Financial Instruments. The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of November 27, 2011, and May 29, 2011, a comparison of cost and market values of our marketable debt and equity securities is as follows:

	Cost				Market Value				Gross Gains				Gross Losses
In Millions		Nov. 27, 2011		May 29, 2011		Nov. 27, 2011		May 29, 2011		Nov. 27, 2011		May 29, 2011		Nov. 27, 2011		May 29, 2011
Available for sale:
Debt securities	$	8.3	$	8.9	$	8.4	$	9.0	$	0.1	$	0.1	$	-	$	-
Equity securities		2.0		2.0		5.1		6.0		3.1		4.0		-		-
Total	$	10.3	$	10.9	$	13.5	$	15.0	$	3.2	$	4.1	$	-	$	-

For the second quarter of fiscal 2012, there were no gains or losses from sales of available-for-sale marketable securities. Gains and losses are determined by specific identification. Classification of marketable securities as current or noncurrent is dependent upon our intended holding period, the security's maturity date, or both. The aggregate unrealized gains and losses on available-for-sale securities, net of tax effects, are classified in accumulated other comprehensive loss (AOCI) within stockholders' equity. Scheduled maturities of our marketable securities are as follows:

		Available for Sale
In Millions		Cost		Market Value
Under 1 year (current)	$	2.3	$	2.3
From 1 to 3 years		0.8		0.8
From 4 to 7 years		5.0		5.1
Over 7 years		0.2		0.2
Equity securities		2.0		5.1
Total	$	10.3	$	13.5

Cash, cash equivalents, and marketable securities totaling $32.9 million as of November 27, 2011, were pledged as collateral for certain derivative contracts.

The fair values and carrying amounts of long-term debt, including the current portion, were $7,687.1 million and $6,980.0 million, respectively, as of November 27, 2011. The fair value of long-term debt was estimated using market quotations and discounted cash flows based on our current incremental borrowing rates for similar types of instruments.

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

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

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

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

Unallocated corporate items for the quarterly and six-month periods ended November 27, 2011, and November 28, 2010, included:

	Quarter Ended				Six-Month Period Ended
In Millions		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010
Net gain (loss) on mark-to-market valuation of commodity positions	$	(93.1)	$	49.7	$	(108.5)	$	89.8
Net (gain) loss on commodity positions reclassified from unallocated corporate items to segment operating profit		11.6		(20.3)		(0.8)		(13.1)
Net mark-to-market revaluation of certain grain inventories		(12.9)		(1.4)		(22.8)		23.2
Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items	$	(94.4)	$	28.0	$	(132.1)	$	99.9

As of November 27, 2011, the net notional value of commodity derivatives was $384.0 million, of which $224.9 million related to agricultural inputs and $159.1 million related to energy inputs. These contracts relate to inputs that generally will be utilized within the next 12 months.

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

Floating Interest Rate Exposures — Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Ineffective gains and losses are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million for the period ended November 27, 2011.

Fixed Interest Rate Exposures — Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. Ineffective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. The amount of hedge ineffectiveness was less than $1 million for the period ended November 27, 2011.

During the fourth quarter of fiscal 2011, first quarter of fiscal 2012 and second quarter of fiscal 2012, we entered into $500.0 million, $300.0 million, and $200.0 million of forward starting swaps with average fixed rates of 3.9 percent, 2.7 percent, and 2.4 percent, respectively, in advance of a planned debt financing. All of these forward starting swaps were cash settled for $100.4 million coincident with the issuance of our $1.0 billion 10-year fixed rate notes on November 28, 2011, subsequent to the end of the second quarter of fiscal 2012. As of November 27, 2011, there was a $99.5 million pre-tax loss in AOCI, which will be reclassified to earnings over the term of the underlying debt.

During the fourth quarter of fiscal 2011, we entered into swaps to convert $300.0 million of 1.55 percent fixed-rate notes due May 16, 2014, to floating rates.

During the fourth quarter of fiscal 2010, in advance of a planned debt financing, we entered into $500 million of treasury lock derivatives with an average fixed rate of 4.3 percent. All of these treasury locks were cash settled for $17.1 million during the first quarter of fiscal 2011, coincident with the issuance of our $500 million 30-year fixed-rate notes. As of November 27, 2011, a $16.0 million pre-tax loss remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

As of November 27, 2011, an $11.6 million pre-tax loss on cash settled interest rate swaps for our $1.0 billion 10-year fixed rate notes issued January 24, 2007 remained in AOCI, which will be reclassified to earnings over the term of the underlying debt.

The following table summarizes the notional amounts and weighted-average interest rates of our interest rate swaps. Average floating rates are based on rates as of the end of the reporting period.

In Millions		Nov. 27, 2011		May 29, 2011
Pay-floating swaps - notional amount	$	834.6	$	838.0
Average receive rate		1.7%		1.8%
Average pay rate		0.3%		0.2%
Pay-fixed swaps - notional amount	$	12.3	$	-
Average receive rate		0.4%		-%
Average pay rate		8.3%		-%
Pay-fixed forward starting swaps - notional amount	$	-	$	500.0

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

As of November 27, 2011, the notional value of foreign exchange derivatives was $1,076.7 million. The amount of hedge ineffectiveness was less than $1 million for the period ended November 27, 2011.

