input costs. They arecoming in higher than planned and almost all of the added costs will fall inour second half. Now we've shown you this chart before, which traces thesustained input cost pressure we've experienced in the last several years. Ouroriginal plan for fiscal 2008 included an estimated 5% inflation rate on inputcosts, but commodity prices have tracked above our estimates and now with themajority of our coverage locked in for this year, we see our inflation ratecoming in higher, at roughly 7%. Now, this is a significant increase in costpressure, but our good first half results offset some of the added costs. In addition, we have identified additional pricing andproductivity to counter second half cost pressure. And our plans includecontinued solid consumer spending through the second half of the year to keepour topline growing. And these factors together give us confidence we canoffset the added costs we're seeing and deliver our targeted results for theyear. The topline growth through the first six months was led by International,which generated almost half of our dollar sales increase. US Retail contributedanother $200 million in sales growth and Bakeries and Foodservice added a $32million sales increase in the first half. Segment operating profits are up 4% through the first half.That's on top of 9% growth in the same period last year, and it includes thevarious expense items that Don just outlined for you. So our fundamentalbusiness momentum is quite good going into the second half. I'll give you a bitmore detail on the growth drivers for…

Thanks, Ken. Good morning, everybody. To remind you, netsales for our entire International business, including our proportionate sharesales from joint ventures totaled more than $3 billion in fiscal 2007. Myremarks today will be focused on our consolidated international businessesabout two-thirds of that total. In our international segment, first half sales rose 20%reflecting gains across all geographic regions where we compete. In secondsegment, operating profit grew 32%. Slide 36 shows our sales growth by region. Excluding theimpact of foreign currency exchange in the second quarter, Canada's net sales grew 2%, Europewas up 11%. Our Asia-Pacific business was up 16% and net sales in Latin America increased 41%, reflecting market sharegains in pricing actions in key markets. This performance was fairly consistentwith first quarter results. So through the first half, our sales were up 12%before currency exchange benefits. Foreign exchange contributed eight additionalpoints of growth, bringing the International segment's reported net salesgrowth to 20% for the first half. Our International business has shown accelerating operatingprofit growth over the past several quarters, as shown on slide 37. Input costpressure will be greater for this business in the second half and a result wethink the rate of segment operating profit growth will slow a bit. But, wecontinue to target another year of strong double-digit profit growth for 2008 in total. We are generating this growth by building on three globalproduct platforms. First, super-premium ice cream, where we have the preeminentbrand in Häagen-Dazs. Next, world cuisine, where we compete with Old El Pasoand the Wanchai Ferry brands. In healthy snacking, where our internationalbrands range from popcorn and Cheerio snacks in Canada to Nature Valley GranolaBars now available in more than 50 markets worldwide. These global platformsare strong growth drivers for us, with net sales at constant foreign exchangerate, from ice cream and world cuisine each…

Okay, Chris, thank you for that. So with our good first halfperformance and our expectations for the second half, I'd summarize the 2008operating outlook for General Mills this way. We are excited about the momentumof many of our businesses and we expect our good topline results to continue;fueled by additional new product introductions, selected pricing actions andongoing investment in brand building activities. And we continue to expect consumer spending for the year tobe up high single digits. And for the year, in total, we now estimate that ournet sales will grow at a mid single digit rate, exceeding our long-term goal oflow single digit growth. We expect to see higher input cost inflation in the secondhalf and full year inflation will be greater than originally estimated.However, we expect to offset this with our good first half performance,additional pricing and increased productivity savings. This will keep us ontrack to deliver mid single digit growth in segment operating profits for theyear. And so, we continue to target high single digit EPS growth, again, in2008. Our EPS guidance for this year remains $3.39 to $3.43 per shares. So that concludes our prepared remarks this morning. I willask the operator to now open the line for questions.

(Operator Instructions) And the first question comes from the line of JonathanFeeney from Wachovia Securities. Please proceed with your question.

Thank you. Happy Holidays.

You too.

Happy Holidays, Jonathan.

Ken, I guess there's a lot of concern about the consumerwallet out there. You guys are taking some substantial price mix to offset thiscost inflation. Are you worried about consumer pushback, either in the form ofleaving any of your US Retail categories or trade down to private label inthose US Retail categories in your conversations with the retailers or the dataover the past quarter?

