General Mills Annual Report 2010

FY2010 Annual Report · General Mills

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General
Mills

Annual Report 2010
A Portfolio
for Quality Growth

Our Long-term Goal: Superior Returns to Shareholders

Our key fi nancial objective is to deliver superior returns
to shareholders over the long term, and General Mills
has a solid track record in this regard. In May 2010,
we announced a two-for-one split of General Mills
stock. This is our eighth split as a publicly traded

company— a testimony to our consistent, long-term
business growth and stock performance. Since the
previous split in November 1999, General Mills’ total
return to shareholders was 126 percent, well
outpacing our peer group and the broader market.

Total Return to Shareholders 1999–2010
(change in stock price plus reinvested dividends)

General Mills (GIS)

S&P Packaged Foods Index

Nov. 8, 1999

Source: Bloomberg

May 28, 2010

S&P 500 Index

Our Recent Performance

Net Sales
(dollars in millions)
$14.8 billion

Adjusted Diluted Earnings per Share 1
(dollars)
$2.30

Return on Average Total Capital1
(percent)
13.8 percent

10
09
08
07
06

14,796
14,691

13,652

12,442

11,711

102
092
082
07
06

2.30

1.99

1.76

1.59

1.45

10
09
08
07
06

13.8

12 3

11.7

11.0

10.4

1 See page 87 for discussion of non-GAAP measures.
2 Results exclude certain items aff ecting comparability. See page 87.

Our Fiscal 2010 Financial Highlights

In Millions, Except per Share and Return on Capital Data

Net Sales
Segment Operating Proﬁ t*
Net Earnings Attributable to General Mills
Diluted Earnings per Share (EPS)
Adjusted Diluted EPS, Excluding Certain Items Aff ecting Comparability*
Return on Average Total Capital*
Average Diluted Shares Outstanding
Dividends per Share

*See page 87 for discussion of non-GAAP measures.
Data throughout this report reﬂ ects our two-for-one stock split with a record date of May 28, 2010.

52 weeks ended
May 30, 2010

53 weeks ended
May 31, 2009

$14,796
2,861
1,530
2.24
2.30
13.8%
683
$ 0.96

$14,691
2,643
1,304
1.90
1.99
12.3%
687
$ 0.86

Change

+ 1%
+ 8
+17
+18
+16
+150 basis pts.

– 1%
+12

General Mills at a Glance

U.S. Retail

Bakeries and Foodservice

International

Joint Ventures

Net Sales by Division

Net Sales by Customer Type

Net Sales by Region

13%

23%

12%

15%

Net Sales by Joint Venture
(not consolidated,
proportionate share)

15%

32%

56%

26%

27%

85%

$1.8 billion
Bakeries & National
Restaurant Accounts
Foodservice Distributors
Convenience Stores

$2.7 billion
Europe
Asia/Paciﬁ c
Canada
Latin America

56%
32%
12%

32%
27%
26%
15%

$1.2 billion
Cereal Partners
Worldwide (CPW)
Häagen-Dazs Japan

85%
15%

15%

21%

18%

$10.3 billion
Big G Cereals
Meals
Pillsbury USA
Yoplait
Snacks
Baking Products
Small Planet Foods

23%
21%
18%
15%
13%
8%
2%

To Our
Shareholders

Ken Powell
Chairman and Chief
Executive Offi cer

Fiscal 2010 was an exceptional year for General Mills.
We achieved broad-based sales growth for our
leading food brands in markets around the globe.
Our earnings increased at a strong double-digit
rate. And we made signifi cant investments in product
innovation, media support and selling capabilities
that we believe will help drive continued growth for
our company in 2011 and beyond.

