General Mills Annual Report 2009

Plain-text annual report

General Mills A Portfolio for All Seasons Annual Report 2009 FRONT COVER 1931 1941 1951 1961 1977 1983 General Mills has a distinguished portfolio of leading food brands. Many are long-standing favorites, as appealing to consumers today as when they were introduced decades ago. The operating environment for our business is ever-changing, but our brands are resilient and generate continuing growth. Ours is a portfolio for all seasons. Financial Highlights In Millions, Except per Share Data Fiscal Year Ended May 31, 2009 May 25, 2008 % Change Net Sales Segment Operating Profit a Net Earnings Diluted Earnings per Share (EPS) Adjusted Diluted EPS (Excluding Items Affecting Comparability)a Average Diluted Shares Outstanding Dividends per Share $14,691 2,641 1,304 3.80 3.98 344 $ 1.72 $13,652 2,406 1,295 3.71 3.52 347 $ 1.57 + 8 +10 + 1 + 2 +13 – 1 +10 Adjusted diluted eArnings per shAre a $3.98 (dollars) �� b ��b �� c dividends per shAre $1.72 (dollars) 09 08 07 06 05 a See page 88 for discussion of non-GAAP measures. b Results exclude certain items affecting comparability. See page 88 for discussion of non-GAAP measures. c Results include $197 million net gain after tax from divestitures and debt repurchase costs. 1.72 1.57 1.44 1.34 1.24 Contents Letter to Shareholders General Mills at a Glance Growth Drivers Corporate Citizenship 2 6 8 17 Corporate Directory Uses of Cash Financial Review Shareholder Information 18 20 21 Inside Back Cover 1 To Our Shareholders, Fiscal 2009 was a strong year for General Mills. We generated sales and earnings growth that exceeded our long-term goals and the specific targets we had set for this year. Our portfolio of leading food brands is showing its resilience in today’s challenging economic environment, and we believe our company is positioned to achieve another year of good growth in fiscal 2010. Net sales for the year ended May 31, 2009, increased 8 percent to $14.7 billion. This includes the effects of trans lating international sales from foreign currencies into U.S. dollars, which reduced the sales growth rate by 2 percentage points. Operating profit from our business segments grew faster than sales, rising 10 percent to exceed $2.6 billion. Earnings per share (EPS) grew 2 percent to $3.80, including several items that affect the comparability of results year-over-year: mark-to-market valuation of certain commodity positions, a discrete tax item, a net gain from the sale of several product lines, and proceeds from an insurance recovery. Excluding these items, earnings per share totaled $3.98 in 2009, up 13 percent from comparable earnings of $3.52 per share in 2008. Fiscal 2009 was a 53-week year, and the extra week contributed roughly 1.5 points of net sales growth and approximately $0.07 to earn- ings per share. We reinvested a portion of this earnings benefit in incremental consumer marketing initiatives that we expect to help drive continuing sales growth for our brands. A Robust Business Model Our performance in 2009 reflects the vitality of the food categories where we compete and the powerful market positions our brands hold in these categories. Our results also are testimony to the strength of the business model we adopted several years ago in response to significant and sustained cost inflation, particu- larly on fuel and commodities. This business model is driven by holistic margin management (HMM), a companywide discipline of leveraging productivity, sales mix and pricing to offset input cost inflation, protect gross margin, and reinvest increasing levels of consumer marketing support in our brands to drive growth in net sales. In 2009, our input cost inflation was 9 percent, the highest rate we’ve seen in many years. Our HMM focus enabled us to offset that cost pressure and hold gross margin essentially steady at 35.6 percent of net sales. By protecting our margin, we generated funds to increase consumer marketing support for our brands —always important, but particularly so in an eco- nomic environment where lower-priced store brands are getting increased attention. Our consumer marketing spending rose 16 percent in 2009, building on increased investments made in each of the last three years. These marketing programs drove consumer demand for our products, and we grew our share of category sales in a number of key markets around the world. We took actions during the past year that strengthened our business portfolio. We acquired Lärabar, a leading fruit and nut- based energy snack. We sold the Pop·Secret microwave popcorn product line. We sold two nonstrategic foodservice product lines. And we exited pasta and cheese bread businesses in Brazil, in order to focus operations in that country on our Nature Valley and Häagen-Dazs brands. We believe our business portfolio is a stra- tegic advantage, and in 2009 each of our operating segments and U.S. Retail divisions generated sales growth, as shown in the table below. Broad-based Sales Growth Operating Division/Segment 2009 Net Sales % Change Small Planet Foods Baking Products Yoplait Pillsbury USA Big G Cereals International Segment (constant currency*) Meals Snacks Bakeries and Foodservice Segment +30 +18 +14 +12 +11 +10 + 8 + 4 + 1 * Does not include the impact of foreign currency translation. See page 88 of our 2009 Annual Report for a reconciliation to reported results. 2 General Mills General Mills Senior Leadership Team Left to right. Standing: Rick Palmore, Ian Friendly, Chris Shea, Ken Powell, Don Mulligan, Marc Belton, Mike Davis, Peter Erickson. Seated: Jeff Rotsch, Chris O’Leary, John Church. net sAles $14.7 billion segment operA ting profit* return on AverA ge totAl C ApitAl* $2.6 billion 12.3 percent (dollars in millions) (dollars in millions) (percent) 09 08 07 06 05 14,691 13,652 12,442 11,711 11,308 09 08 07 06 05 2,641 2,406 2,260 2,112 2,016 09 08 07 06 05 * See page 88 of our 2009 Annual Report for discussion of non-GAAP measures. Annual Report 2009 12.3 11.8 11.3 10.6 10.0 3 returns to shAreholders (percent growth, stock price appreciation plus dividends) Fiscal 2009 Last 5 Years (compound growth) –�� –�� –�� –�� GIS S&P�Packaged�Foods�Index S&P��Index Our Model for Long-term Growth General Mills’ growth in 2009 exceeded our long-term targets of low single-digit growth in net sales, mid single-digit growth in segment operating profit, and high single-digit growth in earnings per share. We believe this sales and earnings growth, coupled with a targeted dividend yield of between 2 to 3 percent, should result in returns to our share holders (stock price appreciation and dividends) that meet or exceed the broader market’s return over time. In fiscal 2009, General Mills stock outperformed the broader equity market, but the total return to shareholders did not reflect our company’s strong financial condition and business perfor- mance. In response to financial market turmoil and global economic weakness, stock valuations declined sharply, and the S&P 500 stock index posted a negative 31 percent return to investors last year. In this very difficult market environment, our food company peer group fared better, posting a negative 15 percent return. And the return to General Mills share holders last year was a negative 14 percent. Over the most recent five years, General Mills delivered positive compound annual returns to shareholders, well ahead of our peer group and overall market performance. General Mills Long-term Growth Model Growth Factor Compound Annual Growth Target Net Sales Segment Operating Profit Earnings per Share Dividend Yield Total Return to Shareholders Low single-digit Mid single-digit High single-digit 2 to 3 percent Double-digit Our long-term financial goals include a commitment to combine good earnings growth with increasing returns on the capital invested in our business. Four years ago, we established a goal to improve our return on average total capital (ROC) by an average of 50 basis points per year. We’ve done that in each of the last four years, and we are targeting another year of ROC improve- ment in 2010, although at a slightly more moderate rate. Earnings growth is the primary driver of our ROC improve- ment, but disciplined use of cash also plays a role. In 2009, cash generated by our operations totaled $1.8 billion, up 6 percent. We return much of this operating cash to shareholders, through dividends and share repurchases. In 2009, shareholder dividends grew 10 percent to $1.72 per share, and in June 2009 the board of directors approved a 9 percent dividend increase, bringing the new annualized rate to $1.88 per share. We invested more than $1.2 billion to repurchase shares of the company’s common stock in 2009, reducing the average number of diluted shares out- standing by 1 percent. The company’s financial condition remains very sound. Total debt at year end was up just 1 percent from year-earlier levels, despite the strong growth of our business. As a result, two key measures of our financial strength—the ratio of operating cash flow to debt, and the ratio of earnings to fixed charges—improved from 2008 levels. In summary, 2009 was a very good year for General Mills. We strengthened our position as a global food company, and our prospects for continued growth are excellent. The Drivers of our Continuing Growth We have tremendous strengths to leverage as we move for- ward. We compete in growing food categories that are on-trend with consumers’ demand for products that offer great taste, convenience, nutrition and value. Our brands hold leading share positions in a wide array of U.S. and international markets for food at home. And our brands hold large and growing positions in the U.S. foodservice industry, which represents half a tril- lion dollars annually in sales of food eaten away from home. We see five key drivers of our continuing growth. They are: Innovation • • Brand building • Leading customer growth • International expansion • Margin expansion We work continuously to improve our established brands and to create successful new products. In 2009, we continued our efforts to improve the nutritional profile of our products by reducing fat, sodium or sugar, and adding ingredients such as fiber and whole grains. Since 2005, we have improved the nutritional attri- butes for products representing 45 percent of our U.S. Retail business, and we are extending these efforts to our international 4 General Mills significant cost increases for fuel and commodities, we expect the rate of input cost inflation to moderate in fiscal 2010. We believe savings from our holistic margin management initiatives will drive margin expansion this year and contribute to earnings growth for our businesses worldwide. We Have Exceptional People General Mills people are our most powerful competitive advantage. We have more than 30,000 employees around the world, and I want to thank them for all of their contributions to the company. Their talent and commitment give me great confidence in our ability to achieve our future growth goals. I’d also like to acknowl- edge the contributions of our board of directors, and welcome R. Kerry Clark, chairman and chief executive officer of Cardinal Health, Inc., as its newest member. In closing, let me also thank you for your investment in General Mills. I look forward to reporting on our continuing progress. Sincerely, Kendall J. Powell Chairman of the Board and Chief Executive Officer July 27, 2009 product lines. New products are an important contributor to our growth, too. Within our U.S. Retail segment, more than 5 percent of our 2009 net sales came from products that were introduced in the past year. And 6 percent of our International segment sales came from new products. We plan to launch more than 150 products worldwide in the first half of 2010 alone. We’re supporting both new and established brands with increased levels of consumer spending. Our plans for 2010 include a high single-digit increase in consumer marketing investment. And we’re reaching consumers in a variety of ways, from impact- ful TV advertising to our own branded Web sites. Through our consumer marketing initiatives, we increase awareness of our brands and drive sales of our products at everyday nonpromoted prices. Our growth depends on partnering effectively with our retail and foodservice customers. In 2009, we continued to advance the capabilities we bring to our customers in areas such as shopper and category insights, effective in-store merchandising and supply chain efficiences to lead profitable sales growth across different channels and retail formats. And our efforts are being recognized. Food retailers ranked our U.S. Retail sales force No. 4 in the 2008 Cannondale PoweRanking survey, with a composite score up significantly from the prior year. And our Bakeries and Foodservice sales team moved up to No. 3 in Cannondale’s Foodservice ranking. We’re rapidly growing sales for our brands in international markets. In 2009, net sales for our wholly owned International busi- nesses totaled $2.6 billion. Our key brand platforms in this fast- growing segment are Häagen-Dazs super-premium ice cream, Old El Paso Mexican foods, Wanchai Ferry Asian cuisine, and Nature Valley granola bars. We also have 50 percent stakes in two interna- tional joint ventures, Häagen-Dazs Japan and Cereal Partners Worldwide (CPW). CPW now operates in 130 markets across the globe, and net sales for its ready-to-eat cereals grew to exceed $2 billion in fiscal 2009. Foreign exchange effects currently are dampening reported sales and earnings growth rates for our International operations, but constant- currency growth is robust. We expect international expansion to be a key driver of sales and profit increases for us in the years ahead. Our companywide focus on protecting margins is generating industry-leading results. After five consecutive years of Annual Report 2009 5 General Mills at a Glance U.S. Retail �% �% ��% Leading Market Positions Category 2009 Dollar Share % Rank Dry Dinner Mixes Refrigerated Dough Fruit Snacks Dessert Mixes Refrigerated Yogurt Grain Snacks Frozen Hot Snacks Mexican Aisle Products Ready-to-serve Soup Ready-to-eat Cereal Frozen Vegetables 81 69 52 41 35 29 27 17 35 31 19 1 1 1 1 1 1 1 1 2 2 2 Source: ACNielsen measured outlets, 52 weeks ended 5/30/09 ��% ��% ��% ��% Net Sales by U.S. Retail Division $10.1 billion 23% Big G Cereals 21% Meals 19% Pillsbury USA 15% Yoplait 12% Snacks 8 % Baking Products 2 % Small Planet Foods Our U.S. Retail business segment includes the seven marketing divisions listed above. We hold the No. 1 or No. 2 market position in a wide variety of shelf-stable, refrigerated and frozen food categories. We sell our products to a host of retail outlets including traditional grocery stores, natural food chains, mass merchandisers and membership stores. This segment accounts for 68 percent of total company sales. New in 2009 Bakeries and Foodservice ��% ��% ��% Net Sales by Foodservice Customer Segment $2.0 billion 46% Bakery Channels 44% Distributors/Restaurants 10% Convenience Stores/Vending We market our popular food brands in away-from-home channels, including con- venience stores and foodservice outlets such as schools, restaurants and hotels. We also sell baking mixes and bakery flour to supermarket, retail and wholesale bakeries. This segment accounts for 14 percent of total company sales. 6 General Mills International Joint Ventures Our Business Model ��% ��% ��% ��% ��% ��% Net Sales by International Region $2.6 billion 33% Europe 25% Canada 25% Asia/Pacific 17 % Latin America Net Sales by Joint Venture (not consolidated, proportionate share) $1.2 billion 84% Cereal Partners Worldwide (CPW) 16 % Häagen-Dazs Japan Our largest international brands are Häagen-Dazs ice cream, Old El Paso Mexican foods and Nature Valley granola bars. We compete in more than 100 countries outside of the U.S. Our International business segment accounts for 18 percent of total company sales. We are partners in two international joint ventures. Cereal Partners Worldwide (CPW) is our 50/50 joint venture with Nestlé, and markets breakfast cereals in 130 countries around the world. We also are a partner in a Häagen-Dazs ice cream joint venture in Japan. Our business model positions us well to manage costs and generate growth on our leading brands. This business model is driven by holistic mar- gin management (HMM), a company wide discipline to identify and eliminate costs in our businesses that don’t add value for consumers. We reinvest some of the savings from these efforts in advertising and consumer market- ing to drive sales growth. In 2009, consumer marketing spending increased 16 percent worldwide. HMM also helps us offset higher input costs and protect our margins. Despite significant input cost inflation in recent years, including a 9 percent increase in 2009, our gross margin has held relatively steady since 2005. HMM is now an integral part of how we do busi- ness, touching all aspects of our company from the supply chain to corporate headquarters to our International operations. We continue to look for ways to reduce costs and invest the savings to fuel sales growth around the world. International Net Sales (dollars in millions) �� Our�Share�of�CPW�and�Häagen-Dazs�Joint�Ventures* Wholly�Owned�Businesses * Not consolidated. See page 88 for discussion of non-GAAP measures. Annual Report 2009 Gross Margin Trend (percent of net sales) 09 08 07 06 05 Net sales less cost of sales. 35.6 35.7 36.1 35.6 35.2 7 U.S. Retail Net Sales (dollars in billions) 2009 Cheerios Retail Sales Growth 09 08 07 06 05 9.1 8.5 8.1 7.9 10.1 Yellow Box Honey Nut MultiGrain Total Cheerios Franchise (10 varieties) + 5% +19% +69% +11% Source: ACNielsen measured outlets plus Wal-Mart, 52 weeks ended 5/30/09 Building our Building our Brands Brands We have a broad portfolio of well-known brands that compete in growing food categories. We’ve built these brands over the years by innovating to meet changing consumer needs. In 2009, net sales for our U.S. Retail segment, which generated 68 percent of total company sales, grew 11 percent as we combined product improvements on established products and new innovations with increased marketing support. We’ll generate growth in 2010 and beyond with more product innovation and increased levels of brand-building support. Consumers want products that provide health benefits. Cheerios is our largest cereal franchise, thanks to its whole grain goodness. Retail sales for the entire fran- chise grew 11 percent in fiscal 2009, led by MultiGrain Cheerios and Honey Nut Cheerios. Health benefits also drive growth on Yoplait yogurt. Retail sales for Yoplait Light reduced-calorie yogurt grew 18 percent this year. In 2010, we’ll introduce a light version of YoPlus probiotic yogurt and new Yoplait Delights parfaits. We launched the Nature Valley brand in 1975 with all natural, crunchy oats and honey granola bars. More than 30 years later, the brand is still going strong. Fiber One bars are a newer addition to our snack portfolio, offering 35 percent of an adult’s daily value of fiber. Retail sales for these 8 bars grew at a strong double-digit rate in fiscal 2009, and we recently added a chocolate mocha flavor to the line. Increasingly, consumers are looking for value, and our brands are affordable food choices. Cereal is still an economical option for breakfast —a bowl of Cheerios with milk is less than 50 cents per serving. And Progresso soup, Hamburger Helper and Totino’s pizza each make an affordable meal at less than $1.50 per serving. Consumers are eating more meals at home and want convenient options their whole family will enjoy. We created the dry dinner mix category in 1971 with the introduction of Hamburger Helper, and it continues to be the market leader. In 2010, we’re bringing restaurant-quality meals home with new flavors of our Macaroni Grill entrees and Wanchai Ferry Asian dinner kits. And we’re taking the Wanchai Ferry brand into the frozen section of the store with a new line of complete meals for two that are ready in just 14 minutes. Retail sales for Betty Crocker dessert mixes grew 9 percent in 2009 as con sumers bake more at home. This summer, we launched the first nationally branded gluten- free baking mixes. Pillsbury refrigerated dough posted a 6 percent increase in retail sales in 2009, and we’ve got some innova- tive new products coming in 2010. For example, Pillsbury Simply… cookies offer from A CereAl for Kids to A grown-up frAnChise Cheerios, in the bright yellow box, was introduced in 1941. “The Lone Ranger” radio show helped get the message out to kids. Today, Cheerios is still a leading brand with kids, and it has become a best- selling cereal in the U.S. with adults too, as they appreciate the choles- terol-lowering value of these whole grain Os. General Mills delicious, homemade cookies with no trans fat, artifi cial fl avors, colors or preserva- tives. And if you’re looking for something savory, we’re adding to our line of Pillsbury Savorings frozen heat-and-eat appetizers launched last summer. We’re investing behind our brands with increased levels of advertising and online initiatives. Consumers can fi nd recipes and valuable coupons through our Pillsbury Web site. And Betty Crocker is providing cooking tips and even a cooking school online. In total, we increased our U.S. Retail consumer marketing spending by 19 percent in fi scal 2009, and we expect to increase spending in 2010 at a high single-digit rate. By investing in our leading brands, we’re increasing their market share and driving growth for retailers, too. In 2009, we increased our total number of products available in U.S. grocery stores, despite heightened attention to store brands in the current environment. We’ll continue to innovate to meet consumer needs and invest in our brands to drive growth in 2010 and beyond. U.S. Retail Consumer Marketing Spending (percent growth) 09 08 07 06 19 12 6 3 U.S. Retail Segment Operating Profi t (dollars in billions) 09 08 07 06 10 2.2 2.0 1.9 1.8 A good Bowl of soup We’ve grown Progresso soup from a regional favorite to a strong national brand. Last year, we added meat varieties to our reduced- calorie Progresso Light line. This year, we’re introducing new Progresso High Fiber soups. General Mills BAKe with BettY YoplAit outsmArts temptAtion rising to AnY oCCAsion We’ve made it easier to bake with Betty Crocker with new fl avors of microwavable Warm Delights, Fiber One muffi n mixes, and now cake, brownie and cookie mixes that are gluten free. Check out www.bettycrocker.com for great recipe ideas. Since introducing the U.S. to Yoplait yogurt in 1977, we’ve grown the line to include a wide variety of yogurt products. Yoplait Delights parfaits are our latest introduction. They look and taste indulgent, but contain just 100 calories per serving. Pillsbury off ers many high-quality, convenient foods for consumers to enjoy any time of day. Hot, savory appetizers are ready in minutes with new Pillsbury Savorings Bread Bowl Bites. And Totino’s Pizza Rolls are a favorite with kids for an after school snack. Annual Report 2009 11 General Mills 2009 Net Sales Growth in Select U.S. Channels (percent growth) Drug��Dollar�and�Discount�Stores Supercenters Natural�Organic�Stores Convenience�Stores�Vending Club�Stores �DD �DD �DD �HSD �HSD Traditional�Grocery �MSD MSD��Mid-single�digit MSD = Mid single-digit, HSD = High single-digit, HSD��High-single�digit DD = Double-digit DD��Double�digit Growing with All Types of Customers Consumers in the U.S. spend more than $1 trillion on food a year, with a roughly equal split between food eaten at home and away from home. Our brands have oppor- tunities wherever consumers buy food. Traditional grocers account for about 60 percent of our U.S. Retail sales. Our net sales to these customers grew by mid single-digits in 2009. Our sales in non- traditional outlets are growing even faster, including high single-digit growth in club stores, and double-digit growth in dollar stores, and drug and discount chains. Our Cascadian Farm and Muir Glen organic brands are growing in natural and organic stores and in traditional retail- ers. We have a wide variety of tools that help us drive growth with our retail cus- tomers, from computer models that improve packaging arrangements on store shelves to fl exible product shipping confi gurations. Our Bakeries and Foodservice team markets our products in away-from-home channels. Despite consumers eating out less, we posted a modest sales gain in 2009. We’ll drive future growth by focus- ing on our best-selling branded products and channels that show the best pros- pects for growth. For example, net sales for our branded cereals grew 7 percent in 2009 due in part to their popularity in school and university cafeterias. Our yogurt products generated 13 percent net sales growth in various foodservice We off er products that fi t diff erent retailer formats and diff erent shopper needs. For example, Go-GURT Simple yogurt is available in a larger-sized 32-pack popular with membership club store customers. And our cereals are available in single-serve cups and easy-to-eat cereal bars, perfect for school cafeterias, hotel chains and other foodservice channels. channels last year. And our snack prod- ucts are well-suited to grab-and-go eating in vending machines and at convenience stores. With our portfolio of high-quality, branded products, we’re well-positioned to take advantage of future growth with all of our customers. from lunCh lAdies to power lunChes Our brands are great options for lunch away from home. Kids enjoy Trix yogurt for school lunch, while adults enjoy the Yoplait brand in hotels across the country. And the goodness of Nature Valley is now available in a soft baked bar in a variety of foodservice outlets. Annual Report 2009 13 2009 Net Sales Growth by International Region (constant-currency percent growth*) Canada Europe Asia/Pacifi c Latin America Total International Segment + 7% + 4% +16% +22% +10% * See page 88 for discussion of non-GAAP measures. Brands with Brands with Global Appeal Global Appeal From breakfast in Brazil to dinner in Denmark, our products are consumer favorites in more than 100 markets around the world. Net sales for our International segment reached $2.6 billion in 2009, but we believe much of our growth still lies ahead. We’re focusing on four product platforms: ready-to-eat cereal, super-premium ice cream, conve- nient meals and healthy snacks. Most of our international cereal sales are generated by Cereal Partners Worldwide (CPW), our joint venture with Nestlé. You can read more about CPW on page 16. Our wholly owned cereal business in Canada has been steadily gaining share over the last several years, led by the Fibre 1 and Cheerios franchises. In 2010, we’re increasing our levels of consumer marketing support for this business, including a tie-in with the Vancouver 2010 Olympic Winter Games. Häagen-Dazs super-premium ice cream is available in nearly 60 international mar- kets. Sales have been growing at a 9 percent compound rate over the past fi ve years, excluding the impact of foreign currencies. We’re driving growth with new items, such as Häagen-Dazs Smoothie, a blend of ice cream and fruit sorbet available in Europe. Old El Paso Mexican dinner kits make a great family meal in any country. We continue to introduce new off erings, such as a Healthy Fiesta burrito kit in Australia. We’re expanding Wanchai Ferry heat-and- eat dumplings into more cities in China where busy consumers don’t have time to Consumers around the world enjoy Häagen-Dazs ice cream in a variety of fl avors and product forms. New Häagen-Dazs Smoothie has 30 percent fewer calories per serving than regular Häagen-Dazs ice cream, but it’s still 100 percent delicious. make traditional dumplings from scratch. And we recently launched Wanchai Ferry dinner kits in the UK. Nature Valley granola bars are available in more than 50 international markets. Their sales have been growing at a 25 percent pace in recent years, excluding the impact of foreign currencies. In 2010, we’ll intro- duce chewy fruit and nut bars in Europe and a chocolate crunchy bar in Canada. Margins on these product platforms exceed the company average, so we expect our Inter national segment margin to rise as we expand these businesses. from dim sum in ChinA to dinner Kits in englAnd Our brands can travel. For example, we’ve expanded the Wanchai Ferry brand from traditional frozen dump- lings in China to a line of shelf-stable dinner kits in the UK and the U.S. 14 General Mills Annual Ready-to-eat Cereal per Capita Consumption (kilograms per person) United�Kingdom Canada Australia United�States �� Mexico Germany France Russia �� Brazil �� Source: Euromonitor International Fitness is CPW’s largest cereal brand, and its weight management message appeals to adults in many international markets. The great chocolate taste of the Nesquik brand is popular with children around the world. And the Uncle Tobys brand in Australia continues to perform well with strong health messaging on many varieties. Joint Ventures Joint Ventures Add to Growth Add to Growth We’re extending our global reach through our international joint ventures — Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan. These joint ventures are increasingly important contributors to our company earnings. We own a 50 percent stake in Häagen-Dazs Japan, where we sell ice cream in branded cafes and in retail outlets. In 2009, sales trends for this venture were negatively aff ected by the weak economy, but Häagen-Dazs ice cream continues to be considered an aff ordable luxury and was recently named the most-liked consumer brand in a nationwide survey in Japan. Established in 1990, CPW is our 50/50 joint venture with Nestlé that mar- kets cereal outside the U.S. and Canada. Today, CPW generates more than $2 billion in annual net sales and competes in more than 130 markets around the world. Net sales for CPW grew at a high single- digit rate in 2009 on a constant-currency basis. We’ll continue to drive growth on our core brands with increased consumer marketing support that promotes the health benefi ts of our cereals. We’ll also drive growth by expanding our distribution in both established and emerging markets. Per capita cereal con- sumption is still relatively low in many countries, so there is plenty of room to grow our international cereal business. CPW is the second largest cereal com- pany outside the U.S. and Canada. We’ve steadily increased our share of category sales, and CPW’s share in all of its markets combined was up again in 2009. We hold strong No. 2 positions in core markets including the UK, France, Mexico and Australia, and we are the market leader in important emerging markets such as Southeast Asia, Poland, Russia and Turkey. With solid share positions in both estab- lished and developing markets, CPW is positioned well for future growth. 16 General Mills $16 2009 General Mills Contributions $91 million $54 million Corporate Contributions $21 million Foundation Grants $16 million Product Donations $54 $21 Supporting Communities around the World Since our earliest days, we have been committed to making a positive difference in our communities. Through the General Mills Foundation, we made nearly $21 million in grants in 2009 to nonprofit organizations supporting education, youth nutrition and fitness, arts and culture, and social services. When combined with product donations and company contributions, General Mills donated nearly $91 million, or 5 percent of pretax earnings, to our communities this past year. As a food company, we are dedicated to alleviating hunger around the world. In 2009, we made more than $16 million worth of product donations in the U.S., and we’re expanding our efforts globally, helping people develop reliable food sources. Our research and development employees are working on ways to solve agricultural and food processing problems in Africa, and we’re teaching farmers how to grow more robust corn crops in China. Annual Report 2009 We also are dedicated to reducing our environmental footprint through sustainability initiatives. We continue to make progress against our five-year goals to reduce our energy consumption, greenhouse gas emissions, solid waste generation and water usage rates. To learn more about our efforts toward these goals, see our 2009 Corporate Social Responsibility Report available at www.generalmills.com. It’s our people who make our philan- thropic efforts a success. More than 80 percent of General Mills’ U.S. employees volunteer in their communities, as do many of our retirees. Please see the Commit- ment section of our Web site for more infor mation about our efforts to improve our communities and our world. Consumers clip box tops from our products to earn money for schools through our Box Tops for Education program. In 2009, this program reached a milestone, contributing a cumulative $300 million to support K–8 schools in the U.S. since its inception in 1996. The money has helped fill the gaps in school budgets, funding items such as computers, books and school supplies for more than 90,000 schools across the country. 17 Board of Directors (as of July 27, 2009) Raymond V. Gilmartin 2, 4* Professor of Management Practice, Harvard Business School and Retired Chairman, President and Chief Executive Officer, Merck & Company, Inc. (pharmaceuticals) Woodcliff Lake, New Jersey Judith Richards Hope 1*, 5 Distinguished Visitor from Practice and Professor of Law, Georgetown University Law Center Washington, D.C. Heidi G. Miller 2, 3 Executive Vice President and chief executive officer, Treasury & Security Services, J.P. Morgan Chase & Co. (banking and financial services) New York, New York Bradbury H. Anderson 2, 4 Vice Chairman of the Board and Retired Chief Executive Officer, Best Buy Co., Inc. (electronics retailer) Minneapolis, Minnesota R. Kerry Clark† Chairman and Chief Executive Officer, Cardinal Health, Inc. (medical services and supplies) Dublin, Ohio Paul Danos 1, 5 Dean, Tuck School of Business and Laurence F. Whittemore Professor of Business Administration, Dartmouth College Hanover, New Hampshire William T. Esrey 1, 3* Chairman of the Board, Spectra Energy Corp. (natural gas infrastructure provider) and Chairman Emeritus, Sprint Corporation (telecommunications systems) Vail, Colorado Hilda Ochoa-Brillembourg 3, 5 Founder, President and Chief Executive Officer, Strategic Investment Group (investment management) Arlington, Virginia Robert L. Ryan 1, 3 Retired Senior Vice President and Chief Financial Officer, Medtronic, Inc. (medical technology) Minneapolis, Minnesota Dorothy A. Terrell 1, 5* Limited Partner, First Light Capital (venture capital) Boston, Massachusetts Board Committees 1 Audit 2 Compensation 3 Finance 4 Corporate Governance 5 Public Responsibility * Denotes Committee Chair † Appointed to the board May 2009 Steve Odland 3, 4 Chairman of the Board and Chief Executive Officer, Office Depot, Inc. (office products retailer) Boca Raton, Florida Kendall J. Powell Chairman of the Board and Chief Executive Officer, General Mills, Inc. Lois E. Quam 2, 5 Founder and Chief Executive Officer, Tysvar, LLC (business development and consulting) Minneapolis, Minnesota Michael D. Rose 2*, 4 Chairman of the Board, First Horizon National Corporation (banking and financial services) Memphis, Tennessee our CorporA te governAnCe prAC tiCes We have a long-standing commitment to good corporate governance practices. These practices provide an important framework that allows our board of directors and management to pursue the strategic objectives of General Mills and ensure the company’s long-term vitality. The corner stone of our practices is an independent board of directors. All directors are elected annually by a majority of votes cast by share holders, and all board committees are composed entirely of independent directors. We also demand high standards of ethics from our directors and management as described in our director and employee Codes of Conduct. For more information on our governance practices, see our 2009 Proxy Statement and the Corporate Governance Principles on our Web site. 18 General Mills Senior Management (as of July 27, 2009) Mark W. Addicks Senior Vice President; Chief Marketing Officer John R. Church Senior Vice President, Supply Chain Samir Behl Vice President; President, Asia/Pacific Region Y. Marc Belton Executive Vice President, Worldwide Health, Brand and New Business Development Kofi A. Bruce Vice President; Treasurer Peter J. Capell Senior Vice President, International Marketing and Sales Gary Chu Senior Vice President; President, Greater China Juliana L. Chugg Senior Vice President; President, Pillsbury USA Michael L. Davis Senior Vice President, Global Human Resources David E. Dudick Sr. Vice President, U.S. Channels Sales Peter C. Erickson Senior Vice President, Innovation, Technology and Quality Ian R. Friendly Executive Vice President; Chief Operating Officer, U.S. Retail Jeffrey L. Harmening Vice President; President, Big G Cereals David P. Homer Senior Vice President; President, General Mills Canada Richard O. Lund Vice President; Controller John T. Machuzick Senior Vice President; President, Bakeries and Foodservice Daniel I. Malina Senior Vice President, Corporate Development Luis Gabriel Merizalde Vice President; President, Europe, Middle East and Africa Michele S. Meyer Vice President; President, Small Planet Foods Maria S. Morgan Vice President; President, Foodservice Donal L. Mulligan Executive Vice President; Chief Financial Officer James H. Murphy Vice President; President, Meals Kimberly A. Nelson Senior Vice President; President, Snacks Unlimited Rebecca L. O’Grady Vice President; President, Yoplait Shawn P. O’Grady Vice President; President, U.S. Retail Sales Christopher D. O’Leary Executive Vice President; Chief Operating Officer, International Roderick A. Palmore Executive Vice President; General Counsel; Chief Corporate and Risk Management Officer and Secretary Kendall J. Powell Chairman of the Board and Chief Executive Officer Jeffrey J. Rotsch Executive Vice President, Worldwide Sales and Channel Development Christina L. Shea Senior Vice President, External Relations; President, General Mills Foundation Ann W.H. Simonds Vice President; President, Baking Products Christi L. Strauss Senior Vice President; Chief Executive Officer, Cereal Partners Worldwide Sean N. Walker Vice President; President, Latin America and South Africa Keith A. Woodward Senior Vice President, Financial Operations retired from generAl mills Mike Peel and Daralyn Peifer announced their retirements during fiscal 2009. They have been valuable members of our management team, and we thank them for the contri- butions they have made to our company. Michael A. Peel Executive Vice President, Human Resources and Business Services Daralyn B. Peifer Vice President; Treasurer Annual Report 2009 19 Uses of Cash Our businesses are strong generators of cash. In fiscal 2009, cash from operations totaled $1.8 billion, up 6 percent from last year. This included a voluntary $200 million cash contribution to our principal pension plans. With the contribution, these plans ended fiscal 2009 fully funded, despite last year’s steep capital market decline. In 2010, we’ll continue to invest in the good growth opportunities and productivity projects we see in our businesses. Our plans call for $630 million in capital expen- ditures this year. Roughly $30 million of that budget will complete the replacement of a Latin American plant destroyed by fire in 2008. This project will be funded by insurance proceeds we received in 2009. Other significant projects include capacity additions for grain snack bars, pizza rolls, yogurt and cereal. General Mills has a strong tradition of returning cash to shareholders through dividends and share repurchases. Cash divi- dends to shareholders have increased at a high single-digit annual rate in recent years. In June 2009, the board of directors approved a 9 percent increase in the quarterly dividend rate effective with the August payment. The new annualized rate of $1.88 per share represents a strong payout of our earnings to shareholders. General Mills and its predecessor firm have paid regular dividends without interrup- tion or reduction for 111 years, and our goal is to continue increasing dividends over time as our earnings grow. Repurchasing stock is part of our earn- ings growth model —we target an average annual net reduction in diluted shares outstanding of 2 percent. In fiscal 2010, we plan to further reduce shares outstanding, but at a rate less than our long-term target because we plan to use some cash to reduce our debt balance. Total debt at the end of fiscal 2009 was up just 1 percent from the prior-year level, despite strong growth in our business. We shifted the mix of our debt during the year, reducing the percentage of shorter- term commercial paper and increasing the percentage of longer-term debt. As of year end, 88 percent of our debt was at fixed interest rates. With these changes and our plan to pay down some debt in fiscal 2010, net interest expense for 2010 is expected to increase at just a low single-digit rate. Capital Expenditures (dollars in millions) Average Diluted Shares Outstanding (shares in millions) �� a �� Lower �� b Estimate Target a Includes completion of Latin American plant funded b Fiscal 2006 excludes shares related to convertible by insurance proceeds. debentures. See page 88 for discussion of non-GAAP measures. 