Jonathan, I would say we're not worried about that. You'reseeing that we've had growth in all of our divisions through the first half.Also, I think there is so much in the news about inflation across commoditiesand dairy and energy that I don't think consumers are all that surprised by theprice increases that they're seeing scattered across the grocery store. We're not seeing long or difficult conversations with ourcustomers about the pricing that we've taken. And so, I think that there is anexpectation that prices are going to go up some in the food area because ofinput costs. And we're really not seeing right now on the retail side anyresistance or slowdown that we would attribute to pricing. I think if you look on the Foodservice side of the business,there, with the tracking mechanisms that we have, we maybe seeing a little bitof shift in that sector, a little bit of shift away maybe from casual dining,and maybe more towards quick-serve restaurants where you can eat for less. Soyou might be seeing the beginnings of a change there, but I wouldn't call itpronounced at this point.

Ken, is there a margin mix issue there? I mean if, say, wedo go within Foodservice from causal dining towards US R's, does that affectyour business any meaningfully?

It wouldn't be a margin mix issue for us there, Jonathan.

Okay. Just finally, if you wouldn't mind, when you talk aboutmid single digit revenue growth for '08, what kind of volume growth maybe in USRetail are you thinking about roughly to support that mid single digit revgrowth?

Well, we're about flat, I think, through the first half ofthe year, and I think we would expect to see that or maybe a little better overthe course of the rest of the year. And then of course, we have the pricingthat we've taken. We told you generally that we think we'll be taking morepricing in the second half. And I think that the combination of stable volumeand the pricing that we anticipate, well, we're pretty comfortable that that'sgoing to get us to that mid-single-digit revenue growth.

Great. Thanks very much.

Thank you. And the next question comes from the line of EricSerotta from Merrill Lynch. Please proceed with your question.

Good morning.

Good morning, Eric.

I just want to --- good morning. I just want to follow up onJohn's question regarding topline growth and volumes in particular. Can youmention, volumes are about flattish through the fiscal first half? This quarterin US Retail, they were down slightly. I'm wondering whether you could give us some color as towhat kind of an impact some of the one-off items like the Totino's Recall -- Iwouldn't call this a one-off item, but the "Right Size, Right Price" initiativein which you're shipping fewer pounds in cereal had on volumes for the firsthalf? And overall, how would you describe or how wouldcharacterize the volume performance versus your expectations? Are you seeingany elasticity impact from the pricing that you have taken?

Well, Eric, thank you for asking that question and also in away for partly answering it. I don't know that we have a very detailed -- wedon't have it. But some of it was the Totino's Recall, which fell right tosmack in the middle of the second quarter. And then I think more importantly isRight Size and Right Price, which you alluded to. And here, this is adeliberate reduction in tonnage that was sort of a fundamental part of thatactivity. Recall that we reduced the average size of the cereal box aspart of that initiative by about 10%, and we reduced prices by kind of amid-single-digit level as well. So there was a reduction in tonnage. And Ithink we are starting to see that here in the second quarter. Now, in terms of the "Right Size, Right Price" Ithink we would say that we're very happy with how that's worked. The executionhas been virtually flawless. We hit the pricing targets that we had for thatinitiative. And I think most importantly, we are seeing a shift in mix in ourBig G cereal business. So, we are seeing more baseline sales growth now afterthe implementation of "Right Size, Right Price". And overall, we areseeing net sales growth of -- I think it's, what, 3% to 4% through the firsthalf, 3% in the second quarter. So, while there is a tonnage reduction in cereal area, we'requite pleased with how the whole "Right Size, Right Price" initiativehas played out for us. And then, like I just said to Jonathan, I wouldn't saythat we are seeing at this point any resistance to the pricing that we'vetaken. I think another category I might highlight to illustrate thepoint is yogurt, where, as you know, this summer, we took a mid-single-digitprice increase. And in the second quarter, we've actually seen our yogurtbusiness accelerate to about the 10% growth in sales. So, we are not reallyseeing it out there today.