Net sales grew 1 percent as reported. However, 2010 was a 52-week
ﬁ scal year compared to 53 weeks in ﬁ scal 2009. We also divested
some product lines in 2009. These diff erences reduced our 2010 sales
growth by 3 percentage points. Segment operating proﬁ t grew
8 percent. And our earnings per share (EPS) rose 18 percent to
$2.24. This EPS ﬁ gure reﬂ ects the two-for-one split of General Mills
stock with a record date of May 28, 2010. It also includes two
items that aff ect the comparability of our results year-over-year.
Those items were mark-to-market valuation of certain commod-
ity positions and a tax charge taken in the fourth quarter to
reﬂ ect the impact of recent federal health care legislation. Excluding
these items, EPS was $2.30, up 16 percent from 2009 earnings
of $1.99 per share excluding certain items aff ecting comparability.
We believe this represents very strong ﬁ nancial performance in a
challenging operating environment.

We recorded sales gains across our businesses. In our $10 billion

U.S. Retail segment, every division increased sales, despite one
less week in this year’s results. In our Bakeries and Foodservice
segment, reported sales declined due to the absence of product

lines we divested and index pricing tied to wheat markets that were
below prior-year levels. However, our sales grew in targeted
foodservice channels, outpacing industry trends. And we posted
good performance on a constant-currency basis across our
international operations.

Broad-based Sales Growth

Operating Division/Segment
Snacks
Big G Cereals
International Segment*
Small Planet Foods
Yoplait
Pillsbury USA
Meals
Baking Products
Bakeries and Foodservice Segment

2010 Net Sales % Change
(52 weeks compared to 53 weeks)
+6
+5
+3
+3
+2
+1
+1
+0
-14

* Does not include the impact of foreign currency translation. See page 87 of our 2010 Annual
Report for discussion of non-GAAP measures.

We managed our input costs well, realizing a 3 percent decline

in supply chain costs from the previous year’s levels. In addition,
we generated signiﬁ cant cost savings with our Holistic Margin
Management (HMM) eff orts. HMM is our companywide disci-
pline to identify and eliminate costs in our businesses that don’t
add value for the consumer. These cost savings initiatives,
together with strong plant performance and input cost deﬂ ation,
resulted in signiﬁ cant gross margin expansion in 2010.
Consequently, we were able to invest at above-planned levels in

General Mills

Dividends per Share
(dollars)

Total Returns to Shareholders
(change in stock price plus reinvested dividends)

Dividends to General Mills shareholders grew at
a 9 percent compound annual rate over the past
four years. The new annualized dividend rate
for ﬁ scal 2011 represents a 17 percent increase.

Dividends and stock price appreciation combined to generate a 43 percent return to General Mills
shareholders in ﬁ scal 2010. Over the most recent three years—a period of signiﬁ cant equity
market volatility —total return to GIS shareholders has averaged nearly 9 percent per year, well
above the returns generated by the packaged foods group and the overall market.

11
10
09
08
07
06

Current Annualized Rate

1.12

Fiscal 2010

Last 3 Years (compound annual return)

0.96

0.86

0.78

0.72

0.67

27.0

21.0

GIS
S&P Packaged Foods Index
S&P 500 Index

43.3

–8.4

8.8

1.5

activities and resources that drive ongoing net sales growth. This
included additional advertising investment, robust new product
launches, and new or enhanced sales capabilities.

Even with this strong reinvestment in our business, we delivered

expect segment operating proﬁ t to grow faster than sales,
increasing at a mid single-digit pace. And we’re targeting
high single-digit earnings per share growth before any mark-to-
market eff ects.

double-digit earnings growth. Our good ﬁ nancial performance
was reﬂ ected in solid price appreciation for our stock in 2010, and
we increased our dividend 12 percent. In total, stock price
appreciation plus dividends resulted in a 43 percent total return
to General Mills shareholders for the year. This exceeded our
peer group’s performance, and was double the S&P 500 Index’s
return of 21 percent.

As we look ahead, we see excellent prospects for General Mills
to build on our long-term record of generating superior returns to
shareholders. We remain committed to our long-term growth
model, which is shown in the table below. We believe it focuses
our organization on delivering consistent, high-quality sales
and earnings growth.