20 General Mills FinancialReviewCONTENTSFinancialSummary22.........................................................................................................................................................................................Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations23.........................................................................................................................................................................................ReportsofManagementandIndependentRegisteredPublicAccountingFirm49.........................................................................................................................................................................................ConsolidatedFinancialStatements51.........................................................................................................................................................................................NotestoConsolidatedFinancialStatements1BasisofPresentationandReclassifications552SummaryofSignificantAccountingPolicies553AcquisitionsandDivestitures594Restructuring,Impairment,andOtherExitCosts605InvestmentsinJointVentures616GoodwillandOtherIntangibleAssets627FinancialInstruments,RiskManagementActivitiesandFairValues638Debt689MinorityInterests6910Stockholders’Equity7011StockPlans7112EarningsperShare7413RetirementandPostemploymentBenefits7414IncomeTaxes8015LeasesandOtherCommitments8216BusinessSegmentandGeographicInformation8217SupplementalInformation8418QuarterlyData85.........................................................................................................................................................................................Glossary86.........................................................................................................................................................................................ReconciliationofNon-GAAPMeasures88.........................................................................................................................................................................................TotalReturntoStockholders91.........................................................................................................................................................................................AnnualReport200921FinancialSummaryThefollowingtablesetsforthselectedfinancialdataforeachofthefiscalyearsinthefive-yearperiodendedMay31,2009:InMillions,ExceptPerShareData,PercentagesandRatios20092008200720062005FiscalYear....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Operatingdata:Netsales$14,691.3$13,652.1$12,441.5$11,711.3$11,307.8Grossmargin(a)5,233.54,873.84,486.44,166.53,982.6Selling,general,andadministrativeexpenses2,953.92,625.02,389.32,177.71,998.6Segmentoperatingprofit(b)2,640.92,405.52,260.12,111.62,016.4Divestitures(gain)(84.9)———(489.9)Debtrepurchasecosts————137.0After-taxearningsfromjointventures91.9110.872.769.293.9Netearnings1,304.41,294.71,143.91,090.31,240.0Depreciationandamortization453.6459.2417.8423.9443.1Advertisingandmediaexpense(c)732.1587.2491.4471.4426.0Researchanddevelopmentexpense208.2204.7191.1178.4165.3Averagesharesoutstanding:Basic331.9333.0346.5357.7371.2Diluted343.5346.9360.2378.8408.7Netearningspershare:Basic$3.93$3.86$3.30$3.05$3.34Diluted$3.80$3.71$3.18$2.90$3.08Operatingratios:Grossmarginasapercentageofnetsales35.6%35.7%36.1%35.6%35.2%Selling,general,andadministrativeexpensesasapercentageofnetsales20.1%19.2%19.2%18.6%17.7%Segmentoperatingprofitasapercentageofnetsales(b)18.0%17.6%18.2%18.0%17.8%Effectiveincometaxrate37.3%34.4%34.3%34.5%36.6%Returnonaveragetotalcapital(a)(b)12.3%11.8%11.3%10.6%10.0%Balancesheetdata:Land,buildings,andequipment$3,034.9$3,108.1$3,013.9$2,997.1$3,111.9Totalassets17,874.819,041.618,183.718,075.317,924.0Long-termdebt,excludingcurrentportion5,754.84,348.73,217.72,414.74,255.2Totaldebt(a)7,075.56,999.56,206.16,049.36,193.1Minorityinterests242.3242.31,138.81,136.21,133.2Stockholders’equity5,174.76,215.85,319.15,772.35,676.4Cashflowdata:Netcashprovidedbyoperatingactivities$1,828.2$1,729.9$1,751.2$1,843.5$1,785.9Capitalexpenditures562.6522.0460.2360.0434.0Netcashprovided(used)byinvestingactivities(288.9)(442.4)(597.1)(370.0)413.0Netcashusedbyfinancingactivities1,404.51,093.01,398.11,404.32,385.0Fixedchargecoverageratio5.314.874.374.544.61Operatingcashflowtodebtratio(a)25.8%24.7%28.2%30.5%28.8%Sharedata:Lowstockprice$47.22$51.43$49.27$44.67$43.01Highstockprice70.1662.5061.1152.1653.89Closingstockprice51.1861.0960.1551.7949.68Cashdividendspercommonshare1.721.571.441.341.24Numberoffull-andpart-timeemployees30,00029,50028,58028,14727,804Fiscal2009wasa53-weekyear;allotherfiscalyearswere52weeks.Infiscal2007,ouradoptionofanewaccountingpronouncementfordefinedbenefitplansresultedinanafter-taxreductiontostockholders’equityof$440million,andouradoptionofanewaccountingpronouncementrelatedtostockcompensationresultedinadecreasetofiscal2007netearningsof$43million,andadecreasetofiscal2007cashflowsfromoperationsandcorrespondingdecreasetocashflowsusedbyfinancingactivitiesof$73million.SeeNotes2and13totheConsolidatedFinancialStatements.(a)SeeGlossaryonpage86fordefinition.(b)Seepage88fordiscussionofnon-GAAPmeasures.(c)Advertisingandmediaexpenseforyearspriortofiscal2009havebeenreclassifiedtoconformtothecurrentperiodpresentationbyeliminatingcertainfeespaidtothird-partiesandaddingcertainmediacontentdevelopmentcosts.22GeneralMillsManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsEXECUTIVEOVERVIEWWeareaglobalconsumerfoodscompany.Wedevelopdistinc-tivefoodproductsandmarketthesevalue-addedproductsunderuniquebrandnames.Weworkcontinuouslytoimproveourestablishedbrandsandtocreatenewproductsthatmeetcon-sumers’evolvingneedsandpreferences.Inaddition,webuildtheequityofourbrandsovertimewithstrongconsumer-directedmarketingandinnovativemerchandising.Webelieveourbrand-buildingstrategyisthekeytowinningandsustainingleadingsharepositionsinmarketsaroundtheglobe.Ourfundamentalbusinessgoalistogeneratesuperiorreturnsforourstockholdersoverthelongterm.Webelievethatincreasesinnetsales,segmentoperatingprofits,earningspershare(EPS),andreturnonaveragetotalcapitalarethekeymeasuresoffinancialperformanceforourbusinesses.Seethe“ReconciliationofNon-GAAPMeasures”sectiononpage88forourdiscussionofsegmentoperatingprofitandreturnonaveragetotalcapital,whicharenotdefinedbygenerallyacceptedaccountingprinci-ples(GAAP).Ourobjectivesaretoconsistentlydeliver:•lowsingle-digitannualgrowthinnetsales;•midsingle-digitannualgrowthintotalsegmentoperatingprofit;•highsingle-digitannualgrowthinEPS;and•onaverage,atleasta50basispointannualincreaseinreturnonaveragetotalcapital.Webelievethatthisfinancialperformance,coupledwithanattractivedividendyield,shouldresultinlong-termvaluecreationforstockholders.Wealsoreturnasubstantialamountofcashannuallytostockholdersthroughsharerepurchases.ForthefiscalyearendedMay31,2009,ournetsalesgrew8percent,totalsegmentoperatingprofitgrew10percent,dilutedEPSgrew2percent,andourreturnonaveragetotalcapitalimprovedby50basispoints.DilutedEPSforfiscal2009includesa$0.22netlossfrommark-to-marketvaluationofcertaincom-moditypositions,anetgainof$0.11relatedtodivestituresinfiscal2009,an$0.08gainfromasettlementwiththeinsurancecarriercoveringourLaSalteñapastamanufacturingfacilityinArgentinaanda$0.15chargeassociatedwithanunfavorablecourtdecisiononanuncertaintaxmatter.Netcashprovidedbyoperationstotaled$1.8billioninfiscal2009,enablingustoincreaseourannualdividendpaymentspershareby10percentfromfiscal2008andcontinuereturningcashtostockholdersthroughsharerepurchases,whichtotaled$1.3billioninfiscal2009.Wealsomadesignificantcapitalinvestmentstotaling$563millioninfiscal2009,anincreaseof8percentfromfiscal2008,tosupportfuturegrowthandproductivity.Theseresultsmetorexceededourlong-termtargets.Weachievedeachofourfivekeyoperatingobjectivesforfiscal2009:•Wegeneratedbroad-basedgrowthinnetsalesacrossourbusinesses.Eachofouroperatingsegmentspostednetsalesgainsinfiscal2009.Wegenerated2pointsofgrowthfromvolumeand8pointsfromnetpricerealizationandproductmix,offsetby2pointsofunfavorableforeigncurrencyexchange.•Ourcostsavingsinitiativeshelpedtopartiallyoffsetinputcostinflationinfiscal2009.Wetookstepstomanagerawmaterialcosts,especiallywithsignificantcommoditycostincreasesinfiscal2009.Wemaintainedoureffortsonholisticmarginman-agement(HMM),whichincludecost-savingsinitiatives,market-ingspendingefficiencies,andprofitablesalesmixstrategiesinordertoprotectourmargins,enablingustoreinvestinourbrandsthroughhigherlevelsofconsumermarketingspending.•Weinvestedasignificantamountinmediaandotherbrand-buildingmarketingprograms,whichcontributedtonetsalesgrowthacrossourbusinesses.•Wepartneredwithcustomers,includingtraditionalfoodretail-ers,newretailformats,andvariousaway-from-homechannels,inordertoenhanceshopperinsights,introducenewproductsandextendourexistingbrandstonewmarkets.•Wecontinuedtodevelopourbusinessininternationalmar-kets.Wefocusedonourcoreplatformsofsuper-premiumicecream,convenientmealsolutions,andhealthysnackingbyintro-ducingnewproductsandinvestinginconsumerspending.Detailsofourfinancialresultsareprovidedinthe“Fiscal2009ConsolidatedResultsofOperations”sectionbelow.Infiscal2010,ourplansassumethatworldeconomicconditionswillremainchallenging,andthatforeigncurrencyexchangetransactionandtranslationeffectswillreduceourreportednetsalesandearningsgrowthrates.Fiscal2010willbe52weekscomparedto53weeksinfiscal2009.Weexpectournetsalesinfiscal2010tobecomparabletofiscal2009asreported.Weexpectinputcostinflationtomoderatefromfiscal2009levels,whichtogetherwithsavingsfromourHMMinitiativesshouldleadtoexpandedmargins.Ourkeyoperatingobjectivesforfiscal2010alsoincludeahighsingle-digitincreaseinconsumermar-ketingsupport.Webelievethissupport,coupledwithproductinnovationandconsumerspendinginvestmentsmadeinfiscal2009,willbeakeyfactoringeneratingunitvolumegrowth,asweAnnualReport200923believeitbuildsconsumerloyalty,increasesourmarketshare,anddefendsagainstotherbranded,privatelabelandvalueoffer-ings.Ourplansforinternationalincludeunitvolumegrowththroughinvestmentinourbrandsingrowingcategories,andgrowthopportunitiesthroughdistributiongainsandinnovation.Wewillalsofocusonhigher-margin,brandedproductlineswithinthemostattractivefoodservicecustomerchannels.Ourplansalsocallfor$630millionofexpendituresforcapitalprojectsandasignificantamountofcashreturnedtostockholdersthroughsharerepurchasesanddividends.Ourlong-termobjec-tiveistoreduceoutstandingsharesbyanet2percentperyear.Weintendtocontinuerepurchasingsharesinfiscal2010,withagoalofreducingaveragedilutedsharesoutstanding,butataratelessthanour2percentlong-termobjective.OnJune29,2009,ourBoardofDirectorsapprovedadividendincreasetoanannualrateof$1.88pershare.Thisrepresentsa9percentcompoundannualgrowthrateindividendsfromfiscal2006tofiscal2010.Certaintermsusedthroughoutthisreportaredefinedinaglossaryonpage86ofthisreport.FISCAL2009CONSOLIDATEDRESULTSOFOPERATIONSForfiscal2009,wereporteddilutedEPSof$3.80,up2percentfrom$3.71pershareearnedinfiscal2008.Earningsaftertaxwere$1,304millioninfiscal2009,up1percentfrom$1,295millioninfiscal2008.Thecomponentsofnetsalesgrowthareshowninthefollowingtable:ComponentsofNetSalesGrowthFiscal2009vs.2008.........................................................................................................................................................................................Contributionsfromvolumegrowth(a)2ptsNetpricerealizationandmix8ptsForeigncurrencyexchange(2)pts.........................................................................................................................................................................................Netsalesgrowth8pts(a)Measuredintonsbasedonthestatedweightofourproductshipments.Netsalesforfiscal2009grew8percentto$14.7billion,drivenby2percentagepointsofvolumegrowth,mainlyinourU.S.RetailandInternationalsegments,and8percentagepointsofgrowthfromnetpricerealizationandmix.Thisgrowthwasoffsetby2percentagepointsofunfavorableforeigncurrencyexchange.The53rdweekinfiscal2009contributedapproximately1.5per-centagepointsofnetsalesgrowth.Costofsaleswasup$680millioninfiscal2009versusfiscal2008,whilecostofsalesasapercentofnetsalesremainedessentiallyflatfromfiscal2008tofiscal2009.Highervolumedrove$90millionoftheincreaseincostofsales.Higherinputcostsandchangesinmixincreasedcostofsalesby$453million.Wealsorecordeda$119millionnetincreaseincostofsalesrelatedtomark-to-marketvaluationofcertaincommodityposi-tionsandgraininventoriesasdescribedinNote7totheConsolidatedFinancialStatementsstartingonpage63ofthisreport,comparedtoanetdecreaseof$57millioninfiscal2008.Infiscal2008,werecorded$18millionofchargestocostofsales,primarilyfordepreciationassociatedwithrestructuredassets.Costofsalesforfiscal2008alsoincluded$21millionofcosts,includingproductwrite-offs,logistics,andothercosts,relatedtovoluntaryproductrecalls.Grossmargingrew7percentinfiscal2009versusfiscal2008,asoperatingleverage,costsavingsinitiatives,andnetpricereal-izationoffsetinputcostinflation.Grossmarginasapercentofnetsalesdecreasedby10basispointsfromfiscal2008tofiscal2009.Selling,general,andadministrative(SG&A)expensesincreasedby$329millioninfiscal2009versusfiscal2008.TheincreaseinSG&Aexpensesfromfiscal2008waslargelytheresultofa17percentincreaseinmediaandotherconsumermarketingspendingconsistentwithourbrand-buildingstrategy,alongwithhigherlevelsofcompensationandbenefitsexpense.Wealsorecordedwrite-downsof$35millionrelatedtovariouscorporateinvestmentsinfiscal2009,comparedtoanetgainof$16millioninfiscal2008.Thesehighercostswerepartiallyoffsetbya$41mil-lionsettlementwiththeinsurancecarriercoveringourLaSalteñapastamanufacturingplantinArgentinathatwasdestroyedbyfire.SG&Aexpensesasapercentofnetsalesincreasedby90basispointscomparedtofiscal2008.Duringfiscal2009werecordedanetdivestituregainof$85million.Werecordedagainof$129millionrelatedtothesaleofourPop•Secretmicrowavepopcornproductline.Werecordeda$38millionlossonthesaleofaportionoftheassetsofourfrozenunbakedbreaddoughproductlineinourBakeriesandFoodservicesegment,includingthediscontinuationofourfrozendinnerrollproductlineinourU.S.Retailsegmentthatsharedadivestedfacility.Inaddition,werecordeda$6millionlossonthesaleofourbreadconcentratesproductlineinourBakeriesandFoodservicesegment.24GeneralMillsNetinterestforfiscal2009totaled$390million,$32millionlowerthanfiscal2008.Averageinterest-bearinginstrumentsdecreased$264millionleadingtoa$15milliondecreaseinnetinterest,whileaverageinterestratesdecreased20basispointsgeneratinga$17milliondecreaseinnetinterest.Netinterestincludespreferreddistributionspaidonminorityinterests.Theaverageinterestrateonourtotaloutstandingdebtandminorityinterestswas5.6percentinfiscal2009comparedto5.8percentinfiscal2008.Restructuring,impairment,andotherexitcoststotaled$42millioninfiscal2009asfollows:Expense,inMillions.........................................................................................................................................................................................ClosureofContagem,Brazilbreadandpastaplant$16.8DiscontinuationofproductlineatMurfreesboro,Tennesseeplant8.3Chargesassociatedwithrestructuringactionspreviouslyannounced16.5.........................................................................................................................................................................................Total$41.6Infiscal2009,duetodecliningfinancialresults,weapprovedtherestructuringofourInternationalsegment’sbusinessinBrazil.WediscontinuedtheproductionandmarketingofFornoDeMinascheesebreadandFrescarinipastabrandsinBrazilandclosedourContagem,Brazilmanufacturingfacility.Theseactionsaffected556employeesinourBrazilianoperations.OurotherproductlinesinBrazilarenotaffectedbythedecision.Asaresultofthisdecision,weincurredachargeof$17millioninthefourthquarteroffiscal2009,consistingprimarilyof$5millionofemployeeseverance,an$11millionnoncashimpairmentchargetowritedownassetstotheirnetrealizablevalue,and$1millionofothercostsassociatedwiththisrestructuringaction.SubsequenttotheendofourBraziliansubsidiary’sfiscalyearendofApril30,2009,wesoldalloftheproductionassetsandtheFornoDeMinasbrandforproceedsof$6million.Weutilizedthevaluesoftheproduc-tionassetsestablishedaspartofthesaletodeterminethefiscal2009impairmentcharge.Weexpectthisrestructuringactiontobecompletedinthesecondquarteroffiscal2010.Duetodecliningnetsalesandtoimprovemanufacturingcapacityforotherproductlines,wedecidedtoexitourU.S.Retailsegment’sPerfectPortionsrefrigeratedbiscuitsproductlineatourmanufacturingfacilityinMurfreesboro,Tennessee.Werecordedan$8millionnoncashimpairmentchargeagainstlonglivedassetsusedforthisproductline.OurotherproductlinesatMurfreesboroarenotaffectedbythedecision,andnoemployeeswereaffectedbythisaction,whichweexpectwillbecompletedinthesecondquarteroffiscal2010.Infiscal2009,wealsoincurred$17millionofincrementalplantclosureexpensesrelatedtopreviouslyannouncedrestructuringactivities,including$10millionfortheremainderofourleaseobligationatourpreviouslyclosedfacilityinTrenton,Ontario.Infiscal2009wepaid$10millionincashrelatedtorestruc-turingactionstakeninfiscal2009andpreviousyears.Infiscal2010,weexpecttoincuranominalamountofexpenseassociatedwithourpreviouslyannouncedrestructuringactions.Ourconsolidatedeffectiveincometaxrateforfiscal2009was37.3percentcomparedto34.4percentinfiscal2008.Theincreaseintheeffectiverateisprimarilyduetotheeffectofa2009U.S.appellatecourtdecisionthatreverseda2008U.S.dis-trictcourtdecision.Inthethirdquarteroffiscal2008,werecordedanincometaxbenefitof$31millionasaresultofafavorableU.S.districtcourtdecisiononanuncertaintaxmatter.Inthethirdquarteroffiscal2009,theU.S.CourtofAppealsfortheEighthCircuitissuedanopinionreversingthedistrictcourtdeci-sion.Asaresult,werecorded$53million(includinginterest)ofincometaxexpenserelatedtothereversalofcumulativeincometaxbenefitsfromthisuncertaintaxmatterrecognizedinfiscalyears1992through2008.Weexpecttomakecashtaxandinterestpaymentsofapproximately$32millioninconnectionwiththismatter.Wearecurrentlyevaluatingouroptionsforappeal.Theratealsoincreasedinfiscal2009dueto$15millionoftaxexpenserelatedtonondeductiblegoodwillwrite-offsassoci-atedwithourdivestitures.Otheritemsthatdecreasedthe2009effectiveincometaxrateincludeafavorableCaliforniaappealscourtdecisionthatresultedintherecognitionof$10millionoftaxbenefits.Inaddition,werecognized$21millionofothertaxbenefits,primarilyrelatedtoforeigntaxcreditsandauditsettlements.After-taxearningsfromjointventurestotaled$92millioninfiscal2009,comparedto$111millioninfiscal2008.Fiscal2009earningswerereducedbya$6milliondeferredincometaxvaluationallowance.Infiscal2008,earningsincluded$16millionforourshareofagainonthesaleofaCerealPartnersWorldwide(CPW)propertyintheUnitedKingdomoffsetbyrestructuringexpensesof$8million.Fiscal2008resultsalsoincluded$2millionforourshareofagainonthesaleofthe8thContinentsoymilkbusiness.Infiscal2009,netsalesforCPWincreased2percent.Volumegrowthof4percentagepoints,includinggrowthinRussia,MiddleEast,Asia,andLatinAmerica,andnetpriceAnnualReport200925realizationwereoffsetbyunfavorableforeignexchange.NetsalesforourHa¨agen-DazsjointventureinJapanincreased2percentinfiscal2009asaresultoffavorableforeignexchangeof11per-centagepointsandpositivenetpricerealization,offsetbyadecreaseinvolume.Averagedilutedsharesoutstandingdecreasedby3millionfromfiscal2008primarilyduetotherepurchaseof20millionsharesofcommonstockinfiscal2009,offsetbytheissuanceof14millionsharesofcommonstockinfiscal2008tosettleaforwardcontractwithanaffiliateofLehmanBrothers,Inc.(Leh-manBrothers),theissuanceofcommonstockuponstockoptionexercises,theissuanceofannualstockawards,thevestingofrestrictedstockunits,andtheissuanceofsharestoacquireHummFoods.FISCAL2009CONSOLIDATEDBALANCESHEETANALYSISCashandcashequivalentsincreased$89millionfromfiscal2008,asdiscussedinthe“Liquidity”sectionbelow.Receivablesdecreased$128millionfromfiscal2008,asaresultofforeignexchangetranslationandsalestimingshifts.Theallowancefordoubtfulaccountswasessentiallyunchangedfromfiscal2008.Inventoriesdecreased$20millionfromfiscal2008duetoadecreaseinthevaluesandlevelsofgraininventories,aswellasa$24millionincreaseinthereservefortheexcessoffirstin,firstout(FIFO)inventorycostsoverlastin,firstout(LIFO)inventorycosts.Thesedecreaseswerepartiallyoffsetbyhigherlevelsoffinishedgoods.Prepaidexpensesandothercurrentassetsdecreased$41mil-lion,ascommodityandforeignexchangederivativereceivablesdecreased$46million.Land,buildings,andequipmentdecreased$73million,ascapitalexpendituresof$563millionwerepartiallyoffsetbydepreciationexpenseof$443million.Wealsorecorded$18millionofimpairmentchargesassociatedwithrestructuredfacilitiesinContagem,BrazilandMurfreesboro,Tennessee.Inaddition,wesoldfacilitieswithbookvaluesof$84millioninCedarRapids,Iowa;Bakersfield,California;Hazelton,Pennsylvania;Montreal,Canada;andVinita,Oklahoma.Goodwillandotherintangibleassetsdecreased$153millionfromfiscal2008primarilyduetodecreasesfromforeigncurrencytranslationof$134million,divestituresof$42million,anddeferredtaxadjustmentsof$45millionrelatedtodivestituresandchangesinacquisition-relatedincometaxliabilities.ThesewerepartiallyoffsetbytheacquisitionofHummFoods,whichincreasedgoodwillandotherintangiblesby$61million.Otherassetsdecreased$855millionfromfiscal2008,drivenbya$915milliondecreaseinourpensionassetfollowingourannualupdateofassumptionsandfiscal2009assetperformance,offsetbya$64millionincreaseininterestratederivativereceivablesresultingfromadecreaseininterestrates.Accountspayabledecreased$134millionto$803millioninfiscal2009asaresultoflowervendorpayablesassociatedwithinventoriesandconstructioninprogress,aswellasforeignexchangetranslation.Long-termdebt,includingcurrentportion,andnotespayableincreased$76millionfromfiscal2008.Weissuedseniornotestotaling$1.9billioninfiscal2009thatweusedtorepayaportionofourcommercialpaper.Thecurrentandnoncurrentportionsofdeferredincometaxesdecreased$302million,duetolossesinourpensionassetsandthebookversustaxtreatmentofcertaininventoriesandinvest-ments.Wealsoincurred$216millionofdeferredincometaxexpenseinfiscal2009.Othercurrentliabilitiesincreased$242million,drivenbyincreasesinaccruedtaxesof$101millionanda$28millionincreaseinconsumermarketingaccruals.Wealsohadanincreaseinforeignexchangederivativespayableof$19million.Otherliabilitiesincreased$8million,drivenbyanincreaseinaccruedcompensationbenefitsof$50millionanda$40millionincreaseinnoncurrentinterestderivativespayable,offsetbya$88milliondecreaseinnoncurrenttaxespayable.Retainedearningsincreased$725million,reflectingfiscal2009netearningsof$1,304millionlessdividendspaidof$580mil-lion.Treasurystockincreased$815milliondueto$1,296millionofsharerepurchases,offsetby$443millionrelatedtostock-basedcompensationplansand$39millionforsharesissuedfortheacquisitionofHummFoods.Additionalpaid-incapitalincreased$101milliondueprimarilytoanincreasefromstockcompensationactivityand$16millionforsharesissuedintheacquisitionofHummFoods.Accumulatedothercomprehensiveincome(loss)decreasedby$1,052millionafter-tax,primarilydrivenbylossesinourpension,otherpostretirement,andpostemploymentbenefitplansof$1.2billion.26GeneralMillsFISCAL2008CONSOLIDATEDRESULTSOFOPERATIONSForfiscal2008,wereporteddilutedEPSof$3.71,up17percentfrom$3.18pershareearnedinfiscal2007.Earningsaftertaxwere$1,295millioninfiscal2008,up13percentfrom$1,144millioninfiscal2007.Thecomponentsofnetsalesgrowthareshowninthefollowingtable:ComponentsofNetSalesGrowthFiscal2008vs.2007.........................................................................................................................................................................................Contributionsfromvolumegrowth(a)3ptsNetpricerealizationandmix5ptsForeigncurrencyexchange2pts.........................................................................................................................................................................................Netsalesgrowth10pts(a)Measuredintonsbasedonthestatedweightofourproductshipments.Netsalesforfiscal2008grew10percentto$13.7billion,drivenby3percentagepointsfromvolumegrowth,mainlyinourU.S.RetailandInternationalsegments,and5percentagepointsofgrowthfromnetpricerealizationandmixacrossmanyofourbusinesses.Inaddition,foreigncurrencyexchangeeffectsadded2percentagepointsofgrowth.Duringthesecondquarteroffiscal2008,wevoluntarilyrecalledallpepperonivarietiesofTotino’sandJeno’sfrozenpizzamanufacturedonorbeforeOctober30,2007,duetopotentialcontamination.WealsovoluntarilyrecalledoneflavorofProgressosoupduringthethirdquarteroffiscal2008.Thefrozenpizzaandsouprecallsdidnotsignificantlyimpactournetsalesforfiscal2008.Costofsaleswasup$823millioninfiscal2008versusfiscal2007.Costofsalesasapercentofnetsalesinfiscal2008increased40basispointscomparedtofiscal2007.Highervolumedrove$207millionofthisincrease.Higherinputcostsandchangesinmixincreasedcostofsalesby$633million.Werecordednetmark-to-marketgainsof$60millionrelatedtoderivativesonopencommoditypositionstomitigateinputcostinflation,anda$3millionlossfromtherevaluationofcertaingraininventoriestomarket.Wealsorecorded$18millionofchargestocostofsales,primarilyfordepreciationassociatedwithrestruc-turedassets.OurLaSalteñapastamanufacturingplantinArgen-tinawasdestroyedbyafireresultinginalossof$1million,netofinsuranceproceeds,fromthewrite-offofinventoryandproperty,plant,andequipment,andseveranceexpenserelatedtothisevent.Costofsalesforfiscal2008alsoincluded$21millionofcosts,includingproductwrite-offs,logistics,andothercosts,relatedtothevoluntaryrecalls.Grossmargingrew9percentinfiscal2008versusfiscal2007,drivenbyhighervolume,costsavingsinitiatives,andnetpricerealization.Grossmarginasapercentofnetsalesdeclined40basispointsfromfiscal2007tofiscal2008.ThisprimarilyreflectsdeclinesinourBakeriesandFoodservicesegment,wherewetookpriceincreasesdesignedtooffsetcostincreasesonadollarbasis,butgrossmarginasapercentofnetsalesdeclined.SG&Aexpensesincreasedby$236millioninfiscal2008versusfiscal2007.TheincreaseinSG&Aexpensesfromfiscal2007waslargelytheresultofa13percentincreaseinmediaandotherconsumermarketingspendingconsistentwithourbrand-buildingstrategy,$30millionmoreforeignexchangelossesthanthepreviousyear,higherlevelsofcompensationandbenefits,a7percentincreaseinresearchanddevelopmentexpensesup-portingourinnovationinitiatives,and$9millionofcostsassoci-atedwiththeremarketingoftheClassAandSeriesB-1InterestsinourGeneralMillsCereals,LLC(GMC)subsidiary.SG&Aexpensesasapercentofnetsaleswasessentiallyflatcomparedtofiscal2007.Netinterestforfiscal2008totaled$422million,$5millionlowerthanfiscal2007.Averageinterest-bearinginstrumentsincreased$467millionleadingtoa$29millionincreaseinnetinterest,whileaverageinterestratesdecreased50basispointsgeneratinga$34milliondecreaseinnetinterest.Netinterestincludespreferreddistributionspaidonminorityinterests.Restructuring,impairment,andotherexitcoststotaled$21millioninfiscal2008asfollows:Expense(Income),inMillions.........................................................................................................................................................................................ClosureofPoplar,Wisconsinplant$2.7ClosureandsaleofAllentown,Pennsylvaniafrozenwaffleplant9.4ClosureofleasedTrenton,Ontariofrozendoughplant10.9RestructuringofproductionschedulinganddiscontinuationofcakeproductlineatChanhassen,Minnesotaplant1.6GainonsaleofpreviouslyclosedVallejo,Californiaplant(7.1)Chargesassociatedwithrestructuringactionspreviouslyannounced3.5.........................................................................................................................................................................................Total$21.0Duringfiscal2008,weapprovedaplantotransferOldElPasoproductionfromourPoplar,WisconsinfacilitytootherplantsandtoclosethePoplarfacility.ThisactiontoimprovecapacityAnnualReport200927utilizationandreducecostsaffected113employeesatthePoplarfacility,andresultedinachargeof$3millionconsistingentirelyofemployeeseverance.Duetodecliningfinancialresults,wedecidedtoexitourfrozenwaffleproductline(retailandfood-service)andtocloseourfrozenwaffleplantinAllentown,Penn-sylvania,affecting111employees.Werecordeda$3millionchargeforemployeeseveranceanda$6millionnoncashimpairmentchargeagainstlong-livedassetsattheplant.WealsocompletedananalysisoftheviabilityofourBakeriesandFoodservicefrozendoughfacilityinTrenton,Ontario,andclosedthefacility,affecting470employees.Werecordedan$8millionchargeforemployeeexpensesanda$3millionchargeforshutdownanddecommis-sioningcosts.WealsorestructuredourproductionschedulinganddiscontinuedourcakeproductionlineatourChanhassen,MinnesotaBakeriesandFoodserviceplant.Theseactionsaffected125employees,andwerecordeda$3millionchargeforemployeeseverance,partiallyoffsetbya$1milliongainfromthesaleoflong-livedassets.Alloftheforegoingactionswerecompletedinfiscal2009.Finally,werecordedadditionalchargesof$4millionprimarilyrelatedtopreviouslyannouncedBakeriesandFoodservicesegmentrestructuringactions,includingemployeeseverancefor38employees,thatwerecompletedinfiscal2008.Inaddition,duringfiscal2008werecordedan$18millionnon-cashchargerelatedtodepreciationassociatedwithrestructuredassetsatourplantinTrenton,Ontarioand$1millionofinventorywriteoffsatourplantsinChanhassen,MinnesotaandAllentown,Pennsylvania.ThesechargesarerecordedincostofsalesinourConsolidatedStatementsofEarningsandinunallocatedcorpo-rateitemsinoursegmentresults.Ourconsolidatedeffectiveincometaxrateforfiscal2008was34.4percentcomparedto34.3percentforthesameperiodoffiscal2007.The0.1percentagepointincreasewastheresultofanincreaseinthestateincometaxrateduetomoreincomeinhigherratejurisdictionsandlowerforeigntaxcredits.TheseitemswereoffsetbyafavorableU.S.districtcourtdecisiononanuncertaintaxmatterthatreducedourliabilityforuncertaintaxpositionsandrelatedaccruedinterestby$31million.Asdiscussedaboveundertheheading“Fiscal2009ConsolidatedResultsofOperations”,thisdecisionwasreversedbyaU.S.appellatecourtdecisioninfiscal2009.After-taxearningsfromjointventurestotaled$111millioninfiscal2008,comparedto$73millioninfiscal2007.Infiscal2008,netsalesforCPWgrew23percentdrivenbyhighervolume,keynewproductintroductionsincludingOats&MoreintheUnitedKingdomandNesquikDuoacrossanumberofregions,favorableforeigncurrencyeffects,andthebenefitofafullyearofsalesfromtheUncleTobysacquisition,whichclosedinJuly2006.Ourfiscal2008after-taxearningsfromjointventureswasbenefitedby$16millionforourshareofagainonthesaleofaCPWpropertyintheUnitedKingdomoffsetbyrestructuringexpensesof$8million.NetsalesforourHa¨agen-DazsjointventuresinAsiaincreased16percentinfiscal2008asaresultoffavorableforeignexchangeandintroductoryproductshipments.Duringthethirdquarteroffiscal2008,the8thContinentsoymilkbusinesswassold.Our50percentshareoftheafter-taxgainonthesalewas$2million.Averagedilutedsharesoutstandingdecreasedby13millionfromfiscal2007duetoourrepurchaseof24millionsharesofstockduringfiscal2008,partiallyoffsetbytheissuanceof14millionsharestosettleaforwardpurchasecontractwithanaffiliateofLehmanBrothers,theissuanceofsharesuponstockoptionexercises,theissuanceofannualstockawards,andthevestingofrestrictedstockunits.28GeneralMillsRESULTSOFSEGMENTOPERATIONSOurbusinessesareorganizedintothreeoperatingsegments:U.S.Retail;International;andBakeriesandFoodservice.Thefollowingtablesprovidethedollaramountandpercentageofnetsalesandoperatingprofitfromeachsegmentforfiscalyears2009,2008,and2007:NetSalesInMillions200920082007FiscalYear....................................................................................................................................................................................................................................................................................................................................................................................................NetSalesPercentofNetSalesNetSalesPercentofNetSalesNetSalesPercentofNetSales............................................................................................................................................................................................................................................................................................................................................................................................U.S.Retail$10,052.168%$9,072.066%$8,491.368%International2,591.4182,558.8192,123.417BakeriesandFoodservice2,047.8142,021.3151,826.815............................................................................................................................................................................................................................................................................................................................................................................................Total$14,691.3100%$13,652.1100%$12,441.5100%SegmentOperatingProfitInMillions200920082007FiscalYear..................................................................................................................................................................................................................................................................................................................................................................................SegmentOperatingProfitPercentofSegmentOperatingProfitSegmentOperatingProfitPercentofSegmentOperatingProfitSegmentOperatingProfitPercentofSegmentOperatingProfit............................................................................................................................................................................................................................................................................................................................................................................................U.S.Retail$2,208.584%$1,971.282%$1,896.684%International261.410268.911215.710BakeriesandFoodservice171.06165.47147.86............................................................................................................................................................................................................................................................................................................................................................................................Total$2,640.9100%$2,405.5100%$2,260.1100%Segmentoperatingprofitexcludesunallocatedcorporateitems,gainondivestitures,andrestructuring,impairment,andotherexitcostsbecausetheseitemsaffectingoperatingprofitarecentrallymanagedatthecorporatelevelandareexcludedfromthemeasureofsegmentprofitabilityreviewedbyourexecutivemanagement.U.S.RetailSegmentOurU.S.Retailsegmentreflectsbusinesswithawidevarietyofgrocerystores,massmerchandisers,mem-bershipstores,naturalfoodchains,anddrug,dollaranddiscountchainsoperatingthroughouttheUnitedStates.Ourmajorprod-uctcategoriesinthisbusinesssegmentareready-to-eatcereals,refrigeratedyogurt,ready-to-servesoup,drydinners,shelfstableandfrozenvegetables,refrigeratedandfrozendoughproducts,dessertandbakingmixes,frozenpizzaandpizzasnacks,grain,fruitandsavorysnacks,andawidevarietyoforganicproductsincludingsoup,granolabars,andcereal.Thecomponentsofthechangesinnetsalesareshowninthefollowingtable:ComponentsofU.S.RetailNetSalesGrowthFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................Contributionsfromvolumegrowth(a)4pts3ptsNetpricerealizationandmix7pts4pts.........................................................................................................................................................................................Netsalesgrowth11pts7pts(a)Measuredintonsbasedonthestatedweightofourproductshipments.Infiscal2009,netsalesforourU.S.Retailsegmentwere$10.1billion,up11percentfromfiscal2008.Netpricerealizationandmixadded7percentagepointsofgrowthandvolumeonatonnagebasiscontributed4percentagepointsofgrowth.Netsalesforthissegmenttotaled$9.1billioninfiscal2008and$8.5billioninfiscal2007.Thegrowthinfiscal2008netsaleswastheresultofa4percentagepointbenefitfromnetpricerealiza-tionandmix,aswellasa3percentagepointincreaseinvolumeinAnnualReport200929fiscal2008versusfiscal2007,ledbystronggrowthinourgrainsnacksandyogurtbusinesses.AllofourU.S.Retaildivisionsexperiencednetsalesgrowthinfiscal2009asshowninthetablesbelow:U.S.RetailNetSalesbyDivisionInMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................................BigG$2,259.5$2,028.0$1,932.9Meals2,157.12,006.11,909.2Pillsbury1,869.81,673.41,591.4Yoplait1,468.91,293.11,170.7Snacks1,246.61,197.61,066.5BakingProducts850.7723.3666.7SmallPlanetFoodsandOther199.5150.5153.9.........................................................................................................................................................................................Total$10,052.1$9,072.0$8,491.3U.S.RetailChangeinNetSalesbyDivisionFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................BigG11%5%Meals85Pillsbury125Yoplait1410Snacks412BakingProducts188SmallPlanetFoods306.........................................................................................................................................................................................Total11%7%Infiscal2009,BigGcerealsnetsalesincreased11percentdrivenbygrowthacrosstheportfolio,includinggainsonMulti-GrainCheerios,HoneyNutCheerios,CinnamonToastCrunch,andtheFiberOnecereals.NetsalesforMealsgrew8percentledbyHelperdinnermixes,thenewMacaroniGrilldinnermixline,andGreenGiantfrozenvegetables.Pillsburynetsalesincreased12per-centledbyTotino’spizzaandPizzaRollssnacks,Pillsburyrefrig-erateddoughproducts,andnewPillsburySavoringsfrozenappe-tizers.Yoplaitnetsalesgrew14percentledbycontributionsfromYoplaitLight.NetsalesforSnacksincreased4percent,asgainsingrainsnacksincludingFiberOnebarsandChexMixmorethanoffsetthereductioninsalesfromthedivestitureofPop•Secretthisyear.BakingProductsnetsalesgrew18percentreflectinggainsinBettyCrockerdessertmixes,Bisquickbakingmix,andGoldMedalflour.NetsalesforSmallPlanetFoodsgrew30percentincludingcontributionsfromtheLa¨rabarproductlineacquiredinfiscal2009.Forfiscal2008,BigGcerealsnetsalesgrew5percent,drivenbygrowthincorebrandsincludingCheeriosvarietiesandFiberOnecereals.NetsalesforMealsgrewby5percentledbyProgressoready-to-servesoups.Pillsburynetsalesincreased5percentledbyTotino’sfrozenpizzaandhotsnacksandPillsburyrefrigeratedbakedgoods.Yoplaitnetsalesgrew10percentduetogrowthonYoplaitLightyogurtandnewproductsincludingYoPlusandFiberOneyogurt.NetsalesforSnacksgrew12percentledbyincreasedsalesforNatureValleygrainsnacksandFiberOnebars.BakingProductsnetsalesgrew8percentduetoincreasesinBettyCrockercookiemixes,GoldMedalflour,andthelaunchofWarmDelightsMinis.Segmentoperatingprofitof$2.2billioninfiscal2009improved$237million,or12percent,overfiscal2008.Netpricerealizationandmixincreasedsegmentoperatingprofitby$596million,andvolumegrowthincreasedsegmentoperatingprofitby$146million.Thesewerepartiallyoffsetbyincreasedsupplychaininputcostsof$338million,a19percentincreaseinconsumermarketingexpenseconsistentwithourbrand-buildingstrategy,andhigheradminis-trativecosts.Infiscal2008,voluntaryproductrecallsreducedsegmentoperatingprofitby$24million.Segmentoperatingprofitof$2.0billioninfiscal2008improved$75million,or4percent,overfiscal2007.Netpricerealizationandmixincreasedsegmentoperatingprofitby$317million,andvolumegrowthincreasedsegmentoperatingprofitby$95million.Thesewereoffsetbyincreasedsupplychaininputcostsof$181million,higheradministrativecosts,anda12percentincreaseinconsumermarketingexpenseconsistentwithourbrand-build-ingstrategy.Voluntaryproductrecallsreducedsegmentoperat-ingprofitby$24million.InternationalSegmentInCanada,ourmajorproductcategoriesareready-to-eatcereals,shelfstableandfrozenvegetables,drydinners,refrigeratedandfrozendoughproducts,dessertandbakingmixes,frozenpizzasnacks,andgrain,fruitandsavorysnacks.InmarketsoutsideNorthAmerica,ourproductcategoriesincludesuper-premiumicecream,grainsnacks,shelfstableandfrozenvegetables,doughproducts,anddrydinners.OurInter-nationalsegmentalsoincludesproductsmanufacturedintheUnitedStatesforexport,mainlytoCaribbeanandLatinAmericanmarkets,aswellasproductswemanufactureforsaletoourinternationaljointventures.Revenuesfromexportactivitiesare30GeneralMillsreportedintheregionorcountrywheretheendcustomerislocated.Theseinternationalbusinessesaremanagedthrough34salesandmarketingoffices.Thecomponentsofnetsalesgrowthareshowninthefollowingtable:ComponentsofInternationalNetSalesGrowthFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................Contributionsfromvolumegrowth(a)1pts6ptsNetpricerealizationandmix9pts5ptsForeigncurrencyexchange(9)pts9pts.........................................................................................................................................................................................Netsalesgrowth1pts20pts(a)Measuredintonsbasedonthestatedweightofourproductshipments.Forfiscal2009,netsalesforourInternationalsegmentwere$2,591million,up1percentfromfiscal2008.Thisgrowthwasdrivenby9percentagepointsofnetpricerealizationandmixand1percentagepointofvolumegrowth,offsetby9percentagepointsofunfavorableforeignexchange.Netsalestotaled$2,559millioninfiscal2008,up20percentfrom$2,123millioninfiscal2007.Thegrowthinfiscal2008wasdrivenmainlyby9percentagepointsoffavorableforeignexchange,inadditiontoa6percentagepointincreaseinvolumegrowthanda5percentagepointincreaseinnetpricerealizationandmix.NetsalesgrowthforourInternationalsegmentbygeographicregionisshowninthefollowingtables:InternationalNetSalesbyGeographicRegionInMillions200920082007FiscalYear........................................................................................................................................................................................................................................................................Europe$857.8$898.5$756.3Canada651.8697.0610.4Asia/Pacific635.8577.4462.0LatinAmerica446.0385.9294.7.........................................................................................................................................................................................Total$2,591.4$2,558.8$2,123.4InternationalChangeinNetSalesbyGeographicRegionFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................Europe(5)%19%Canada(6)14Asia/Pacific1025LatinAmerica1631.........................................................................................................................................................................................Total1%20%Infiscal2009,netsalesinEuropedecreasedby5percentdrivenby9pointsofunfavorableforeigncurrencyexchange,partiallyoffsetbynetsalesgrowthofOldElPasoacrossEuropeanddoughproductsintheUnitedKingdom.NetsalesinCanadadecreased6percentdueto13pointsofunfavorableforeigncurrencyexchangepartiallyoffsetbygrowthfromcerealprod-uctsandFiberOnebars.NetsalesintheAsia/Pacificregionincreasedby10percent,includingsalesgrowthforHa¨agen-DazsandWanchaiFerrybrandsinChina,andincreasedsalesofOldElPasoandLatinainAustralia.LatinAmericanetsalesincreased16percentduetonetpricerealizationandthesalesvolumerecoveryinArgentinaafterafiredestroyedourLaSalteñaman-ufacturingfacilityinfiscal2008.Infiscal2008,netsalesinEuropeincreased19percentreflect-ingperformancefromOldElPasoandHa¨agen-DazsintheUnitedKingdom.ContinuedsuccessfromthelaunchofNatureValleygranolabarsinseveralEuropeanmarketsandfavorableforeignexchangealsocontributedtotheregion’sgrowth.NetsalesinCanadaincreased14percentincludingfavorableforeignexchange.IntheAsia/Pacificregion,netsalesincreased25per-centledbydouble-digitgrowthforHa¨agen-DazsicecreamandWanchaiFerrydumplingsandmealkitsinChina.InLatinAmerica,netsalesincreased31percentledbyDiablitoscannedmeatspreadinVenezuelaandnetpricerealizationinothercountries,partiallyoffsetbylostsalesfollowingourplantfireinArgentina.Segmentoperatingprofitforfiscal2009declined3percentto$261millionfrom$269millioninthesameperiodayearagodrivenbya14percentagepointdecreaseduetounfavorableforeignexchange.Increasesinnetpricerealizationandmixandvolumegrowthoffsetincreasesinsupplychaininputcostsof$16millionanda3percentincreaseinconsumermarketingexpense.Segmentoperatingprofitforfiscal2008grewto$269million,up25percentfromfiscal2007,withforeigncurrencyexchangecontributing9percentagepointsofthatgrowth.SegmentAnnualReport200931operatingprofitincreasedby$38millionfromhighervolumes.Netpricerealizationandmixmorethanoffsethighersupplychaininputcosts,a22percentincreaseinconsumermarketingexpense,andadministrativecostincreases.BakeriesandFoodserviceSegmentInourBakeriesandFoodser-vicesegmentwesellbrandedready-to-eatcereals,snacks,dinnerandsidedishproducts,refrigeratedandsoft-servefrozenyogurt,frozendoughproducts,brandedbakingmixes,andcustomfooditems.Ourcustomersincludefoodservicedistributorsandoper-ators,conveniencestores,vendingmachineoperators,quickserviceandotherrestaurantoperators,andbusinessandschoolcafeteriasintheUnitedStatesandCanada.Inaddition,wemarketmixesandunbakedandfullybakedfrozendoughproductsthroughouttheUnitedStatesandCanadatoretail,supermarket,andwholesalebakeries.Thecomponentsofthechangeinnetsalesareshowninthefollowingtable:ComponentsofBakeriesandFoodserviceNetSalesGrowthFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................Contributionsfromvolumegrowth(a)(6)pts(3)ptsNetpricerealizationandmix7pts14ptsForeigncurrencyexchangeFlatFlat.........................................................................................................................................................................................Netsalesgrowth1pts11pts(a)Measuredintonsbasedonthestatedweightofourproductshipments.Forfiscal2009,netsalesforourBakeriesandFoodservicesegmentincreased1percentto$2,048million.Theincreaseinfiscal2009wasdrivenby7percentagepointsofnetpricereal-izationandmix.Thiswasoffsetbya6percentagepointdecreaseinvolume,mainlyinthedistributorsandrestaurantscustomerchannel,includingtheeffectsofdivestedproductlines.Forfiscal2008,netsalesforourBakeriesandFoodservicesegmentincreasedto$2,021million.Thegrowthinfiscal2008netsaleswasdrivenby14percentagepointsofbenefitfromnetpricerealizationandmix,aswetookpriceincreasestooffsethighersupplychaininputcosts.Thiswaspartiallyoffsetbya3percent-agepointdeclineinvolume.NetsalesgrowthforourBakeriesandFoodservicesegmentbycustomersegmentisshowninthefollowingtables:BakeriesandFoodserviceNetSalesbyCustomerSegmentInMillions200920082007FiscalYear........................................................................................................................................................................................................................................................................Distributorsandrestaurants$890.1$902.0$864.8Bakerychannels950.8927.8780.5Conveniencestoresandvending206.9191.5181.5.........................................................................................................................................................................................Total$2,047.8$2,021.3$1,826.8BakeriesandFoodserviceChangeinNetSalesbyCustomerSegmentFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................Distributorsandrestaurants(1)%4%Bakerychannels219Conveniencestoresandvending86.........................................................................................................................................................................................Total1%11%Infiscal2009,segmentoperatingprofitswere$171million,up3percentfrom$165millioninfiscal2008.TheincreasewasduetomarginexpansionandHMMeffortswhichoffsetsignificantvol-umedeclinesandlowergrainmerchandisingactivities.Segmentoperatingprofitswere$165millioninfiscal2008,up12percentfrom$148millioninfiscal2007.Theincreasefortheyearwasdrivenbygrainmerchandisingactivitiesandbenefitsfrompriorrestructuringactivities.Netpricerealizationandmixoffsethighersupplychaininputcostsandadecreaseinvolume.UnallocatedCorporateItemsUnallocatedcorporateitemsincludevariancestoplannedcorporateoverheadexpenses,variancestoplanneddomesticemployeebenefitsandincentives,allstockcompensationcosts,annualcontributionstotheGeneralMillsFoundation,andotheritemsthatarenotpartofourmeasurementofsegmentoperatingperformance.Thisincludesgainsandlossesfrommark-to-marketvaluationofcertaincommoditypositionsuntilpassedbacktoouroperatingsegmentsinaccordancewithourpolicyasdiscussedinNote2oftheConsolidatedFinancialStatementsonpage55ofthisreport.Forfiscal2009,unallocatedcorporateitemstotaled$361millionofexpensecomparedto$157millionofexpenseforthesameperiodlastyear.The$204millionincreaseinexpensewasdrivenprimarilybya$176millionnetincreaseinexpenserelatedtomark-to-marketvaluationsofcertaincommoditypositionsand32GeneralMillsgraininventories.Wealsorecordedwrite-downsof$35millionrelatedtovariouscorporateinvestmentsinfiscal2009,comparedtoanetgainof$16millioninfiscal2008,anda$16millionincreaseincontributionstotheGeneralMillsFoundation,offsetbyafiscal2009gainfromaninsurancesettlementasdiscussedaboveundertheheading“Fiscal2009ConsolidatedResultsofOperations”.Unallocatedcorporateitemswere$157millioninfiscal2008comparedto$163millioninfiscal2007.Duringfiscal2008,werecognizedanetgainof$57millionrelatedtothemark-to-marketvaluationofcertaincommoditypositionsandapreviouslydeferredgainof$11milliononthesaleofacorporateinvestment.Thesegainswereoffsetby$26millionofunfavorableforeignexchange,$18millionofchargestocostofsales,primarilydepre-ciationonlong-livedassetsassociatedwithpreviouslyannouncedrestructuringactions,and$9millionofexpenserelatedtotheremarketingofminorityinterestsinourGMCsubsidiary.JointVenturesInadditiontoourconsolidatedoperations,weparticipateinseveraljointventures.InternationalJointVenturesWehavea50percentequityinterestinCPW,whichmanufacturesandmarketsready-to-eatcerealproductsinmorethan130countriesandrepublicsoutsidetheUnitedStatesandCanada.CPWalsomarketscerealbarsinseveralEuropeancountriesandmanufacturesprivatelabelcere-alsforcustomersintheUnitedKingdom.WehaveguaranteedaportionofCPW’sdebtanditspensionobligationintheUnitedKingdom.ResultsfromourCPWjointventurearereportedforthe12monthsendedMarch31.OnJuly14,2006,CPWacquiredtheUncleTobyscerealbusi-nessinAustraliafor$386million.Wefundedour50percentshareofthepurchasepricebymakingadditionaladvancestoandequitycontributionsinCPWtotaling$135million(classifiedasinvestmentsinaffiliates,netontheConsolidatedStatementsofCashFlows)andbyacquiringa50percentundividedinterestincertainintellectualpropertyfor$58million(classifiedasacqui-sitionsontheConsolidatedStatementsofCashFlows).WefundedtheadvancestoandourequitycontributioninCPWfromcashgeneratedbyourinternationaloperations,includingourinternationaljointventures.Wealsohavea50percentequityinterestinHa¨agen-DazsJapan,Inc.Thisjointventuremanufactures,distributes,andmarketsHa¨agen-Dazsicecreamproductsandfrozennovelties.Infiscal2007,wechangedthereportingperiodforthisjointventure.Accordingly,fiscal2007includesonly11monthsofresultsfromthisjointventurecomparedto12monthsinfiscal2009andfiscal2008.DomesticJointVentureDuringfiscal2008,the8thContinentsoymilkbusinesswassold.Werecordeda$2milliongaininfiscal2008reflectingour50percentshareoftheafter-taxgainonthesale.Wewillrecordapproximately$1millionofadditionalgaininthefirstquarteroffiscal2010ifcertainconditionsrelatedtothesalearesatisfied.Ourshareofafter-taxjointventureearningsdecreasedfrom$111millioninfiscal2008to$92millioninfiscal2009.Infiscal2009,earningswerereducedbya$6milliondeferredincometaxvaluationallowance.Infiscal2008,earningsincluded$16millionforourshareofagainonthesaleofaCPWpropertyintheUnitedKingdomoffsetbyrestructuringexpensesof$8million.Also,fiscal2008resultsincluded$2millionforourshareofagainonthesaleofthe8thContinentsoymilkbusiness.Ourafter-taxshareofCPWrestructuring,impairment,andotherexitcostswasasfollows:Expense(Income),InMillions200920082007FiscalYear..............................................................................................................................................................................................................................................Gainonsaleofproperty$—$(15.9)$—Depreciationassociatedwithrestructuredassets—4.58.2Otherchargesresultingfromrestructuringactions—3.2—.........................................................................................................................................................................................Total$—$(8.2)$8.2Ourshareofafter-taxjointventureearningsincreasedfrom$73millioninfiscal2007to$111millioninfiscal2008.Thisgrowthwaslargelydrivenbystrongsalesgrowth,favorableforeignexchange,andourshareofthegainfromthesaleofaCPWproperty.Thechangeinnetsalesforeachjointventureissetforthinthefollowingtable:JointVentureChangeinNetSalesFiscal2009vs.2008Fiscal2008vs.2007.........................................................................................................................................................................................CPW2%23%Ha¨agen-Dazs(12monthsinfiscal2009andfiscal2008and11monthsinfiscal2007)216.........................................................................................................................................................................................JointVentures2%21%AnnualReport200933Forfiscal2009,CPWnetsalesgrewby2percentreflectinghighervolumeandnetpricerealization,slightlyoffsetbyunfavor-ableforeigncurrencyexchange.NetsalesforourHa¨agen-Dazsjointventureincreased2percentfromfiscal2008asaresultoffavorableforeignexchangeof11percentagepointsandpositivenetpricerealization,offsetbyadecreaseinvolume.Forfiscal2008,CPWnetsalesgrewby23percentreflectinghighervolume,keynewproductintroductionsincludingOats&MoreintheUnitedKingdomandNesquikDuoacrossanumberofregions,favorableforeigncurrencyeffects,andthebenefitofafullyearofsalesfromthefiscal2007UncleTobysacquisition.NetsalesforourHa¨agen-Dazsjointventureincreased16percentfromfiscal2007,asaresultoffavorableforeignexchangeandintroductoryproductshipments.Selectedcashflowsfromourjointventuresaresetforthinthefollowingtable:SelectedCashFlowsfromJointVenturesInflow(Outflow),inMillions200920082007FiscalYear............................................................................................................................................................................................................................................................Advancestojointventures$(14.2)$(20.6)$(141.4)Repaymentsofadvances22.495.838.0Dividendsreceived68.5108.745.2IMPACTOFINFLATIONWehaveexperiencedhighlevelsofinputcostinflationsincefiscal2006.Ourgrossmarginperformanceinfiscal2009reflectstheimpactofsignificantinputcostinflation,primarilyfromcom-moditiesandenergyinputs.Weexpecttherateofinflationtomoderateinfiscal2010.Weattempttominimizetheeffectsofinflationthroughappropriateplanningandoperatingpractices.Ourriskmanagementpracticesarediscussedonpages46through48ofthisreport.LIQUIDITYTheprimarysourceofourliquidityiscashflowfromoperations.Overthemostrecentthree-yearperiod,ouroperationshavegenerated$5.3billionincash.Asubstantialportionofthisoper-atingcashflowhasbeenreturnedtostockholdersthroughsharerepurchasesanddividends.Wealsousethissourceofliquiditytofundourcapitalexpenditures.Wetypicallyuseacombinationofcash,notespayable,andlong-termdebttofinanceacquisitionsandmajorcapitalexpansions.CashFlowsfromOperationsInMillions200920082007FiscalYear........................................................................................................................................................................................................................................................................Netearnings$1,304.4$1,294.7$1,143.9Depreciationandamortization453.6459.2417.8After-taxearningsfromjointventures(91.9)(110.8)(72.7)Stock-basedcompensation117.7133.2127.1Deferredincometaxes215.898.126.0Taxbenefitonexercisedoptions(89.1)(55.7)(73.1)Distributionsofearningsfromjointventures68.5108.745.2Pensionandotherpostretirementbenefitplancontributions(220.3)(14.2)(60.6)Pensionandotherpostretirementbenefitplan(income)expense(27.5)5.55.6Divestitures(gain),net(84.9)——Gainoninsurancesettlement(41.3)——Restructuring,impairment,andotherexitcosts(income)31.3(1.7)39.1Changesincurrentassetsandliabilities176.9(126.7)149.1Other,net15.0(60.4)3.8.........................................................................................................................................................................................Netcashprovidedbyoperatingactivities$1,828.2$1,729.9$1,751.2Infiscal2009,ouroperationsgenerated$1,828millionofcashcomparedto$1,730millioninfiscal2008,primarilyreflectinga$304millionreductionintheuseofworkingcapitalinfiscal2009.Inventoriesused$137millionlesscashandaccountspayableused$242millionmorecashyearoveryearduetodecreasesingrainpricesandgraininventorylevelsinfiscal2009.Othercurrentliabilitieswerea$136millionincreasedsourceofcash,primarilyduetolowercashtaxespaidandhigherconsumermarketingaccruals.Othercurrentassetsprovided$96millionmorecash,primarilyduetochangesincurrencyandcommodityderivativereceivables.Accountsreceivableprovided$176millionmorecashdrivenbysalestimingshiftsandimprovementsincollectionsincertaininternationalmarkets.Thefavorablechangeinworkingcapitalwasoffsetbya$200millionvoluntarycontributionmadetoourprincipaldomesticpensionplans.Westrivetogrowakeymeasure,coreworkingcapital,atorbelowourgrowthinnetsales.Forfiscal2009,coreworkingcapitaldeclined1percent,comparedtonetsalesgrowthof34GeneralMills8percent,largelydrivenbyadecreaseininventoryinfiscal2009.Infiscal2008,coreworkingcapitalgrew12percent,morethannetsalesgrowthof10percent,andinfiscal2007,coreworkingcapitalgrew4percent,lessthannetsalesgrowthof6percent.Ourcashflowsfromoperationsdecreased$21millionfromfiscal2007tofiscal2008asa$151millionincreaseinnetearningsanda$72millioneffectofchangesindeferredincometaxesweremorethanoffsetbythe$276millionincreaseintheuseofcashforworkingcapital.CashFlowsfromInvestingActivitiesInMillions200920082007FiscalYear.................................................................................................................................................................................................................................................................Purchasesofland,buildings,andequipment$(562.6)$(522.0)$(460.2)Acquisitions—0.6(83.4)Investmentsinaffiliates,net5.964.6(100.5)Proceedsfromdisposalofland,buildings,andequipment4.125.913.8Proceedsfromdivestituresofproductlines244.7—13.5Proceedsfrominsurancesettlement41.3——Other,net(22.3)(11.5)19.7.........................................................................................................................................................................................Netcashusedbyinvestingactivities$(288.9)$(442.4)$(597.1)Infiscal2009,cashusedbyinvestingactivitiesdecreasedby$154millionfromfiscal2008primarilyduetoproceedsof$245millionfromthesaleofcertainproductlines.Wealsoreceivedinsuranceproceedsof$41millioninthethirdquarteroffiscal2009fromthesettlementwiththeinsurancecarriercoveringthelossatourLaSalteñapastamanufacturingfacilityinArgentina.Theseproceedswilloffsetthecapitalexpendituresrequiredtoreplacethemanufacturingfacilitythatwasdestroyedbyfireinfiscal2008.Capitalexpendituresinfiscal2009increased$41millionfromthesameperiodlastyearasweincreasedmanufacturingcapacityforourcereal,snackbars,soup,andyogurtproducts.Infiscal2008,cashusedbyinvestingactivitiesdecreasedby$155millionfromfiscal2007.Duringfiscal2008,wesoldourformerproductionfacilitiesinVallejo,CaliforniaandAllentown,Pennsylvania,whileinfiscal2007wesoldourfrozenpieproductline,includingaplantinRochester,NewYork,andourpar-bakedbreadproductline,includingplantsinChelsea,MassachusettsandTempe,Arizona.ThesesaleproceedswereoffsetbythefundingofourshareofCPW’sacquisitionoftheUncleTobyscerealbusinessinAustralia(reflectedinacquisitionsandinvest-mentsinaffiliates,net),andouracquisitionofSaxbyBros.LimitedandourmasterfranchiseeofHa¨agen-DazsshopsinGreece.Inaddition,capitalinvestmentforland,buildings,andequipmentincreasedby$62million,aswecontinuedtoincreasemanufac-turingcapacityforoursnackbarsandyogurtproductsandbeganconsolidatingmanufacturingforourOldElPasoproductline.Weexpectcapitalexpenditurestoincreasetoapproximately$630millioninfiscal2010,includinginitiativesthatwill:increasemanufacturingcapacityforYoplaityogurt,Totino’sPizzaRollspizzasnacks,andcereals;continueproductivityincreasesthroughoutthesupplychain;rebuildthepastaplantinArgentinathatwasdestroyedbyfireinfiscal2008;andexpandInternationalproduc-tioncapacityforWanchaiFerryproductsandOldElPasotortillas.CashFlowsfromFinancingActivitiesInMillions200920082007FiscalYear..............................................................................................................................................................................................................................................................................Changeinnotespayable$(1,390.5)$946.6$(280.4)Issuanceoflong-termdebt1,850.01,450.02,650.0Paymentoflong-termdebt(370.3)(1,623.4)(2,323.2)SettlementofLehmanBrothersforwardpurchasecontract—750.0—RepurchaseofSeriesB-1limitedmembershipinterestsinGMC—(843.0)—RepurchaseofGeneralMillsCapital,Inc.preferredstock—(150.0)—ProceedsfromsaleofClassAlimitedmembershipinterestsinGMC—92.3—Proceedsfromcommonstockissuedonexercisedoptions305.2191.4317.4Taxbenefitonexercisedoptions89.155.773.1Purchasesofcommonstockfortreasury(1,296.4)(1,432.4)(1,320.7)Dividendspaid(579.5)(529.7)(505.2)Other,net(12.1)(0.5)(9.1).........................................................................................................................................................................................Netcashusedbyfinancingactivities$(1,404.5)$(1,093.0)$(1,398.1)Netcashusedbyfinancingactivitiesincreasedby$312millioninfiscal2009.InJanuary2009,wesold$1.2billionaggregateprincipalamountofour5.65percentnotesdue2019.InAugust2008,wesold$700millionaggregateprincipalamountofour5.25percentnotesAnnualReport200935due2013.Theproceedsofthesenoteswereusedtorepayaportionofouroutstandingcommercialpaper.Interestonthenotesispayablesemi-annuallyinarrears.Thesenotesmayberedeemedatouroptionatanytimeforaspecifiedmake-wholeamount.Thesenotesareseniorunsecured,unsubordinatedobli-gationsthatincludeachangeofcontrolrepurchaseprovision.OnOctober15,2007,wesettledtheforwardcontractestab-lishedwithLehmanBrothersinOctober2004inconjunctionwiththeissuancebyLehmanBrothersof$750millionofnotesthatweremandatorilyexchangeableforsharesofourcommonstock.Insettlementofthatforwardcontract,weissued14millionsharesofourcommonstockandreceived$750millionincashfromLehmanBrothers.Weusedthecashtoreduceoutstandingcom-mercialpaperbalances.OnAugust7,2007,werepurchasedforanetamountof$843millionalloftheoutstandingSeriesB-1InterestsinGMCaspartofarequiredremarketingofthoseinterests.ThepurchasepricereflectedtheSeriesB-1Interests’originalcapitalaccountbalanceof$835millionand$8millionofcapitalaccountappre-ciationattributableandpaidtothethirdpartyholderoftheSeriesB-1Interests.ThecapitalappreciationpaidtothethirdpartyholderoftheSeriesB-1Interestswasrecordedasareduc-tiontoretainedearnings,acomponentofstockholders’equity,onourConsolidatedBalanceSheets,andreducednetearningsavail-abletocommonstockholdersinourbasicanddilutedEPScalculations.InApril2007,weissued$1.15billionoffloatingrateconvertibleseniornotes.InApril2008,holdersof$1.14billionofthosenotestenderedthemtousforrepurchase.InApril2009,werepur-chasedalloftheremainingoutstandingnotes.Weissuedcom-mercialpapertofundtherepurchases.WeandthethirdpartyholderofallofGMC’soutstandingClassAlimitedmembershipinterests(ClassAInterests)agreedtoreset,effectiveonJune28,2007,thepreferredrateofreturnapplicabletotheClassAIntereststothesumofthree-monthLIBORplus65basispoints.OnJune28,2007,wesold$92millionofadditionalClassAIntereststothesamethirdparty.Therewasnogainorlossassociatedwiththesetransactions.AsofMay31,2009,thecarryingvalueofalloutstandingClassAInterestsonourConsolidatedBalanceSheetswas$242million,andthecapitalaccountbalanceoftheClassAInterestsuponwhichpreferreddistributionsarecalculatedwas$248million.OnJune28,2007,werepurchasedfor$150millionalloftheoutstandingSeriesApreferredstockofoursubsidiaryGeneralMillsCapital,Inc.usingproceedsfromthesaleoftheClassAInterestsandcommercialpaper.Therewasnogainorlossassociatedwiththisrepurchase.Duringfiscal2009,werepurchased20millionsharesofourcommonstockforanaggregatepurchasepriceof$1,296million.Duringfiscal2008,werepurchased24millionsharesofourcommonstockforanaggregatepurchasepriceof$1,368million.Duringfiscal2007,werepurchased25millionsharesofourcommonstockforanaggregatepurchasepriceof$1,385million,ofwhich$64millionsettledaftertheendofourfiscalyear.Infiscal2007,ourBoardofDirectorsauthorizedtherepurchaseofupto75millionsharesofourcommonstock.Purchasesundertheauthorizationcanbemadeintheopenmarketorinprivatelynegotiatedtransactions,includingtheuseofcalloptionsandotherderivativeinstruments,Rule10b5-1tradingplans,andaccel-eratedrepurchaseprograms.Theauthorizationhasnospecifiedterminationdate.Dividendspaidinfiscal2009totaled$580million,or$1.72pershare,a10percentpershareincreasefromfiscal2008.Dividendspaidinfiscal2008totaled$530million,or$1.57pershare,a9percentpershareincreasefromfiscal2007dividendsof$1.44pershare.OurBoardofDirectorsapprovedaquarterlydividendincreasefrom$0.43pershareto$0.47pershareeffectivewiththedividendpayableonAugust1,2009.CAPITALRESOURCESTotalcapitalconsistedofthefollowing:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Notespayable$812.2$2,208.8Currentportionoflong-termdebt508.5442.0Long-termdebt5,754.84,348.7.........................................................................................................................................................................................Totaldebt7,075.56,999.5Minorityinterests242.3242.3Stockholders’equity5,174.76,215.8.........................................................................................................................................................................................Totalcapital$12,492.5$13,457.6Thedeclineintotalcapitalfromfiscal2008tofiscal2009wasprimarilyduetoactuariallossesonourdefinedbenefitplansrecordedinaccumulatedothercomprehensiveincome(loss).36GeneralMillsThefollowingtabledetailsthefee-paidcommittedanduncom-mittedcreditlineswehadavailableasofMay31,2009:InBillionsAmount.........................................................................................................................................................................................Creditfacilityexpiring:October2010$1.1October20121.8.........................................................................................................................................................................................Totalcommittedcreditfacilities2.9Uncommittedcreditfacilities0.4.........................................................................................................................................................................................Totalcommittedanduncommittedcreditfacilities$3.3Toensureavailabilityoffunds,wemaintainbankcreditlinessufficienttocoverouroutstandingshort-termborrowings.Com-mercialpaperisacontinuingsourceofshort-termfinancing.WeissuecommercialpaperintheUnitedStates,Canada,andEurope.Ourcommercialpaperborrowingsaresupportedby$2.9billionoffee-paidcommittedcreditlines,consistingofa$1.8billionfacilityexpiringinOctober2012anda$1.1billionfacilityexpiringinOctober2010.Wealsohave$0.4billioninuncommittedcreditlinesthatsupportourforeignoperations.AsofMay31,2009,therewerenoamountsoutstandingonthefee-paidcommittedcreditlinesand$135millionwasdrawnontheuncommittedlines.ThecreditfacilitiescontainseveralcovenantswithwhichwewereincomplianceasofMay31,2009,includingarequirementtomaintainafixedchargecoverageratioofatleast2.5.Certainofourlong-termdebtagreementsandourminorityinterestscontainrestrictivecovenants.AsofMay31,2009,wewereincompliancewithallofthesecovenants.Wehave$508millionoflong-termdebtmaturinginthenext12monthsthatisclassifiedascurrent.Webelievethatcashflowsfromoperations,togetherwithavailableshort-andlong-termdebtfinancing,willbeadequatetomeetourliquidityandcapitalneedsforatleastthenext12months.AsofMay31,2009,ourtotaldebt,includingtheimpactofderivativeinstrumentsdesignatedashedges,was88percentinfixed-rateand12percentinfloating-rateinstruments,comparedto66percentinfixed-rateand34percentinfloating-rateinstru-mentsonMay25,2008.Thechangeinthefixed-rateandfloating-ratepercentageswasdrivenbytherefinancingof$1.9billionofcommercialpaperwithfixed-ratenotesduringfiscal2009.WehaveaneffectiveshelfregistrationstatementonfilewiththeSecuritiesandExchangeCommission(SEC)coveringthesaleofdebtsecurities.TheshelfregistrationstatementwillexpireinDecember2011.Growthinreturnonaveragetotalcapitalisoneofourkeyperformancemeasures(seethe“ReconciliationofNon-GAAPMeasures”sectiononpage88forourdiscussionofthismeasure,whichisnotdefinedbyGAAP).Returnonaveragetotalcapitalincreasedfrom11.8percentinfiscal2008to12.3percentinfiscal2009primarilyduetoincreasedearningsandimprove-mentsincoreworkingcapital.Wealsobelieveimportantmea-suresoffinancialstrengtharetheratiooffixedchargecoverageandtheratioofoperatingcashflowtodebt.Ourfixedchargecoverageratioinfiscal2009was5.31comparedto4.87infiscal2008.Themeasureincreasedfromfiscal2008asearningsbeforeincometaxesandafter-taxearningsfromjointventuresincreasedby$127millionandfixedchargesdecreasedby$31million.Ouroperatingcashflowtodebtratioincreased1.1pointsto25.8per-centinfiscal2009,drivenbyahigherrateofincreaseincashflowsfromoperationsthantherateofincreaseinouryear-enddebtbalance.Currently,StandardandPoor’s(S&P)hasratingsofBBB(cid:2)onourlong-termdebtandA-2onourcommercialpaper.Moody’sInvestorsServices(Moody’s)hasratingsofBaa1forourlong-termdebtandP-2forourcommercialpaper.FitchRatings(Fitch)ratesourlong-termdebtBBB(cid:2)andourcommercialpaperF-2.Theseratingsarenotarecommendationtobuy,sellorholdsecurities,aresubjecttorevisionorwithdrawalatanytimebytheratingorganization,andshouldbeevaluatedindependentlyofanyotherrating.InApril2002,wecontributedassetswithanaggregatefairmarketvalueof$4.2billiontooursubsidiaryGMC.Thecontrib-utedassetsconsistprimarilyofmanufacturingassetsandintel-lectualpropertyassociatedwiththeproductionandretailsaleofBigGcereals,Progressosoups,andOldElPasoproductsintheUnitedStates.Inexchangeforthecontributionoftheseassets,GMCissueditsmanagingmembershipinterestanditslimitedpreferredmembershipintereststocertainofourwhollyownedsubsidiaries.Wecontinuetoholdtheentiremanagingmember-shipinterest,andthereforedirecttheoperationsofGMC.Otherthantherighttoconsenttocertainactions,holdersofthelimitedpreferredmembershipinterestsdonotparticipateintheman-agementofGMC.WecurrentlyholdallinterestsinGMCotherthantheClassAInterests.TheholderoftheClassAInterestsreceivesquarterlypreferreddistributionsfromavailablenetincomebasedontheapplicationofafloatingpreferredreturnrate,currentlyequaltothesumofthree-monthLIBORplus65basispoints,totheholder’scapitalAnnualReport200937accountbalanceestablishedinthemostrecentmark-to-marketvaluation(currently$248million).TheFifthAmendedandRestatedLimitedLiabilityCompanyAgreementofGMCrequiresthatthepreferredreturnrateoftheClassAInterestsbeadjustedeveryfiveyearsthroughanegotiatedagreementbetweentheClassAInterestholderandGMC,orthrougharemarketingauction.ThenextremarketingisscheduledtooccurinJune2012andthereafterinfive-yearintervals.Uponafailedremarket-ing,thepreferredreturnrateoverthree-monthLIBORwillbeincreasedby75basispointsuntilthenextremarketing,whichwilloccurin3monthintervalsuntilasuccessfulremarketingoccursorthemanagingmemberpurchasestheClassAInterests.ThemanagingmembermayatanytimeelecttopurchasealloftheClassAInterestsforanamountequaltotheholder’scapitalaccountbalance(asadjustedinamark-to-marketvaluation),plusanyaccruedbutunpaidpreferredreturnsandtheprescribedmake-wholeamount.HoldersoftheClassAInterestsmayinitiatealiquidationofGMCundercertaincircumstances,including,withoutlimitation,thebankruptcyofGMCoritssubsidiaries,GMC’sfailuretodeliverthepreferreddistributionsontheClassAInterests,GMC’sfailuretocomplywithportfoliorequirements,breachesofcertaincovenants,loweringofourseniordebtratingbeloweitherBaa3byMoody’sorBBB-byS&P,andafailedattempttoremarkettheClassAInterestsasaresultofGMC’sfailuretoassistinsuchremarketing.IntheeventofaliquidationofGMC,eachmemberofGMCwillreceivetheamountofitsthencurrentcapitalaccountbalance.Themanagingmembermayavoidliq-uidationbyexercisingitsoptiontopurchasetheClassAInterests.Forfinancialreportingpurposes,theassets,liabilities,resultsofoperations,andcashflowsofGMCareincludedinourConsol-idatedFinancialStatements.ThereturntothethirdpartyinvestorisreflectedinnetinterestintheConsolidatedStatementsofEarnings.Thethirdpartyinvestor’sinterestsinGMCareclassifiedasminorityinterestsonourConsolidatedBalanceSheets.Asdiscussedinthe“RecentlyIssuedAccountingPronouncements”sectionbelow,weexpectouradoptionofStatementofFinancialAccountingStandards(SFAS)No.160,“NoncontrollingInterestsinConsolidatedFinancialStatements—anamendmenttoARBNo.51”(SFAS160),infiscal2010tochangethefinancialstatementpresentationoftheseinterestsinGMC.Asdiscussedabove,wemayexerciseouroptiontopurchasetheClassAInterestsforconsiderationequaltothethencurrentcapitalaccountvalue,plusanyunpaidpreferredreturnandtheprescribedmake-wholeamount.Ifwepurchasetheseinterests,anychangeintheunrelatedthirdpartyinvestor’scapitalaccountfromitsoriginalvaluewillbechargeddirectlytoretainedearningsandwillincreaseordecreasethenetearningsusedtocalculateEPSinthatperiod.OFF-BALANCESHEETARRANGEMENTSANDCONTRACTUALOBLIGATIONSAsofMay31,2009,wehaveissuedguaranteesandcomfortlettersof$654millionforthedebtandotherobligationsofconsolidatedsubsidiaries,andguaranteesandcomfortlettersof$282millionforthedebtandotherobligationsofnonconso-lidatedaffiliates,mainlyCPW.Inaddition,off-balancesheetarrangementsaregenerallylimitedtothefuturepaymentsundernoncancelableoperatingleases,whichtotaled$351millionasofMay31,2009.AsofMay31,2009,wehadinvestedinthreevariableinterestentities(VIEs).WehaveaninterestinacontractmanufactureratourformerfacilityinGeneva,Illinois.Wearetheprimaryben-eficiary(PB)andhaveconsolidatedthisentity.Thisentityhadpropertyandequipmentwithacarryingvalueof$25millionandlong-termdebtof$26millionasofMay31,2009.Theliabilitiesrecognizedasaresultofconsolidatingthisentitydonotrepresentadditionalclaimsonourgeneralassets.WealsohaveaninterestinacontractmanufacturerinGreecethatisaVIE.AlthoughwearethePB,wehavenotconsolidatedthisentitybecauseitisnotpracticaltodosoanditisnotmaterialtoourresultsofoper-ations,financialcondition,orliquidityasofandfortheyearendedMay31,2009.Thisentityhadassetsof$5millionandliabilitiesof$1millionasofMay31,2009.WearenotthePBoftheremainingVIE.OurmaximumexposuretolossfromthethreeVIEsislimitedtothe$26millionoflong-termdebtofthecontractmanufacturerinGeneva,Illinoisandour$2millionequityinvestmentintheVIEofwhichwearenotthePB.WehavenotprovidedfinancialorothersupporttotheseVIEsduringthecurrentperiodnoraretherearrangementsrelatedtotheseVIEsthatcouldrequireustoprovidefinancialsupportinthefuture.OurdefinedbenefitplansintheUnitedStatesaresubjecttotherequirementsofPensionProtectionAct(PPA).ThePPArevisedthebasisandmethodologyfordeterminingdefinedbenefitplanminimumfundingrequirementsaswellasmaximumcontribu-tionstoandbenefitspaidfromtax-qualifiedplans.Mostoftheseprovisionswereapplicabletoourdomesticdefinedbenefit38GeneralMillspensionplansinfiscal2009onaphased-inbasis.AlthoughnotrequiredundertheprovisionsofthePPA,wevoluntarilycontrib-uted$200milliontoourprincipaldefinedbenefitplansinfiscal2009.Wedonotexpecttomakeanycontributionstoourdomes-ticplansinfiscal2010.Actualfiscal2010contributionscouldexceedourcurrentprojections,andmaybeinfluencedbyourdecisiontoundertakediscretionaryfundingofourbenefittrustsorbychangesinregulatoryrequirements.Additionally,ourpro-jectionsconcerningtimingofthePPAfundingrequirementsaresubjecttochangeandmaybeinfluencedbyfactorssuchasgeneralmarketconditionsaffectingtrustassetperformance,interestrates,andourfuturedecisionsregardingcertainelectiveprovisionsofthePPA.Thefollowingtablesummarizesourfutureestimatedcashpaymentsunderexistingcontractualobligations,includingpay-mentsduebyperiod:InMillionsTotal20102011–122013–142015andThereafterPaymentsDuebyFiscalYear.........................................................................................................................................................................................................................................................................................................Long-termdebt(a)$6,275.3$504.3$1,356.9$1,513.8$2,900.3Accruedinterest182.1182.1———Operatingleases(b)351.387.6131.875.056.9Capitalleases15.95.06.64.3—Purchaseobligations(c)2,289.41,791.1368.382.147.9.........................................................................................................................................................................................Totalcontractualobligations9,114.02,570.11,863.61,675.23,005.1Otherlong-termobligations(d)1,280.6————.........................................................................................................................................................................................Totallong-termobligations$10,394.6$2,570.1$1,863.6$1,675.2$3,005.1(a)Amountsrepresenttheexpectedcashpaymentsofourlong-termdebtanddonotinclude$14millionforcapitalleasesor$26millionforunamortizedbondpremiumsordiscounts.(b)Operatingleasesrepresentstheminimumrentalcommitmentsundernoncancelableoperatingleases.(c)Themajorityofthepurchaseobligationsrepresentcommitmentsforrawmaterialandpackagingtobeutilizedinthenormalcourseofbusinessandforconsumermarketingspendingcommitmentsthatsupportourbrands.Forpurposesofthistable,arrangementsareconsideredpurchaseobligationsifacontractspecifiesallsignif-icantterms,includingfixedorminimumquantitiestobepurchased,apricingstruc-ture,andapproximatetimingofthetransaction.Mostarrangementsarecancelablewithoutasignificantpenaltyandwithshortnotice(usually30days).AnyamountsreflectedontheConsolidatedBalanceSheetsasaccountspayableandaccruedliabilitiesareexcludedfromthetableabove.