Okay. And then to follow up on commodity costs, we are nowmore than half way through fiscal '08. I've realized that commodity costs seemto be changing daily here. But, could you give us some sense as to yourvisibility or coverage for fiscal 2009? Have you been opportunistic or haveopportunities arisen to lay in some hedges? Knowing what we know today, shouldwe expect to see any sort of step change in the rate of commodity inflation forfiscal '09 versus fiscal '08 as some of the favorable hedges that you had thisyear roll off?

Well let me begin, Eric, by saying that first of all weexpect this general inflationary environment that we've been in for the last 4or 5 years and we've seen inflation run at 4% to 5% to continue into theforeseeable future and the reason for that is global economic growth which iscreating really strong demand for all these basic commodities. So, we expectthat environment to continue. And as you know, this is something that we'vebeen working hard on and focusing on for several years with a very major efforton productivity. So, we don't see any of those factors or our approach to itchanging. In terms of '09 itself, I think you’re right. I mean, withthe volatility that we're seeing in those markets right now, I think it wouldnot be wise for me to predict what's going to happen 6 or 12 months from now.But, we think we're going to see a continuing inflation.

Okay. Well, thanks a lot and have a great holiday.

Yeah. Eric, let’s ask Don to give you a little bit of anupdate on what we are seeing for the rest of F'08. Because, certainly we'vetaken a look what that commodity cost number is for this year and we've put ona little coverage. You want to flush that out?

Eric, we've extended our coverage for the year where bothacross energy and commodities grew about 85% covered where we are not isbecause we do think there will be some spot buying opportunities in the backpart of the year. The inflation that Ken alluded to for this year of 5% to gointo 7%, 2 points higher and our plan is largely back loaded. But, as Ken alsoalluded to, given our strong first half our top-line momentum, some pricingthat will be taken, some additional productivity that we have identified andare already acting upon, we can so reaffirm our full year guidance for F'08.

Okay. And just to clarify two quick points on that. The 85%covered on energy and commodity, is that 85% covered on energy and hedgeablecommodities or is that 85% overall?

Hedgeable commodities.

Okay. And on the second point, the increase from 5% to 7% inoverall inflation, what does that equate to on? I realize this isn'tapples-to-apples. But, what you guys are looking for in terms of input cost andfuel? I think you originally put out up $275 million for the year, is thatthree and a quarter now?

The initial guidance was 250, that is roughly $75 millionhigher now with the current estimate.

Okay. Thank you

Thank you. And the next question comes from the line ofRobert Moskow from Credit Suisse. Please proceed with your question.

Hi, Good morning.

Hi, Rob.

My question is, I seem to recall from last quarter that theexpectation was, especially after coming of a 5% sales growth number for Big G,that you might expect kind of the reverse with consumption picking up and thennet sales on a shipment basis coming down a little bit. Did that, it seems likethat didn't quite happen the way that you thought, maybe the retail consumptionwas a little bit lower than what you thought it would be. But at the same timeyour shipments actually looked okay, so did the quarter come out differentlythan the way you thought for Big G?

I think I would say it’s maybe a little better than wethought in terms of net sales and we did have some, as you know, Rob, we didhave some inventory that we signaled at the end of the first quarter, butretail sales through the first half are running around 3%, over 3% for thequarter. And so, I think our retail momentum is pretty solid and shipments at4% through the first half of the year, okay, a little bit ahead of that but Imean, I think that that gap is narrowing, there's probably still some inventoryto work through, but I think we're working through it and its retail sales area little better than we thought and so I think, we'll just continue to workthrough that in the second half, but at this point, I think, it’s mostly behindus.

Okay and are you going to do any kind of consumer testing,post the "Right Size" initiative, just to check again with consumersto see if they notice the difference or if they care. I know you have lot,since you have lot of anecdotal evidence already that transition is okay.

We've been doing that, Rob on an ongoing basis. We have beenchecking with consumers in a variety of ways and again I think you said, didn'tnotice and don't care, and I would say that's a pretty good accuratecharacterization. They really haven't noticed it, the cereal box changes, Ithink as you guys, as we showed you when we were right in the middle of this,we are pretty subtle and so our consumers haven't really noticed. But theyhave, in aggregate, noticed that our prices have come down a little bit and aswe modeled and as we predicted that's resulting in some baseline strength onthat core cereal line and we are very encouraged by that.