General Mills Long-term Growth Model

Growth Factor
Net Sales
Segment Operating Proﬁ t
Earnings per Share
Dividend Yield
Total Return to Shareholders

Compound Annual Growth Target
Low single-digit
Mid single-digit
High single-digit
2 to 3 percent
Double-digit

We expect ﬁ scal 2011 to be another good year, contributing

to these long-term performance goals. Our plans call for
low single-digit net sales growth, led by volume increases. We

We have tremendous strengths to build on in ﬁ scal 2011 and
beyond. Our brands hold leading market positions in categories
that are on-trend with growing consumer groups: the world’s
baby-boom generation, many of whom are over age 55 today; the
millennial generation, ages 16 to 33; and multicultural consumers
of all ages. We have a sustainable business model, in which
our gross margins generate funds to reinvest in product innova-
tion and marketing eff orts that drive sales growth.

We remain focused on ﬁ ve key business drivers that fuel our

overall success. They are:

•
Innovation
• Brand building
• Leading customer growth
•
International expansion
• Margin expansion

We’re innovating to improve our established brands and to

create successful new products. Back in 2005, we challenged
ourselves to improve the health credentials of our brands. As of
ﬁ scal 2010, U.S. Retail brands accounting for 60 percent of
segment sales have been improved. We also had a strong lineup
of successful new product introductions in 2010, including
Chocolate Cheerios, Yoplait Delights yogurt parfaits, Wanchai Ferry
frozen entrees, and Betty Crocker gluten free dessert mixes.

Annual Report 2010

A Selection of Our New Products Launched in 2010

We had a great lineup of new product introductions that contributed to good growth across our businesses.

Product innovation also drove growth for our international busi-
nesses with new ﬂ avors of Häagen-Dazs ice cream in Europe, new
formats of Wanchai Ferry frozen meals in China, and chewy
versions of Nature Valley granola bars in a number of markets.

Leading Market Positions in U.S. Retail Measured Outlets

Category
Ready-to-eat Cereal
Refrigerated Yogurt
Frozen Vegetables
Grain Snacks
Mexican Aisle Products
Ready-to-serve Soup
Dry Packaged Dinners
Refrigerated Dough
Dessert Mixes
Frozen Hot Snacks
Fruit Snacks

Fiscal 2010
Category
Retail Sales
($ in Millions)
$6,500
3,900
2,300
1,800
1,800
1,500
1,400
1,400
1,300
1,100
500

Our
Dollar
Share %
31
34
18
30
18
35
23
70
41
23
54

Our
Rank
2
2
2
1
1
2
2
1
1
2
1

Source: ACNielsen measured outlets, comparable 52-week basis

We’re supporting our brands with increased levels of
media spending. In ﬁ scal 2010, our worldwide advertising
and media spending reached $908 million, a 24 percent increase
over the prior year. In fact, since 2007, our annual media invest-
ment has increased by more than $400 million. Our largest
percent increases have been on digital and multicultural media.
We’re reaching more multicultural consumers, particularly the

fast-growing Hispanic population, through increased television,
print and online advertising.

We’re partnering with retailers of all types to drive sales

growth. While the majority of our sales today are with tradi-
tional grocery retailers, food sales in nontraditional outlets, such
as supercenters, drug, discount and club stores, are growing
faster. We’re collaborating with all these customers on package
formats, in-store merchandising events and online marketing.
We’re also applying our consumer insights capabilities, identify-
ing consumer shopping behaviors and optimal store shelf
assortments. In the nearly half a trillion dollar U.S. market for
food eaten away from home, we’re focused on the channels with
the best opportunities for future growth, including foodservice
distributors, schools, hospitals and lodging chains. We’re also
adding distribution of our products in the growing convenience
store channel and bringing our category management skills to
these outlets.

We’re growing sales for our brands in international markets, too.

Net sales for our wholly owned International business grew
4 percent in ﬁ scal 2010. Segment operating proﬁ t was lower for
the year due to foreign currency eff ects. Adjusting for currency
eff ects, operating proﬁ t grew by double digits despite increased
levels of media investment in this business. We’re focused on
four key product platforms —cereal, super-premium ice cream,
convenient meals, and wholesome snacks —to drive growth in
developed markets and in emerging markets such as China, India
and Brazil. We’re also partners in two international joint ventures,
Häagen-Dazs Japan and Cereal Partners Worldwide (CPW).