(d)Thefairvalueofourinterestrateandequityswapswithapayablepositiontothecounterpartywas$260millionasofMay31,2009,basedonfairmarketvaluesasofthatdate.Futurechangesinmarketvalueswillimpacttheamountofcashultimatelypaidorreceivedtosettlethoseinstrumentsinthefuture.Otherlong-termobligationsmainlyconsistofliabilitiesforuncertainincometaxpositions,accruedcompensationandbenefits,includingtheunderfundedstatusofcertainofourdefinedbenefitpension,otherpostretirement,andpostemploymentplans,andmiscellaneousliabil-ities.Weexpecttopay$19millionofbenefitsfromourunfundedpostemploymentbenefitplansand$13millionofdeferredcompensationinfiscal2010.Weareunabletoreliablyestimatetheamountofthesepaymentsbeyondfiscal2010.AsofMay31,2009,ourtotalliabilityforuncertaintaxpositionsandtheassociatedaccruedinterestandpenaltieswas$720millionasoftheendofourfiscalyear.Weexpecttopayapproximately$157millionoftaxliabilitiesandaccruedinterestinthenext12months,includingaportionofourpotentialliabilityforthematterresolvedbytheU.S.CourtofAppealsdiscussedwithinthisMD&A.Whilefiscalyears2007and2008arecurrentlyunderexaminationbytheInternalRevenueService(IRS),wearenotabletorea-sonablyestimatethetimingoffuturecashflowsbeyond12monthsduetouncer-taintiesinthetimingofthisandothertaxauditoutcomes.SIGNIFICANTACCOUNTINGESTIMATESForacompletedescriptionofoursignificantaccountingpolicies,seeNote2totheConsolidatedFinancialStatementsbeginningonpage55ofthisreport.Oursignificantaccountingestimatesarethosethathaveameaningfulimpactonthereportingofourfinancialconditionandresultsofoperations.Theseestimatesincludeouraccountingforpromotionalexpenditures,valuationoflong-livedassets,intangibleassets,stock-basedcompensation,incometaxes,anddefinedbenefitpension,otherpostretirementandpostemploymentbenefits.PromotionalExpendituresOurpromotionalactivitiesarecon-ductedthroughourcustomersanddirectlyorindirectlywithendconsumers.Theseactivitiesinclude:paymentstocustomerstoperformmerchandisingactivitiesonourbehalf,suchasadver-tisingorin-storedisplays;discountstoourlistpricestolowerretailshelfprices;paymentstogaindistributionofnewproducts;coupons,contests,andotherincentives;andmediaandadver-tisingexpenditures.Themediaandadvertisingexpendituresarerecognizedasexpensewhentheadvertisementairs.Thecostofpaymentstocustomersandotherconsumeractivitiesarerec-ognizedastherelatedrevenueisrecorded,whichgenerallyprecedestheactualcashexpenditure.Therecognitionofthesecostsrequiresestimationofcustomerparticipationandperfor-mancelevels.Theseestimatesaremadebasedontheforecastedcustomersales,thetimingandforecastedcostsofpromotionalactivities,andotherfactors.Differencesbetweenestimatedexpensesandactualcostsarenormallyinsignificantandarerecognizedasachangeinmanagementestimateinasubsequentperiod.Ouraccruedtrade,coupon,andconsumermarketingliabilitieswere$474millionasofMay31,2009,and$446millionasofMay25,2008.Becauseourtotalpromotionalexpenditures(includingamountsclassifiedasareductionofrevenues)aresignificant,ifourestimatesareinaccuratewewouldhavetomakeadjustmentsinsubsequentperiodsthatcouldhaveamaterialeffectonourresultsofoperations.AnnualReport200939ValuationofLong-livedAssetsLong-livedassetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesindi-catethatthecarryingamountofanasset(orassetgroup)maynotberecoverable.Animpairmentlosswouldberecognizedwhenestimatedundiscountedfuturecashflowsfromtheoperationanddispositionoftheassetgrouparelessthanthecarryingamountoftheassetgroup.Assetgroupshaveidentifiablecashflowsinde-pendentofotherassetgroups.Measurementofanimpairmentlosswouldbebasedontheexcessofthecarryingamountoftheassetgroupoveritsfairvalue.Fairvalueismeasuredusingdiscountedcashflowsorindependentappraisals,asappropriate.IntangibleAssetsGoodwillisnotsubjecttoamortizationandistestedforimpairmentannuallyandwhenevereventsorchangesincircumstancesindicatethatimpairmentmayhaveoccurred.Impairmenttestingisperformedforeachofourreportingunits.Wecomparethecarryingvalueofareportingunit,includinggoodwill,tothefairvalueoftheunit.Carryingvalueisbasedontheassetsandliabilitiesassociatedwiththeoperationsofthatreportingunit,whichoftenrequiresallocationofsharedorcor-porateitemsamongreportingunits.Ifthecarryingamountofareportingunitexceedsitsfairvalue,werevalueallassetsandliabilitiesofthereportingunit,excludinggoodwill,todetermineifthefairvalueofthenetassetsisgreaterthanthenetassetsincludinggoodwill.Ifthefairvalueofthenetassetsislessthanthenetassetsincludinggoodwill,impairmenthasoccurred.Ourestimatesoffairvaluearedeterminedbasedonadiscountedcashflowmodel.Growthratesforsalesandprofitsaredeter-minedusinginputsfromourannuallong-rangeplanningprocess.Wealsomakeestimatesofdiscountrates,perpetuitygrowthassumptions,marketcomparables,andotherfactors.Weevaluatetheusefullivesofourotherintangibleassets,mainlyintangibleassetsassociatedwiththePillsbury,Totino’s,Progresso,GreenGiant,OldElPaso,andHa¨agen-Dazsbrands,todetermineiftheyarefiniteorindefinite-lived.Reachingadeter-minationonusefulliferequiressignificantjudgmentsandassumptionsregardingthefutureeffectsofobsolescence,demand,competition,othereconomicfactors(suchasthesta-bilityoftheindustry,knowntechnologicaladvances,legislativeactionthatresultsinanuncertainorchangingregulatoryenvi-ronment,andexpectedchangesindistributionchannels),thelevelofrequiredmaintenanceexpenditures,andtheexpectedlivesofotherrelatedgroupsofassets.Ourindefinite-livedintangibleassets,mainlybrands,arealsotestedforimpairmentannuallyandwhenevereventsorchangesincircumstancesindicatethattheircarryingvaluemaynotberecoverable.Weperformedourfiscal2009assessmentofourbrandintangiblesasofDecember1,2008.Ourestimateofthefairvalueofthebrandswasbasedonadiscountedcashflowmodelusinginputswhichincluded:projectedrevenuesfromourannuallong-rangeplan;assumedroyaltyratesthatcouldbepayableifwedidnotownthebrands;andadiscountrate.Asofourassessmentdate,therewasnoimpairmentoftheseintangibles,andthefairvalueofthePillsburybrandwasmorethan10percentgreaterthanitscarryingvalue,upfromanexcessof3percentasofthefiscal2008assessment.AsofMay31,2009,wehad$10.4billionofgoodwillandindefinite-livedintangibleassets.Whilewecurrentlybelievethatthefairvalueofeachintangibleexceedsitscarryingvalueandthatthoseintangiblessoclassifiedwillcontributeindefinitelytoourcashflows,materiallydifferentassumptionsregardingfutureperformanceofourbusinessesoradifferentweighted-averagecostofcapitalcouldresultinsignificantimpairmentlossesandamortizationexpense.Stock-basedCompensationThevaluationofstockoptionsisasignificantaccountingestimatewhichrequiresustousejudg-mentsandassumptionsthatarelikelytohaveamaterialimpactonourfinancialstatements.Annually,wemakepredictiveassumptionsregardingfuturestockpricevolatility,employeeexercisebehavior,anddividendyield.Weestimateourfuturestockpricevolatilityusingthehistoricalvolatilityovertheexpectedtermoftheoption,excludingtimeperiodsofvolatilitywebelieveamarketplaceparticipantwouldexcludeinestimatingourstockpricevolatility.Forthefiscal2009grants,wehaveexcludedhistoricalvolatilityforfiscal2002andprior,primarilybecausevolatilitydrivenbyouracquisitionofThePillsburyCompany(Pillsbury)infiscal2002doesnotreflectwhatwebelievetobeexpectedfuturevolatility.Wealsohavecon-sidered,butdidnotuse,impliedvolatilityinourestimate,becausetradingactivityinoptionsonourstock,especiallythosewithtenorsofgreaterthansixmonths,isinsufficienttoprovideareliablemeasureofexpectedvolatility.Ifallotherassumptionsareheldconstant,aonepercentagepointincreaseinourfiscal2009volatilityassumptionwouldincreasethegrant-datefairvalueofourfiscal2009optionawardsby5percent.40GeneralMillsOurexpectedtermrepresentstheperiodoftimethatoptionsgrantedareexpectedtobeoutstandingbasedonhistoricaldatatoestimateoptionexerciseandemployeeterminationwithinthevaluationmodel.Separategroupsofemployeeshavesimilarhistoricalexercisebehaviorandthereforewereaggregatedintoasinglepoolforvaluationpurposes.Theweighted-averageexpectedtermforallemployeegroupsispresentedinthetablebelow.Anincreaseintheexpectedtermbyoneyear,leavingallotherassumptionsconstant,wouldchangethegrantdatefairvaluebylessthan1percent.Ourvaluationmodelassumesthatdividendsandoursharepriceincreaseinlinewithearnings,resultinginaconstantdiv-idendyield.Therisk-freeinterestrateforperiodsduringtheexpectedtermoftheoptionsisbasedontheU.S.Treasuryzero-couponyieldcurveineffectatthetimeofgrant.Theestimatedweighted-averagefairvaluesofstockoptionsgrantedandtheassumptionsusedfortheBlack-Scholesoption-pricingmodelwereasfollows:200920082007FiscalYear....................................................................................................................................................................................................................................................................................Estimatedfairvaluesofstockoptionsgranted$9.41$10.55$10.74Assumptions:Risk-freeinterestrate4.4%5.1%5.3%Expectedterm8.5years8.5years8.0yearsExpectedvolatility16.1%15.6%19.7%Dividendyield2.7%2.7%2.8%Totheextentthatactualoutcomesdifferfromourassumptions,wearenotrequiredtotrueupgrant-datefairvalue-basedexpensetofinalintrinsicvalues.However,thesedifferencescanimpacttheclassificationofcashtaxbenefitsrealizeduponexerciseofstockoptions,asexplainedinthefollowingtwoparagraphs.Furthermore,historicaldatahasasignificantbearingonourforward-lookingassumptions.Significantvariancesbetweenactualandpredictedexperiencecouldleadtoprospec-tiverevisionsinourassumptions,whichcouldthensignificantlyimpacttheyear-over-yearcomparabilityofstock-basedcompen-sationexpense.Anycorporateincometaxbenefitrealizeduponexerciseorvestingofanawardinexcessofthatpreviouslyrecognizedinearnings(referredtoasa“windfalltaxbenefit”)ispresentedintheConsolidatedStatementsofCashFlowsasafinancingcashflow.Theactualimpactonfutureyears’financingcashflowwilldepend,inpart,onthevolumeofemployeestockoptionexercisesduringaparticularyearandtherelationshipbetweentheexercise-datemarketvalueoftheunderlyingstockandtheoriginalgrant-datefairvaluepreviouslydeterminedforfinancialreportingpurposes.Realizedwindfalltaxbenefitsarecreditedtoadditionalpaid-incapitalwithintheConsolidatedBalanceSheet.Realizedshortfalltaxbenefits(amountswhicharelessthanthatpreviouslyrec-ognizedinearnings)arefirstoffsetagainstthecumulativebal-anceofwindfalltaxbenefits,ifany,andthenchargeddirectlytoincometaxexpense,potentiallyresultinginvolatilityinourcon-solidatedeffectiveincometaxrate.Wecalculatedacumulativeamountofwindfalltaxbenefitsfrompost-1995fiscalyearsforthepurposeofaccountingforfutureshortfalltaxbenefitsandcur-rentlyhavesufficientcumulativewindfalltaxbenefitstoabsorbprojectedarisingshortfalls,suchthatwedonotcurrentlyexpectfutureearningstobeaffectedbythisprovision.However,asemployeestockoptionexercisebehaviorisnotwithinourcontrol,itispossiblethatmateriallydifferentreportedresultscouldoccurifdifferentassumptionsorconditionsweretoprevail.IncomeTaxesWeapplyamore-likely-than-notthresholdtotherecognitionandderecognitionofuncertaintaxpositions.Accord-inglywerecognizetheamountoftaxbenefitthathasagreaterthan50percentlikelihoodofbeingultimatelyrealizeduponsettlement.Futurechangesinjudgmentrelatedtotheexpectedultimateresolutionofuncertaintaxpositionswillaffectearningsinthequarterofsuchchange.Priortofiscal2008,ourpolicywastoestablishliabilitiesthatreflectedtheprobableoutcomeofknowntaxcontingencies.Theeffectsoffinalresolution,ifany,wererecognizedaschangestotheeffectiveincometaxrateintheperiodofresolution.Annuallywefilemorethan350incometaxreturnsinapprox-imately100globaltaxingjurisdictions.Anumberofyearsmayelapsebeforeanuncertaintaxpositionisauditedandfinallyresolved.Whileitisoftendifficulttopredictthefinaloutcomeorthetimingofresolutionofanyparticularuncertaintaxposition,webelievethatourliabilitiesforincometaxesreflectthemostlikelyoutcome.Weadjusttheseliabilities,aswellastherelatedinterest,inlightofchangingfactsandcircumstances.Settlementofanyparticularpositionwouldusuallyrequiretheuseofcash.Thenumberofyearswithopentaxauditsvariesdependingonthetaxjurisdiction.OurmajortaxingjurisdictionsincludetheUnitedStates(federalandstate)andCanada.WearenolongersubjecttoUnitedStatesfederalexaminationsbytheIRSforfiscalyearsbefore2002.AnnualReport200941TheIRShasconcludeditsfieldexaminationofour2006andpriorfederaltaxyears,whichresultedinpaymentsof$18millioninfiscal2009and$56millioninfiscal2008tocovertheadditionalU.S.incometaxliabilityplusinterestrelatedtoadjustmentsduringtheseauditcycles.TheIRSalsoproposedadditionaladjustmentsforthefiscal2002to2006auditcyclesrelatedtotheamountofcapitallossanddepreciationandamortizationwereportedasaresultofoursaleofminorityinterestsinourGMCsubsidiary.TheIRShasproposedadjustmentsthateffectivelyeliminatemostofthetaxbenefitsassociatedwiththistransac-tion.Webelievewehavemeritoriousdefensesandarevigorouslydefendingourpositions.WehaveappealedtheresultsoftheIRSfieldexaminationstotheIRSAppealsDivision.Ourpotentialliabilityforthismatterissignificant.Wehavedeterminedthataportionofthismattershouldbeincludedasataxliabilityandisaccordinglyincludedinourtotalliabilitiesforuncertaintaxposi-tionsasdisclosedinNote14toourConsolidatedFinancialState-mentsbeginningonpage80ofthisreport.TheIRSinitiateditsauditofourfiscal2007and2008taxyearsduringfiscal2009.Inthethirdquarteroffiscal2008,werecordedanincometaxbenefitof$31millionasaresultofafavorableU.S.districtcourtdecisiononanuncertaintaxmatter.Inthethirdquarterof2009,theU.S.CourtofAppealsfortheEighthCircuitissuedanopinionreversingthedistrictcourtdecision.Asaresult,werecorded$53million(includinginterest)ofincometaxexpenserelatedtothereversalofcumulativeincometaxbenefitsfromthisuncertaintaxmatterrecognizedinfiscalyears1992through2008.Wearecurrentlyevaluatingouroptionsforappeal.Iftheappellatecourtdecisionisnotoverturned,wewouldexpecttomakecashtaxandinterestpaymentsofapproximately$32millioninconnectionwiththismatter.AsofMay31,2009,ourtotalliabilityforuncertaintaxpositionsandtheassociatedaccruedinterestandpenaltieswas$720mil-lionasoftheendofourfiscalyear.Weexpecttopayapprox-imately$157millionoftaxliabilitiesandaccruedinterestinthenext12months,includingaportionofourpotentialliabilityforthematterresolvedbytheU.S.CourtofAppealsdiscussedintheprecedingparagraph.Whilefiscalyears2007and2008arecur-rentlyunderexaminationbytheIRS,wearenotabletoreasonablyestimatethetimingoffuturecashflowsbeyond12monthsduetouncertaintiesinthetimingofthisandothertaxauditoutcomes.VarioustaxexaminationsbyUnitedStatesstatetaxingauthor-itiescouldbeconductedforanyopentaxyear,whichvarybyjurisdiction,butaregenerallyfromthreetofiveyears.Currently,severalstateexaminationsareinprogress.TheCanadaRevenueAgencyisconductinganauditofourincometaxreturnsinCanadaforfiscalyears2003(whichisourearliesttaxyearstillopenforexamination)through2005.WedonotanticipatethatanyUnitedStatesstatetaxorCanadiantaxadjustmentswillhaveasignif-icantimpactonourfinancialpositionorresultsofoperations.DefinedBenefitPlansDefinedBenefitPensionPlansWehavedefinedbenefitpensionplanscoveringmostdomestic,Canadian,andUnitedKingdomemployees.Benefitsforsalariedemployeesarebasedonlengthofserviceandfinalaveragecompensation.Benefitsforhourlyemployeesincludevariousmonthlyamountsforeachyearofcreditedservice.Ourfundingpolicyisconsistentwiththerequire-mentsofapplicablelaws.Wemade$200millionofvoluntarycontributionstoourprincipaldomesticplansinfiscal2009,andarenotrequiredtomakesimilarcontributionsinfiscal2010.Ourprincipaldomesticretirementplancoveringsalariedemployeeshasaprovisionthatanyexcesspensionassetswouldvestiftheplanisterminatedwithinfiveyearsofachangeincontrol.OtherPostretirementBenefitPlansWealsosponsorplansthatprovidehealthcarebenefitstothemajorityofourdomesticandCanadianretirees.Thesalariedhealthcarebenefitplaniscon-tributory,withretireecontributionsbasedonyearsofservice.Wefundrelatedtrustsforcertainemployeesandretireesonanannualbasis.Wedidnotmakevoluntarycontributionstotheseplansinfiscal2009.PostemploymentBenefitPlansUndercertaincircumstances,wealsoprovideaccruablebenefitstoformerorinactiveemployeesintheUnitedStates,Canada,andMexico,andmembersofourBoardofDirectors,includingseveranceandcertainotherbenefitspayableupondeath.Werecognizeanobligationforanyofthesebenefitsthatvestoraccumulatewithservice.Postemploymentbenefitsthatdonotvestoraccumulatewithservice(suchasseverancebasedsolelyonannualpayratherthanyearsofser-vice)arechargedtoexpensewhenincurred.Ourpostemploy-mentbenefitplansareunfunded.Werecognizebenefitsprovidedduringretirementorfollowingemploymentovertheplanparticipants’activeworkinglife.Accord-ingly,wemakevariousassumptionstopredictandmeasurecostsandobligationsmanyyearspriortothesettlementofourobliga-tions.Assumptionsthatrequiresignificantmanagementjudgment42GeneralMillsandhaveamaterialimpactonthemeasurementofournetperiodicbenefitexpenseorincomeandaccumulatedbenefitobligationsincludethelong-termratesofreturnonplanassets,theinterestratesusedtodiscounttheobligationsforourbenefitplans,andthehealthcarecosttrendrates.ExpectedRateofReturnonPlanAssetsOurexpectedrateofreturnonplanassetsisdeterminedbyourassetallocation,ourhistoricallong-terminvestmentperformance,ourestimateoffuturelong-termreturnsbyassetclass(usinginputfromouractuaries,investmentservices,andinvestmentmanagers),andlong-terminflationassumptions.Wereviewthisassumptionannuallyforeachplan,however,ourannualinvestmentperfor-manceforoneparticularyeardoesnot,byitself,significantlyinfluenceourevaluation.Theinvestmentobjectiveforourdefinedbenefitpensionandotherpostretirementbenefitplansistosecurethebenefitobli-gationstoparticipantsatareasonablecosttous.Ourgoalistooptimizethelong-termreturnonplanassetsatamoderatelevelofrisk.Thedefinedbenefitpensionandotherpostretirementportfoliosarebroadlydiversifiedacrossassetclasses.Withinassetclasses,theportfoliosarefurtherdiversifiedacrossinvest-mentstylesandinvestmentorganizations.Forthedefinedbenefitpensionandotherpostretirementbenefitplans,thelong-terminvestmentpolicyallocationsare:30percenttoequitiesintheUnitedStates;20percenttointernationalequities;10percenttoprivateequities;30percenttofixedincome;and10percenttorealassets(realestate,energy,andtimber).Theactualallocationstotheseassetclassesmayvarytacticallyaroundthelong-termpolicyallocationsbasedonrelativemarketvaluations.Ourhistoricalinvestmentreturns(compoundannualgrowthrates)forourUnitedStatesdefinedbenefitpensionandotherpostretirementplanassetswerea25percentlossintheoneyearperiodendedMay31,2009,andreturnsof5percent,6percent,9percent,and9percentforthefive,10,15,and20-yearperiodsendedMay31,2009.OurprincipaldefinedbenefitpensionandotherpostretirementplansintheUnitedStateshaveanexpectedreturnonplanassetsof9.6percent.Duringfiscal2007,weloweredtheexpectedrateofreturnononeofourotherpostretirementplansintheUnitedStatesbasedoncostsassociatedwithinsurancecontractsownedbythatplan.Onaweighted-averagebasis,theexpectedrateofreturnforalldefinedbenefitplanswas9.55percentforfiscal2009,9.56per-centforfiscal2008,and9.57percentforfiscal2007.Loweringtheexpectedlong-termrateofreturnonassetsby50basispointswouldincreaseournetpensionandpostretire-mentexpenseby$22millionforfiscal2010.Amarket-relatedvaluationbasisisusedtoreduceyear-to-yearexpensevolatility.Themarket-relatedvaluationrecognizescertaininvestmentgainsorlossesoverafive-yearperiodfromtheyearinwhichtheyoccur.Investmentgainsorlossesforthispurposearethedifferencebetweentheexpectedreturncalculatedusingthemarket-relatedvalueofassetsandtheactualreturnbasedonthemarket-relatedvalueofassets.Ouroutsideactuariesperformthesecalculationsaspartofourdeterminationofannualexpenseorincome.DiscountRatesOurdiscountrateassumptionsaredeterminedannuallyasofthelastdayofourfiscalyearforallofourdefinedbenefitpension,otherpostretirement,andpostemploymentben-efitplanobligations.Thosesamediscountratesalsoareusedtodeterminedefinedbenefitpension,otherpostretirement,andpostemploymentbenefitplanincomeandexpenseforthefol-lowingfiscalyear.Weworkwithouractuariestodeterminethetimingandamountofexpectedfuturecashoutflowstoplanparticipantsand,usingthetopquartileofAA-ratedcorporatebondyields,todevelopaforwardinterestratecurve,includingamargintothatindexbasedonourcreditrisk.Thisforwardinterestratecurveisappliedtoourexpectedfuturecashoutflowstodetermineourdiscountrateassumptions.Ourweighted-averagediscountrateswereasfollows:Weighted-averageDiscountRatesDefinedBenefitPensionPlansOtherPostretirementBenefitPlansPostemploymentBenefitPlans.........................................................................................................................................................................................ObligationasofMay31,2009,andfiscal2010expense7.49%7.45%7.06%ObligationasofMay25,2008,andfiscal2009expense6.88%6.90%6.64%Fiscal2008expense6.18%6.15%6.05%Loweringthediscountratesby50basispointswouldincreaseournetdefinedbenefitpension,otherpostretirement,andpost-employmentbenefitplanexpenseforfiscal2010byapproxi-mately$25million.Allobligation-relatedexperiencegainsandlossesareamortizedusingastraight-linemethodovertheaver-ageremainingserviceperiodofactiveplanparticipants.AnnualReport200943HealthCareCostTrendRatesWereviewourhealthcaretrendratesannually.Ourreviewisbasedondatawecollectaboutourhealthcareclaimsexperienceandinformationprovidedbyouractuaries.Thisinformationincludesrecentplanexperience,plandesign,overallindustryexperienceandprojections,andassump-tionsusedbyothersimilarorganizations.Ourinitialhealthcarecosttrendrateisadjustedasnecessarytoremainconsistentwiththisreview,recentexperiences,andshort-termexpectations.Ourinitialhealthcarecosttrendrateassumptionis9.5percentforretireesage65andoverand9.0percentforretireesunderage65.Theseratesaregradeddownannuallyuntiltheultimatetrendrateof5.2percentisreachedin2018forallretirees.Thetrendratesareapplicableforcalculationsonlyiftheretirees’benefitsincreaseasaresultofhealthcareinflation.Theultimatetrendrateisadjustedannually,asnecessary,toapproximatethecurrenteconomicviewontherateoflong-terminflationplusanappro-priatehealthcarecostpremium.Assumedtrendratesforhealthcarecostshaveanimportanteffectontheamountsreportedfortheotherpostretirementbenefitplans.Aonepercentagepointchangeinthehealthcarecosttrendratewouldhavethefollowingeffects:InMillionsOnePercentagePointIncreaseOnePercentagePointDecrease.........................................................................................................................................................................................Effectontheaggregateoftheserviceandinterestcostcomponentsinfiscal2010$7.2$(6.3)EffectontheotherpostretirementaccumulatedbenefitobligationasofMay31,200975.8(66.9)Anyarisinghealthcareclaimscost-relatedexperiencegainorlossisrecognizedinthecalculationofexpectedfutureclaims.Oncerecognized,experiencegainsandlossesareamortizedusingastraight-linemethodover15years,resultinginatleasttheminimumamortizationrequiredbeingrecorded.FinancialStatementImpactInfiscal2009,werecordednetdefinedbenefitpension,otherpostretirement,andpostemploy-mentbenefitplanincomeof$4millioncomparedto$19millionofexpenseinfiscal2008and$36millionofexpenseinfiscal2007.AsofMay31,2009,wehadcumulativeunrecognizedactuarialnetlossesof$1.0billiononourdefinedbenefitpensionplansand$130milliononourpostretirementbenefitplans,mainlyastheresultofdeclinesinthevaluesofplanassets.Theseunrecognizedactuarialnetlosseswillresultindecreasesinourfuturepensionincomeandincreasesinpostretirementexpensesincetheycur-rentlyexceedthecorridorsdefinedbyGAAP.WeusetheRetirementPlans(RP)2000MortalityTablepro-jectedforwardtoourplans’measurementdatesforcalculatingtheyear-enddefinedbenefitpension,otherpostretirement,andpostemploymentbenefitobligationsandannualexpense.Actualfuturenetdefinedbenefitpension,otherpostretire-ment,andpostemploymentbenefitplanincomeorexpensewilldependoninvestmentperformance,changesinfuturediscountrates,changesinhealthcaretrendrates,andvariousotherfactorsrelatedtothepopulationsparticipatingintheseplans.RECENTLYISSUEDACCOUNTINGPRONOUNCEMENTSInNovember2008,theFinancialAccountingStandardsBoard(FASB)issuedEmergingIssuesTaskForce(EITF)No.08-6,“EquityMethodAccountingConsiderations”(EITF08-6).EITF08-6addressestheimpactoftheissuanceofSFAS141RandSFAS160onaccountingforequitymethodinvestments.EITF08-6iseffectiveforfiscalyearsbeginningonorafterDecember15,2008,whichforusisthefirstquarteroffiscal2010.WedonotexpectEITF08-6tohaveamaterialimpactonourresultsofoperationsorfinancialcondition.InJune2008,theFASBapprovedtheissuanceofEITFNo.07-5,“DeterminingWhetheranInstrument(orEmbeddedFeature)isIndexedtoanEntity’sOwnStock”(EITF07-5).EITF07-5defineswhenadjustmentfeatureswithincontractsareconsideredtobeequity-indexedandwillbeeffectiveforusinthefirstquarteroffiscal2010.WedonotexpectEITF07-5tohaveanyimpactonourresultsofoperationsorfinancialcondition.InJune2008,theFASBissuedFASBStaffPosition(FSP)EITF03-6-1,“DeterminingWhetherInstrumentsGrantedinShare-BasedPaymentTransactionsareParticipatingSecurities”(FSPEITF03-6-1).FSPEITF03-6-1providesthatunvestedshare-basedpaymentawardsthatcontainnon-forfeitablerightstodividendsordividendequivalents(whetherpaidorunpaid)areparticipatingsecuritiesandshallbeincludedinthecomputationofEPSpursuanttothetwo-classmethod.FSPEITF03-6-1iseffectiveforfiscalyearsbeginningafterDecember15,2008,whichforusisthefirstquarteroffiscal2010.Uponadoption,wearerequiredtoretrospectivelyadjustourEPSdata(includinganyamountsrelatedtointerimperiods,summariesofearnings,andselectedfinancialdata)toconformwiththeprovisionsofFSP44GeneralMillsEITF03-6-1.WeexpecttheadoptionofFSPEITF03-6-1tohaveanimmaterialimpactonourbasicanddilutedEPS.InMay2008,theFASBissuedFSPFinancialAccountingStan-dard(FAS)AccountingPrinciplesBoard(APB)14-1,“AccountingforConvertibleDebtInstrumentsthatmaybeSettledinCashuponConversion(IncludingPartialCashSettlement)”(FSPAPB14-1).FSPAPB14-1requiresissuerstoaccountseparatelyfortheliabilityandequitycomponentsofconvertibledebtinstrumentsthatmaybesettledincashorotherassets.FSPAPB14-1iseffectiveforfiscalyearsbeginningafterDecember15,2008,whichforusisthefirstquarteroffiscal2010.Uponadoption,wearerequiredtoapplythisaccountingretrospectively.WeexpecttheadoptionofFSPAPB14-1tohavenoimpactonourfinancialstatementsforfiscal2009and2008,andanimmaterialimpactonourfinancialstatementsforfiscal2007.InApril2008,theFASBfinalizedFSPNo.142-3,“DeterminationoftheUsefulLifeofIntangibleAssets”(FSP142-3).ThispositionamendsthefactorsthatshouldbeconsideredindevelopingrenewalorextensionassumptionsusedtodeterminetheusefullifeofarecognizedintangibleassetunderSFASNo.142,“GoodwillandOtherIntangibleAssets”.FSP142-3appliestointangibleassetsthatareacquiredindividuallyorwithagroupofotherassetsandbothintangibleassetsacquiredinbusinesscombina-tionsandassetacquisitions.ThispositioniseffectiveforfiscalyearsbeginningafterDecember15,2008,whichforusisthefirstquarteroffiscal2010.WedonotexpectFSP142-3tohaveanyimpactonourresultsofoperationsorfinancialcondition.InFebruary2008,theFASBamendedSFAS157byFSPFAS157-2,“EffectiveDateofFASBStatementNo.157”(FSPFAS157-2).FSPFAS157-2deferstheeffectivedateofSFAS157forallnonfinancialassetsandliabilitiesthatarenotremeasuredatfairvalueonarecurringbasistofiscalyearsbeginningafterFebruary15,2008.AsdisclosedinNote6totheConsolidatedFinancialStatementsbeginningonpage62ofthisreport,weadoptedtherequiredprovisionsofSFAS157effectiveinthefirstquarteroffiscal2009.WeexpecttoadopttheremainingprovisionsofSFAS157begin-ninginthefirstquarteroffiscal2010.Althoughwebelievetheadoptionmayimpactthewaythatwedeterminethefairvalueofgoodwill,indefinite-livedintangibleassets,andotherlong-livedassets,wedonotexpectittohaveamaterialimpactonourresultsofoperationsorfinancialcondition.InDecember2007,theFASBapprovedtheissuanceofSFASNo.141(revised2007),“BusinessCombinations”(SFAS141R).SFAS141Restablishesprinciplesandrequirementsforhowtheacquirerinabusinesscombination:recognizesandmeasuresinitsfinancialstatementstheidentifiableassetsacquired,thelia-bilitiesassumed,andanycontrollinginterest;recognizesandmeasuresthegoodwillacquiredinthebusinesscombinationoragainfromabargainpurchase;anddetermineswhatinformationtodisclosetoenableusersofthefinancialstatementstoevaluatethenatureandfinancialeffectsofthebusinesscombination.SFAS141Rappliestobusinesscombinationsforwhichtheacqui-sitiondateisonorafterDecember15,2008.SFAS141Ralsochangestheaccountingforacquisition-relatedtaxcontingencies,requiringallsuchchangesinthesecontingencyliabilitiestoberecordedinearningsaftertheeffectivedate.AsdiscussedinNote14totheConsolidatedFinancialStatementsbeginningonpage80ofthisreport,wehavesignificantliabilitiesforuncertaintaxpositions.AdjustmentstotheportionoftheseliabilitiesrelatedtoouracquisitionofPillsburyaftertheadoptionofSFAS141Rcouldbematerialtonetearnings.InDecember2007,theFASBapprovedtheissuanceofSFAS160.SFAS160establishesaccountingandreportingstan-dardsthatrequire:theownershipinterestinsubsidiariesheldbypartiesotherthantheparentbeclearlyidentifiedandpresentedintheConsolidatedBalanceSheetswithinequity,butseparatefromtheparent’sequity;theamountofconsolidatednetincomeattributabletotheparentandthenon-controllinginterestbeclearlyidentifiedandpresentedonthefaceoftheConsolidatedStatementofEarnings;andchangesinaparent’sownershipinterestwhiletheparentretainsitscontrollingfinancialinterestinitssubsidiarybeaccountedforconsistently.SFAS160iseffectiveforusinthefirstquarteroffiscal2010.AtthattimeweexpecttoreclassifytheminorityinterestsinourGMCsub-sidiarytostockholders’equityinourConsolidatedBalanceSheets.Wealsoexpecttoreclassifyretrospectivelyourdistri-butionsonthoseminorityinterestsfrominterestexpensetodistributionstononcontrollinginterestsinourConsolidatedStatementsofEarnings.Wehaveseveralotherimmaterialnon-controllingintereststhatwillbereclassifiedinasimilarmanner.AnnualReport200945CAUTIONARYSTATEMENTRELEVANTTOFORWARD-LOOKINGINFORMATIONFORTHEPURPOSEOF“SAFEHARBOR”PROVISIONSOFTHEPRIVATESECURITIESLITIGATIONREFORMACTOF1995Thisreportcontainsorincorporatesbyreferenceforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995thatarebasedonourcurrentexpectationsandassumptions.Wealsomaymakewrittenororalforward-lookingstatements,includingstatementscontainedinourfilingswiththeSECandinourreportstostockholders.Thewordsorphrases“willlikelyresult,”“areexpectedto,”“willcontinue,”“isanticipated,”“estimate,”“plan,”“project,”orsimilarexpressionsidentify“forward-lookingstatements”withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Suchstatementsaresubjecttocertainrisksanduncertaintiesthatcouldcauseactualresultstodiffermateriallyfromhistoricalresultsandthosecurrentlyanticipatedorprojected.Wewishtocautionyounottoplaceunduerelianceonanysuchforward-lookingstatements.Inconnectionwiththe“safeharbor”provisionsofthePrivateSecuritiesLitigationReformActof1995,weareidentifyingimpor-tantfactorsthatcouldaffectourfinancialperformanceandcouldcauseouractualresultsinfutureperiodstodiffermateriallyfromanycurrentopinionsorstatements.Ourfutureresultscouldbeaffectedbyavarietyoffactors,suchas:competitivedynamicsintheconsumerfoodsindustryandthemarketsforourproducts,includingnewproductintroductions,advertisingactivities,pricingactions,andpromotionalactivitiesofourcompetitors;economicconditions,includingchangesininfla-tionrates,interestrates,taxrates,ortheavailabilityofcapital;productdevelopmentandinnovation;consumeracceptanceofnewproductsandproductimprovements;consumerreactiontopricingactionsandchangesinpromotionlevels;acquisitionsordispositionsofbusinessesorassets;changesincapitalstructure;changesinlawsandregulations,includinglabelingandadvertisingregulations;impairmentsinthecarryingvalueofgoodwill,otherintangibleassets,orotherlong-livedassets,orchangesintheusefullivesofotherintangibleassets;changesinaccountingstandardsandtheimpactofsignificantaccountingestimates;productqualityandsafetyissues,includingrecallsandproductliability;changesinconsumerdemandforourproducts;effec-tivenessofadvertising,marketing,andpromotionalprograms;changesinconsumerbehavior,trends,andpreferences,includingweightlosstrends;consumerperceptionofhealth-relatedissues,includingobesity;consolidationintheretailenvironment;changesinpurchasingandinventorylevelsofsignificantcustomers;fluc-tuationsinthecostandavailabilityofsupplychainresources,includingrawmaterials,packaging,andenergy;disruptionsorinefficienciesinthesupplychain;volatilityinthemarketvalueofderivativesusedtomanagepriceriskforcertaincommodities;benefitplanexpensesduetochangesinplanassetvaluesanddiscountratesusedtodetermineplanliabilities;failureofourinformationtechnologysystems;resolutionofuncertainincometaxmatters;foreigneconomicconditions,includingcurrencyratefluctuations;andpoliticalunrestinforeignmarketsandeconomicuncertaintyduetoterrorismorwar.YoushouldalsoconsidertheriskfactorsthatweidentifyinItem1Aofthe2009Form10-K,whichcouldalsoaffectourfutureresults.Weundertakenoobligationtopubliclyreviseanyforward-lookingstatementstoreflecteventsorcircumstancesafterthedateofthosestatementsortoreflecttheoccurrenceofantic-ipatedorunanticipatedevents.QuantitativeandQualitativeDisclosuresAboutMarketRiskWeareexposedtomarketriskstemmingfromchangesininterestrates,foreignexchangerates,commodityprices,andequityprices.Changesinthesefactorscouldcausefluctuationsinourearningsandcashflows.Inthenormalcourseofbusiness,weactivelymanageourexposuretothesemarketrisksbyenteringintovarioushedgingtransactions,authorizedunderestablishedpoliciesthatplaceclearcontrolsontheseactivities.Thecounter-partiesinthesetransactionsaregenerallyhighlyratedinstitu-tions.Weestablishcreditlimitsforeachcounterparty.Ourhedg-ingtransactionsincludebutarenotlimitedtoavarietyofderiv-ativefinancialinstruments.INTERESTRATERISKWeareexposedtointerestratevolatilitywithregardtofutureissuancesoffixed-ratedebt,andexistingandfutureissuancesoffloating-ratedebt.PrimaryexposuresincludeU.S.Treasuryrates,LIBOR,andcommercialpaperratesintheUnitedStatesandEurope.Weuseinterestrateswapsandforward-startinginterest46GeneralMillsrateswapstohedgeourexposuretointerestratechanges,toreducethevolatilityofourfinancingcosts,andtoachieveadesiredproportionoffixedversusfloating-ratedebt,basedoncurrentandprojectedmarketconditions.Generallyundertheseswaps,weagreewithacounterpartytoexchangethedifferencebetweenfixed-rateandfloating-rateinterestamountsbasedonanagreeduponnotionalprincipalamount.AsofMay31,2009,wehad$4.1billionofaggregatenotionalprincipalamountoutstanding,withanetnotionalamountof$446millionthatconvertsfloating-ratenotestofixedrates.Thisincludesnotionalamountsofoffsettingswapsthatneutralizeourexposuretointerestratesonotherinterestrateswaps.FOREIGNEXCHANGERISKForeigncurrencyfluctuationsaffectournetinvestmentsinfor-eignsubsidiariesandforeigncurrencycashflowsrelatedtoforeign-denominatedcommercialpaper,thirdpartypurchases,intercompanyloans,andproductshipments.WearealsoexposedtothetranslationofforeigncurrencyearningstotheU.S.dollar.OurprincipalexposuresaretotheAustraliandollar,Britishpoundsterling,Canadiandollar,Chineserenminbi,euro,Japaneseyen,andMexicanpeso.Wemainlyuseforeigncurrencyforwardcontractstoselectivelyhedgeourforeigncurrencycashflowexposures.Wealsogenerallyswapourforeign-dominatedcommercialpaperborrowingsbacktoU.S.dollars;thegainsorlossesonthesederivativesoffsettheforeigncurrencyrevaluationgainsorlossesrecordedinearningsontheassociatedborrow-ings.Wegenerallydonothedgemorethan12monthsforward.Wealsohavemanynetinvestmentsinforeignsubsidiariesthataredenominatedineuros.Wepreviouslyhedgedaportionofthesenetinvestmentsbyissuingeuro-denominatedcommercialpaperandforeignexchangeforwardcontracts.AsofMay31,2009,wehaddeferrednetforeigncurrencytransactionlossesof$96millioninaccumulatedothercomprehensiveincome(loss)associatedwiththishedgingactivity.COMMODITYPRICERISKManycommoditiesweuseintheproductionanddistributionofourproductsareexposedtomarketpricerisks.Weutilizederivativestomanagepriceriskforourprincipalingredientandenergycosts,includinggrains(oats,wheat,andcorn),oils(principallysoybean),nonfatdrymilk,naturalgas,anddieselfuel.Ourprimaryobjectivewhenenteringintothesederivativecon-tractsistoachievecertaintywithregardtothefuturepriceofcommoditiespurchasedforuseinoursupplychain.Wemanageourexposuresthroughacombinationofpurchaseorders,long-termcontractswithsuppliers,exchange-tradedfuturesandoptions,andover-the-counteroptionsandswaps.Weoffsetourexposuresbasedoncurrentandprojectedmarketconditionsandgenerallyseektoacquiretheinputsatasclosetoourplannedcostaspossible.AsofMay31,2009,thenetnotionalvalueofcommodityderivativeswas$191million,ofwhich$68millionrelatestoagriculturalpositionsand$123millionrelatestoenergypositions.Thesederivativesrelatetoinputsthatgenerallywillbeutilizedwithinthenext12months.EQUITYINSTRUMENTSEquitypricemovementsaffectourcompensationexpenseascertaininvestmentsownedbyouremployeesrelatedtoourdeferredcompensationplanarerevalued.Weuseequityswapstomanagethismarketrisk.AnnualReport200947VALUEATRISKTheestimatesinthetablebelowareintendedtomeasurethemaximumpotentialfairvaluewecouldloseinonedayfromadversechangesinmarketinterestrates,foreignexchangerates,commodityprices,andequitypricesundernormalmarketcon-ditions.AMonteCarlovalue-at-risk(VAR)methodologywasusedtoquantifythemarketriskforourexposures.Themodelsassumednormalmarketconditionsanduseda95percentcon-fidencelevel.TheVARcalculationusedhistoricalinterestrates,foreignexchangerates,andcommodityandequitypricesfromthepastyeartoestimatethepotentialvolatilityandcorrelationoftheseratesinthefuture.ThemarketdataweredrawnfromtheRiskMetricsTMdataset.Thecalculationsarenotintendedtorepresentactuallossesinfairvaluethatweexpecttoincur.Further,sincethehedginginstrument(thederivative)inverselycorrelateswiththeunderlyingexposure,wewouldexpectthatanylossorgaininthefairvalueofourderivativeswouldbegenerallyoffsetbyanincreaseordecreaseinthefairvalueoftheunderlyingexposure.Thepositionsincludedinthecalculationswere:debt;investments;interestrateswaps;foreignexchangeforwards;commodityswaps,futuresandoptions;andequityinstruments.Thecalculationsdonotincludetheunderlyingfor-eignexchangeandcommodities-relatedpositionsthatareoffsetbythesemarket-risk-sensitiveinstruments.ThetablebelowpresentstheestimatedmaximumpotentialVARarisingfromaone-daylossinfairvalueforourinterestrate,foreigncurrency,commodity,andequitymarket-risk-sensitiveinstrumentsoutstandingasofMay31,2009,andMay25,2008,andtheaveragefairvalueimpactduringtheyearendedMay31,2009.InMillionsMay31,2009AverageduringFiscal2009May25,2008...........................................................................FairValueImpact.........................................................................................................................................................................................Interestrateinstruments$44.4$36.0$18.9Foreigncurrencyinstruments5.85.15.0Commodityinstruments10.48.26.3Equityinstruments1.81.31.248GeneralMillsReportsofManagementandIndependentRegisteredPublicAccountingFirmREPORTOFMANAGEMENTRESPONSIBILITIESThemanagementofGeneralMills,Inc.isresponsibleforthefairnessandaccuracyoftheconsolidatedfinancialstatements.Thestatementshavebeenpreparedinaccordancewithaccount-ingprinciplesthataregenerallyacceptedintheUnitedStates,usingmanagement’sbestestimatesandjudgmentswhereappro-priate.ThefinancialinformationthroughouttheAnnualReportonForm10-Kisconsistentwithourconsolidatedfinancialstatements.Managementhasestablishedasystemofinternalcontrolsthatprovidesreasonableassurancethatassetsareadequatelysafe-guardedandtransactionsarerecordedaccuratelyinallmaterialrespects,inaccordancewithmanagement’sauthorization.Wemaintainastrongauditprogramthatindependentlyevaluatestheadequacyandeffectivenessofinternalcontrols.Ourinternalcontrolsprovideforappropriateseparationofdutiesandrespon-sibilities,andtherearedocumentedpoliciesregardinguseofourassetsandproperfinancialreporting.Theseformallystatedandregularlycommunicatedpoliciesdemandhighlyethicalconductfromallemployees.TheAuditCommitteeoftheBoardofDirectorsmeetsregularlywithmanagement,internalauditors,andourindependentaudi-torstoreviewinternalcontrol,auditing,andfinancialreportingmatters.Theindependentauditors,internalauditors,andemploy-eeshavefullandfreeaccesstotheAuditCommitteeatanytime.TheAuditCommitteereviewedandapprovedtheCompany’sannualfinancialstatements.TheAuditCommitteerecom-mended,andtheBoardofDirectorsapproved,thattheconsol-idatedfinancialstatementsbeincludedintheAnnualReport.TheAuditCommitteealsoappointedKPMGLLPtoserveastheCompany’sindependentregisteredpublicaccountingfirmforfiscal2010,subjecttoratificationbythestockholdersattheannualmeeting.K.J.PowellD.L.MulliganChairmanoftheBoardandChiefExecutiveOfficerExecutiveVicePresidentandChiefFinancialOfficerJuly13,2009REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRMTheBoardofDirectorsandStockholdersGeneralMills,Inc.:WehaveauditedtheaccompanyingconsolidatedbalancesheetsofGeneralMills,Inc.andsubsidiariesasofMay31,2009andMay25,2008,andtherelatedconsolidatedstatementsofearnings,stockholders’equityandcomprehensiveincome,andcashflowsforeachoftheyearsinthethree-yearperiodendedMay31,2009.Inconnectionwithourauditsoftheconsolidatedfinancialstatements,wealsohaveauditedtheaccompanyingfinancialstatementschedule.WealsohaveauditedGeneralMills,Inc.’sinternalcontroloverfinancialreportingasofMay31,2009,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO).GeneralMills,Inc.’sman-agementisresponsiblefortheseconsolidatedfinancialstate-mentsandfinancialstatementschedule,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedinManagement’sReportonInternalControloverFinan-cialReporting.Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsandfinancialstatementsched-uleandanopinionontheCompany’sinternalcontroloverfinan-cialreportingbasedonouraudits.WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstate-mentsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditsoftheconsolidatedfinancialstate-mentsincludedexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assess-ingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffec-tivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditspro-videareasonablebasisforouropinions.AnnualReport200949Acompany’sinternalcontroloverfinancialreportingisapro-cessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddisposi-tionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendi-turesofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinan-cialstatements.Becauseofitsinherentlimitations,internalcontroloverfinan-cialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompli-ancewiththepoliciesorproceduresmaydeteriorate.Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofGeneralMills,Inc.andsubsidiariesasofMay31,2009andMay25,2008,andtheresultsoftheiroperationsandtheircashflowsforeachoftheyearsinthethree-yearperiodendedMay31,2009,inconformitywithU.S.generallyacceptedaccountingprinciples.Alsoinouropinion,theaccompanyingfinancialstatementschedule,whenconsideredinrelationtothebasicconsolidatedfinancialstatementstakenasawhole,presentsfairly,inallmaterialrespects,theinformationsetforththerein.Alsoinouropinion,GeneralMills,Inc.maintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreport-ingasofMay31,2009,basedoncriteriaestablishedinInternalControl—IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Infiscal2008,asdisclosedinNote14totheconsolidatedfinancialstatements,theCompanyadoptedFASBInterpretationNo.48,“AccountingforUncertaintyinIncomeTaxes—anInter-pretationofFASBStatementNo.109”onMay28,2007.Minneapolis,MinnesotaJuly13,200950GeneralMillsConsolidatedStatementsofEarningsGENERALMILLS,INC.ANDSUBSIDIARIESInMillions,ExceptperShareData200920082007FiscalYear....