Okay and then lastly, in terms of working capital, your coreworking capital is up 12%. You are now saying it is going to grow little fasterthan sales. Do you have any changes in your expectations for cash flow for theyear, you are also down in terms of cash flow for the first half?

Rob this is Don. We expected to generate again anotherstrong year cash flow with a little bit of pressure from the working capital,which will be more of a use than a year ago. As we look at our use of cash forCapEx or dividend and for share repurchase that small movement or smallvariance to plan in working capital is not going to change our plans in thoseregards. So we are still confident in our planned use of cash.

Can you remind me, is there a guidance for operating cashflow for the year?

No.

No. Okay. All right, well, thank you very much.

Thank you.

Thank you, and the next question comes from the line ofTerry Bivens from Bear Stearns. Please proceed with your question.

Good morning, everyone.

Hi, Terry.

And happy holidays out there from me as well. First a quickquestion on the overseas operation. I noticed Green Giant wasn't on the slide.Has there been some change there? I thought that was one of your overseaspillars of growth.

Green Giant is still one of our businesses. It's a regionalbusiness for us, Terry. What I was highlighting was the three global platformsthat I first started talking about last year at [CATNEY] that being superpremium ice cream, world cuisine and healthy snacking, our Green Giant businessaround the globe is healthy and we are looking for opportunities to expand it.But it's not something that we see as a global platform for us.

Okay. That sounds like a little bit less than a rangeendorsement of that brand. Moving on to Cereal and this would be my lastquestion. Ken, thinking about your remarks, you're basically saying "RightSize, Right Prices" out there now.

That's correct.

Okay

Absolutely. It's out there and it's done.

Okay. My question is this, we were just looking at some dataon some of your innovation of late. Obviously, there is always an uptick as youare introducing stuff and it always bleeds off a little bit, then hopefully, itwill grow. But how would you characterize the way you are feeling about yourinnovation with some of the new stuff? Are you satisfied with it? Do you thinkyou need to put forth a bigger effort there? I just like to get your idea onthat.

I feel quite good about it, Terry. This year, in the firstquarter, we launched Oat Clusters Crunch Cheerios, which has been a goodsuccess for us, Chocolate Chex and Curves. And I would say all of thoseproducts are in line with expectations. We always get a huge trial when welaunch a Cheerios flanker. And that was no different for the one that we justlaunched. Chocolate Chex and Curves are a little bit smaller, but verymuch in line with expectation. Curves, I think, as you know, we launched both acereal and a bar. And those products are building. Those are moreadults-oriented products. And typically, the pattern there is a slower trial buildthat we like. We like that franchise, and we think there's going to be anopportunity for us to expand and grow that Curves business. As you know, we'repartnering with the Curves chain of fitness centers on that product, which isthe largest chain of fitness centers in the country. So, we feel good about the innovation that we've had incereals so far this year. There will be more new products coming, but we thinkso far so good. As we look beyond cereal to the rest of the portfolio, I wouldsay, again, we've had very strong innovation this last year. Chris talked aboutsome of the Häagen-Dazs innovation coming out of Japan. This Dulce product has beena real hit. 0 Point Soup has been, in these early days, a very hot product forus. We're very excited about that. And so, I would say, also we've just extended our WarmDelights business in Betty Crocker with Warm Delights Minis. That product isoff to a good start. Our yogurts are off to a good start. So we feel quite goodabout the innovation that we have. It's more incremental. The margins arebetter. And so, all-in-all, we like the direction we're going in.

Okay. Thanks for that. And just one last quick thing. I amjust looking at some IRI data, I can see that your base sales are pretty muchtracking where you said they were in Big G. It does show promotional down by apretty significant amount, mid-teens. I understand why that would be lookingbackward. Looking forward, I think you alluded in your remarks that promotionalspending will be up on the brand or at least more promotions. Is that really afunction of just kind of returning to business as normal now that you have thenew shelves set in place? Is that kind of what you were getting at, doing yournormal promotions on cereal?