General Mills

Segment Operating Profi t*
(dollars in millions)

Bakeries and Foodservice Segment
Operating Profi t Margin
(percent)

International Net Sales
(dollars in millions)

We’ve delivered consistent growth in segment
operating proﬁ t, averaging nearly 8 percent per
year since 2006.

Our strong product line and focus on growing
customer channels contributed to signiﬁ cant
margin expansion in ﬁ scal 2010 for our Bakeries
and Foodservice segment.

Net sales for our wholly owned International
businesses combined with our proportionate
share of sales from international joint ventures
grew to nearly $4 billion in ﬁ scal 2010.

2,861

10
09
08
07
06
*See page 87 of our 2010 Annual Report for discussion of
non-GAAP measures.

2,407

2,113

2,261

2,643

10
09
08
07
06

8.4

8.2
8.1

6.7

14.1

10
0909
08
07

3,882

3,725
3,650

3,109

2,710

Wholly Owned Businesses
Our Share of CPW and H¨aagen-Dazs Joint Ventures*
*Not consolidated. See page 87 of our 2010 Annual Report for
discussion of non-GAAP measures.

After-tax earnings from these joint ventures increased 11 percent
in 2010 to reach $102 million. CPW operates in 130 markets out-
side of North America and posted 6 percent net sales growth in
ﬁ scal 2010. Our wholly owned International businesses
combined with our proportionate share of joint ventures generate
nearly $4 billion in net sales today. As consumers worldwide
look for more wholesome and convenient foods, we expect our
international businesses will be our fastest growing in the
years ahead.

in our ability to deliver continued high-quality growth and achieve
our long-term goals.

In closing, I’d like to thank you for your investment in
General Mills. My colleagues and I think it is a great time to be
in the food business. Our food categories are well-positioned
to meet the needs of today’s consumers in markets around the
world. We appreciate your conﬁ dence in our company’s pros-
pects, and we look forward to reporting on our future progress.

Our companywide focus on margin management is gener ating

Sincerely,

Kendall J. Powell
Chairman and Chief Executive Offi cer

August 2, 2010

funds to reinvest in our businesses. We expect to see renewed
input cost inﬂ ation in 2011, so our HMM eff orts will remain critical
in helping us off set increasing costs. Our pipeline of HMM
ideas is robust. We’re taking a broader look at our supply chain
by including our customers and suppliers when identifying
cost-saving opportunities. And we’ll beneﬁ t from our growing
international business as we’re sharing our HMM ideas across
countries. From ﬁ scal 2010 through ﬁ scal 2012, we expect to
achieve a cumulative $1 billion in savings from initiatives that reduce
our cost of goods sold. Many of our HMM initiatives have a posi-
tive impact on the environment, reducing our water and energy
usage rates. You can read more about these environmental beneﬁ ts
in our 2010 Corporate Social Responsibility Report available on
our website.

General Mills’ exceptional performance is the result of the
hard work of our 33,000 employees around the world. It is their
collective talent and dedication that gives me great conﬁ dence

Annual Report 2010

We’re driving
growth by
innovating

across

our food

categories,
building our
brands,
expanding
internationally,
collaborating
wwith our

customers

and pro

tecting

our margins.

General Mills

A Baby Boomer’s
Pantry

Our product portfolio
includes a wide vari-
ety of foods that ﬁ t a
healthy lifestyle, from
whole grain cereal
to reduced calorie
snack bars. We also
have many options
for a convenient meal
with Progresso soup,
Green Giant vegeta-
bles, and Betty Crocker
side dish and des-
sert mixes.

We’re innovating to meet
consumer needs.