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Netsales$14,691.3$13,652.1$12,441.5Costofsales9,457.88,778.37,955.1Selling,general,andadministrativeexpenses2,953.92,625.02,389.3Divestitures(gain),net(84.9)——Restructuring,impairment,andotherexitcosts41.621.039.3............................................................................................................................................................................................................................................................................................................................................................................................Operatingprofit2,322.92,227.82,057.8Interest,net390.0421.7426.5............................................................................................................................................................................................................................................................................................................................................................................................Earningsbeforeincometaxesandafter-taxearningsfromjointventures1,932.91,806.11,631.3Incometaxes720.4622.2560.1After-taxearningsfromjointventures91.9110.872.7............................................................................................................................................................................................................................................................................................................................................................................................Netearnings$1,304.4$1,294.7$1,143.9Earningspershare–basic$3.93$3.86$3.30Earningspershare–diluted$3.80$3.71$3.18Dividendspershare$1.72$1.57$1.44Seeaccompanyingnotestoconsolidatedfinancialstatements.AnnualReport200951ConsolidatedBalanceSheetsGENERALMILLS,INC.ANDSUBSIDIARIESInMillions,ExceptParValueMay31,2009May25,2008............................................................................................................................................................................................................................................................................................................................................................................................ASSETSCurrentassets:Cashandcashequivalents$749.8$661.0Receivables953.41,081.6Inventories1,346.81,366.8Deferredincometaxes15.6—Prepaidexpensesandothercurrentassets469.3510.6............................................................................................................................................................................................................................................................................................................................................................................................Totalcurrentassets3,534.93,620.0Land,buildings,andequipment3,034.93,108.1Goodwill6,663.06,786.1Otherintangibleassets3,747.03,777.2Otherassets895.01,750.2............................................................................................................................................................................................................................................................................................................................................................................................Totalassets$17,874.8$19,041.6LIABILITIESANDEQUITYCurrentliabilities:Accountspayable$803.4$937.3Currentportionoflong-termdebt508.5442.0Notespayable812.22,208.8Deferredincometaxes—28.4Othercurrentliabilities1,481.91,239.8............................................................................................................................................................................................................................................................................................................................................................................................Totalcurrentliabilities3,606.04,856.3Long-termdebt5,754.84,348.7Deferredincometaxes1,165.31,454.6Otherliabilities1,931.71,923.9............................................................................................................................................................................................................................................................................................................................................................................................Totalliabilities12,457.812,583.5............................................................................................................................................................................................................................................................................................................................................................................................Minorityinterests242.3242.3Stockholders’equity:Commonstock,377.3sharesissued,$0.10parvalue37.737.7Additionalpaid-incapital1,249.91,149.1Retainedearnings7,235.66,510.7Commonstockintreasury,atcost,sharesof49.3and39.8(2,473.1)(1,658.4)Accumulatedothercomprehensiveincome(loss)(875.4)176.7............................................................................................................................................................................................................................................................................................................................................................................................Totalstockholders’equity5,174.76,215.8............................................................................................................................................................................................................................................................................................................................................................................................Totalliabilitiesandequity$17,874.8$19,041.6Seeaccompanyingnotestoconsolidatedfinancialstatements.52GeneralMillsConsolidatedStatementsofStockholders’EquityandComprehensiveIncomeGENERALMILLS,INC.ANDSUBSIDIARIESInMillions,ExceptperShareDataSharesParAmountAdditionalPaid-InCapitalSharesAmountRetainedEarningsUnearnedCompensationAccumulatedOtherComprehensiveIncome(Loss)TotalIssued...........................................................Treasury.....................................$.10ParValueCommonStock(OneBillionSharesAuthorized).................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................BalanceasofMay28,2006502.3$50.2$5,736.6(145.9)$(5,163.0)$5,106.6$(83.5)$125.4$5,772.3Comprehensiveincome:Netearnings1,143.91,143.9Othercomprehensiveincome195.3195.3............................................................................................................................................................................................................................................................................................................................................................................................Totalcomprehensiveincome1,339.2Changeinaccountingprincipleforstockcompensation(83.5)83.5—Changeinaccountingprinciplefordefinedbenefitpension,otherpostretirement,andpostemploymentbenefitplans(440.4)(440.4)Cashdividendsdeclared($1.44pershare)(505.2)(505.2)Stockcompensationplans(includesincometaxbenefitsof$73.1)164.69.2339.4504.0Sharespurchased(25.3)(1,385.1)(1,385.1)Unearnedcompensationrelatedtorestrictedstockawards(95.0)(95.0)Issuanceofsharestosettleconversionofzerocoupondebentures,netoftax(10.7)0.310.7—Earnedcompensationandother129.3129.3............................................................................................................................................................................................................................................................................................................................................................................................BalanceasofMay27,2007502.350.25,841.3(161.7)(6,198.0)5,745.3—(119.7)5,319.1Comprehensiveincome:Netearnings1,294.71,294.7Othercomprehensiveincome296.4296.4............................................................................................................................................................................................................................................................................................................................................................................................Totalcomprehensiveincome1,591.1Cashdividendsdeclared($1.57pershare)(529.7)(529.7)Stockcompensationplans(includesincometaxbenefitsof$55.7)121.06.5261.6382.6Sharespurchased(23.9)(1,384.6)(1,384.6)Retirementoftreasuryshares(125.0)(12.5)(5,068.3)125.05,080.8—Sharesissuedunderforwardpurchasecontract168.214.3581.8750.0Unearnedcompensationrelatedtorestrictedstockawards(104.1)(104.1)AdoptionofFIN4857.88.466.2CapitalappreciationpaidtoholdersofSeriesB-1limitedmembershipinterestsinGeneralMillsCereals,LLC(GMC)(8.0)(8.0)Earnedcompensation133.2133.2............................................................................................................................................................................................................................................................................................................................................................................................BalanceasofMay25,2008377.337.71,149.1(39.8)(1,658.4)6,510.7—176.76,215.8Comprehensiveincome:Netearnings1,304.41,304.4Othercomprehensiveloss(1,052.1)(1,052.1)............................................................................................................................................................................................................................................................................................................................................................................................Totalcomprehensiveincome252.3Cashdividendsdeclared($1.72pershare)(579.5)(579.5)Stockcompensationplans(includesincometaxbenefitsof$94.0)23.09.8443.1466.1Sharespurchased(20.2)(1,296.4)(1,296.4)Sharesissuedforacquisition16.40.938.655.0Unearnedcompensationrelatedtorestrictedstockawards(56.2)(56.2)Earnedcompensation117.6117.6............................................................................................................................................................................................................................................................................................................................................................................................BalanceasofMay31,2009377.3$37.7$1,249.9(49.3)$(2,473.1)$7,235.6$—$(875.4)$5,174.7Seeaccompanyingnotestoconsolidatedfinancialstatements.AnnualReport200953ConsolidatedStatementsofCashFlowsGENERALMILLS,INC.ANDSUBSIDIARIESInMillions200920082007.........................................................................................FiscalYear............................................................................................................................................................................................................................................................................................................................................................................................CashFlows–OperatingActivitiesNetearnings$1,304.4$1,294.7$1,143.9Adjustmentstoreconcilenetearningstonetcashprovidedbyoperatingactivities:Depreciationandamortization453.6459.2417.8After-taxearningsfromjointventures(91.9)(110.8)(72.7)Stock-basedcompensation117.7133.2127.1Deferredincometaxes215.898.126.0Taxbenefitonexercisedoptions(89.1)(55.7)(73.1)Distributionsofearningsfromjointventures68.5108.745.2Pensionandotherpostretirementbenefitplancontributions(220.3)(14.2)(60.6)Pensionandotherpostretirementbenefitplan(income)expense(27.5)5.55.6Divestitures(gain),net(84.9)——Gainoninsurancesettlement(41.3)——Restructuring,impairment,andotherexitcosts(income)31.3(1.7)39.1Changesincurrentassetsandliabilities176.9(126.7)149.1Other,net15.0(60.4)3.8............................................................................................................................................................................................................................................................................................................................................................................................Netcashprovidedbyoperatingactivities1,828.21,729.91,751.2............................................................................................................................................................................................................................................................................................................................................................................................CashFlows–InvestingActivitiesPurchasesofland,buildings,andequipment(562.6)(522.0)(460.2)Acquisitions—0.6(83.4)Investmentsinaffiliates,net5.964.6(100.5)Proceedsfromdisposalofland,buildings,andequipment4.125.913.8Proceedsfromdivestituresofproductlines244.7—13.5Proceedsfrominsurancesettlement41.3——Other,net(22.3)(11.5)19.7............................................................................................................................................................................................................................................................................................................................................................................................Netcashusedbyinvestingactivities(288.9)(442.4)(597.1)............................................................................................................................................................................................................................................................................................................................................................................................CashFlows–FinancingActivitiesChangeinnotespayable(1,390.5)946.6(280.4)Issuanceoflong-termdebt1,850.01,450.02,650.0Paymentoflong-termdebt(370.3)(1,623.4)(2,323.2)SettlementofLehmanBrothersforwardpurchasecontract—750.0—RepurchaseofSeriesB-1limitedmembershipinterestsinGMC—(843.0)—RepurchaseofGeneralMillsCapital,Inc.preferredstock—(150.0)—ProceedsfromsaleofClassAlimitedmembershipinterestsinGMC—92.3—Proceedsfromcommonstockissuedonexercisedoptions305.2191.4317.4Taxbenefitonexercisedoptions89.155.773.1Purchasesofcommonstockfortreasury(1,296.4)(1,432.4)(1,320.7)Dividendspaid(579.5)(529.7)(505.2)Other,net(12.1)(0.5)(9.1)............................................................................................................................................................................................................................................................................................................................................................................................Netcashusedbyfinancingactivities(1,404.5)(1,093.0)(1,398.1)............................................................................................................................................................................................................................................................................................................................................................................................Effectofexchangeratechangesoncashandcashequivalents(46.0)49.413.7............................................................................................................................................................................................................................................................................................................................................................................................Increase(decrease)incashandcashequivalents88.8243.9(230.3)............................................................................................................................................................................................................................................................................................................................................................................................Cashandcashequivalents–beginningofyear661.0417.1647.4............................................................................................................................................................................................................................................................................................................................................................................................Cashandcashequivalents–endofyear$749.8$661.0$417.1CashFlowfromChangesinCurrentAssetsandLiabilities:Receivables$81.8$(94.1)$(24.2)Inventories(28.1)(165.1)(116.0)Prepaidexpensesandothercurrentassets30.2(65.9)(44.9)Accountspayable(116.4)125.187.8Othercurrentliabilities209.473.3246.4............................................................................................................................................................................................................................................................................................................................................................................................Changesincurrentassetsandliabilities$176.9$(126.7)$149.1Seeaccompanyingnotestoconsolidatedfinancialstatements.54GeneralMillsNotestoConsolidatedFinancialStatementsGENERALMILLS,INC.ANDSUBSIDIARIESNOTE1.BASISOFPRESENTATIONANDRECLASSIFICATIONSBasisofPresentationOurConsolidatedFinancialStatementsincludetheaccountsofGeneralMills,Inc.andallsubsidiariesinwhichwehaveacontrollingfinancialinterest.Intercompanytransactionsandaccountsareeliminatedinconsolidation.OurfiscalyearendsonthelastSundayinMay.Fiscalyear2009consistedof53weeks,andfiscalyears2008and2007eachconsistedof52weeks.ChangeinReportingPeriodInfiscal2009,aspartofalong-termplantoconformthefiscalyearendsofallouroperations,wechangedthereportingperiodofmostcountriesinourLatinAmericaregionwithinourInternationalsegmentfromanAprilfiscalyearendtoaMayfiscalyearendtomatchourfiscalcalendar.Accordingly,fiscal2009resultsinclude13monthsofresultsfromtheseoperationscomparedto12monthsinfiscal2008andfiscal2007.Theimpactofthischangewasnotmaterialtoourresultsofoperations,thuswedidnotrestatepriorperiodfinancialstatementsforcomparability.ThefinancialresultsforourInternationalsegmentareasofandforthe12calendarmonthsendedApril30,exceptforCanada,itsexportoperations,substantiallyallofitsLatinAmericaoperations,anditsUnitedStatesandLatinAmericanheadquarters.Infiscal2007,wechangedthereportingperiodforourHa¨agen-DazsjointventureinJapantoincluderesultsthroughMarch31.Inpreviousyears,weincludedresultsforthetwelvemonthsendedApril30.Accordingly,fiscal2007resultsincludeonly11monthsofresultsfromthisjointventurecomparedto12monthsinfiscal2009andfiscal2008.Theimpactofthischangewasnotmaterialtoourresultsofoperations,thuswedidnotrestatepriorperiodfinancialstatementsforcomparability.NOTE2.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIESCashandCashEquivalentsWeconsiderallinvestmentspur-chasedwithanoriginalmaturityofthreemonthsorlesstobecashequivalents.InventoriesAllinventoriesintheUnitedStatesotherthangrainandcertainorganicproductsarevaluedatthelowerofcost,usingthelast-in,first-out(LIFO)method,ormarket.Graininventoriesandallrelatedcashcontractsandderivativesarevaluedatmarketwithallnetchangesinvaluerecordedinearningscurrently.InventoriesoutsideoftheUnitedStatesarevaluedatthelowerofcost,usingthefirst-in,first-out(FIFO)method,ormarket.Shippingcostsassociatedwiththedistributionoffinishedproducttoourcustomersarerecordedascostofsales,andarerecognizedwhentherelatedfinishedproductisshippedtoandacceptedbythecustomer.Land,Buildings,Equipment,andDepreciationLandisrecordedathistoricalcost.Buildingsandequipment,includingcapitalizedinterestandinternalengineeringcosts,arerecordedatcostanddepreciatedoverestimatedusefullives,primarilyusingthestraight-linemethod.Ordinarymaintenanceandrepairsarechargedtocostofsales.Buildingsareusuallydepreciatedover40to50years,andequipment,furniture,andsoftwareareusuallydepreciatedover3to15years.Fullydepreciatedassetsareretainedinbuildingsandequipmentuntildisposal.Whenanitemissoldorretired,theaccountsarerelievedofitscostandrelatedaccumulateddepreciation;theresultinggainsandlosses,ifany,arerecognizedinearnings.AsofMay31,2009,assetsheldforsalewereinsignificant.Long-livedassetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountofanasset(orassetgroup)maynotberecoverable.Animpairmentlosswouldberecognizedwhenestimatedundiscountedfuturecashflowsfromtheoperationanddispositionoftheassetgrouparelessthanthecarryingamountoftheassetgroup.Assetgroupshaveidentifiablecashflowsandarelargelyindependentofotherassetgroups.Measurementofanimpairmentlosswouldbebasedontheexcessofthecarryingamountoftheassetgroupoveritsfairvalue.Fairvalueismeasuredusingadiscountedcashflowmodelorindependentappraisals,asappropriate.GoodwillandOtherIntangibleAssetsGoodwillisnotsubjecttoamortizationandistestedforimpairmentannuallyandwhenevereventsorchangesincircumstancesindicatethatimpairmentmayhaveoccurred.Impairmenttestingisperformedforeachofourreportingunits.Wecomparethecarryingvalueofareportingunit,includinggoodwill,tothefairvalueoftheunit.Carryingvalueisbasedontheassetsandliabilitiesassociatedwiththeoperationsofthatreportingunit,whichoftenrequiresallocationofsharedorcorporateitemsamongreportingunits.Ifthecarryingamountofareportingunitexceedsitsfairvalue,werevalueallassetsandliabilitiesofthereportingunit,excludinggoodwill,todetermineifAnnualReport200955thefairvalueofthenetassetsisgreaterthanthenetassetsincludinggoodwill.Ifthefairvalueofthenetassetsislessthanthenetassetsincludinggoodwill,impairmenthasoccurred.Ourestimatesoffairvaluearedeterminedbasedonadiscountedcashflowmodel.Growthratesforsalesandprofitsaredeter-minedusinginputsfromourannuallong-rangeplanningprocess.Wealsomakeestimatesofdiscountrates,perpetuitygrowthassumptions,marketcomparables,andotherfactors.Weevaluatetheusefullivesofourotherintangibleassets,mainlyintangibleassetsassociatedwiththePillsbury,Totino’s,Progresso,GreenGiant,OldElPaso,andHa¨agen-Dazsbrands,todetermineiftheyarefiniteorindefinite-lived.Reachingadeter-minationonusefulliferequiressignificantjudgmentsandassumptionsregardingthefutureeffectsofobsolescence,demand,competition,othereconomicfactors(suchasthesta-bilityoftheindustry,knowntechnologicaladvances,legislativeactionthatresultsinanuncertainorchangingregulatoryenvi-ronment,andexpectedchangesindistributionchannels),thelevelofrequiredmaintenanceexpenditures,andtheexpectedlivesofotherrelatedgroupsofassets.Ourindefinite-livedintangibleassets,mainlybrands,arealsotestedforimpairmentannuallyandwhenevereventsorchangesincircumstancesindicatethattheircarryingvaluemaynotberecoverable.Weperformedourfiscal2009assessmentofourbrandintangiblesasofDecember1,2008.Ourestimateofthefairvalueofthebrandswasbasedonadiscountedcashflowmodelusinginputswhichincluded:projectedrevenuesfromourannuallong-rangeplan;assumedroyaltyratesthatcouldbepayableifwedidnotownthebrands;andadiscountrate.Asofourassessmentdate,therewasnoimpairmentoftheseintangibles,andthefairvalueofthePillsburybrandwasmorethan10percentgreaterthanitscarryingvalue,upfromanexcessof3percentasofthefiscal2008assessment.InvestmentsinJointVenturesOurinvestmentsincompaniesoverwhichwehavetheabilitytoexercisesignificantinfluencearestatedatcostplusourshareofundistributedearningsorlosses.Wereceiveroyaltyincomefromcertainjointventures,incurvariousexpenses(primarilyresearchanddevelopment),andrecordthetaximpactofcertainjointventureoperationsthatarestructuredaspartnerships.Inaddition,wemakeadvancestoourjointventuresintheformofloansorcapitalinvestments.Wealsosellcertainrawmaterials,semi-finishedgoods,andfinishedgoodstothejointventures,generallyatmarketprices.VariableInterestEntitiesAsofMay31,2009,wehadinvestedinthreevariableinterestentities(VIEs).WehaveaninterestinacontractmanufactureratourformerfacilityinGeneva,Illinois.Wearetheprimarybeneficiary(PB)andhaveconsolidatedthisentity.Thisentityhadpropertyandequipmentwithacarryingvalueof$25.2millionandlong-termdebtof$26.5millionasofMay31,2009.Theliabilitiesrecognizedasaresultofconsolidatingthisentitydonotrepresentadditionalclaimsonourgeneralassets.WealsohaveaninterestinacontractmanufacturerinGreecethatisaVIE.AlthoughwearethePB,wehavenotconsolidatedthisentitybecauseitisnotpracticaltodosoanditisnotmaterialtoourresultsofoperations,financialcondition,orliquidityasofandfortheyearendedMay31,2009.Thisentityhadassetsof$5.1millionandliabilitiesof$1.1millionasofMay31,2009.WearenotthePBoftheremainingVIE.OurmaximumexposuretolossfromthethreeVIEsislimitedtothe$26.5millionoflong-termdebtofthecontractmanufacturerinGeneva,Illinoisandour$2.0millionequityinvestmentintheVIEofwhichwearenotthePB.WehavenotprovidedfinancialorothersupporttotheseVIEsduringthecurrentperiodnoraretherearrangementsrelatedtotheseVIEsthatcouldrequireustoprovidefinancialsupportinthefuture.RevenueRecognitionWerecognizesalesrevenuewhentheship-mentisacceptedbyourcustomer.Salesincludeshippingandhandlingchargesbilledtothecustomerandarereportednetofconsumercouponredemption,tradepromotionandothercosts,includingestimatedallowancesforreturns,unsalableproduct,andpromptpaydiscounts.Sales,use,value-added,andotherexcisetaxesarenotrecognizedinrevenue.Couponsarerecordedwhendistributed,basedonestimatedredemptionrates.Tradepromotionsarerecordedbasedonestimatedparticipationandperformancelevelsforofferedprogramsatthetimeofsale.Wegenerallydonotallowarightofreturn.However,onalimitedcase-by-casebasiswithpriorapproval,wemayallowcustomerstoreturnproduct.Inlimitedcircumstances,productreturnedinsaleableconditionisresoldtoothercustomersoroutlets.Receiv-ablesfromcustomersgenerallydonotbearinterest.Termsandcollectionpatternsvaryaroundtheworldandbychannel.Theallowancefordoubtfulaccountsrepresentsourestimateofprob-ablenonpaymentsandcreditlossesinourexistingreceivables,asdeterminedbasedonareviewofpastduebalancesandotherspecificaccountdata.Accountbalancesarewrittenoffagainsttheallowancewhenwedeemtheamountisuncollectible.56GeneralMillsEnvironmentalEnvironmentalcostsrelatingtoexistingconditionscausedbypastoperationsthatdonotcontributetocurrentorfuturerevenuesareexpensed.Liabilitiesforanticipatedreme-diationcostsarerecordedonanundiscountedbasiswhentheyareprobableandreasonablyestimable,generallynolaterthanthecompletionoffeasibilitystudiesorourcommitmenttoaplanofaction.AdvertisingProductionCostsWeexpensetheproductioncostsofadvertisingthefirsttimethattheadvertisingtakesplace.ResearchandDevelopmentAllexpendituresforresearchanddevelopment(R&D)arechargedagainstearningsintheyearincurred.R&Dincludesexpendituresfornewproductandmanufacturingprocessinnovation,andtheannualexpendituresarecomprisedprimarilyofinternalsalaries,wages,consulting,andothersuppliesattributabletotimespentonR&Dactivities.Othercostsincludedepreciationandmaintenanceofresearchfacilities,includingassetsatfacilitiesthatareengagedinpilotplantactivities.ForeignCurrencyTranslationForallsignificantforeignoperations,thefunctionalcurrencyisthelocalcurrency.Assetsandliabilitiesoftheseoperationsaretranslatedattheperiod-endexchangerates.Incomestatementaccountsaretranslatedusingtheaver-ageexchangeratesprevailingduringtheyear.Translationadjust-mentsarereflectedwithinaccumulatedothercomprehensiveincome(loss)instockholders’equity.Gainsandlossesfromforeigncurrencytransactionsareincludedinnetearningsfortheperiodexceptforgainsandlossesoninvestmentsinsubsid-iariesforwhichsettlementisnotplannedfortheforeseeablefutureandforeignexchangegainsandlossesoninstrumentsdesignatedasnetinvestmenthedges.Thesegainsandlossesarerecordedinaccumulatedothercomprehensiveincome(loss).DerivativeInstrumentsAllderivativesarerecognizedontheCon-solidatedBalanceSheetsatfairvaluebasedonquotedmarketpricesorourestimateoftheirfairvalue,andarerecordedineithercurrentornoncurrentassetsorliabilitiesbasedontheirmaturity.Changesinthefairvaluesofderivativesarerecordedinnetearningsorothercomprehensiveincome,basedonwhethertheinstrumentisdesignatedasahedgetransactionand,ifso,thetypeofhedgetransaction.Gainsorlossesonderivativeinstrumentsreportedinaccumulatedothercomprehensiveincome(loss)arereclassifiedtoearningsintheperiodthehedgeditemaffectsearnings.Iftheunderlyinghedgedtransactionceasestoexist,anyassociatedamountsreportedinaccumulatedothercompre-hensiveincome(loss)arereclassifiedtoearningsatthattime.Anyineffectivenessisrecognizedinearningsinthecurrentperiod.Weusederivativestomanageourexposuretochangesincommodityprices.Wedonotperformtheassessmentsrequiredtoachievehedgeaccountingforcommodityderivativepositionsenteredintoafterthebeginningoffiscal2008.Accordingly,thechangesinthevaluesofthesederivativesarerecordedcurrentlyincostofsalesinourConsolidatedStatementsofEarnings.Althoughwedonotmeetthecriteriaforcashflowhedgeaccounting,wenonethelessbelievethattheseinstrumentsareeffectiveinachievingourobjectiveofprovidingcertaintyinthefuturepriceofcommoditiespurchasedforuseinoursupplychain.Accordingly,forpurposesofmeasuringsegmentoperatingperformancethesegainsandlossesarereportedinunallocatedcorporateitemsoutsideofsegmentoperatingresultsuntilsuchtimethattheexposurewearemanagingaffectsearnings.Atthattimewereclassifythegainorlossfromunallocatedcorporateitemstosegmentoperatingprofit,allowingouroperatingseg-mentstorealizetheeconomiceffectsofthederivativewithoutexperiencinganyresultingmark-to-marketvolatility,whichremainsinunallocatedcorporateitems.Wenolongerhaveanyopencommodityderivativespreviouslyaccountedforascashflowhedges.Stock-basedCompensationWegenerallyrecognizecompensa-tionexpenseforgrantsofrestrictedstockunitsusingthevalueofashareofourstockonthedateofgrant.WeestimatethevalueofstockoptiongrantsusingtheBlackScholesvaluationmodel.Stockcompensationisrecognizedstraightlineoverthevestingperiod.AllourstockcompensationexpenseisrecordedinSG&AintheConsolidatedStatementofEarningsandinunallocatedcorporateitemsinoursegmentresults.Certainequity-basedcompensationplanscontainprovisionsthatacceleratevestingofawardsuponretirement,disability,ordeathofeligibleemployeesanddirectors.Weconsiderastock-basedawardtobevestedwhentheemployee’sretentionoftheawardisnolongercontingentonprovidingsubsequentservice.Accordingly,therelatedcompensationcostisrecognizedimme-diatelyforawardsgrantedtoretirement-eligibleindividualsorovertheperiodfromthegrantdatetothedateretirementeligibilityisachieved,iflessthanthestatedvestingperiod.AnnualReport200957Wereportthebenefitsoftaxdeductionsinexcessofrecognizedcompensationcostasafinancingcashflow,therebyreducingnetoperatingcashflowsandincreasingnetfinancingcashflows.DefinedBenefitPension,OtherPostretirement,andPostemploymentBenefitPlansWesponsorseveraldomesticandforeigndefinedbenefitplanstoprovidepension,healthcare,andotherwelfarebenefitstoretiredemployees.Undercertaincircumstances,wealsoprovideaccruablebenefitstoformerorinactiveemployeesintheUnitedStatesandCanadaandmembersofourBoardofDirectors,includingseveranceandcertainotherbenefitspayableupondeath.Werecognizeanobligationforanyofthesebenefitsthatvestoraccumulatewithservice.Postemploymentbenefitsthatdonotvestoraccumulatewithservice(suchasseverancebasedsolelyonannualpayratherthanyearsofservice)arechargedtoexpensewhenincurred.Ourpostemploymentbenefitplansareunfunded.Werecognizetheunderfundedoroverfundedstatusofadefinedbenefitpostretirementplanasanassetorliabilityandrecognizechangesinthefundedstatusintheyearinwhichthechangesoccurthroughaccumulatedothercomprehensiveincome(loss),whichisacomponentofstockholders’equity.UseofEstimatesPreparingourConsolidatedFinancialState-mentsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequiresustomakeestimatesandassumptionsthataffectreportedamountsofassetsandliabilities,disclosuresofcontingentassetsandliabilitiesatthedateofthefinancialstatements,andthereportedamountsofrevenuesandexpensesduringthereportingperiod.Theseesti-matesincludeouraccountingforpromotionalexpenditures,val-uationoflong-livedassets,intangibleassets,stock-basedcom-pensation,incometaxes,anddefinedbenefitpension,post-retire-mentandpost-employmentbenefits.Actualresultscoulddifferfromourestimates.OtherNewAccountingStandardsInfiscal2009,weadoptedthemeasurementdateprovisionsStatementofFinancialAccountingStandards(SFAS)No.158,“Employers’AccountingforDefinedBenefitPensionandOtherPostretirementPlans”(SFAS158).ThemeasurementdateprovisionsofSFAS158requiresthefundedstatusofaplantobemeasuredasofthedateoftheyear-endstatementoffinancialpositionandrequiresadditionaldisclosuresinthenotestoconsolidatedfinancialstatements.SFAS158alsorequiresthatemployersrecognizeonaprospectivebasisthefundedstatusoftheirdefinedbenefitpensionandotherpostre-tirementplansintheirconsolidatedbalancesheetsandrecognizeasacomponentofothercomprehensiveincome,netofincometax,thegainsorlossesandpriorservicecostsorcreditsthatariseduringtheperiodbutarenotrecognizedascomponentsofnetperiodicbenefitcost.TheadoptionofthemeasurementdateprovisionsofSFAS158hadanimmaterialimpactonourresultsofoperationsandfinancialcondition.InSeptember2006,theFinancialAccountingStandardsBoard(FASB)issuedSFASNo.157,“FairValueMeasurements”(SFAS157).Thisstatementprovidesasingledefinitionoffairvalue,aframeworkformeasuringfairvalue,andexpandeddis-closuresaboutfairvaluemeasurements.SFAS157appliestoinstrumentsaccountedforunderpreviouslyissuedpronounce-mentsthatprescribefairvalueastherelevantmeasureofvalue.WeadoptedSFAS157atthebeginningoffiscal2009forallinstrumentsvaluedonarecurringbasis,andouradoptionhadanimmaterialimpactonourfinancialstatements.TheFASBalsodeferredtheeffectivedateofSFAS157untilthebeginningoffiscal2010asitrelatestofairvaluemeasurementrequirementsfornonfinancialassetsandliabilitiesthatarenotremeasuredatfairvalueonarecurringbasis.Thisincludesfairvaluecalculatedinimpairmentassessmentsofgoodwill,indefinite-livedintangibleassets,andotherlong-livedassets.Alsoinfiscal2009,weadoptedEmergingIssuesTaskForce(EITF)No.06-11,“AccountingforIncomeTaxBenefitsofDivi-dendsonShare-BasedPaymentAwards”(EITF06-11).EITF06-11requiresthattaxbenefitsfromdividendspaidonunvestedrestrictedsharesbechargeddirectlytostockholders’equityinsteadofbenefitingincometaxexpense.TheadoptionofEITF06-11increasedourfiscal2009annualeffectiveincometaxrateby20basispoints.Infiscal2007,theFASBratifiedtheconsensusofEITFNo.06-3,“HowTaxesCollectedfromCustomersandRemittedtoGovern-mentalAuthoritiesShouldBePresentedintheIncomeStatement(ThatIs,GrossversusNetPresentation)”(EITF06-3).EITF06-3concludedthatthepresentationoftaxesimposedonrevenue-producingtransactions(sales,use,valueadded,andexcisetaxes)oneitheragross(includedinrevenuesandcosts)oranet(excludedfromrevenues)basisisanaccountingpolicythatshouldbedisclosed.TheadoptionofEITF06-3didnothaveanyimpactonourresultsofoperationsorfinancialcondition.58GeneralMillsAlsoinfiscal2007,weadoptedSFASNo.151,“InventoryCosts–AnAmendmentofARBNo.43,Chapter4”(SFAS151).SFAS151clarifiestheaccountingforabnormalamountsofidlefacilityexpense,freight,handlingcosts,andwastedmaterial(spoilage).TheadoptionofSFAS151didnothaveanyimpactonourresultsofoperationsorfinancialcondition.InDecember2007,theFASBapprovedtheissuanceofSFASNo.160,“NoncontrollingInterestsinConsolidatedFinancialStatements–anamendmenttoARBNo.51”(SFAS160).SFAS160establishesaccountingandreportingstandardsthatrequire:theownershipinterestinsubsidiariesheldbypartiesotherthantheparentbeclearlyidentifiedandpresentedintheConsolidatedBalanceSheetswithinequity,butseparatefromtheparent’sequity;theamountofconsolidatednetincomeattributabletotheparentandthenon-controllinginterestbeclearlyidentifiedandpresentedonthefaceoftheConsolidatedStatementofEarnings;andchangesinaparent’sownershipinterestwhiletheparentretainsitscontrollingfinancialinterestinitssubsidiarybeaccountedforconsistently.SFAS160iseffectiveforusinthefirstquarteroffiscal2010.AtthattimeweexpecttoreclassifytheminorityinterestsinourGMCsubsidiarytostockholders’equityinourConsolidatedBalanceSheets.WealsoexpecttoreclassifyretrospectivelyourdistributionsonthoseminorityinterestsfrominterestexpensetodistributionstononcontrollinginterestsinourConsolidatedStatementsofEarnings.Wehaveseveralotherimmaterialnoncontrollingintereststhatwillbereclassifiedinasimilarmanner.NOTE3.ACQUISITIONSANDDIVESTITURESDuringthefourthquarteroffiscal2009,wesoldourbreadconcentratesproductlinewithinourBakeriesandFoodservicesegment,includingaplantinCedarRapids,Iowa,for$8.3millionincash.Werecordedapre-taxlossof$5.6milliononthetransaction.Alsoduringthefourthquarteroffiscal2009,wesoldaportionoftheassetsofthefrozenunbakedbreaddoughproductlinewithinourBakeriesandFoodservicesegment,includingplantsinBakersfield,California;Hazleton,Pennsylvania;Montreal,Canada;andVinita,Oklahoma,for$43.9millionincash,an$11.9millionnotereceivable,andcontingentfuturepaymentsbasedonthepost-saleperformanceoftheproductline.CertainassetssoldweresharedwithafrozendinnerrollproductlinewithinourU.S.Retailsegment,andweexitedthisproductlineasaresultoftheassetsale.Werecordedapre-taxlossof$38.3million.Wewillrecognizeadditionalcashproceedsinthefutureasthenoteisrepaidandifthebuyerisrequiredtomakeanyperfor-mance-basedcontingentpayments.Duringthesecondquarteroffiscal2009,wesoldourPop•Secretmicrowavepopcornproductlinefor$192.5millionincash,andwerecordedapre-taxgainof$128.8million.Wereceivedcashproceedsof$158.9millionafterrepaymentofaleaseobligationandtransactioncosts.Duringthefirstquarteroffiscal2009,weacquiredHummFoods,Inc.