Well, that's right, Terry. First of all, I want to confirmthat the gap, I think, in the first half, if you will, that has been ourpromotional and merchandising pressure and it has been a little bit behind ofwhat we expected. And so, that's been really the shortfall there.

Right.

And going forward, we want to fine tune and adjust that aswe get the whole in "Right Size, Right Price" initiative, absolutelylocked in on shelf as we do now. We'll fine tune that promotional spending andjust make sure that it's right and at the right levels, bearing in mind alwaysthat we are happy with the kind of merchandising price points that we see inthe category, which have risen slowly over the last year-and-a-half and we likethat trend. So, we're not going to play around with that at all. I think it will be more focusing on getting the quality ofperformance and have our sales force focused more on execution than maybe theywere in the first half when they were heavily preoccupied with getting that"Right Size, Right Price" initiative executed.

Okay. Fair enough. Thank you. And again, happy holidays toeveryone.

Thank you. And the next question comes from the line of BillLeach from Neuberger Berman. Please proceed with your question.

Good morning. Don, could you run through the non-recurringitems again slowly? You have a lot of things, which I didn't quite catch intothe Totino's, the restructuring. I think you mentioned the commodity hedge andthe capital gain.

Yes, there were a few moving pieces. Let's get those listedout. We had $20 million charge for the Totino's Recall that was largelyessentially $19 million [indiscernible] in our gross margin.

Okay.

We had $17 million in associated cost, which was associatedwith our restructuring. There was accelerated depreciation that was in ourgross margin. And then, within our corporate unallocated, we had $15 millionbenefit from our mark-to-market on commodity hedges.

Okay.

The new accounting treatment that we started at thebeginning of this fiscal year where we no longer apply FAS 133. We also had an$11 million gain on the sale of a corporate investment. We also had a smalldifference in our restructuring cost in this year and last year. With thisyear, it was $3 million charge. Last year, it was a $1 million income.

So total restructuring was $20 million?

That's right.

The total restructuring this year between the cost and grossmargin and cost of restructuring were $20 million, correct.

And what is your guidance assuming in terms of thesenon-recurring items in the second half?

The restructuring, our guidance for the full year was $41million, which is $48 million in restructuring charges offset by a $7 millionin gains from the sale of excess property from one of last year'srestructurings, $41 million. That is $3 million higher for the full year wewould have guided in last quarter. And that's because we took one additionalaction in the second quarter to close our Poplar, Wisconsin manufacturingfacility.

And you are not assuming any more commodity hedge gains orcapital gains in your guidance?

Well, there will be some, but it's going to depend on wherethe markets are. And as Ken alluded to, I'm no more contemplating what they'regoing to be at any quarter-end or yearend than he is. So there will be somecommodity hedge mark-to-market gain or loss, depending on our position eachquarter-end going forward that will distinctly identify what that is. For thefull year, if we look at our guidance, we assume that we would be net neutralfor the year. So, if there is a plus or minus, first that number that wouldcome through in the year end results.

Okay. Sorry, go ahead.

I would add one other thing. Somebody asked me this questionearlier today, whether there was any more Right Sized, Right Priced expense inthe quarter, and the answer is yes. If you remember, we said that the year onecost for that was $30 million, $17 million of it fell in the first quarter.There is another $8 million in the second quarter. So, that leaves 5 just burnthrough the back half somewhere.

Okay. And Don, looks like your option expense was about$31.5 million pre-tax in the quarter, is that right?

Excuse me.

Your non-cash option charge? Just looking at your cash flowstatement, your stock based compensation charge?

I think its 31 or 32. Just a second, I am looking.

Yeah.

Well, I am flipping through pages quickly here.

Yeah. It's 32 in the quarter versus 28 in the same period.

All right. That will help a little bit.

Little over 10% for the quarter.

Okay. Thanks a lot. And have a good Christmas.

You, too.

Thank you. And the next question comes from the line ofAlexia Howard from Stanford Bernstein. Please proceed with your question.

Thank you. Hello, everybody.

Hi, Alexia.

Hi, Alexia.

Hi, two quick ones. First of all, just following on fromTerry Bivens question on innovation. Do you set out goals for what percentageof sales from your products you'd like to get to and where are you at themoment in respect to those goals? Because it does seems as though there hasbeen amount set off in the kind of incremental innovation that you put outthere in the last, I guess, few quarters now.