We’re focusing our product innovation
eff orts on the needs of consumers, par-
ticularly groups that will drive our sales
growth in the years ahead. The baby
boomers, born between 1946 and 1964,
are the largest age demographic in the
U.S., representing one-quarter of the pop-
ulation. It’s projected that adults ages 55
and over will represent more than 1 billion
consumers worldwide by 2015. Millennials
are between the ages of 16 and 33, and
represent the next boomlet. Nearly two-
thirds of births in the U.S. today are to
millennial moms. Multicultural consumers
are the fastest-growing U.S. demographic,

Annual Report 2010

with Hispanic consumers leading that
growth. Over the next ﬁ ve years, more
than 85 percent of the projected increase
in the U.S. population will come from
multicultural groups.

Many baby boomers look for foods
that enhance their health and vitality. Our
whole grain cereals are a great ﬁ t with
that interest. Retail sales for the Cheerios
franchise have grown at a 7 percent
compound rate over the past three years
due in part to the cholesterol-lowering
beneﬁ ts of Honey Nut Cheerios and weight
management credentials of MultiGrain
Cheerios. In January 2010, we introduced
Chocolate Cheerios, which is made with
whole grain and is on track to become our
biggest new product launch in the past
decade. Betty Crocker gluten free dessert
mixes received tremendous consumer

U.S. Household Penetration for
Our Categories
(percent of households purchasing)

Ready-to-eat Cereal

Frozen Vegetables

Mexican Aisle Products

Refrigerated Yogurt

Dessert Mixes

Frozen Hot Snacks

Dry Packaged Dinners

Refrigerated Dough

Grain Snacks

Ready-to-serve Soup

79
79

77
76
75

70
68

Source: ACNielsen Panel Data, 52 weeks ended 2/27/10

We compete in attractive food categories.
Each of these categories generates more
than $1 billion a year in retail sales. They’ve
gotten that big because many U.S. house-
holds purchase and enjoy these foods.

Options for Busy,
Young Families

Millennials are the
fastest-growing
consumer age group
in the U.S. Many
are looking for easy-
to-prepare, nutri-
tious foods—and a
treat or two, as
well. We have a vari-
ety of products that
combine convenience
with great taste.

response in their ﬁ rst year. In 2011, we’ll
introduce a gluten free version of Bisquick
baking mix.

We have a great lineup of better-for-

you snacks. Retail sales for all-natural
Nature Valley granola bars grew 15 percent
in ﬁ scal 2010, reﬂ ecting increased
distri bution. This summer, we launched
new Nature Valley Granola Thins, with
90 calories or less per serving. In January,
we introduced a 90-calorie version
of Fiber One snack bars, contributing to
10 percent retail sales growth for this
line in 2010.

With its great health proﬁ le, the
U.S. yogurt category has been growing
at a 6 percent compound rate over the
past three years. We added new varieties
in 2010 with 100-calorie Yoplait Delights
yogurt parfaits and Yoplait Greek yogurt,

which features twice the protein of regu-
lar yogurt. This summer, we introduced
Yoplait Splitz yogurt parfaits for kids
and an all-natural version of Yoplait in
larger containers.

Millennial consumers value conve-

nient and wholesome foods. We’ve
launched a variety of products under the
Simply… brand that feature short ingredi-
ent lists and no artiﬁ cial ﬂ avors or colors.
We recently added Fruit Roll-Ups snacks
and Pillsbury refrigerated breads and bis-
cuits to this line. Lärabar energy bars also
have a short ingredient list and natural
ingredients. Retail sales for these bars are
growing at a double-digit pace as we’re
expanding distribution to new outlets.

We’re innovating in the freezer case to
provide great-tasting, convenient meals
for busy consumers. New Wanchai Ferry

U.S. Retail Net Sales
(dollars in billions)

10
09
08
07
06

10.3
10.1

9.1

8.5

8.1

U.S. Retail Media Investment
(dollars in millions, percent growth)

10
09
08
07
06

3
11

General Mills

Many Choices
for La Cocina

The U.S. Hispanic
population is projected
to grow 16 percent
within the next ﬁ ve
years. We’re advertis-
ing directly to this
inﬂ uential consumer
group, and introduc-
ing new products with
ﬂ avor appeal, such
as Progresso World
Recipes soups in
varieties like Black
Bean Jalapeño
and Chicken Tortilla.

frozen entrees make it easy to prepare
restaurant-quality dinners with an ethnic
ﬂ air. Vegetables are ready in minutes
in the microwave with frozen Green
Giant Valley Fresh Steamers. And Yoplait
Smoothies blend frozen yogurt and fruit—
all you add is milk.