(HummFoods),themakerofLa¨rabarfruitandnutenergybars.Weissued0.9millionsharesofourcommonstockwithavalueof$55.0milliontotheshareholdersofHummFoodsasconsiderationfortheacquisition.Werecordedthepurchasepricelesstangibleandintangiblenetassetsacquiredasgoodwillof$41.6million.Theproformaeffectofthisacquisitionwasnotmaterial.Duringfiscal2008,the8thContinentsoymilkbusinesswassold.Our50percentshareoftheafter-taxgainonthesalewas$2.2million,ofwhichwerecognized$1.7millioninafter-taxearningsfromjointventuresinfiscal2008.Wewillrecordanadditionalafter-taxgainofupto$0.5millioninthefirstquarteroffiscal2010ifcertainconditionsaresatisfied.Alsoduringfiscal2008,weacquiredacontrollinginterestinHDDistributors(Thailand)CompanyLimited.Priortoacquiringthecontrollinginterest,weaccountedforourinvestmentasajointventure.Thepurchaseprice,netofcashacquired,resultedina$1.3millioncashinflowclassifiedinacquisitionsontheConsolidatedStatementsofCashFlows.Duringfiscal2007,weacquiredSaxbyBros.Limited,achilledpastrycompanyintheUnitedKingdom,forapproximately$24.1million.Thisbusiness,whichhadsalesof$23.8millionincalendar2006,complementsourexistingfrozenpastrybusinessintheUnitedKingdom.Inaddition,wecompletedanacquisitioninGreecefor$2.8millioninfiscal2007.Duringfiscal2007,our50percentjointventureCerealPartnersWorldwide(CPW)completedtheacquisitionoftheUncleTobyscerealbusinessinAustraliafor$385.6million.Wefundedour50percentshareofthepurchasepricebymakingadditionaladvancestoandequitycontributionsinCPWtotaling$135.1mil-lion(classifiedasinvestmentsinaffiliates,net,ontheConsoli-datedStatementsofCashFlows)andbyacquiringa50percentundividedinterestincertainintellectualpropertyfor$57.7million(classifiedasacquisitionsontheConsolidatedStatementsofCashFlows).Duringfiscal2008,wecompletedtheallocationAnnualReport200959ofourpurchasepriceandreclassified$16.3millionfromgoodwilltootherintangibleassetsonourConsolidatedBalanceSheets.NOTE4.RESTRUCTURING,IMPAIRMENT,ANDOTHEREXITCOSTSWeviewourrestructuringactivitiesasawaytomeetourlong-termgrowthtargets.Activitiesweundertakemustmeetinternalrateofreturnandnetpresentvaluetargets.Eachrestructuringactionnormallytakesonetotwoyearstocomplete.Atcomple-tion(oraseachmajorstageiscompletedinthecaseofmulti-yearprograms),theprojectbeginstodelivercashsavingsand/orreduceddepreciation.Theseactivitiesresultinvariousrestruc-turingcosts,includingassetwriteoffs,exitchargesincludingseverance,contractterminationfees,anddecommissioningandothercosts.Depreciationassociatedwithrestructuredassetsasusedinthecontextofourdisclosuresregardingrestructuringactivityreferstotheincreaseindepreciationexpensecausedbyshorteningtheusefullifeorupdatingthesalvagevalueofdepre-ciablefixedassetstocoincidewiththeendofproductionunderanapprovedrestructuringplan.Anyimpairmentoftheassetisrecognizedimmediatelyintheperiod.Infiscal2009,werecordedrestructuring,impairment,andotherexitcostspursuanttoapprovedplansasfollows:Expense,inMillions.........................................................................................................................................................................................ClosureofContagem,Brazilbreadandpastaplant$16.8DiscontinuationofproductlineatMurfreesboro,Tennesseeplant8.3Chargesassociatedwithrestructuringactionspreviouslyannounced16.5.........................................................................................................................................................................................Total$41.6Infiscal2009,duetodecliningfinancialresults,weapprovedtherestructuringofourInternationalsegment’sbusinessinBrazil.WediscontinuedtheproductionandmarketingofFornoDeMinascheesebreadandFrescarinipastabrandsinBrazilandclosedourContagem,Brazilmanufacturingfacility.Theseactionsaffected556employeesinourBrazilianoperations.OurotherproductlinesinBrazilarenotaffectedbythedecision.Asaresultofthisdecision,weincurredachargeof$16.8millioninthefourthquarteroffiscal2009,consistingprimarilyof$5.3millionofemployeeseveranceanda$10.2millionnon-cashimpairmentchargetowritedownassetstotheirnetrealizablevalue,and$1.3millionofothercostsassociatedwiththisrestructuringaction.SubsequenttotheendofourBraziliansubsidiary’sfiscalyearendofApril30,2009,wesoldalloftheproductionassetsandtheFornoDeMinasbrandforproceedsof$5.9million.Weutilizedthevaluesoftheproductionassetsestablishedaspartofthesaletodeterminethefiscal2009impairmentcharge.Weexpectthisrestructuringactiontobecompletedinthesecondquarteroffiscal2010.Duetodecliningnetsalesandtoimprovemanufacturingcapacityforotherproductlines,wedecidedtoexitourU.S.Retailsegment’sPerfectPortionsrefrigeratedbiscuitsproductlineatourmanufacturingfacilityinMurfreesboro,Tennessee.Werecordedan$8.0millionnoncashimpairmentchargeagainstlonglivedassetsusedforthisproductlineand$0.3millionofothercostsassociatedwiththisrestructuringaction.OurotherproductlinesatMurfreesboroarenotaffectedbythedecision,andnoemploy-eeswereaffectedbythisaction,whichweexpectwillbecom-pletedinthesecondquarteroffiscal2010.Infiscal2009,wealsoincurred$16.5millionofincrementalplantclosureexpensesrelatedtopreviouslyannouncedrestructuringactivities,including$10.3millionfortheremainderofourleaseobligationatourpreviouslyclosedfacilityinTrenton,Ontario.Infiscal2008,werecordedrestructuring,impairment,andotherexitcostspursuanttoapprovedplansasfollows:Expense(Income),inMillions.........................................................................................................................................................................................ClosureofPoplar,Wisconsinplant$2.7ClosureandsaleofAllentown,Pennsylvaniafrozenwaffleplant9.4ClosureofleasedTrenton,Ontariofrozendoughplant10.9RestructuringofproductionschedulinganddiscontinuationofcakeproductlineatChanhassen,Minnesotaplant1.6GainonsaleofpreviouslyclosedVallejo,Californiaplant(7.1)Chargesassociatedwithrestructuringactionspreviouslyannounced3.5.........................................................................................................................................................................................Total$21.0Duringfiscal2008,weapprovedaplantotransferOldElPasoproductionfromourPoplar,WisconsinfacilitytootherplantsandtoclosethePoplarfacility.Thisactiontoimprovecapacityuti-lizationandreducecostsaffected113employeesatthePoplarfacility,andresultedinachargeof$2.7millionconsistingentirelyofemployeeseverance.Duetodecliningfinancialresults,wedecidedtoexitourfrozenwaffleproductline(retailandfood-service)andtocloseourfrozenwaffleplantinAllentown,Pennsylvania,affecting111employees.Werecordeda$3.5millionchargeforemployeeseveranceanda$5.9millionnon-cashimpairmentchargeagainstlong-livedassetsattheplant.WealsocompletedananalysisoftheviabilityofourBakeriesandFoodservicefrozendoughfacilityinTrenton,Ontario,andclosedthefacility,affecting470employees.Werecordedan$8.4million60GeneralMillschargeforemployeeexpensesanda$2.5millionchargeforshutdownanddecommissioningcosts.WealsorestructuredourproductionschedulinganddiscontinuedourcakeproductionlineatourChanhassen,MinnesotaBakeriesandFoodserviceplant.Theseactionsaffected125employees,andwerecordeda$3.0millionchargeforemployeeseverance,partiallyoffsetbya$1.4milliongainfromthesaleoflong-livedassets.Alloftheforegoingactionswerecompletedinfiscal2009.Finally,werecordedadditionalchargesof$3.5millionprimarilyrelatedtopreviouslyannouncedBakeriesandFoodservicesegmentrestruc-turingactions,includingemployeeseverancefor38employees,thatwerecompletedinfiscal2008.Inaddition,duringfiscal2008werecordeda$17.7millionnon-cashchargerelatedtodepreciationassociatedwithrestructuredassetsatourplantinTrenton,Ontarioand$0.8millionofinven-torywriteoffsatourplantsinChanhassen,MinnesotaandAllentown,Pennsylvania.ThesechargesarerecordedincostofsalesinourConsolidatedStatementsofEarningsandinunallo-catedcorporateitemsinoursegmentresults.Duringfiscal2008,wereceived$16.2millioninproceedsfromthesaleofourAllentown,PennsylvaniaplantandourpreviouslyclosedVallejo,Californiaplant.Infiscal2007,werecordedrestructuring,impairment,andotherexitcostspursuanttoapprovedplansasfollows:Expense(Income),inMillions.........................................................................................................................................................................................NoncashimpairmentchargeforcertainBakeriesandFoodserviceproductlines$36.7GainfromourpreviouslyclosedplantinSanAdrian,Spain(7.3)Lossfromdivestituresofourpar-bakedbreadandfrozenpieproductlines9.6Chargesassociatedwithrestructuringactionspreviouslyannounced0.3.........................................................................................................................................................................................Total$39.3Aspartofourlong-rangeplanningprocess,wedeterminedthatcertainproductlinesinourBakeriesandFoodservicesegmentwereunderperforming.InMay2007,weconcludedthatthefuturecashflowsgeneratedbytheseproductlineswereinsufficienttorecoverthenetbookvalueoftherelatedlong-livedassets.Accordingly,werecordedanoncashimpairmentchargeof$36.7millionagainsttheseassetsinthefourthquarteroffiscal2007.Therollforwardofourrestructuringandotherexitcostreserves,includedinothercurrentliabilities,isasfollows:InMillionsSeveranceContractTerminationOtherExitCostsTotal.........................................................................................................................................................................................ReservebalanceasofMay28,2006$8.1$—$6.6$14.72007charges——(0.9)(0.9)Utilizedin2007(4.7)—(4.8)(9.5).........................................................................................................................................................................................ReservebalanceasofMay27,20073.4—0.94.32008charges20.9——20.9Utilizedin2008(16.7)—(0.6)(17.3).........................................................................................................................................................................................ReservebalanceasofMay25,20087.6—0.37.92009charges5.510.3—15.8Utilizedin2009(4.7)—(0.2)(4.9).........................................................................................................................................................................................ReservebalanceofMay31,2009$8.4$10.3$0.1$18.8Thechargesrecognizedintherollforwardofourreservesforrestructuringandotherexitcostsdonotincludeitemschargeddirectlytoexpense(e.g.,assetimpairmentcharges,thegainorlossonthesaleofrestructuredassets,thewriteoffofspareparts)andotherperiodicexitcostsrecognizedasincurred,asthoseitemsarenotreflectedinourrestructuringandotherexitcostreservesonourConsolidatedBalanceSheets.NOTE5.INVESTMENTSINJOINTVENTURESWehavea50percentequityinterestinCPW,whichmanufac-turesandmarketsready-to-eatcerealproductsinmorethan130countriesandrepublicsoutsidetheUnitedStatesandCanada.CPWalsomarketscerealbarsinseveralEuropeancountriesandmanufacturesprivatelabelcerealsforcustomersintheUnitedKingdom.WehaveguaranteedaportionofCPW’sdebtanditspensionobligationintheUnitedKingdom.ResultsfromourCPWjointventurearereportedforthe12monthsendedMarch31.Wealsohavea50percentequityinterestinHa¨agen-DazsJapan,Inc.Thisjointventuremanufactures,distributes,andmarketsHa¨agen-Dazsicecreamproductsandfrozennovelties.Infiscal2007,wechangedthereportingperiodforthisjointventure.Accordingly,fiscal2007includesonly11monthsofresultsfromthisjointventurecomparedto12monthsinfiscal2009andfiscal2008.Duringfiscal2008,the8thContinentsoymilkbusinesswassold,andour50percentshareoftheafter-taxgainonthesalewas$2.2million,ofwhich$1.7millionwasrecordedinfiscal2008.Wewillrecordanadditionalgainofupto$0.5millioninthefirstAnnualReport200961quarteroffiscal2010ifcertainconditionsrelatedtothesalearesatisfied.Infiscal2006,CPWannouncedarestructuringofitsmanufac-turingplantsintheUnitedKingdom.Ourafter-taxshareofCPWrestructuring,impairment,andotherexitcostswasasfollows:Expense(Income),inMillions200920082007FiscalYear..............................................................................................................................................................................................................................................Gainonsaleofproperty$—$(15.9)$—Depreciationassociatedwithrestructuredassets—4.58.2Otherchargesresultingfromrestructuringactions—3.2—.........................................................................................................................................................................................Total$—$(8.2)$8.2Duringthefirstquarteroffiscal2007,CPWacquiredtheUncleTobyscerealbusinessinAustraliafor$385.6million.WefundedadvancesandanequitycontributiontoCPWfromcashgener-atedfromourinternationaloperations,includingourinternationaljointventures.Jointventurebalancesheetactivityfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Cumulativeinvestments$283.3$278.6Goodwillandotherintangibles593.9660.2Aggregateadvances114.8124.4Jointventureearningsandcashflowactivityfollows:InMillions200920082007FiscalYear........................................................................................................................................................................................................................................................Salestojointventures$14.2$12.8$31.8Netadvances(repayments)(8.2)(75.2)103.4Dividendsreceived68.5108.745.2Summarycombinedfinancialinformationforthejointventuresona100percentbasisfollows:InMillions200920082007FiscalYear........................................................................................................................................................................................................................................................................Netsales$2,433.5$2,404.2$2,016.3Grossmargin953.41,008.4835.4Earningsbeforeincometaxes234.7231.7167.3Earningsafterincometaxes175.3190.4132.0InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Currentassets$883.6$1,021.5Noncurrentassets895.01,002.0Currentliabilities1,442.81,592.6Noncurrentliabilities66.975.9NOTE6.GOODWILLANDOTHERINTANGIBLEASSETSThecomponentsofgoodwillandotherintangibleassetsareasfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Goodwill$6,663.0$6,786.1.........................................................................................................................................................................................Otherintangibleassets:Intangibleassetsnotsubjecttoamortization:Brands3,705.33,745.6Intangibleassetssubjecttoamortization:Patents,trademarks,andotherfinite-livedintangibles56.144.0Lessaccumulatedamortization(14.4)(12.4).........................................................................................................................................................................................Intangibleassetssubjecttoamortization41.731.6.........................................................................................................................................................................................Otherintangibleassets3,747.03,777.2.........................................................................................................................................................................................Total$10,410.0$10,563.362GeneralMillsThechangesinthecarryingamountofgoodwillforfiscal2007,2008,and2009areasfollows:InMillionsU.S.RetailInternationalBakeriesandFoodserviceJointVenturesTotal.........................................................................................................................................................................................BalanceasofMay28,2006$4,960.0$137.6$1,201.1$353.3$6,652.0Reclassificationforcustomershift216.0—(216.0)——Acquisitions—23.4—15.038.4Deferredtaxadjustmentresultingfromtaxauditsettlement13.10.23.61.118.0Divestitures——(6.9)—(6.9)Otheractivity,primarilyforeigncurrencytranslation13.8(19.0)—139.1133.9.........................................................................................................................................................................................BalanceasofMay27,20075,202.9142.2981.8508.56,835.4Finalizationofpurchaseaccounting—(0.3)—(16.3)(16.6)AdoptionofFIN48(110.9)(10.6)(30.4)—(151.9)Otheractivity,primarilyforeigncurrencytranslation15.015.14.384.8119.2.........................................................................................................................................................................................BalanceasofMay25,20085,107.0146.4955.7577.06,786.1AcquisitionofHummFoods41.6———41.6Divestitures(17.8)(0.1)(23.7)—(41.6)Deferredtaxadjustmentsrelatedtodivestitures(46.5)(4.5)(12.8)—(63.8)Deferredtaxadjustmentresultingfromchangeinacquisition-relatedincometaxliabilities14.01.33.8—19.1Otheractivity,primarilyforeigncurrencytranslation—(19.8)—(58.6)(78.4).........................................................................................................................................................................................BalanceasofMay31,2009$5,098.3$123.3$923.0$518.4$6,663.0Duringfiscal2007,aspartofourannualgoodwillandbrandintangibleimpairmentassessments,wereviewedourgoodwillandotherintangibleassetallocationsbycountrywithintheInternationalsegmentandourjointventures.Theresultingreal-locationofthesebalancesacrossthecountrieswithinthisseg-mentandtoourjointventurescausedchangesintheforeigncurrencytranslationofthebalances.Asaresultofthesechangesinforeigncurrencytranslation,weincreasedgoodwillby$136.2million,otherintangibleassetsby$18.1million,deferredincometaxesby$9.2million,andaccumulatedothercompre-hensiveincome(loss)bythenetoftheseamounts.Atthebeginningoffiscal2007,weshiftedsellingresponsibilityforseveralcustomersfromourBakeriesandFoodserviceseg-menttoourU.S.Retailsegment.Goodwillof$216.0millionpre-viouslyreportedinourBakeriesandFoodservicesegmentasofMay28,2006,hasnowbeenrecordedintheU.S.Retailsegment.Thechangesinthecarryingamountofotherintangibleassetsforfiscal2007,2008,and2009areasfollows:InMillionsU.S.RetailInternationalJointVenturesTotal.........................................................................................................................................................................................BalanceasofMay28,2006$3,175.5$420.2$11.4$3,607.1Otherintangiblesacquired—1.344.545.8Otheractivity,primarilyforeigncurrencytranslation(0.3)39.42.041.1.........................................................................................................................................................................................BalanceasofMay27,20073,175.2460.957.93,694.0Finalizationofpurchaseaccounting—15.616.331.9Otheractivity,primarilyforeigncurrencytranslation—42.39.051.3.........................................................................................................................................................................................BalanceasofMay25,20083,175.2518.883.23,777.2AcquisitionofHummFoods19.4——19.4Otheractivity,primarilyforeigncurrencytranslation14.3(56.2)(7.7)(49.6).........................................................................................................................................................................................BalanceasofMay31,2009$3,208.9$462.6$75.5$3,747.0NOTE7.FINANCIALINSTRUMENTS,RISKMANAGE-MENTACTIVITIES,ANDFAIRVALUESFinancialInstrumentsThecarryingvaluesofcashandcashequiv-alents,receivables,accountspayable,othercurrentliabilities,andnotespayableapproximatefairvalue.Marketablesecuritiesarecarriedatfairvalue.AsofMay31,2009,andMay25,2008,aAnnualReport200963comparisonofcostandmarketvaluesofourmarketabledebtandequitysecuritiesisasfollows:InMillions20092008200920082009200820092008FiscalYear...............................FiscalYear...............................FiscalYear.........................FiscalYear...........................Cost...............................MarketValue...............................GrossGains.........................GrossLosses....................................................................................................................................................................................................................Availableforsale:Debtsecurities$35.1$20.5$35.0$20.7$0.1$0.2$(0.2)$—Equitysecurities6.16.113.814.07.77.9——.........................................................................................................................................................................................Total$41.2$26.6$48.8$34.7$7.8$8.1$(0.2)$—Earningsincludeinsignificantrealizedgainsfromsalesofavail-able-for-salemarketablesecurities.Gainsandlossesaredeter-minedbyspecificidentification.Classificationofmarketablesecuritiesascurrentornoncurrentisdependentuponmanage-ment’sintendedholdingperiod,thesecurity’smaturitydate,orboth.Theaggregateunrealizedgainsandlossesonavailable-for-salesecurities,netoftaxeffects,areclassifiedinaccumulatedothercomprehensiveincome(loss)withinstockholders’equity.Scheduledmaturitiesofourmarketablesecuritiesareasfollows:InMillionsCostMarketValueAvailableforSale.........................................................................................................................................................................................................................Under1year(current)$27.8$27.9From1to3years0.60.6From4to7years4.13.9Over7years2.62.6Equitysecurities6.113.8.........................................................................................................................................................................................Total$41.2$48.8Marketablesecuritieswithamarketvalueof$27.9millionasofMay31,2009,werepledgedascollateralforcertainderivativecontracts.Thefairvaluesandcarryingamountsoflong-termdebt,includ-ingthecurrentportion,were$6,547.1millionand$6,263.3millionasofMay31,2009,and$4,926.3millionand$4,790.7millionasofMay25,2008.Thefairvalueoflong-termdebtwasestimatedusingdiscountedcashflowsbasedonourcurrentincrementalborrowingratesforsimilartypesofinstruments.RiskManagementActivitiesAsapartofourongoingoperations,weareexposedtomarketriskssuchaschangesininterestrates,foreigncurrencyexchangerates,andcommodityprices.Tomanagetheserisks,wemayenterintovariousderivativetrans-actions(e.g.,futures,options,andswaps)pursuanttoourestab-lishedpolicies.CommodityPriceRiskManycommoditiesweuseintheproduc-tionanddistributionofourproductsareexposedtomarketpricerisks.Weutilizederivativestomanagepriceriskforourprincipalingredientandenergycosts,includinggrains(oats,wheat,andcorn),oils(principallysoybean),non-fatdrymilk,naturalgas,anddieselfuel.Ourprimaryobjectivewhenenteringintothesederiv-ativecontractsistoachievecertaintywithregardtothefuturepriceofcommoditiespurchasedforuseinoursupplychain.Wemanageourexposuresthroughacombinationofpurchaseorders,long-termcontractswithsuppliers,exchange-tradedfuturesandoptions,andover-the-counteroptionsandswaps.Weoffsetourexposuresbasedoncurrentandprojectedmarketconditionsandgenerallyseektoacquiretheinputsatasclosetoourplannedcostaspossible.AsdiscussedinNote2,wedonotperformtheassessmentsrequiredtoachievehedgeaccountingforcommodityderivativepositionsenteredintoafterthebeginningoffiscal2008.Pursuanttothispolicy,unallocatedcorporateitemsforfiscal2009andfiscal2008included:InMillions20092008.........................................................................................................................................................................................Netgain(loss)onmark-to-marketvaluationofcommoditypositions$(249.6)$115.3Netloss(gain)oncommoditypositionsreclassifiedfromunallocatedcorporateitemstosegmentoperatingprofit134.8(55.7)Netmark-to-marketrevaluationofcertaingraininventories(4.1)(2.6).........................................................................................................................................................................................Netmark-to-marketvaluationofcertaincommoditypositionsrecognizedinunallocatedcorporateitems$(118.9)$57.0AsofMay31,2009,thenetnotionalvalueofcommodityderivativeswas$191.3million,ofwhich$67.9millionrelatedtoagriculturalpositionsand$123.4millionrelatedtoenergyposi-tions.Thesecontractsrelatetoinputsthatgenerallywillbeutilizedwithinthenext12months.InterestRateRiskWeareexposedtointerestratevolatilitywithregardtofutureissuancesoffixed-ratedebt,andexistingandfutureissuancesoffloating-ratedebt.PrimaryexposuresincludeU.S.Treasuryrates,LIBOR,andcommercialpaperratesintheUnitedStatesandEurope.Weuseinterestrateswapsandfor-ward-startinginterestrateswapstohedgeourexposuretointer-estratechanges,toreducethevolatilityofourfinancingcosts,andtoachieveadesiredproportionoffixedversusfloating-ratedebt,basedoncurrentandprojectedmarketconditions.Generally64GeneralMillsundertheseswaps,weagreewithacounterpartytoexchangethedifferencebetweenfixed-rateandfloating-rateinterestamountsbasedonanagreeduponnotionalprincipalamount.FloatingInterestRateExposures–Exceptasdiscussedbelow,floating-to-fixedinterestrateswapsareaccountedforascashflowhedges,asareallhedgesofforecastedissuancesofdebt.Effectivenessisassessedbasedoneithertheperfectlyeffectivehypotheticalderivativemethodorchangesinthepresentvalueofinterestpaymentsontheunderlyingdebt.Amountsdeferredtoaccumulatedothercomprehensiveincome(loss)arereclassifiedintoearningsoverthelifeoftheassociateddebt.Theamountofhedgeineffectivenesswaslessthan$1millionineachoffiscal2009,2008,and2007.FixedInterestRateExposures–Fixed-to-floatinginterestrateswapsareaccountedforasfairvaluehedgeswitheffectivenessassessedbasedonchangesinthefairvalueoftheunderlyingdebt,usingincrementalborrowingratescurrentlyavailableonloanswithsimilartermsandmaturities.Effectivegainsandlossesonthesederivativesandtheunderlyinghedgeditemsarerecordedasnetinterest.Theamountofhedgeineffectivenesswaslessthan$1millionineachoffiscal2009,2008,and2007.InanticipationofouracquisitionofThePillsburyCompany(Pillsbury)andotherfinancingneeds,weenteredintopay-fixedinterestrateswapcontractsduringfiscal2001and2002totaling$7.1billiontolockinourinterestpaymentsontheassociateddebt.AsofMay31,2009,westillowned$1.8billionofPillsbury-relatedpay-fixedswapsthatwerepreviouslyneutralizedwithoffsettingpay-floatingswapsinfiscal2002.Inadvanceofaplanneddebtfinancinginfiscal2007,weenteredinto$700.0millionpay-fixed,forward-startinginterestrateswapswithanaveragefixedrateof5.7percent.Alloftheseforward-startinginterestrateswapswerecashsettledfor$22.5millioncoincidentwithour$1.0billion10-yearfixed-ratenoteofferingonJanuary24,2007.AsofMay31,2009,a$17.1millionpre-taxlossremainedinaccumulatedothercomprehensiveincome(loss),whichwillbereclassifiedtoearningsoverthetermoftheunder-lyingdebt.Thefollowingtablesummarizesthenotionalamountsandweighted-averageinterestratesofourinterestrateswaps.Asdiscussedabove,wehaveneutralizedallofourPillsbury-relatedpay-fixedswapswithpay-floatingswaps;however,wecannotpresentthemonanetbasisinthefollowingtablebecausetheoffsettingoccurredwithdifferentcounterparties.Averagefloat-ingratesarebasedonratesasoftheendofthereportingperiod.InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Pay-floatingswaps–notionalamount$1,859.3$1,879.5Averagereceiverate5.7%5.8%Averagepayrate0.3%2.5%Pay-fixedswaps–notionalamount$2,250.0$2,250.0Averagereceiverate0.5%2.6%Averagepayrate6.4%6.4%Theswapcontractsmatureatvariousdatesfrom2010to2016asfollows:InMillionsPayFloatingPayFixedFiscalYearMaturityDate...............................................................................................................................................................................................................................................2010$18.9$500.0201117.6—20121,753.31,000.0201314.6750.02014——Beyond201454.9—.........................................................................................................................................................................................Total$1,859.3$2,250.0ForeignExchangeRiskForeigncurrencyfluctuationsaffectournetinvestmentsinforeignsubsidiariesandforeigncurrencycashflowsrelatedtoforeign-dominatedcommercialpaper,thirdpartypurchases,intercompanyloans,andproductshipments.WearealsoexposedtothetranslationofforeigncurrencyearningstotheU.S.dollar.OurprincipalexposuresaretotheAustraliandollar,Britishpoundsterling,Canadiandollar,Chineserenminbi,euro,Japaneseyen,andMexicanpeso.Wemainlyuseforeigncurrencyforwardcontractstoselectivelyhedgeourforeigncurrencycashflowexposures.Wealsogenerallyswapourforeign-dominatedcommercialpaperborrowingsbacktoU.S.dollars;thegainsorlossesonthesederivativesoffsettheforeigncurrencyrevaluationgainsorlossesrecordedinearningsontheassociatedborrow-ings.Wegenerallydonothedgemorethan12monthsforward.Theamountofhedgeineffectivenesswaslessthan$1millioninfiscal2009,fiscal2008,andfiscal2007.Wealsohavemanynetinvestmentsinforeignsubsidiariesthataredenominatedineuros.Wepreviouslyhedgedaportionofthesenetinvestmentsbyissuingeuro-denominatedcommercialpaperandforeignexchangeforwardcontracts.AsofMay31,2009,wehaddeferrednetforeigncurrencytransactionlossesofAnnualReport200965$95.7millioninaccumulatedothercomprehensiveincome(loss)associatedwiththishedgingactivity.FairValueMeasurementsandFinancialStatementPresentationWecategorizeassetsandliabilitiesintooneofthreelevelsbasedontheassumptions(inputs)usedinvaluingtheassetorliability.Level1providesthemostreliablemeasureoffairvalue,whileLevel3generallyrequiressignificantmanagementjudgment.Thethreelevelsaredefinedasfollows:Level1:Unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities.Level2:ObservableinputsotherthanquotedpricesincludedinLevel1,suchasquotedpricesforsimilarassetsorliabilitiesinactivemarketsorquotedpricesforidenticalassetsorliabilitiesininactivemarkets.Level3:Unobservableinputsreflectingmanagement’sassumptionsabouttheinputsusedinpricingtheassetorliability.Thefairvaluesofourfinancialassets,liabilities,andderivativepositionsasofMay31,2009,wereasfollows:InMillionsLevel1Level2Level3TotalLevel1Level2Level3TotalFairValuesofAssets..........................................................................FairValuesofLiabilities..........................................................................................................................................................................................................................................................................................................................................................................................................................................................................Derivativesdesignatedashedginginstruments:Interestratecontracts(a)(d)$—$—$—$—$—$(5.1)$—$(5.1)Foreignexchangecontracts(b)(c)—5.7—5.7—(25.8)—(25.8)............................................................................................................................................................................................................................................................................................................................................................................................Total—5.7—5.7—(30.9)—(30.9)............................................................................................................................................................................................................................................................................................................................................................................................Derivativesnotdesignatedashedginginstruments:Interestratecontracts(a)(d)—189.8—189.8—(253.6)—(253.6)Equitycontracts(a)(e)—————(1.5)—(1.5)Commoditycontracts(b)(g)9.913.2—23.1—(9.9)—(9.9)............................................................................................................................................................................................................................................................................................................................................................................................Total9.9203.0—212.9—(265.0)—(265.0)............................................................................................................................................................................................................................................................................................................................................................................................Otherassetsandliabilitiesreportedatfairvalue:Marketableinvestments(f)13.835.0—48.8————Graincontracts(g)—14.3—14.3—(12.8)—(12.8)............................................................................................................................................................................................................................................................................................................................................................................................Total13.849.3—63.1—(12.8)—(12.8)............................................................................................................................................................................................................................................................................................................................................................................................Totalfinancialassets,liabilities,andderivativepositions$23.7$258.0$—$281.7$—$(308.7)$—$(308.7)(a)Thesecontractsarerecordedasotherassetsorasotherliabilities,asappropriate,basedonwhetherinagainorlossposition.(b)Thesecontractsarerecordedasprepaidexpensesandothercurrentassetsorasothercurrentliabilities,asappropriate,basedonwhetherinagainorlossposition.(c)Basedonobservablemarkettransactionsofspotcurrencyratesandforwardcurrencyprices.(d)BasedonLIBORandswaprates.(e)BasedonLIBOR,swap,andequityindexswaprates.(f)Basedonpricesofcommonstockandbondmatrixpricing.(g)Basedonpricesoffuturesexchangesandrecentlyreportedtransactionsinthemarketplace.66GeneralMillsWedidnotsignificantlychangeourvaluationtechniquesfrompriorperiods.Informationrelatedtoourcashflowhedges,netinvestmenthedges,andotherderivativesnotdesignatedashedginginstru-mentsforthefiscalyearendedMay31,2009,follows:InMillionsInterestRateContractsForeignExchangeContractsEquityContractsCommodityContractsTotal.........................................................................................................................................................................................Derivativesincashflowhedgingrelationships:Amountofgain(loss)recognizedinOCI(a)$(1.1)$9.1$—$—$8.0Amountofgain(loss)reclassifiedfromAOCIintoearnings(a)(b)15.8(27.7)——(11.9)Amountofgain(loss)recognizedinearnings(c)(d)(0.1)0.3——0.2Derivativesinnetinvestmenthedgingrelationships:Amountofgain(loss)recognizedinOCI(a)—6.0——6.0Derivativesnotdesignatedashedginginstruments:Amountofgain(loss)recognizedinearnings(e)3.3(70.2)0.2(249.6)(316.3)(a)Effectiveportion.(b)Gain(loss)reclassifiedfromAOCIintoearningsisreportedininterest,netforinterestrateswapsandincostofsalesandSG&Aforforeignexchangecontracts.(c)Allgain(loss)recognizedinearningsisrelatedtotheineffectiveportionofthehedgingrelationship.Noamountswerereportedasaresultofbeingexcludedfromtheassessmentofhedgeeffectiveness.(d)Gain(loss)recognizedinearningsisreportedininterest,netforinterestrateswapsandinSG&Aforforeignexchangecontracts.(e)Gain(loss)recognizedinearningsisreportedininterest,netforinterestrateandforeignexchangecontracts,incostofsalesforcommoditycontracts,andinSG&Aforequitycontracts.AmountsRecordedinAccumulatedOtherComprehensiveIncome(Loss)Unrealizedlossesfrominterestratecashflowhedgesrecordedinaccumulatedothercomprehensiveincome(loss)asofMay31,2009,totaled$29.0millionaftertax.Thesedeferredlossesareprimarilyrelatedtointerestrateswapsweenteredintoincontemplationoffutureborrowingsandotherfinancingrequirementsandarebeingreclassifiedintonetinterestoverthelivesofthehedgedforecastedtransactions.AsofMay31,2009,wehadnoamountsfromcommodityderivativesrecordedinaccumulatedothercomprehensiveincome(loss).Unrealizedlossesfromforeigncurrencycashflowhedgesrecordedinaccu-mulatedothercomprehensiveincome(loss)asofMay31,2009,were$12.9millionafter-tax.Thenetamountofpre-taxgainsandlossesinaccumulatedothercomprehensiveincome(loss)asofMay31,2009,thatisexpectedtobereclassifiedintonetearningswithinthenext12monthsis$33.8millionofexpense.Credit-risk-relatedContingentFeaturesCertainofourderivativeinstrumentscontainprovisionsthatrequireustomaintainaninvestmentgradecreditratingonourdebtfromeachofthemajorcreditratingagencies.Ifourdebtweretofallbelowinvestmentgrade,thecounterpartiestothederivativeinstrumentscouldrequestfullcollateralizationonderivativeinstrumentsinnetliabilitypositions.Theaggregatefairvalueofallderivativeinstru-mentswithcredit-risk-relatedcontingentfeaturesthatwereinaliabilitypositiononMay31,2009,was$35.8million.Wehavepostedcollateralof$21.5millioninthenormalcourseofbusinessassociatedwiththesecontracts.Ifthecredit-risk-relatedcontin-gentfeaturesunderlyingtheseagreementsweretriggeredonMay31,2009,wewouldberequiredtopostanadditional$14.3mil-lionofcollateraltothecounterparties.ConcentrationsofCreditandCounterpartyCreditRiskDuringfis-cal2009,Wal-MartStores,Inc.anditsaffiliates(Wal-Mart)accountedfor21percentofourconsolidatednetsalesand29percentofournetsalesintheU.S.Retailsegment.Noothercustomeraccountedfor10percentormoreofourconsolidatednetsales.Wal-Martalsorepresented6percentofournetsalesintheInternationalsegmentand5percentofournetsalesintheBakeriesandFoodservicesegment.AsofMay31,2009,Wal-Martaccountedfor25percentofourU.S.Retailreceivables,5percentofourInternationalreceivables,and15percentofourBakeriesandFoodservicereceivables.ThefivelargestcustomersinourU.S.Retailsegmentaccountedfor54percentofitsfiscal2009netsales,thefivelargestcustomersinourInternationalsegmentaccountedfor28percentofitsfiscal2009netsales,andthefivelargestcustomersinourBakeriesandFoodservicesegmentaccountedfor41percentofitsfiscal2009netsales.Weenterintointerestrate,foreignexchange,andcertaincommodityandequityderivatives,primarilywithadiversifiedgroupofhighlyratedcounterparties.WecontinuallymonitorourpositionsandthecreditratingsofthecounterpartiesinvolvedAnnualReport200967and,bypolicy,limittheamountofcreditexposuretoanyoneparty.Thesetransactionsmayexposeustopotentiallossesduetotheriskofnonperformancebythesecounterparties;however,wehavenotincurredamateriallossanddonotanticipateincurringanysuchmateriallosses.Wealsoenterintocommodityfuturestransactionsthroughvariousregulatedexchanges.Themaximumamountoflossduetothecreditriskofthecounterparties,shouldthecounterpartiesfailtoperformaccord-ingtothetermsofthecontracts,is$45.9millionagainstwhichwehold$24.8millionofcollateral.Underthetermsofmasterswapagreements,someofourtransactionsrequirecollateralorothersecuritytosupportfinancialinstrumentssubjecttothresholdlevelsofexposureandcounterpartycreditrisk.CollateralassetsareeithercashorU.S.Treasuryinstrumentsandareheldinatrustaccountthatwecanaccessifacounterpartydefaults.NOTE8.DEBTNotesPayableThecomponentsofnotespayableandtheirrespectiveweighted-averageinterestratesattheendoftheperiodswereasfollows:InMillionsNotesPayableWeighted-AverageInterestRateNotesPayableWeighted-AverageInterestRateMay31,2009...............................................May25,2008............................................................................................................................................................................................................................................U.S.commercialpaper$401.80.5%$687.52.9%Eurocommercialpaper275.00.51,386.33.4Financialinstitutions135.412.9135.09.6.........................................................................................................................................................................................Totalnotespayable$812.22.6%$2,208.83.6%Toensureavailabilityoffunds,wemaintainbankcreditlinessufficienttocoverouroutstandingshort-termborrowings.Com-mercialpaperisacontinuingsourceofshort-termfinancing.WeissuecommercialpaperintheUnitedStates,Canada,andEurope.Ourcommercialpaperborrowingsaresupportedby$2.9billionoffee-paidcommittedcreditlines,consistingofa$1.8billionfacilityexpiringinOctober2012anda$1.1billionfacilityexpiringinOctober2010.Wealsohave$401.9millioninuncommittedcreditlines,whichsupportourforeignoperations.AsofMay31,2009,therewerenoamountsoutstandingonthefee-paidcommittedcreditlinesand$134.7millionwasdrawnontheuncommittedlines.ThecreditfacilitiescontainseveralcovenantswithwhichwewereincomplianceasofMay31,2009,includingarequire-menttomaintainafixedchargecoverageratioofatleast2.5.Long-termDebtInJanuary2009,wesold$1.2billionaggregateprincipalamountofour5.65percentnotesdue2019.InAugust2008,wesold$700.0millionaggregateprincipalamountofour5.25percentnotesdue2013.Theproceedsofthesenoteswereusedtorepayaportionofouroutstandingcommercialpaper.Interestonthenotesispayablesemi-annuallyinarrears.Thesenotesmayberedeemedatouroptionatanytimeforaspecifiedmake-wholeamount.Thesenotesareseniorunsecured,unsu-bordinatedobligationsthatincludeachangeofcontrolrepur-chaseprovision.InMarch2008,wesold$750.0millionaggregateprincipalamountofour5.2percentnotesdue2015,andinAugust2007,wesold$700.0millionaggregateprincipalamountofour5.65per-centnotesdue2012.Theproceedsofthenoteswereusedtorepayoutstandingcommercialpaper.Interestonthenotesispayablesemi-annuallyinarrears.Thenotesmayberedeemedatouroptionatanytimeforaspecifiedmake-wholeamount.Thesenotesareseniorunsecured,unsubordinatedobligationsthatincludeachangeofcontrolrepurchaseprovision.InApril2007,weissued$1.15billionoffloatingrateconvertibleseniornotes.InApril2008,holdersof$1.14billionofthosenotestenderedthemtousforrepurchase.InApril2009,werepur-chasedalloftheremaining$9.5millionofoutstandingnotes.Weissuedcommercialpapertofundtherepurchases.Ourcreditfacilitiesandcertainofourlong-termdebtagree-mentscontainrestrictivecovenants.AsofMay31,2009,wewereincompliancewithallofthesecovenants.AsofMay31,2009,the$47.0millionpre-taxlossrecordedinaccumulatedothercomprehensiveincome(loss)associatedwithourpreviouslydesignatedinterestrateswapswillbereclassifiedtonetinterestovertheremaininglivesofthehedgedtransac-tions.Theamountexpectedtobereclassifiedfromaccumulatedothercomprehensiveincome(loss)tonetinterestinfiscal2010is$15.2millionpretax.68GeneralMillsAsummaryofourlong-termdebtisasfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................6%notesdueFebruary15,2012$1,240.3$1,240.35.65%notesdueFebruary15,20191,150.0—5.7%notesdueFebruary15,20171,000.01,000.05.2%notesdueMarch17,2015750.0750.05.25%notesdueAugust15,2013700.0—5.65%notesdueSeptember10,2012700.0700.0Floating-ratenotesdueJanuary22,2010500.0500.0Debtofconsolidatedcontractmanufacturer26.531.8Medium-termnotes,4.8%to9.1%,due2009orlater(a)204.4327.3Zerocouponnotes,yield11.1%(b)—150.6Floating-rateconvertibleseniornotesdueApril11,2037—9.5Other,includingcapitalleases(7.9)81.2.........................................................................................................................................................................................6,263.34,790.7Lessamountduewithinoneyear(508.5)(442.0).........................................................................................................................................................................................Totallong-termdebt$5,754.8$4,348.7(a)Holdersof$25.6millionofourmedium-termnotesputthesetousforrepurchaseinfiscal2009,andanadditional$97.2millionmaturedinfiscal2009.(b)WeredeemedthesenotesonAugust15,2008.Thefinalpaymentonthatdatewas$154.3million.Principalpaymentsdueonlong-termdebtinthenextfiveyearsbasedonstatedcontractualmaturities,ourintenttoredeem,orputrightsofcertainnoteholdersare$508.5millioninfiscal2010,$109.0millioninfiscal2011,$1,253.5millioninfiscal2012,$1,514.6millioninfiscal2013,and$3.3millioninfiscal2014.NOTE9.MINORITYINTERESTSInApril2002,wecontributedassetswithanaggregatefairmarketvalueof$4.2billiontooursubsidiaryGMC.ThecontributedassetsconsistprimarilyofmanufacturingassetsandintellectualpropertyassociatedwiththeproductionandretailsaleofBigGcereals,Progressosoups,andOldElPasoproductsintheUnitedStates.Inexchangeforthecontributionoftheseassets,GMCissueditsmanagingmembershipinterestanditslimitedpreferredmembershipintereststocertainofourwhollyownedsubsidiaries.Wecontinuetoholdtheentiremanagingmembershipinterest,andthereforedirecttheoperationsofGMC.Otherthantherighttoconsenttocertainactions,holdersofthelimitedpreferredmembershipinterestsdonotparticipateinthemanagementofGMC.WecurrentlyholdallinterestsinGMCotherthantheClassALimitedMembershipInterests(ClassAInterests).InMay2002,wesold150,000ClassAIntereststoanunrelatedthird-partyinvestorfor$150.0million.InJune2007,wesoldanadditional88,851ClassAIntereststothesameunrelatedthird-partyinvestorfor$92.3million.AsofMay31,2009,thecarryingvalueofalloutstandingClassAInterestsonourConsolidatedBalanceSheetswas$242.3million.InOctober2004,wesold835,000SeriesB-1LimitedMember-shipInterests(SeriesB-1Interests)inGMCtoadifferentunre-latedthird-partyinvestorfor$835.0million.InAugust2007,GeneralMillsSales,Inc.,ourwhollyownedsubsidiary,purchasedforanetamountof$843.0millionalloftheoutstandingSeriesB-1Interestsaspartofarequiredremarketingofthoseinterests.ThepurchasepricereflectedtheSeriesB-1Interests’originalcapitalaccountbalanceof$835.0millionand$8.0millionofcapitalaccountappreciationattributableandpaidtothethirdpartyholderoftheSeriesB-1Interests.ThecapitalappreciationpaidtothethirdpartyholderoftheSeriesB-1Interestswasrecordedasareductiontoretainedearnings,acomponentofstockholders’equity,ontheConsolidatedBalanceSheets,andreducednetearningsavailabletocommonstockholdersinourbasicanddilutedEPScalculations.TheholderoftheClassAInterestsreceivesquarterlypreferreddistributionsfromavailablenetincomebasedontheapplicationofafloatingpreferredreturnrate,currentlyequaltothesumofthree-monthLIBORplus65basispoints,totheholder’scapitalaccountbalanceestablishedinthemostrecentmark-to-marketvaluation(currently$248.1million).TheFifthAmendedandRestatedLimitedLiabilityCompanyAgreementofGMCrequiresthatthepreferredreturnrateoftheClassAInterestsbeadjustedeveryfiveyearsthroughanegotiatedagreementbetweentheClassAInterestholderandGMC,orthrougharemarketingauction.ThenextremarketingisscheduledtooccurinJune2012andthereafterinfive-yearintervals.Uponafailedremarket-ing,thepreferredreturnrateoverthree-monthLIBORwillbeincreasedby75basispointsuntilthenextremarketing,whichwilloccurin3monthintervalsuntilasuccessfulremarketingoccursorthemanagingmemberpurchasestheClassAInterests.ThemanagingmembermayatanytimeelecttopurchasealloftheClassAInterestsforanamountequaltotheholder’scapitalaccountbalance(asadjustedinamark-to-marketvaluation),plusanyaccruedbutunpaidpreferredreturnsandtheprescribedmake-wholeamount.AnnualReport200969HoldersoftheClassAInterestsmayinitiatealiquidationofGMCundercertaincircumstances,including,withoutlimitation,thebankruptcyofGMCoritssubsidiaries,GMC’sfailuretodeliverthepreferreddistributionsontheClassAInterests,GMC’sfailuretocomplywithportfoliorequirements,breachesofcertaincovenants,loweringofourseniordebtratingbeloweitherBaa3byMoody’sorBBB-byS&P,andafailedattempttoremarkettheClassAInterestsasaresultofGMC’sfailuretoassistinsuchremarketing.IntheeventofaliquidationofGMC,eachmemberofGMCwillreceivetheamountofitsthencurrentcapitalaccountbalance.Themanagingmembermayavoidliq-uidationbyexercisingitsoptiontopurchasetheClassAInterests.Forfinancialreportingpurposes,theassets,liabilities,resultsofoperations,andcashflowsofGMCareincludedinourConsol-idatedFinancialStatements.ThereturntothethirdpartyinvestorisreflectedinnetinterestintheConsolidatedStatementsofEarnings.Thethirdpartyinvestor’sinterestsinGMCareclassifiedasminorityinterestsonourConsolidatedBalanceSheets.Asdiscussedabove,wemayexerciseouroptiontopurchasetheClassAInterestsforconsiderationequaltothethencurrentcapitalaccountvalue,plusanyunpaidpreferredreturnandtheprescribedmake-wholeamount.Ifwepurchasetheseinterests,anychangeintheunrelatedthirdpartyinvestor’scapitalaccountfromitsoriginalvaluewillbechargeddirectlytoretainedearningsandwillincreaseordecreasethenetearningsusedtocalculateEPSinthatperiod.Ourminorityinterestscontainrestrictivecovenants.AsofMay31,2009,wewereincompliancewithallofthesecovenants.GeneralMillsCapital,Inc.wasformedinJuly2002forthepurposeofpurchasingandcollectingourreceivablesandprevi-ouslysold$150.0millionofitsSeriesApreferredstocktoanunrelatedthird-partyinvestor.InJune2007,weredeemedalloftheSeriesApreferredstock.Weusedcommercialpaperbor-rowingsandproceedsfromthesaleoftheadditionalClassAInterestsinGMCtofundtheredemption.Therewasnogainorlossassociatedwiththistransaction.NOTE10.STOCKHOLDERS’EQUITYCumulativepreferencestockof5.0millionshares,withoutparvalue,isauthorizedbutunissued.OnDecember10,2007,ourBoardofDirectorsapprovedtheretirementof125.0sharesofcommonstockintreasury.Thisactionreducedcommonstockby$12.5million,reducedadditionalpaid-incapitalby$5,068.3million,andreducedcommonstockintreasuryby$5,080.8milliononourConsolidatedBalanceSheets.Duringfiscal2009,werepurchased20.2millionsharesofourcommonstockforanaggregatepurchasepriceof$1,296.4million.Duringfiscal2008,werepurchased23.9millionsharesofourcommonstockforanaggregatepurchasepriceof$1384.6million.Duringfiscal2007,werepurchased25.3millionsharesofourcommonstockforanaggregatepurchasepriceof$1385.1million,ofwhich$64.5millionsettledaftertheendofourfiscalyear.Infiscal2007,ourBoardofDirectorsauthorizedtherepurchaseofupto75millionsharesofourcommonstock.Purchasesundertheauthorizationcanbemadeintheopenmarketorinprivatelynegotiatedtransactions,includingtheuseofcalloptionsandotherderivativeinstruments,Rule10b5-1tradingplans,andaccel-eratedrepurchaseprograms.Theauthorizationhasnospecifiedterminationdate.InOctober2004,LehmanBrothersHoldingsInc.