Alexia, we aim to hit around 5% from new products in eachyear. And it can bounce around slightly from that. And I would say this year weare tracking very much in-line with that goal, maybe a little bit ahead ofthat. But, in addition to that sort of broad volume and sales goal we have veryspecific goals for the incrementality of the new products. We want to make surethat we are introducing items that are really offering a new benefit andbringing new consumers into our franchises, and this is a measure that we'vefocused on over the last three years and we are seeing progressive improvementsin this measure. Another key measure for us is margin and we want these newproducts to be either margin neutral or margin accretive and this is anotherarea where we had high focus. And again, we are seeing very consistentimprovements in our performance in this area. So, we actually have quite anumber of ways that we look at these new products and measure and monitor them.And we are feeling quite good with the direction that we are heading in on bothincrementality and profitability.

Great. And then another real quick one. You have been verytransparent in describing the merchandizing strategy around Big G Cereals. Canyou give us any thoughts on what the strategy is going forward on the soupsbusiness? It's been growing extremely rapidly in the first half, very stronginnovation there with low calorie piece. What time going forward are we goingto see the same kind of levels of trade support or how do you see that businessdeveloping in the second half?

I would say, very broadly speaking what we have seen in thesoup category over the last couple of years has been a movement away from deepdiscounting across a high number of multiples and we are very happy with thattrend and expect to continue in that direction. Our core strategy in our soupbusiness is baseline building through advertising, good advertising, expansionof distribution and remember, it wasn't that long ago that Progresso soup andProgresso Foods business was primarily a northeastern based business and so westill have lots of distribution opportunities around the central and thewestern US. And then, finally, our new product innovation, last year welaunched low sodium soups, which have been a success for us. And now this yearwe have the zero point soup, which also looks like it's going to be a success.So our game is expanding distribution, base line building advertising and whatwe think have been very exciting new products coupled with the appropriatelevel of merchandise.

Great, okay, thank you very much, I will pass it on.

And, Alexia I'll just throw one factoid in their baselinegrowth for soup for us in the first half was 11%.

Great, thank you.

Thank you and the next question comes from the line of Eric Katzmanfrom Deutsche Bank. Please proceed.

Hi, good morning, everybody.

Hi Eric, how are you.

I've got a few questions, I guess first, Ken, you aresuggesting that the input cost inflation situation is going to stick with usfor the foreseeable future, I agree with that. Make the cases as to why youshould stick with the back of the house Foodservice baking operation. That wasreally on Steve and Jim's watch, you were going to consolidate that category,it's not going to happen or it's not worth it and it seems like in Foodservice,you are always going to be trailing the inflation curve?

Yeah, well, I think that our very, very clear directionwhich we've articulated a number of times in that Foodservice business, Eric,is that we are focusing on our branded business, we are focusing on thedistributor led segment, which is delivering those products to schools,hospitals, business cafeterias, that sort of thing. That is very, very clearlythe focus of that business along with other baked goods where we have scale andinnovation that gives us margins that we like. So that is the focus. If you look at what we have done overthe last three or four years we have significantly restructured that business,I don't have the numbers right in front of me but I believe we've reduced thenumber of manufacturing locations by half. We've reduced the number of SKUs by half and most of thepieces that we sold off have been back of the house. Our baked bread, otherbaked goods these kinds of things. And so without predicting specifically whatwe're going to do in the future, I think it's pretty clear by what we've saidand by our actions in the past that how we are trying to redirect thatbusiness.

Okay. Then also kind of as a follow up, I also think it'sreasonable for you to kind of take your sales target up and kind of assume alittle lower or if any margin expansion given the input environment. But Iguess maybe this question is for Don. If inflation keeps raging and workingcapital is more of a use over time, does that mean that we should assume freecash flow grows at a lower rate than net income?