We’re also developing new products
for our international brands and for food
eaten away from home. See the following
pages for a discussion of our innovation
eff orts on these businesses.

We’re supporting our great brands
with increased levels of advertising invest-
ment. Our worldwide media spending
topped $900 million in 2010, up 24 percent
from prior-year levels. TV advertising
accounts for the largest portion of this
investment, but our digital and multi-
cultural eff orts are growing the fastest.

We’re developing new websites, such as
Tablespoon.com, that appeal to our key
consumer groups. Through our increased
online presence, we are one of the larg-
est distributors of digital coupons in the
consumer products industry. And we con-
tinue to support our successful Hispanic
marketing platform, Qué Rica Vida, which
drove 5 percent retail sales growth for our
products among U.S. Hispanic consumers
in 2010.

In ﬁ scal 2011, we have a strong lineup of

product news and innovative, new prod-
ucts. And we’ll support all of our brands
with media spending that we expect to
grow in line with sales growth.

Our primary Hispanic marketing initiative
is Qué Rica Vida, which means “what a
rich, wonderful life.” It includes a magazine
and website off ering nutritional informa-
tion and in-store promotions that increase
our brand awareness with Hispanic moms.

Annual Report 2010

Bon Appétit!

Consumers in France
and other European
markets enjoy CPW
cereals such as
Fitness and Chocapic,
Green Giant vegeta-
bles, and Old El Paso
Mexican foods. We
see excellent oppor-
tunities to expand
household penetra-
tion for these
brands in interna-
tional markets.

We’re building brands
around the world.

Over the past ﬁ ve years, International has
been our fastest-growing business
segment. If you include our proportionate
share of joint-venture sales, we have
nearly $4 billion in sales outside the U.S.
today. We’re focused on building our four
global product platforms: ready-to-eat
cereal, super-premium ice cream, conve-
nient meals, and wholesome snacks.

Cereal is our biggest global business.

In Canada, our category dollar share
increased to 27 percent in 2010. Outside
North America, our cereal business is
Cereal Partners Worldwide (CPW), a joint
venture with Nestlé. With distribution

in more than 130 countries, CPW now
accounts for nearly a quarter of total cereal
sales outside of the U.S. and Canada. Per
capita consumption of cereal is low in
many international markets, so we expect
continued good growth for CPW in the
years ahead.

We’re growing in developed markets,
and expanding our presence in emerging
markets, too. In Western Europe, we’re
increasing household penetration for
Old El Paso Mexican foods, Häagen-Dazs
ice cream and Nature Valley snack bars
with increased media investment, in-store
merchandising and new products. In
Australia, innovative marketing programs
are driving good growth for our Old El Paso
Healthy Fiesta line of better-for-you prod-
ucts, and we recently introduced Nature
Valley snack bars in this market.

Ready-to-eat Cereal
Annual per Capita Consumption
(kilograms per person)

6.6

4.8

4.3
4.3

United Kingdom

Canada

Australia

United States

Mexico

Germany

France

1.9
Russia 0.3

2.6
2.6

Brazil 0.1
Southeast Asia 0.05

Source: 2009 Euromonitor International

We see excellent opportunities to drive
growth across the global cereal category,
as per capita cereal consumption is still
quite low in many countries.

General Mills

From the Chinese
Freezer Case

Wanchai Ferry frozen
meals posted double-
digit net sales growth
in China in 2010. These
convenient products
give consumers a
quick and easy way
to make traditional
Chinese dumplings.
We’re now adding
frozen noodle
varieties to the line.

Valley granola bars and Häagen-Dazs ice
cream, positioning us to leverage future
growth in those countries.