(LehmanBrothers)issued$750.0millionofnotes,whichweremandatorilyexchangeableforsharesofourcommonstock.Inconnectionwiththeissuanceofthosenotes,anaffiliateofLehmanBrothersenteredintoaforwardpurchasecontractwithus,underwhichwewereobligatedtodelivertosuchaffiliatebetween14.0millionand17.0millionsharesofourcommonstock,subjecttoadjust-mentundercertaincircumstances.Wedelivered14.3millionsharesinOctober2007,inexchangefor$750.0millionincashfromLehmanBrothers.Weusedthecashtoreduceoutstandingcommercialpaperbalances.70GeneralMillsThefollowingtableprovidesdetailsofothercomprehensiveincome(loss):InMillionsPretaxTaxNet.........................................................................................................................................................................................Fiscal2007:Foreigncurrencytranslation$193.8$—$193.8Minimumpensionliability(33.5)12.7(20.8)Otherfairvaluechanges:Securities2.0(0.7)1.3Hedgederivatives11.4(4.9)6.5Reclassificationtoearnings:Hedgederivatives22.8(8.3)14.5.........................................................................................................................................................................................Othercomprehensiveincome$196.5$(1.2)$195.3.........................................................................................................................................................................................Fiscal2008:Foreigncurrencytranslation$246.3$—$246.3Minimumpensionliability61.4(22.0)39.4Otherfairvaluechanges:Securities1.5(0.6)0.9Hedgederivatives59.6(21.3)38.3Reclassificationtoearnings:Hedgederivatives(64.5)23.5(41.0)Amortizationoflossesandpriorservicecosts20.6(8.1)12.5.........................................................................................................................................................................................Othercomprehensiveincome$324.9$(28.5)$296.4.........................................................................................................................................................................................Fiscal2009:Foreigncurrencytranslation$(287.8)$—$(287.8)Netactuariallossarisingduringperiod(1,254.0)477.8(776.2)Otherfairvaluechanges:Securities(0.6)0.2(0.4)Hedgederivatives8.0(3.4)4.6Reclassificationtoearnings:Hedgederivatives(11.9)4.6(7.3)Amortizationoflossesandpriorservicecosts24.2(9.2)15.0.........................................................................................................................................................................................Othercomprehensiveloss$(1,522.1)$470.0$(1,052.1)Duringfiscal2009,weincurredunrecognizedlossesinexcessof$1.1billiononassets,primarilyequitysecurities,inourdefinedbenefitpensionandotherpostretirementbenefitplans.Theselossesarecurrentlyrecognizedinothercomprehensiveincome.Infutureyears,thelosseswillbereflectedinpensionexpenseusingthemarket-relatedvalueoftheplanassetsoverafive-yearperiod,andamortizedusingadecliningbalancemethodovertheaverageremainingserviceperiodofactiveplanparticipants.Infiscal2009,2008and2007,exceptforreclassificationstoearnings,changesinothercomprehensiveincome(loss)wereprimarilynoncashitems.Accumulatedothercomprehensiveincome(loss)balances,netoftaxeffects,wereasfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Foreigncurrencytranslationadjustments$360.6$648.4Unrealizedgain(loss)from:Securities4.44.8Hedgederivatives(41.9)(39.2)Pension,otherpostretirement,andpostemploymentbenefits:Netactuarialloss(1,168.2)(400.4)Priorservicecosts(30.3)(36.9).........................................................................................................................................................................................Accumulatedothercomprehensiveincome(loss)$(875.4)$176.7NOTE11.STOCKPLANSWeusebroad-basedstockplanstohelpensurethatmanage-ment’sinterestsarealignedwiththoseofourstockholders.AsofMay31,2009,atotalof5,963,996shareswereavailableforgrantintheformofstockoptions,restrictedshares,restrictedstockunits,andsharesofcommonstockunderthe2007StockCom-pensationPlan(2007Plan)andthe2006CompensationPlanforNon-EmployeeDirectors(2006DirectorPlan).OnSeptember24,2007,ourstockholdersapprovedthe2007Plan,replacingthe2005StockCompensationPlan(2005Plan).RestrictedsharesandrestrictedstockunitsmayalsobegrantedunderourExec-utiveIncentivePlan(EIP)throughSeptember25,2010.The2007PlanandEIPalsoprovidefortheissuanceofcash-settledshare-basedpayments.Stock-basedawardsnowoutstandingincludesomegrantedunderthe1993,1995,1996,1998(seniormanage-ment),1998(employee),2001,2003,and2005stockplans,underwhichnofurtherawardsmaybegranted.Thestockplansprovideforfullvestingofoptions,restrictedshares,restrictedstockunits,andcash-settledshare-basedpaymentsuponcompletionofspecifiedserviceperiodsorincertaincircumstances,followingachangeofcontrol.AnnualReport200971StockOptionsTheestimatedweighted-averagefairvaluesofstockoptionsgrantedandtheassumptionsusedfortheBlack-Scholesoption-pricingmodelwereasfollows:200920082007FiscalYear....................................................................................................................................................................................................................................................................................Estimatedfairvaluesofstockoptionsgranted$9.41$10.55$10.74Assumptions:Risk-freeinterestrate4.4%5.1%5.3%Expectedterm8.5years8.5years8.0yearsExpectedvolatility16.1%15.6%19.7%Dividendyield2.7%2.7%2.8%Thevaluationofstockoptionsisasignificantaccountingestimatewhichrequiresustousejudgmentsandassumptionsthatarelikelytohaveamaterialimpactonourfinancialstate-ments.Annually,wemakepredictiveassumptionsregardingfuturestockpricevolatility,employeeexercisebehavior,anddividendyield.Weestimateourfuturestockpricevolatilityusingthehistoricalvolatilityovertheexpectedtermoftheoption,excludingtimeperiodsofvolatilitywebelieveamarketplaceparticipantwouldexcludeinestimatingourstockpricevolatility.Forthefiscal2009grants,wehaveexcludedhistoricalvolatilityforfiscal2002andprior,primarilybecausevolatilitydrivenbyouracquisitionofPillsburyinfiscal2002doesnotreflectwhatwebelievetobeexpectedfuturevolatility.Wealsohaveconsidered,butdidnotuse,impliedvolatilityinourestimate,becausetradingactivityinoptionsonourstock,especiallythosewithtenorsofgreaterthansixmonths,isinsufficienttoprovideareliablemeasureofexpectedvolatility.Ourexpectedtermrepresentstheperiodoftimethatoptionsgrantedareexpectedtobeoutstandingbasedonhistoricaldatatoestimateoptionexerciseandemployeeterminationwithinthevaluationmodel.Separategroupsofemployeeshavesimilarhistoricalexercisebehaviorandthereforewereaggregatedintoasinglepoolforvaluationpurposes.Theweighted-averageexpectedtermforallemployeegroupsispresentedinthetableabove.Ourvaluationmodelassumesthatdividendsandoursharepriceincreaseinlinewithearnings,resultinginaconstantdiv-idendyield.Therisk-freeinterestrateforperiodsduringtheexpectedtermoftheoptionsisbasedontheU.S.Treasuryzero-couponyieldcurveineffectatthetimeofgrant.Anycorporateincometaxbenefitrealizeduponexerciseorvestingofanawardinexcessofthatpreviouslyrecognizedinearnings(referredtoasa“windfalltaxbenefit”)ispresentedintheConsolidatedStatementsofCashFlowsasafinancing(ratherthananoperating)cashflow.Realizedwindfalltaxbenefitsarecreditedtoadditionalpaid-incapitalwithintheConsolidatedBalanceSheets.Realizedshortfalltaxbenefits(amountswhicharelessthanthatpreviouslyrec-ognizedinearnings)arefirstoffsetagainstthecumulativebal-anceofwindfalltaxbenefits,ifany,andthenchargeddirectlytoincometaxexpense,potentiallyresultinginvolatilityinourcon-solidatedeffectiveincometaxrate.Wecalculatedacumulativememobalanceofwindfalltaxbenefitsfrompost-1995fiscalyearsforthepurposeofaccountingforfutureshortfalltaxbenefits.Optionsmaybepricedat100percentormoreofthefairmarketvalueonthedateofgrant,andgenerallyvestfouryearsafterthedateofgrant.Optionsgenerallyexpirewithin10yearsandonemonthafterthedateofgrant.Informationonstockoptionactivityfollows:OptionsExercisable(Thousands)Weighted-AverageExercisePriceperShareOptionsOutstanding(Thousands)Weighted-AverageExercisePriceperShare.........................................................................................................................................................................................BalanceasofMay28,200642,071.9$39.9358,203.1$41.45Granted5,284.951.34Exercised(9,382.2)37.41Forfeitedorexpired(332.6)46.11.........................................................................................................................................................................................BalanceasofMay27,200739,505.941.1653,773.243.09Granted5,499.458.76Exercised(6,135.1)37.50Forfeitedorexpired(116.3)50.42.........................................................................................................................................................................................BalanceasofMay25,200838,194.642.4653,021.245.35Granted3,247.763.49Exercised(8,774.2)39.21Forfeitedorexpired(191.2)55.00.........................................................................................................................................................................................BalanceasofMay31,200933,809.6$43.9347,303.5$47.69Stock-basedcompensationexpenserelatedtostockoptionawardswas$40.0millioninfiscal2009,$52.8millioninfiscal2008,and$54.0millioninfiscal2007.72GeneralMillsNetcashproceedsfromtheexerciseofstockoptionslesssharesusedforwithholdingtaxesandtheintrinsicvalueofoptionsexercisedwereasfollows:InMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................Netcashproceeds$305.9$192.0$307.0Intrinsicvalueofoptionsexercised226.7134.4177.3RestrictedStock,RestrictedStockUnits,andCash-settledShare-BasedPaymentsStockandunitssettledinstocksubjecttoarestrictedperiodandapurchaseprice,ifany(asdeterminedbytheCompensationCommitteeoftheBoardofDirectors),maybegrantedtokeyemployeesunderthe2007Plan.Restrictedsharesandrestrictedstockunits,upto50percentofthevalueofanindividual’scashincentiveaward,mayalsobegrantedthroughtheEIP.Certainrestrictedstockandrestrictedstockunitawardsrequiretheemployeetodepositpersonallyownedshares(onaone-for-onebasis)withusduringtherestrictedperiod.Restrictedstockandrestrictedstockunitsgenerallyvestandbecomeunrestrictedfouryearsafterthedateofgrant.Participantsareentitledtocashdividendsonsuchawardedsharesandunits,butthesaleortransferofthesesharesandunitsisrestrictedduringthevestingperiod.Participantsholdingrestrictedstock,butnotrestrictedstockunits,areentitledtovoteonmatterssubmittedtoholdersofcommonstockforavote.Informationonrestrictedstockunitandcash-settledshare-basedpaymentactivityfollows:Share-SettledUnits(Thousands)Weighted-AverageGrant-DateFairValueShare-SettledUnits(Thousands)Weighted-AverageGrant-DateFairValueCash-SettledShare-BasedPaymentUnits(Thousands)Weighted-AverageGrant-DateFairValueEquityClassified.....................................................................LiabilityClassified.............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................NonvestedasofMay25,20084,996.2$52.81154.5$52.86—$—Granted1,150.863.4165.963.35957.363.40Vested(1,527.4)48.96(47.0)48.31(44.7)63.40Forfeitedorexpired(228.6)57.18(14.6)59.31(37.7)63.40............................................................................................................................................................................................................................................................................................................................................................................................NonvestedasofMay31,20094,391.0$56.70158.8$57.97874.9$63.40200920082007FiscalYear...........................................................................................................................................................................................................................................................................................................................................................................................................................................................................Numberofunitsgranted(thousands)2,174.01,952.21,771.2Weightedaveragepriceperunit$63.40$58.62$51.71Thetotalgrant-datefairvalueofrestrictedstockunitandcash-settledshare-basedpaymentawardsthatvestedduringfiscal2009was$79.9million.Thetotalgrant-datefairvalueofrestrictedstockunitandcash-settledshare-basedpaymentawardsthatvestedduringfiscal2008was$65.6million.AsofMay31,2009,unrecognizedcompensationcostsrelatedtononvestedstockoptions,restrictedstockunits,andcash-set-tledshare-basedpaymentwas$186.9million.Thiscostwillberecognizedasareductionofearningsover25months,onaverage.Stock-basedcompensationexpenserelatedtorestrictedstockunitandcash-settledshare-basedpaymentawardswas$101.4millionforfiscal2009,$80.4millionforfiscal2008,and$73.1millionforfiscal2007.AnnualReport200973NOTE12.EARNINGSPERSHAREBasicanddilutedEPSwerecalculatedusingthefollowing:InMillions,ExceptPerShareData200920082007FiscalYear........................................................................................................................................................................................................................................................................Netearnings–asreported$1,304.4$1,294.7$1,143.9CapitalappreciationpaidonSeriesB-1interestsinGMC(a)—(8.0)—.........................................................................................................................................................................................NetearningsforbasicanddilutedEPScalculations$1,304.4$1,286.7$1,143.9.........................................................................................................................................................................................Averagenumberofcommonshares–basicEPS331.9333.0346.5Incrementalshareeffectfrom:Stockoptions(b)8.910.610.7Restrictedstockunitsandother(b)2.72.82.0Forwardpurchasecontract(c)—0.51.0.........................................................................................................................................................................................Averagenumberofcommonshares–dilutedEPS343.5346.9360.2.........................................................................................................................................................................................Earningspershare–basic$3.93$3.86$3.30Earningspershare–diluted$3.80$3.71$3.18(a)SeeNote9.(b)Incrementalsharesfromstockoptionsandrestrictedstockunitsarecomputedbythetreasurystockmethod.StockoptionsandrestrictedstockunitsexcludedfromourcomputationofdilutedEPSbecausetheywerenotdilutivewereasfollows:InMillions200920082007FiscalYear.........................................................................................................................................................................................................................................Anti-dilutivestockoptionsandrestrictedstockunits7.14.76.0(c)OnOctober15,2007,wesettledaforwardpurchasecontractwithLehmanBrothersbyissuing14.3millionsharesofcommonstock.NOTE13.RETIREMENTANDPOSTEMPLOYMENTBENEFITSDefinedBenefitPensionPlansWehavedefinedbenefitpensionplanscoveringmostdomestic,Canadian,andUnitedKingdomemployees.Benefitsforsalariedemployeesarebasedonlengthofserviceandfinalaveragecompensation.Benefitsforhourlyemployeesincludevariousmonthlyamountsforeachyearofcreditedservice.Ourfundingpolicyisconsistentwiththerequire-mentsofapplicablelaws.Wemade$200.0millionofvoluntarycontributionstoourprincipaldomesticplansinfiscal2009,andarenotrequiredtomakesimilarcontributionsinfiscal2010.Ourprincipaldomesticretirementplancoveringsalariedemployeeshasaprovisionthatanyexcesspensionassetswouldvestiftheplanisterminatedwithinfiveyearsofachangeincontrol.OtherPostretirementBenefitPlansWealsosponsorplansthatprovidehealthcarebenefitstothemajorityofourdomesticandCanadianretirees.Thesalariedhealthcarebenefitplaniscon-tributory,withretireecontributionsbasedonyearsofservice.Wefundrelatedtrustsforcertainemployeesandretireesonanannualbasis.Wedidnotmakevoluntarycontributionstotheseplansinfiscal2009.HealthCareCostTrendRatesAssumedhealthcarecoststrendratesareasfollows:20092008FiscalYear....................................................................................................................................................................................................................................................................................Healthcarecosttrendratefornextyear9.0%and9.5%9.25%and10.25%Ratetowhichthecosttrendrateisassumedtodecline(ultimaterate)5.2%5.2%Yearthattheratereachestheultimatetrendrate20182016Wereviewourhealthcaretrendratesannually.Ourreviewisbasedondatawecollectaboutourhealthcareclaimsexperienceandinformationprovidedbyouractuaries.Thisinformationincludesrecentplanexperience,plandesign,overallindustryexperienceandprojections,andassumptionsusedbyothersimilarorganizations.Ourinitialhealthcarecosttrendrateisadjustedasnecessarytoremainconsistentwiththisreview,recentexperiences,andshort-termexpectations.Ourinitialhealthcarecosttrendrateassumptionis9.5percentforretireesage65andoverand9.0percentforretireesunderage65.Theseratesaregradeddownannuallyuntiltheultimatetrendrateof5.2percentisreachedin2018forallretirees.Thetrendratesareapplicableforcalculationsonlyiftheretirees’benefitsincreaseasaresultofhealthcareinflation.Theultimatetrendrateisadjustedannually,asnecessary,toapproximatethecurrenteconomicviewontherateoflong-terminflationplusanappropriatehealthcarecostpremium.Assumedtrendratesforhealthcarecostshaveanimportanteffectontheamountsreportedfortheotherpostretirementbenefitplans.74GeneralMillsAonepercentagepointchangeinthehealthcarecosttrendratewouldhavethefollowingeffects:InMillionsOnePercentagePointIncreaseOnePercentagePointDecrease.........................................................................................................................................................................................Effectontheaggregateoftheserviceandinterestcostcomponentsinfiscal2010$7.2$(6.3)EffectontheotherpostretirementaccumulatedbenefitobligationasofMay31,200975.8(66.9)PostemploymentBenefitPlansUndercertaincircumstances,wealsoprovideaccruablebenefitstoformerorinactiveemployeesintheUnitedStates,Canada,andMexico,andmembersofourBoardofDirectors,includingseveranceandcertainotherbenefitspayableupondeath.Werecognizeanobligationforanyofthesebenefitsthatvestoraccumulatewithservice.Postemploymentbenefitsthatdonotvestoraccumulatewithservice(suchasseverancebasedsolelyonannualpayratherthanyearsofser-vice)arechargedtoexpensewhenincurred.Ourpostemploy-mentbenefitplansareunfunded.Weuseourfiscalyearendasthemeasurementdateforallourdefinedbenefitpensionandotherpostretirementbenefitplans.Summarizedfinancialinformationaboutdefinedbenefitpension,otherpostretirement,andpostemploymentbenefitsplansispresentedbelow:InMillions200920082009200820092008FiscalYear....................................................FiscalYear.............................................FiscalYear.............................................DefinedBenefitPensionPlans....................................................OtherPostretirementBenefitPlans.............................................PostemploymentBenefitPlans.........................................................................................................................................................................................................................................................................................................................................................................................................................................ChangeinPlanAssets:Fairvalueatbeginningofyear$4,128.7$4,097.8$349.6$391.0Actualreturnonassets(1,009.1)181.1(94.4)1.9Employercontributions220.214.20.1—Planparticipantcontributions3.13.611.010.4Benefitspayments(177.4)(168.0)(30.7)(53.7)Foreigncurrency(7.7)———....................................................................................................................................................................................................................................................................................................................................Fairvalueatendofyear$3,157.8$4,128.7$235.6$349.6....................................................................................................................................................................................................................................................................................................................................ChangeinProjectedBenefitObligation:Benefitobligationatbeginningofyear$3,224.1$3,257.5$911.3$980.9$104.6$95.7Servicecost76.580.114.216.46.55.4Interestcost215.4196.761.258.84.93.7Planamendment0.31.9(1.3)—2.3—Curtailment/other—(0.6)—(0.3)8.42.3Planparticipantcontributions3.13.611.010.4——MedicarePartDreimbursements——4.74.6——Actuarialloss(gain)(166.8)(147.1)(92.0)(100.8)1.611.6Benefitspayments(177.4)(168.0)(57.8)(58.7)(15.6)(14.1)Foreigncurrency(7.9)—0.7—(0.2)—............................................................................................................................................................................................................................................................................................................................................................................................Projectedbenefitobligationatendofyear$3,167.3$3,224.1$852.0$911.3$112.5$104.6............................................................................................................................................................................................................................................................................................................................................................................................Planassetsinexcessof(lessthan)benefitobligationasoffiscalyearend$(9.5)$904.6$(616.4)$(561.7)$(112.5)$(104.6)Theaccumulatedbenefitobligationforalldefinedbenefitplanswas$2,885.3millionasofMay31,2009,and$2,914.8millionasofMay25,2008.AnnualReport200975Amountsrecognizedinaccumulatedothercomprehensiveincome(loss)asofMay31,2009,areasfollows:InMillions20092008200920082009200820092008FiscalYear..................................................FiscalYear.............................................FiscalYear.......................................FiscalYear..................................................DefinedBenefitPensionPlans..................................................OtherPostretirementBenefitPlans.............................................PostemploymentBenefitPlans.......................................Total..............................................................................................................................................................................................................................................................................................................................................................................................................................................Netactuarialloss$(1,028.2)$(276.8)$(130.3)$(115.6)$(9.7)$(8.0)$(1,168.2)$(400.4)Priorservice(costs)credits(29.6)(34.7)6.86.9(7.5)(9.1)(30.3)(36.9)............................................................................................................................................................................................................................................................................................................................................................................................Amountsrecordedinaccumulatedothercomprehensiveloss$(1,057.8)$(311.5)$(123.5)$(108.7)$(17.2)$(17.1)$(1,198.5)$(437.3)Planswithaccumulatedbenefitobligationsinexcessofplanassetsareasfollows:InMillions200920082009200820092008FiscalYear.........................................FiscalYear.........................................FiscalYear.........................................DefinedBenefitPensionPlans.........................................OtherPostretirementBenefitPlans.........................................PostemploymentBenefitPlans.....................................................................................................................................................................................................................................................................................................................................................................................................................................Projectedbenefitobligation$225.2$219.2$—$—$—$—Accumulatedbenefitobligation194.4185.0852.0911.3112.5104.6Planassetsatfairvalue15.918.9235.6349.6——Componentsofnetperiodicbenefit(income)costsareasfollows:InMillions200920082007200920082007200920082007FiscalYear........................................................................FiscalYear...............................................................FiscalYear.........................................................DefinedBenefitPensionPlans........................................................................OtherPostretirementBenefitPlans...............................................................PostemploymentBenefitPlans.....................................................................................................................................................................................................................................................................................................................................................................................................................................................Servicecost$76.5$80.1$73.1$14.2$16.4$16.3$6.5$5.4$4.8Interestcost215.4196.7185.661.258.858.34.93.73.9Expectedreturnonplanassets(385.8)(360.6)(335.2)(30.0)(30.3)(27.2)———Amortizationoflosses(gains)7.822.712.57.215.315.61.0(0.2)(0.2)Amortizationofpriorservicecosts(credits)7.47.57.8(1.4)(1.4)(1.6)2.22.22.2Otheradjustments——0.2———8.42.319.9Settlementorcurtailmentlosses—0.30.2——————............................................................................................................................................................................................................................................................................................................................................................................................Net(income)expense$(78.7)$(53.3)$(55.8)$51.2$58.8$61.4$23.0$13.4$30.676GeneralMillsWeexpecttorecognizethefollowingamountsinnetperiodicbenefit(income)costsinfiscal2010:InMillionsDefinedBenefitPensionPlansOtherPostretirementBenefitPlansPostemploymentBenefitPlans............................................................................................................................................................................................................................................................................................................................................................................................Amortizationoflosses$7.0$2.0$1.0Amortizationofpriorservicecosts(credits)6.9(1.6)2.4AssumptionsWeighted-averageassumptionsusedtodeterminefiscalyearendbenefitobligationsareasfollows:200920082009200820092008FiscalYear.....................................FiscalYear.....................................FiscalYear.....................................DefinedBenefitPensionPlans.....................................OtherPostretirementBenefitPlans.....................................PostemploymentBenefitPlans.................................................................................................................................................................................................................................................................................................................................................................................................................................Discountrate7.49%6.88%7.45%6.90%7.06%6.64%Rateofsalaryincreases4.924.93——4.934.93Weighted-averageassumptionsusedtodeterminefiscalyearnetperiodicbenefit(income)costsareasfollows:200920082007200920082007200920082007FiscalYear...........................................................FiscalYear...........................................................FiscalYear...........................................................DefinedBenefitPensionPlans...........................................................OtherPostretirementBenefitPlans...........................................................PostemploymentBenefitPlans.......................................................................................................................................................................................................................................................................................................................................................................................................................................................Discountrate6.88%6.18%6.53%6.90%6.15%6.50%6.64%6.05%6.44%Rateofsalaryincreases4.934.394.39———4.934.394.40Expectedlong-termrateofreturnonplanassets9.559.569.579.359.339.33———DiscountRatesOurdiscountrateassumptionsaredeterminedannuallyasofthelastdayofourfiscalyearforallofourdefinedbenefitpension,otherpostretirement,andpostemploymentben-efitplanobligations.Thosesamediscountratesalsoareusedtodeterminedefinedbenefitpension,otherpostretirement,andpostemploymentbenefitplanincomeandexpenseforthefol-lowingfiscalyear.Weworkwithouractuariestodeterminethetimingandamountofexpectedfuturecashoutflowstoplanparticipantsand,usingthetopquartileofAA-ratedcorporatebondyields,todevelopaforwardinterestratecurve,includingamargintothatindexbasedonourcreditrisk.Thisforwardinterestratecurveisappliedtoourexpectedfuturecashoutflowstodetermineourdiscountrateassumptions.AnnualReport200977ExpectedRateofReturnonPlanAssetsOurexpectedrateofreturnonplanassetsisdeterminedbyourassetallocation,ourhistoricallong-terminvestmentperformance,ourestimateoffuturelong-termreturnsbyassetclass(usinginputfromouractuaries,investmentservices,andinvestmentmanagers),andlong-terminflationassumptions.Wereviewthisassumptionannuallyforeachplan,however,ourannualinvestmentperfor-manceforoneparticularyeardoesnot,byitself,significantlyinfluenceourevaluation.Weighted-averageassetallocationsforthepasttwofiscalyearsforourdefinedbenefitpensionandotherpostretirementbenefitplansareasfollows:2009200820092008FiscalYear...................................FiscalYear...................................DefinedBenefitPensionPlans...................................OtherPostretirementBenefitPlans...............................................................................................................................................................................................................................................................................................................................................................................................................................Assetcategory:UnitedStatesequities29.5%29.1%32.6%32.6%Internationalequities19.122.918.419.1Privateequities13.612.212.08.9Fixedincome24.424.228.429.3Realassets13.411.68.610.1............................................................................................................................................................................................................................................................................................................................................................................................Total100.0%100.0%100.0%100.0%Theinvestmentobjectiveforourdefinedbenefitpensionandotherpostretirementbenefitplansistosecurethebenefitobli-gationstoparticipantsatareasonablecosttous.Ourgoalistooptimizethelong-termreturnonplanassetsatamoderatelevelofrisk.Thedefinedbenefitpensionandotherpostretirementportfoliosarebroadlydiversifiedacrossassetclasses.Withinassetclasses,theportfoliosarefurtherdiversifiedacrossinvest-mentstylesandinvestmentorganizations.Forthedefinedbenefitpensionandotherpostretirementbenefitplans,thelong-terminvestmentpolicyallocationsare:30percenttoequitiesintheUnitedStates;20percenttointernationalequities;10percenttoprivateequities;30percenttofixedincome;and10percenttorealassets(realestate,energy,andtimber).Theactualallocationstotheseassetclassesmayvarytacticallyaroundthelong-termpolicyallocationsbasedonrelativemarketvaluations.ContributionsandFutureBenefitPaymentsWedonotexpecttomakecontributionstoourdefinedbenefit,otherpostretirement,andpostemploymentbenefitsplansinfiscal2010.Actualfiscal2010contributionscouldexceedourcurrentprojections,asinflu-encedbyourdecisiontoundertakediscretionaryfundingofourbenefittrustsandfuturechangesinregulatoryrequirements.Estimatedbenefitpayments,whichreflectexpectedfutureser-vice,asappropriate,areexpectedtobepaidfromfiscal2010-2019asfollows:InMillionsDefinedBenefitPensionPlansOtherPostretirementBenefitPlansGrossPaymentsMedicareSubsidyReceiptsPostemploymentBenefitPlans.........................................................................................................................................................................................2010$188.3$55.5$5.4$18.62011194.959.45.920.12012202.262.96.420.82013210.365.96.921.42014219.469.37.522.02015–20191,258.2393.447.7120.578GeneralMillsDefinedContributionPlansTheGeneralMillsSavingsPlanisadefinedcontributionplanthatcoversdomesticsalariedandnonunionemployees.Ithadnetassetsof$1,933.1millionasofMay31,2009,and$2,309.9millionasofMay25,2008.Thisplanisa401(k)savingsplanthatincludesanumberofinvestmentfundsandanEmployeeStockOwnershipPlan(ESOP).Wesponsoranothersavingsplanforcertainhourlyemployeeswithnetassetsof$15.6millionasofMay31,2009.Wealsosponsordefinedcontributionplansinmanyofourforeignlocations.Ourtotalrecognizedexpenserelatedtodefinedcontributionplanswas$59.5millioninfiscal2009,$61.9millioninfiscal2008,and$48.3millioninfiscal2007.TheESOPoriginallypurchasedourcommonstockprincipallywithfundsborrowedfromthirdpartiesandguaranteedbyus.TheESOPsharesareincludedinnetsharesoutstandingforthepurposesofcalculatingEPS.TheESOP’sthird-partydebtwasrepaidonJune30,2007.TheESOP’sonlyassetsareourcommonstockandtemporarycashbalances.TheESOP’sshareofthetotaldefinedcontributionexpensewas$50.6millioninfiscal2009,$52.3millioninfiscal2008,and$40.1millioninfiscal2007.TheESOP’sexpensewascalculatedbythe“sharesallocated”method.TheESOPusedourcommonstocktoconveybenefitstoemployeesand,throughincreasedstockownership,tofurtheralignemployeeinterestswiththoseofstockholders.WematchedapercentageofemployeecontributionstotheGeneralMillsSavingsPlanwithabasematchplusavariableyearendmatchthatdependedonannualresults.Employeesreceivedourmatchintheformofcommonstock.OurcashcontributiontotheESOPwascalculatedsoastopayoffenoughdebttoreleasesufficientsharestomakeourmatch.TheESOPusedourcashcontributionstotheplan,plusthedividendsreceivedontheESOP’sleveragedshares,tomakeprincipalandinterestpaymentsontheESOP’sdebt.Asloanpaymentsweremade,sharesbecameunencumberedbydebtandwerecommittedtobeallocated.TheESOPallocatedsharestoindividualemployeeaccountsonthebasisofthematchofemployeepayrollsavings(contributions),plusreinvesteddivi-dendsreceivedonpreviouslyallocatedshares.TheESOPincurrednetinterestoflessthan$1.0millioninfiscal2007.TheESOPuseddividendsof$2.5millioninfiscal2007,alongwithourcontribu-tionsoflessthan$1.0millioninfiscal2007,tomakeinterestandprincipalpayments.ThenumberofsharesofourcommonstockallocatedtoparticipantsintheESOPwas5.6millionasofMay31,2009,and5.2millionasofMay25,2008.AnnualReport200979NOTE14.INCOMETAXESThecomponentsofearningsbeforeincometaxesandafter-taxearningsfromjointventuresandthecorrespondingincometaxesthereonareasfollows:InMillions200920082007FiscalYear........................................................................................................................................................................................................................................................................Earningsbeforeincometaxesandafter-taxearningsfromjointventures:UnitedStates$1,710.3$1,624.5$1,453.8Foreign222.6181.6177.5.........................................................................................................................................................................................Totalearningsbeforeincometaxesandafter-taxearningsfromjointventures$1,932.9$1,806.1$1,631.3Incometaxes:Currentlypayable:Federal$457.8$447.7$447.7Stateandlocal37.352.944.4Foreign9.523.542.0.........................................................................................................................................................................................Totalcurrent504.6524.1534.1.........................................................................................................................................................................................Deferred:Federal155.765.927.9Stateandlocal36.324.29.1Foreign23.88.0(11.0).........................................................................................................................................................................................Totaldeferred215.898.126.0.........................................................................................................................................................................................Totalincometaxes$720.4$622.2$560.1ThefollowingtablereconcilestheUnitedStatesstatutoryincometaxratewithoureffectiveincometaxrate:200920082007FiscalYear...........................................................................................................................................................................................................................................UnitedStatesstatutoryrate35.0%35.0%35.0%Stateandlocalincometaxes,netoffederaltaxbenefits2.93.52.6Foreignratedifferences(2.4)(1.2)(2.7)Federalcourtdecisions,includinginterest2.7(1.7)—Domesticmanufacturingdeduction(1.1)(1.0)(0.6)Other,net0.2(0.2)—.........................................................................................................................................................................................Effectiveincometaxrate37.3%34.4%34.3%Thetaxeffectsoftemporarydifferencesthatgiverisetodeferredtaxassetsandliabilitiesareasfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Accruedliabilities$160.0$143.4Restructuring,impairment,andotherexitcharges0.42.1Compensationandemployeebenefits559.9526.3Unrealizedhedgelosses18.423.8Unrealizedlosses221.7205.4Capitallosses165.7219.5Netoperatinglosses94.693.1Other95.499.2.........................................................................................................................................................................