We also have many net investments in foreign subsidiaries that are denominated in euros. We hedged a portion of these net investments by issuing euro-denominated commercial paper and foreign exchange forward contracts. As of November 27, 2011, we had deferred net foreign currency transaction losses of $95.7 million in AOCI associated with hedging activity.

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

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

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

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

The fair values of our assets, liabilities, and derivative positions recorded at fair value as of November 27, 2011 and May 29, 2011, were as follows:

	Nov. 27, 2011								Nov. 27, 2011
	Fair Values of Assets								Fair Values of Liabilities
In Millions		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Derivatives designated as hedging instruments:
Interest rate contracts (a) (b)	$	-	$	7.9	$	-	$	7.9	$	-	$	(100.4)	$	-	$	(100.4)
Foreign exchange contracts (c) (d)		-		16.1		-		16.1		-		(7.2)		-		(7.2)
Total		-		24.0		-		24.0		-		(107.6)		-		(107.6)

Derivatives not designated as hedging instruments:
Interest rate contracts (a) (b)		-		1.0		-		1.0		-		(0.4)		-		(0.4)
Foreign exchange contracts (c) (d)		-		15.1		-		15.1		-		(1.6)		-		(1.6)
Commodity contracts (c) (e)		3.0		-		-		3.0		-		(14.1)		-		(14.1)
Grain contracts (c) (e)		-		17.0		-		17.0		-		(42.3)		-		(42.3)
Total		3.0		33.1		-		36.1		-		(58.4)		-		(58.4)

Other assets and liabilities reported at fair value:
Marketable investments (a) (f)		5.1		8.4		-		13.5		-		-		-		-
Total		5.1		8.4		-		13.5		-		-		-		-
Total assets, liabilities, and derivative positions recorded at fair value	$	8.1	$	65.5	$	-	$	73.6	$	-	$	(166.0)	$	-	$	(166.0)

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

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

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

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

Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the quarterly and six-month periods ended November 27, 2011 and November 28, 2010, were as follows:

		Interest Rate Contracts				Foreign Exchange Contracts				Commodity Contracts				Total
		Quarter Ended				Quarter Ended				Quarter Ended				Quarter Ended
In Millions		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010
Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)	$	(27.6)	$	-	$	13.3	$	-	$	-	$	-	$	(14.3)	$	-
Amount of loss reclassified from AOCI into earnings (a) (b)		(0.7)		(3.3)		(1.2)		(3.9)		-		-		(1.9)		(7.2)
Amount of gain (loss) recognized in earnings (c) (d)		(0.3)		-		0.1		-		-		-		(0.2)		-

Derivatives in Fair Value Hedging Relationships:
Amount of net gain (loss) recognized in earnings (e)		(0.1)		1.2		-		-		-		-		(0.1)		1.2

Derivatives Not Designated as Hedging Instruments:
Amount of gain (loss) recognized in earnings (e)		-		3.3		36.3		17.0		(93.1)		49.7		(56.8)		70.0

		Interest Rate Contracts				Foreign Exchange Contracts				Commodity Contracts				Total
		Six-Month Period Ended				Six-Month Period Ended				Six-Month Period Ended				Six-Month Period Ended
In Millions		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010		Nov. 27, 2011		Nov. 28, 2010
Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in other comprehensive income (OCI) (a)	$	(78.6)	$	-	$	11.0	$	(7.4)	$	-	$	-	$	(67.6)	$	(7.4)
Amount of loss reclassified from AOCI into earnings (a) (b)		(1.9)		(6.6)		(5.1)		(9.5)		-		-		(7.0)		(16.1)
Amount of gain (loss) recognized in earnings (c) (d)		(0.5)		-		-		0.3		-		-		(0.5)		0.3

Derivatives in Fair Value Hedging Relationships:
Amount of net gain (loss) recognized in earnings (e)		(0.2)		1.2		-		-		-		-		(0.2)		1.2

Derivatives Not Designated as Hedging Instruments:
Amount of gain (loss) recognized in earnings (e)		-		(0.9)		17.9		13.4		(108.5)		89.8		(90.6)		102.3

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

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

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

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

Amounts Recorded in Accumulated Other Comprehensive Loss. Unrealized losses from interest rate cash flow hedges recorded in AOCI as of November 27, 2011, totaled $77.6 million after tax. These deferred losses are primarily related to interest rate swaps we entered into in contemplation of future borrowings and other financing requirements and are being reclassified into net interest over the lives of the hedged forecasted transactions. Unrealized gains from foreign currency cash flow hedges recorded in AOCI as of November 27, 2011, were $8.0 million after-tax. The net amount of pre-tax gains and losses in AOCI as of November 27, 2011, that we expect to be reclassified into net earnings within the next 12 months is $4.8 million of expense.

Credit-Risk-Related Contingent Features. Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on November 27, 2011, was $47.6 million. We have posted collateral of $29.7 million in the normal course of business associated with these contracts. If the credit-risk-related contingent features underlying these agreements were triggered on November 27, 2011, we would be required to post an additional $17.9 million of collateral to counterparties.

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

The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is $14.1 million against which we do not hold any collateral. Under the terms of master swap agreements, some of our transactions require collateral or other security to support financial instruments subject to threshold levels of exposure and counterparty credit risk. Collateral assets are either cash or U.S. Treasury instruments and are held in a trust account that we may access if the counterparty defaults.