I think not necessarily, Eric. I think that your point onkind of where sales growth is going to be and the margins, as Ken alluded to,we have a very robust internal process we call holistic margin management,which is aimed at addressing the margin challenges and inflation challenge thatwe face today, and has been working for us very effectively for the past threeto four years where we have been able to increase our gross margins and ouroperating margins even after increasing our consumer spend year-over-year. Wehave a little pinch, and this quarter we will certainly, I think, believe, fillout to the balance of this year. So I think that the opportunity for us in terms of growingour operating profits at mid-single-digits could be more price and mix balanceas we've seen this year, that's a probability certainly in the near term as wesee the inflation come through. Turning to the cash flow, we're going to continue toaggressively manage our balance sheet, and our commitment is to continue to useour cash, continue to use our share count like 2% of average per year, notnecessarily each and every year, but over time, as well as increase ourdividend with our earnings growth. And as we project forward our cash position,we're very confident of our ability to deliver those cash back to theshareholder while still reinvesting in the business at a rate that we believeis the right pace, which is roughly about 4% of sales in terms of capitalreinvestment.

Okay. MaybeI'll follow on that one offline. But last question is, we've been kind ofhearing there is some speculation, and it wouldn't surprise me, given thateverybody in this business has to raise prices, but Kellogg's is looking toraise prices in cereal at the start of the new year. One, can you talk about that? Have you heard about that? Andhow does that kind of fit in with your move just recently on the weight out. Imean, are we going to like go to one box one flake or would it be a listpricing increase? And I just kind of wonder if there is a list price increasein the industry, how you kind of handle that, given what you just did with theretailers?

Well, I think the first point I would like to make is, Ithink we've to let Kellogg's talk about what they are going to do, and I don'twant to speculate on that. Having said that, clearly we are in an environmentwhere there is a significant commodity and cost of good inflation. We'vealready told you very directly that we will have more pricing in the second half.And we are very closely monitoring opportunities that we may have across all ofour business segments. And as we have those detailed conversations with ourcustomers about precisely what we are going to do, we will then communicatewith you the details of the plan for the rest of the year.

Okay. All right. See you in early January, I guess.

Yes, operator, let's try and take two more calls. And then,I apologize to anybody who is further in the queue, but we are kind of a littlepast time here. I'm going to try and grab two more of you. Can you each ask onequestion each, so we can get two more on here?

Thank you. And the next question comes from the line ofEdgar Roesch from Banc of America Securities. Please proceed.

Good morning. One quick follow-up on the input cost outlook.I mean, you had the 5% target for the year previously. Don, maybe you couldspeak to this, but was that second half weighted in the first place? And now,even if you are expecting 5% in the back half now with the increase to 7 thatimplies, I guess, a 9% increase for the second half. Can you just tell me ifit's second half weighted in the original outlook?

It was a bit second half weighted in the original outlook.It's clearly much more second half weighted now where most of our variants toour expectations is falling in the second half. So, most of that $75 millionincreased cost I alluded to is falling in our second half.

Okay. Thank you. And I'll stick with the one question.Thanks.

Thank you.

Thank you. And the next question comes from the line ofAndrew Lazar from Lehman Brothers. Please proceed with your question.

Good morning.

Hi, Andrew.

I'm kind of wondering with the industry having to playcatch-up around costs all this time in terms of pricing, why isn't the industryor General Mills able to or try to take pricing, frankly, ahead overall this tothe extent you need to sort of price some of it back if the time comes asyou've managed that price line balance, you can do so. But, I’m wondering whythere is a constant sort of game of catch-up?

Well, I think, Andrew, as we went into this year, we said wewould have $250 million input cost inflation, which was significantly ahead ofwhat we had the previous year, and I think some of you were surprised that weforecast that level of inflation for the year and we took it up to 5%. And so,we thought we had a line of sight on accelerating inflation for this year andour business plan called for much more aggressive pricing than we've seen inthe last couple of years. I mean the bottom-line is, it's just been, I think, morethan we saw or any other saw, and now we are trying to catch up. We have to dothis and there is a competitive world out there. But, we are catching up and weare very focused on this. And what I can tell you is that you will continue tosee pricing from us for the rest of the year.

Great. Thanks very much.

Thank you everybody and I apologize to those you that wedidn't get to. Please call me and I'll try and get your questions answered.

Ladies and gentlemen, that does conclude the conference callfor today. We thank you for your participation, and ask that you pleasedisconnect your line.