................Grossdeferredtaxassets1,316.11,312.8Valuationallowance440.4521.5.........................................................................................................................................................................................Netdeferredtaxassets875.7791.3.........................................................................................................................................................................................Brands1,286.61,279.1Depreciation308.1271.9Prepaidpensionasset81.3430.3Intangibleassets102.285.8Taxleasetransactions72.674.0Other174.6133.2.........................................................................................................................................................................................Grossdeferredtaxliabilities2,025.42,274.3.........................................................................................................................................................................................Netdeferredtaxliability$1,149.7$1,483.0Wehaveestablishedavaluationallowanceagainstcertainofthecategoriesofdeferredtaxassetsdescribedaboveascurrentevidencedoesnotsuggestwewillrealizesufficienttaxableincomeoftheappropriatecharacter(e.g.,ordinaryincomeversuscapitalgainincome)withinthecarryforwardperiodtoallowustorealizethesedeferredtaxbenefits.Ofthetotalvaluationallowanceof$440.4million,$169.7millionrelatestoadeferredtaxassetforlossesrecordedaspartofthePillsburyacquisition.Oftheremainingvaluationallowance,$165.7millionrelatestocapitallosscarryforwardsand$94.6mil-lionrelatestostateandforeignoperatinglosscarryforwards.Inthefuture,iftaxbenefitsarerealizedrelatedtothevaluationallowances,thereductioninthevaluationallowancewillgenerallyreducetaxexpense.AsofMay31,2009,webelieveitismorelikelythannotthattheremainderofourdeferredtaxassetisrealizable.Thecarryforwardperiodsonourforeignlosscarryforwardsareasfollows:$59.9milliondonotexpire;$9.9millionexpirebetweenfiscal2010andfiscal2011;$13.6millionexpirebetweenfiscal2012andfiscal2019;and$2.6millionexpireinfiscal2020.Wehavenotrecognizedadeferredtaxliabilityforunremittedearningsof$2.1billionfromourforeignoperationsbecauseoursubsidiarieshaveinvestedorwillinvesttheundistributed80GeneralMillsearningsindefinitely,ortheearningswillberemittedinatax-freeliquidation.Itisimpracticalforustodeterminetheamountofunrecognizeddeferredtaxliabilitiesontheseindefinitelyrein-vestedearnings.Deferredtaxesarerecordedforearningsofourforeignoperationswhenwedeterminethatsuchearningsarenolongerindefinitelyreinvested.Annuallywefilemorethan350incometaxreturnsinapprox-imately100globaltaxingjurisdictions.Anumberofyearsmayelapsebeforeanuncertaintaxpositionisauditedandfinallyresolved.Whileitisoftendifficulttopredictthefinaloutcomeorthetimingofresolutionofanyparticularuncertaintaxposition,webelievethatourliabilitiesforincometaxesreflectthemostlikelyoutcome.Weadjusttheseliabilities,aswellastherelatedinterest,inlightofchangingfactsandcircumstances.Settlementofanyparticularpositionwouldusuallyrequiretheuseofcash.Thenumberofyearswithopentaxauditsvariesdependingonthetaxjurisdiction.OurmajortaxingjurisdictionsincludetheUnitedStates(federalandstate)andCanada.WearenolongersubjecttoUnitedStatesfederalexaminationsbytheIRSforfiscalyearsbefore2002.TheIRShasconcludeditsfieldexaminationofour2006andpriorfederaltaxyears,whichresultedinpaymentsof$17.6millioninfiscal2009and$56.5millioninfiscal2008tocovertheaddi-tionalU.S.incometaxliabilityplusinterestrelatedtoadjustmentsduringtheseauditcycles.TheIRSalsoproposedadditionaladjustmentsforthefiscal2002to2006auditcyclesrelatedtotheamountofcapitallossanddepreciationandamortizationwereportedasaresultofoursaleofminorityinterestsinourGMCsubsidiary.TheIRShasproposedadjustmentsthateffectivelyeliminatemostofthetaxbenefitsassociatedwiththistransac-tion.Webelievewehavemeritoriousdefensesandarevigorouslydefendingourpositions.Wehavedeterminedthataportionofthismattershouldbeincludedasataxliabilityandisaccordinglyincludedinourtotalliabilitiesforuncertaintaxpositions.WehaveappealedtheresultsoftheIRSfieldexaminationstotheIRSAppealsDivision.TheIRSinitiateditsauditofourfiscal2007and2008taxyearsduringfiscal2009.Inthethirdquarteroffiscal2008,werecordedanincometaxbenefitof$30.7millionasaresultofafavorableU.S.districtcourtdecisiononanuncertaintaxmatter.Inthethirdquarteroffiscal2009,theU.S.CourtofAppealsfortheEighthCircuitissuedanopinionreversingthedistrictcourtdecision.Asaresult,werecorded$52.6million(includinginterest)ofincometaxexpenserelatedtothereversalofcumulativeincometaxbenefitsfromthisuncertaintaxmatterrecognizedinfiscalyears1992through2008.Wearecurrentlyevaluatingouroptionsforappeal.Iftheappel-latecourtdecisionisnotoverturned,wewouldexpecttomakecashtaxandinterestpaymentsofapproximately$31.7millioninconnectionwiththismatter.VarioustaxexaminationsbyUnitedStatesstatetaxingauthor-itiescouldbeconductedforanyopentaxyear,whichvarybyjurisdiction,butaregenerallyfromthreetofiveyears.Currently,severalstateexaminationsareinprogress.TheCanadaRevenueAgencyisconductinganauditofourincometaxreturnsinCanadaforfiscalyears2003(whichisourearliesttaxyearstillopenforexamination)through2005.WedonotanticipatethatanyUnitedStatesstatetaxorCanadiantaxadjustmentswillhaveasignif-icantimpactonourfinancialpositionorresultsofoperations.Weapplyamore-likely-than-notthresholdtotherecognitionandderecognitionofuncertaintaxpositions.Accordinglywerecognizetheamountoftaxbenefitthathasagreaterthan50percentlikelihoodofbeingultimatelyrealizeduponsettle-ment.Futurechangesinjudgmentrelatedtotheexpectedulti-materesolutionofuncertaintaxpositionswillaffectearningsinthequarterofsuchchange.Priortofiscal2008,ourpolicywastoestablishliabilitiesthatreflectedtheprobableoutcomeofknowntaxcontingencies.Theeffectsoffinalresolution,ifany,wererecognizedaschangestotheeffectiveincometaxrateintheperiodofresolution.Asaresultofourfiscal2008adoptionofanewaccountingpronouncementregardingtheaccountingforincometaxes,werecordeda$218.1millionreductiontoaccruedtaxliabilities,a$151.9millionreductiontogoodwill,a$57.8millionincreasetoadditionalpaidincapital,andan$8.4millionincreasetoretainedearnings.Thefollowingtablesetsforthchangesinourtotalgrossunrec-ognizedtaxbenefitliabilities,excludingaccruedinterest,forfiscal2009.Approximately$211.4millionofthistotalrepresentstheamountthat,ifrecognized,wouldaffectoureffectiveincometaxrateinfutureperiods.Thisamountdiffersfromthegrossunrec-ognizedtaxbenefitspresentedinthetablebecausecertainoftheliabilitiesbelowwouldimpactdeferredtaxesifrecognizedoraretheresultofstockcompensationitemsimpactingadditionalpaid-AnnualReport200981incapital.WealsowouldrecordadecreaseinU.S.federalincometaxesuponrecognitionofthestatetaxbenefitsincludedtherein.InMillions20092008FiscalYear..................................................................................................................................................................................................................................Balance,beginningofyear$534.6$464.9Taxpositionrelatedtofiscal2008:Additions66.869.6Taxpositionsrelatedtoprioryears:Additions48.954.7Reductions(63.7)(36.0)Settlements(13.0)—Lapsesinstatutesoflimitations(3.5)(18.6).........................................................................................................................................................................................Balance,endofyear$570.1$534.6AsofMay31,2009,wehaveclassifiedapproximately$107.8millionoftheunrecognizedtaxbenefitsasacurrentliabilityasweexpecttopaytheseamountswithinthenext12months.Theremainingamountofourunrecognizedtaxliabilitywasclassifiedinotherliabilities.Wereportaccruedinterestandpenaltiesrelatedtounrecog-nizedtaxbenefitsinincometaxexpense.Forfiscal2009,werecognizedanet$31.6millionoftax-relatednetinterestandpenalties,andhad$149.7millionofaccruedinterestandpenaltiesasofMay31,2009.NOTE15.LEASESANDOTHERCOMMITMENTSAnanalysisofrentexpensebytypeofpropertyforoperatingleasesfollows:InMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................Warehousespace$51.4$49.9$46.6Equipment39.128.626.7Other49.543.233.8.........................................................................................................................................................................................Totalrentexpense$140.0$121.7$107.1Someoperatingleasesrequirepaymentofpropertytaxes,insurance,andmaintenancecostsinadditiontotherentpay-ments.Contingentandescalationrentinexcessofminimumrentpaymentsandsubleaseincomenettedinrentexpensewereinsignificant.Noncancelablefutureleasecommitmentsare:InMillionsOperatingLeasesCapitalLeases.........................................................................................................................................................................................2010$87.6$5.0201171.23.5201260.63.1201344.53.1201430.51.2After201456.9—.........................................................................................................................................................................................Totalnoncancelablefutureleasecommitments$351.315.9.................................................................................................................................................Less:interest(2.0).........................................................................................................................................................................................Presentvalueofobligationsundercapitalleases$13.9Thesefutureleasecommitmentswillbepartiallyoffsetbyestimatedfuturesubleasereceiptsof$18million.Depreciationoncapitalleasesisrecordedasdepreciationexpenseinourresultsofoperations.AsofMay31,2009,wehaveissuedguaranteesandcomfortlettersof$653.6millionforthedebtandotherobligationsofconsolidatedsubsidiaries,andguaranteesandcomfortlettersof$282.4millionforthedebtandotherobligationsofnon-consol-idatedaffiliates,mainlyCPW.Inaddition,off-balancesheetarrangementsaregenerallylimitedtothefuturepaymentsundernon-cancelableoperatingleases,whichtotaled$351.3millionasofMay31,2009.Weareinvolvedinvariousclaims,includingenvironmentalmatters,arisingintheordinarycourseofbusiness.Intheopinionofmanagement,theultimatedispositionofthesematters,eitherindividuallyorinaggregate,willnothaveamaterialadverseeffectonourfinancialpositionorresultsofoperations.NOTE16.BUSINESSSEGMENTANDGEOGRAPHICINFORMATIONWeoperateintheconsumerfoodsindustry.Wehavethreeoperatingsegmentsbytypeofcustomerandgeographicregionasfollows:U.S.Retail,68percentofourfiscal2009consolidatednetsales;International,18percentofourfiscal2009consolidatednetsales;andBakeriesandFoodservice,14percentofourfiscal2009consolidatednetsales.OurU.S.Retailsegmentreflectsbusinesswithawidevarietyofgrocerystores,massmerchandisers,membershipstores,naturalfoodchains,anddrug,dollaranddiscountchainsoperatingthroughouttheUnitedStates.Ourmajorproductcategoriesin82GeneralMillsthisbusinesssegmentareready-to-eatcereals,refrigeratedyogurt,ready-to-servesoup,drydinners,shelfstableandfrozenvegetables,refrigeratedandfrozendoughproducts,dessertandbakingmixes,frozenpizzaandpizzasnacks,grain,fruitandsavorysnacks,andawidevarietyoforganicproductsincludingsoup,granolabars,andcereal.InCanada,ourmajorproductcategoriesareready-to-eatcereals,shelfstableandfrozenvegetables,drydinners,refriger-atedandfrozendoughproducts,dessertandbakingmixes,frozenpizzasnacks,andgrain,fruitandsavorysnacks.InmarketsoutsideNorthAmerica,ourproductcategoriesincludesuper-premiumicecream,grainsnacks,shelfstableandfrozenvege-tables,doughproducts,anddrydinners.OurInternationalseg-mentalsoincludesproductsmanufacturedintheUnitedStatesforexport,mainlytoCaribbeanandLatinAmericanmarkets,aswellasproductswemanufactureforsaletoourinternationaljointventures.Revenuesfromexportactivitiesarereportedintheregionorcountrywheretheendcustomerislocated.Theseinternationalbusinessesaremanagedthrough34salesandmar-ketingoffices.InourBakeriesandFoodservicesegmentwesellbrandedready-to-eatcereals,snacks,dinnerandsidedishproducts,refrigeratedandsoft-servefrozenyogurt,frozendoughproducts,brandedbakingmixes,andcustomfooditems.Ourcustomersincludefoodservicedistributorsandoperators,conveniencestores,vendingmachineoperators,quickserviceandotherrestaurantoperators,andbusinessandschoolcafeteriasintheUnitedStatesandCanada.Inaddition,wemarketmixesandunbakedandfullybakedfrozendoughproductsthroughouttheUnitedStatesandCanadatoretail,supermarket,andwholesalebakeries.Operatingprofitforthesesegmentsexcludesunallocatedcor-porateitems,restructuring,impairment,andotherexitcosts,anddivestituregainsandlosses.Unallocatedcorporateitemsincludevariancestoplannedcorporateoverheadexpenses,variancestoplanneddomesticemployeebenefitsandincentives,allstock-basedcompensationcosts,annualcontributionstotheGeneralMillsFoundation,andotheritemsthatarenotpartofourmea-surementofsegmentoperatingperformance.Theseincludegainsandlossesarisingfromtherevaluationofcertaingraininventoriesandgainsandlossesfrommark-to-marketvaluationofcertaincommoditypositionsuntilpassedbacktoouroperatingseg-mentsinaccordancewithourpolicyasdiscussedinNote2.Theseitemsaffectingoperatingprofitarecentrallymanagedatthecorporatelevelandareexcludedfromthemeasureofsegmentprofitabilityreviewedbyexecutivemanagement.Underoursup-plychainorganization,ourmanufacturing,warehouse,anddis-tributionactivitiesaresubstantiallyintegratedacrossouroper-ationsinordertomaximizeefficiencyandproductivity.Asaresult,fixedassetsanddepreciationandamortizationexpensesareneithermaintainednoravailablebyoperatingsegment.InMillions200920082007FiscalYear.................................................................................................................................................................................................................................................................................Netsales:U.S.Retail$10,052.1$9,072.0$8,491.3International2,591.42,558.82,123.4BakeriesandFoodservice2,047.82,021.31,826.8.........................................................................................................................................................................................Total$14,691.3$13,652.1$12,441.5.........................................................................................................................................................................................Operatingprofit:U.S.Retail$2,208.5$1,971.2$1,896.6International261.4268.9215.7BakeriesandFoodservice171.0165.4147.8.........................................................................................................................................................................................Totalsegmentoperatingprofit2,640.92,405.52,260.1Unallocatedcorporateitems361.3156.7163.0Divestitures(gain),net(84.9)——Restructuring,impairment,andotherexitcosts41.621.039.3.........................................................................................................................................................................................Operatingprofit$2,322.9$2,227.8$2,057.8Thefollowingtableprovidesfinancialinformationbygeo-graphicarea:InMillions200920082007FiscalYear.................................................................................................................................................................................................................................................................................Netsales:UnitedStates$12,057.4$11,036.7$10,258.7Non-UnitedStates2,633.92,615.42,182.8.........................................................................................................................................................................................Total$14,691.3$13,652.1$12,441.5InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Land,buildings,andequipment:UnitedStates$2,555.6$2,617.1Non-UnitedStates479.3491.0.........................................................................................................................................................................................Total$3,034.9$3,108.1AnnualReport200983NOTE17.SUPPLEMENTALINFORMATIONThecomponentsofcertainConsolidatedBalanceSheetaccountsareasfollows:InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Receivables:Fromcustomers$971.2$1,098.0Lessallowancefordoubtfulaccounts(17.8)(16.4).........................................................................................................................................................................................Total$953.4$1,081.6InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Inventories:Rawmaterialsandpackaging$273.1$265.0Finishedgoods1,096.11,012.4Grain126.9215.2ExcessofFIFOorweighted-averagecostoverLIFOcost(a)(149.3)(125.8).........................................................................................................................................................................................Total$1,346.8$1,366.8(a)Inventoriesof$908.3millionasofMay31,2009,and$806.4millionasofMay25,2008,werevaluedatLIFO.InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Prepaidexpensesandothercurrentassets:Prepaidexpenses$197.5$193.5Accruedinterestreceivable,includinginterestrateswaps73.4103.5Derivativereceivables,primarilycommodity-related32.078.2Otherreceivables87.6105.6Currentmarketablesecurities23.413.3Miscellaneous55.416.5.........................................................................................................................................................................................Total$469.3$510.6InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Land,buildings,andequipment:Land$55.2$61.2Buildings1,571.81,550.4Buildingsundercapitallease25.027.1Equipment4,324.04,216.4Equipmentundercapitallease27.737.6Capitalizedsoftware268.0234.8Constructioninprogress349.2343.8.........................................................................................................................................................................................Totalland,buildings,andequipment6,620.96,471.3Lessaccumulateddepreciation(3,586.0)(3,363.2).........................................................................................................................................................................................Total$3,034.9$3,108.1InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Otherassets:Pensionassets$195.1$1,110.1Investmentsinandadvancestojointventures283.3278.6Lifeinsurance89.892.3Noncurrentderivativereceivables189.8126.2Miscellaneous137.0143.0.........................................................................................................................................................................................Total$895.0$1,750.2InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Othercurrentliabilities:Accruedpayroll$338.2$364.1Accruedinterest182.1146.8Accruedtradeandconsumerpromotions473.5446.0Accruedtaxes168.066.9Derivativespayable25.88.1Accruedcustomeradvances19.317.3Miscellaneous275.0190.6.........................................................................................................................................................................................Total$1,481.9$1,239.8InMillionsMay31,2009May25,2008.........................................................................................................................................................................................Othernoncurrentliabilities:Interestrateswaps$258.7$218.4Accruedcompensationandbenefits,includingobligationsforunderfundedotherpostretirementandpostemploymentbenefitplans1,051.01,000.6Accruedincometaxes541.5628.6Miscellaneous80.576.3.........................................................................................................................................................................................Total$1,931.7$1,923.984GeneralMillsCertainConsolidatedStatementsofEarningsamountsareasfollows:InMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................Depreciationandamortization$453.6$459.2$417.8Researchanddevelopmentexpense208.2204.7191.1Advertisingandmediaexpense(includingproductionandcommunicationcosts)732.1587.2491.4Thecomponentsofinterest,netareasfollows:Expense(Income),inMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................Interestexpense$409.5$432.0$396.6Distributionspaidonpreferredstockandinterestsinsubsidiaries7.222.063.8Capitalizedinterest(5.1)(5.0)(2.5)Interestincome(21.6)(27.3)(31.4).........................................................................................................................................................................................Interest,net$390.0$421.7$426.5CertainConsolidatedStatementsofCashFlowsamountsareasfollows:InMillions200920082007FiscalYear...........................................................................................................................................................................................................................................................Cashinterestpayments$292.8$436.6$406.8Cashpaidforincometaxes395.3444.4368.8Infiscal2009,weacquiredHummFoodsbyissuing0.9millionsharesofourcommonstocktoitsshareholders,withavalueof$55.0million,asconsideration.ThisacquisitionistreatedasanoncashtransactioninourConsolidatedStatementofCashFlows.NOTE18.QUARTERLYDATA(UNAUDITED)Summarizedquarterlydataforfiscal2009andfiscal2008follows:InMillions,ExceptPerShareAmounts20092008200920082009200820092008FiscalYear.................................................FiscalYear.................................................FiscalYear.................................................FiscalYear.................................................FirstQuarter.................................................SecondQuarter.................................................ThirdQuarter.................................................FourthQuarter.............................................................................................................................................................................................................................................................................................................................................................................................................................................Netsales$3,497.3$3,072.0$4,010.8$3,703.4$3,537.4$3,405.6$3,645.7$3,471.1Grossmargin1,191.71,156.21,219.61,331.21,277.51,354.21,544.61,032.2Netearnings(a)278.5288.9378.2390.5288.9430.1358.8185.2EPS:Basic$0.83$0.85$1.14$1.19$0.88$1.28$1.09$0.55Diluted$0.79$0.81$1.09$1.14$0.85$1.23$1.07$0.53Dividendspershare$0.43$0.39$0.43$0.39$0.43$0.39$0.43$0.40Marketpriceofcommonstock:High$67.70$61.52$70.16$59.67$64.78$61.40$55.50$62.50Low$59.87$54.17$58.11$55.52$55.04$51.43$47.22$54.50(a)Netearningsinthefourthquarteroffiscal2009includeapre-taxlossof$5.6millionfromthesaleofourbreadconcentratesproductlineandapre-taxlossof$38.3millionfromthesaleofaportionoftheassetsofourfrozenunbakedbreaddoughproductline.Inaddition,werecordedapre-taxchargeof$16.8millionfortherestructuringofourbusinessinBrazil,and$8.3millionforthediscontinuationofourPerfectPortionsproductlineatourMurfreesboro,Tennesseeplant.SeeNotes3and4.AnnualReport200985GlossaryAOCI.AccumulatedOtherComprehensiveIncome.Averagetotalcapital.Usedforcalculatingreturnonaveragetotalcapital.Notespayable,long-termdebtincludingcurrentportion,minorityinterests,andstockholders’equity,excludingaccumulatedothercomprehensiveincome(loss)andcertainafter-taxearningsadjustments.TheaverageiscalculatedusingtheaverageofthebeginningoffiscalyearandendoffiscalyearConsolidatedBalanceSheetamountsfortheselineitems.Coreworkingcapital.Accountsreceivableplusinventorieslessaccountspayable,allasofthelastdayofourfiscalyear.Depreciationassociatedwithrestructuredassets.Theincreaseindepreciationexpensecausedbyupdatingthesalvagevalueandshorteningtheusefullifeofdepreciablefixedassetstocoincidewiththeendofproductionunderanapprovedrestruc-turingplan,butonlyifimpairmentisnotpresent.Derivatives.Financialinstrumentssuchasfutures,swaps,options,andforwardcontractsthatweusetomanageourriskarisingfromchangesincommodityprices,interestrates,foreignexchangerates,andstockprices.Fixedchargecoverageratio.Thesumofearningsbeforeincometaxesandfixedcharges(beforetax),dividedbythesumofthefixedcharges(beforetax)andinterest.GenerallyAcceptedAccountingPrinciples(GAAP).Guide-lines,procedures,andpracticesthatwearerequiredtouseinrecordingandreportingaccountinginformationinourauditedfinancialstatements.Goodwill.Thedifferencebetweenthepurchasepriceofacquiredcompaniesandtherelatedfairvaluesofnetassetsacquired.Grossmargin.Netsaleslesscostofsales.Hedgeaccounting.Accountingforqualifyinghedgesthatallowschangesinahedginginstrument’sfairvaluetooffsetcorrespondingchangesinthehedgediteminthesamereportingperiod.Hedgeaccountingispermittedforcertainhedginginstru-mentsandhedgeditemsonlyifthehedgingrelationshipishighlyeffective,andonlyprospectivelyfromthedateahedgingrela-tionshipisformallydocumented.Interestbearinginstruments.Notespayable,long-termdebt,includingcurrentportion,minorityinterests,cashandcashequiv-alents,andcertaininterestbearinginvestmentsclassifiedwithinprepaidexpensesandothercurrentassetsandotherassets.LIBOR.LondonInterbankOfferedRate.Mark-to-market.Theactofdeterminingavalueforfinancialinstruments,commoditycontracts,andrelatedassetsorliabil-itiesbasedonthecurrentmarketpriceforthatitem.Minorityinterests.Interestsofsubsidiariesheldbythirdparties.Netmark-to-marketvaluationofcertaincommoditypositions.Realizedandunrealizedgainsandlossesonderivativecontractsthatwillbeallocatedtosegmentoperatingprofitwhentheexposurewearehedgingaffectsearnings.Netpricerealization.Theimpactoflistandpromotedpricechanges,netoftradeandotherpricepromotioncosts.Notionalprincipalamount.Theprincipalamountonwhichfixed-rateorfloating-rateinterestpaymentsarecalculated.Operatingcashflowtodebtratio.Netcashprovidedbyoperatingactivities,dividedbythesumofnotespayableandlong-termdebt,includingcurrentportion.OCI.OtherComprehensiveIncome.Reportingunit.Anoperatingsegmentorabusinessonelevelbelowanoperatingsegment.Returnonaveragetotalcapital.Netearnings,excludingafter-taxnetinterest,andadjustedforitemsaffectingyear-over-yearcomparability,dividedbyaveragetotalcapital.Segmentoperatingprofitmargin.Segmentoperatingprofitdividedbynetsalesforthesegment.86GeneralMillsSupplychaininputcosts.Costsincurredtoproduceanddeliverproductincludingingredientandconversioncosts,inventorymanagement,logistics,warehousing,andothers.Totaldebt.Notespayableandlong-termdebt,includingcur-rentportion.Transactiongainsandlosses.TheimpactonourConsolidatedFinancialStatementsofforeignexchangeratechangesarisingfromspecifictransactions.Translationadjustments.Theimpactoftheconversionofourforeignaffiliates’financialstatementstoU.S.dollarsforthepurposeofconsolidatingourfinancialstatements.Variableinterestentities(VIEs).Alegalstructurethatisusedforbusinesspurposesthateither(1)doesnothaveequityinves-torsthathavevotingrightsandshareinalltheentity’sprofitsandlossesor(2)hasequityinvestorsthatdonotprovidesufficientfinancialresourcestosupporttheentity’sactivities.AnnualReport200987ReconciliationofNon-GAAPMeasuresThisreportincludesmeasuresoffinancialperformancethatarenotdefinedbygenerallyacceptedaccountingprinciples(GAAP).Foreachofthesenon-GAAPmeasures,weareprovidingbelowareconciliationofthedifferencesbetweenthenon-GAAPmeasureandthemostdirectlycomparableGAAPmeasure.Thesenon-GAAPmeasuresareusedinreportingtoourexecutivemanagement,and/orasacomponentoftheboardofdirectors’measurementofourperformanceforincentivecompensationpurposes.Managementandtheboardofdirectorsbelievethatthesemeasuresalsoprovideusefulinformationtoinvestors.Thesenon-GAAPmeasuresshouldbeviewedinadditionto,andnotinlieuof,thecomparableGAAPmeasure.TOTALSEGMENTOPERATINGPROFITInMillions20092008200720062005FiscalYear.............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Netsales:U.S.Retail$10,052.1$9,072.0$8,491.3$8,136.3$7,890.6International2,591.42,558.82,123.41,837.01,724.9BakeriesandFoodservice2,047.82,021.31,826.81,738.01,692.3............................................................................................................................................................................................................................................................................................................................................................................................Total$14,691.3$13,652.1$12,441.5$11,711.3$11,307.8............................................................................................................................................................................................................................................................................................................................................................................................Operatingprofit:U.S.Retail$2,208.5$1,971.2$1,896.6$1,801.4$1,745.1International261.4268.9215.7193.9163.6BakeriesandFoodservice171.0165.4147.8116.3107.7............................................................................................................................................................................................................................................................................................................................................................................................Totalsegmentoperatingprofit2,640.92,405.52,260.12,111.62,016.4Memo:Segmentoperatingprofitasa%ofnetsales18.0%17.6%18.2%18.0%17.8%Unallocatedcorporateitems361.3156.7163.0122.8385.3Divestitures(gain),net(84.9)———(489.9)Debtrepurchasecosts————137.0Restructuring,impairment,andotherexitcosts41.621.039.329.883.6............................................................................................................................................................................................................................................................................................................................................................................................Operatingprofit$2,322.9$2,227.8$2,057.8$1,959.0$1,900.4DILUTEDEARNINGSPERSHAREEXCLUDINGITEMSAFFECTINGCOMPARABILITYPerShareData20092008FiscalYear................................................................................................................................................................................................................................Dilutedearningspershare,asreported$3.80$3.71Mark-to-marketeffects0.22(0.10)Divestituresgain,net(0.11)—Gainfrominsurancesettlement(0.08)—Uncertaintaxitem0.15(0.09).........................................................................................................................................................................................Dilutedearningspershare,excludingitemsaffectingcomparability$3.98$3.5288GeneralMillsRETURNONAVERAGETOTALCAPITALInMillions200920082007200620052004FiscalYear....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Netearnings$1,304.4$1,294.7$1,143.9$1,090.3$1,240.0Interest,net,after-tax244.7276.4280.1261.7288.3............................................................................................................................................................................................................................................................................................................................................................................................Earningsbeforeinterest,after-tax1,549.11,571.11,424.01,352.01,528.3Mark-to-marketeffects74.9(35.9)Divestituresgain,net(38.0)———(284.0)Gainfrominsurancesettlement(26.9)————Uncertaintaxitem52.6(30.7)———Debtrepurchasecost————86.9..........................................................................................................................................................................................................................................................................................................................................................Earningsbeforeinterest,after-taxforreturnoncapitalcalculation$1,611.7$1,504.5$1,424.0$1,352.0$1,331.2Currentportionoflong-termdebt$508.5$442.0$1,734.0$2,131.5$1,638.7$233.5Notespayable812.22,208.81,254.41,503.2299.2582.6Long-termdebt5,754.84,348.73,217.72,414.74,255.27,409.9............................................................................................................................................................................................................................................................................................................................................................................................Totaldebt7,075.56,999.56,206.16,049.46,193.18,226.0Minorityinterests242.3242.31,138.81,136.21,133.2299.0Stockholders’equity5,174.76,215.85,319.15,772.35,676.45,247.6............................................................................................................................................................................................................................................................................................................................................................................................Totalcapital12,492.513,457.612,664.012,957.913,002.713,772.6Accumulatedothercomprehensive(income)loss875.4(176.7)119.7(125.4)(8.1)144.2After-taxearningsadjustments(a)(201.1)(263.7)(197.1)(197.1)(197.1)............................................................................................................................................................................................................................................................................................................................................................................................Adjustedtotalcapital$13,166.8$13,017.2$12,586.6$12,635.4$12,797.5$13,916.8Adjustedaveragetotalcapital$13,092.0$12,801.9$12,611.0$12,716.5$13,357.2Returnonaveragetotalcapital12.3%11.8%11.3%10.6%10.0%(a)Sumofcurrentyearandpreviousyears’after-taxadjustments.INTERNATIONALSEGMENTANDREGIONSALESGROWTHRATESEXCLUDINGIMPACTOFFOREIGNEXCHANGEPercentageChangeinNetSalesasReportedImpactofForeignCurrencyExchangePercentageChangeinNetSalesonConstantCurrencyBasisFiscalYearEndedMay31,2009.....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Europe(5)%(9)%4%Canada(6)(13)7Asia/Pacific10(6)16LatinAmerica16(6)22............................................................................................................................................................................................................................................................................................................................................................................................TotalInternational1%(9)%10%AnnualReport200989NETSALESINCLUDINGPROPORTIONATESHAREOFONGOINGJOINTVENTURESOurinterestinSnackVenturesEurope(SVE)wasredeemedinfiscal2005andthe8thContinentbusinesswassoldinfiscal2008.Toviewtheperformanceofourjointventuresonanongoingbasis,wehaveprovidedcertaininformationexcludingSVEand8thContinent.Thereconciliationofthisnon-GAAPmeasureisshowninthefollowingtable:InMillions20092008200720062005FiscalYear.....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................Internationalsegment$2,591.4$2,558.8$2,123.4$1,837.0$1,724.9............................................................................................................................................................................................................................................................................................................................................................................................Proportionateshareofongoingjointventuresnetsales:CerealPartnersWorldwide(CPW)1,024.21,008.8818.4693.9666.0Ha¨agen-Dazs197.0193.3167.0179.3193.4............................................................................................................................................................................................................................................................................................................................................................................................Ongoingjointventures1,221.21,202.1985.4873.2859.4............................................................................................................................................................................................................................................................................................................................................................................................Internationalnetsales,includingproportionateshareofongoingjointventures$3,812.6$3,760.9$3,108.8$2,710.2$2,584.3AVERAGEDILUTEDSHARESOUTSTANDINGEXCLUDINGSHARESRELATEDTOCONVERTIBLEDEBENTURESInMillions2009200820072006FiscalYear.......................................................................................................................................................................................................................................................................Averagedilutedsharesoutstanding343.5346.9360.2378.8Convertiblesharesrelatedtocontingentlyconvertibledebentures———12.9.........................................................................................................................................................................................Averagedilutedsharesoutstandingexcludingconvertibleshares343.5346.9360.2365.990GeneralMillsTotalReturntoStockholdersTheselinegraphscomparethecumulativetotalreturnforholdersofourcommonstockwiththecumulativetotalreturnoftheStandard&Poor’s500StockIndexandtheStandard&Poor’s500PackagedFoodsIndexforthelastfive-yearandten-yearfiscalperiods.Thegraphsassumetheinvestmentof$100ineachofGeneralMills’commonstockandthespecifiedindexesatthebeginningoftheapplicableperiod,andassumethereinvestmentofalldividends.OnJune19,2009,therewereapproximately32,900recordholdersofourcommonstock.TotalReturntoStockholders5YearsMay 04May 05May 06May 07May 08May 09020406080100120140160Total Return IndexTotalReturntoStockholders10Years040206080100220200120140160180Total Return IndexGeneral Mills (GIS)S&P 500S&P Packaged FoodsMay 99May 00May 01May 02May 03May 04May 05May 06May 07May 08May 09AnnualReport200991Holiday Gift Boxes General Mills Gift Boxes are a part of many shareholders’ December holiday traditions. To request an order form, call us toll free at (866) 802-9440 or write, including your name, street address, city, state, zip code and phone number (including area code) to: 2009 General Mills Holiday Gift Box Department 6597 P.O. Box 5009 Stacy, MN 55078-5009 Or you can place an order online at: www.gmiholidaygiftbox.com Please contact us after Oct. 1, 2009. Shareholder Information World Headquarters Number One General Mills Boulevard Minneapolis, MN 55426-1347 Phone: (763) 764-7600 Web Site www.generalmills.com Markets New York Stock Exchange Trading Symbol: GIS Independent Auditor KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-3900 Phone: (612) 305-5000 Investor Inquiries General Shareholder Information: Investor Relations Department (800) 245-5703 or (763) 764-3202 Analysts/Investors: Kristen S. Wenker Vice President, Investor Relations (763) 764-2607 Transfer Agent and Registrar Our transfer agent can assist you with a variety of services, including change of address or questions about dividend checks. Wells Fargo Bank, N.A. 161 North Concord Exchange P.O. Box 64854 St. Paul, MN 55164-0854 Phone: (800) 670-4763 or (651) 450-4084 www.wellsfargo.com/shareownerservices Notice of Annual Meeting The annual meeting of shareholders will be held at 11 a.m., Central Daylight Time, Sept. 21, 2009, at the Children’s Theatre Company, 2400 Third Avenue South, Minneapolis, MN 55404-3597. Electronic Access to Proxy Statement, Annual Report and Form 10-K Shareholders who have access to the Internet are encouraged to enroll in the electronic delivery program. Please see the Investors section of www.generalmills.com or go direct ly to the Web site www.icsdelivery.com/gis and follow the instructions to enroll. If your General Mills shares are not registered in your name, contact your bank or broker to enroll in this program. Certifications Our CEO and CFO Certifications required under Sarbanes-Oxley Section 302 were filed as exhibits to our Form 10-K. We also have submitted the required annual CEO certification to the New York Stock Exchange. General Mills Direct Stock Purchase Plan This plan provides a convenient and eco- nomical way to invest in General Mills stock. You can increase your ownership over time through purchases of common stock and reinvestment of cash dividends, without paying brokerage commissions and other fees on your purchases and reinvestments. For more information and a copy of a plan prospectus, go to the Investors section of www.generalmills.com. This Report is Printed on Recycled Paper BV-COC-940655 Cover contains 10% post-consumer waste. ©2009 General Mills, Inc. i s e n a p m o C S L G y b g n i t n i r P i n o s d d A y b i n g s e D Number One General Mills Boulevard Minneapolis, MN 55426-1347 www.generalmills.com BACK COVER

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