In 2011, we’re targeting mid single-digit
growth for our International segment, and
our operating proﬁ ts should grow even
faster than sales. As we expand our four
product platforms in developed and
emerging markets, we expect our inter-
national businesses, including our joint
ventures, will continue to be our fastest-
growing operations.

Our largest emerging market is China,
where our business reached $350 million
in net sales in 2010. We expect continued
good growth in China as we expand our
Häagen-Dazs ice cream cafés into more
cities and extend our popular Wanchai
Ferry line of frozen meals. Sales for the
Wanchai Ferry brand grew 20 percent in
2010, and we’re building on that growth
with new product varieties, including a
line of frozen noodles.

While most of our emerging market
focus to date has been on China, India
and Brazil also represent exciting oppor-
tunities for growth. These three markets
combined are expected to account for
20 percent of global food sales growth over
the next ﬁ ve years. And we see good
opportunities in Russia, too. We’ve begun
operations in India and Brazil with Nature

We’re building the Häagen-Dazs ice cream
brand in countries around the world, includ-
ing emerging markets. We just opened
our ﬁ rst shop in India and have several in
Brazil. And we’ll open more Häagen-Dazs
cafés in cities across China in 2011.

Annual Report 2010

Places to Grab a
Convenient Snack

There are more than
144,000 convenience
stores across the
U.S. today. We’re
achieving good sales
growth in this chan-
nel with products
such as new Wheaties
Fuel energy bars,
salty snacks in zesty
ﬂ avors and great-
tasting cereal bars.

In the market for food eaten away
from home, we’re focusing on the chan-
nels with the best prospects for growth.
These include K–12 schools, colleges and
universities, convenience stores, and
lodging chains. We’ve posted good sales
and dollar share growth in many of these
channels, and in convenience stores
we’ve increased our distribution and are
leading growth in various categories,
including cereal, grain and salty snacks.
While consumers continue to eat more
meals at home, the U.S. foodservice
industry generates an estimated half a
trillion dollars in annual sales. We think
this market represents a great opportunity
for General Mills brands.

We’re leading growth
with our customers.

We partner with all of our customers—
from traditional grocers to foodservice
operators—to grow our business and
theirs. Traditional grocery stores remain our
largest customer group. However, food
sales in nontraditional retail outlets, such
as club, drug, dollar and discount stores,
are posting the fastest growth in recent
years. We off er products in a variety of
package formats, from single servings to
multipack containers, to meet diff erent
customer needs. We also bring sales capa-
bilities, such as insights into consumer
behavior and the optimal product selec-
tion, to help drive sales growth for retailers.

U.S. Channels Sales Growth Projections
(percent, 5-year compound annual growth
2009–2014)

Limited Assortment Stores

10.1

Club Stores

Dollar Stores

Supercenters

Drug Stores

6.5
6.4

5.5

5.1

Convenience Stores 3.0

Grocery Stores 2.7

Source: Management Ventures, Inc., food and beverage
sales growth

Our Distribution Gains in
Convenience Stores
(percent growth, fiscal 2010)

Cereal

Salty Snacks

Grain Snacks

Source: Information Resources, Inc.

General Mills

Shipping
Products More
Effi ciently

With our new central-
ized transportation
management system,
we’ve determined
the most effi cient
shipping conﬁ gura-
tions and routes. This
reduces shipping
costs as we put more
products on a truck,
which means fewer
trucks on the road.

We’re driving growth by
protecting margins.

Holistic Margin Management (HMM) is
our unique discipline of leveraging pro-
ductivity, product mix, and pricing to off set
cost inﬂ ation and protect our margins.
Through HMM, we’re challenging ourselves
to ﬁ nd the most effi cient and eff ective
ways to run our businesses. We’re engag-
ing the collective eff orts of everyone on
our business teams to identify costs that
don’t add value for our consumers, elimi-
nate those costs, and then reinvest the
savings back into our businesses in ways
that generate sales growth.

So far, the majority of our productivity

savings have come from our U.S. Retail

Annual Report 2010

businesses, but we see great opportu-
nities across our portfolio. For example,
our International businesses are begin-
ning to reap the beneﬁ ts of HMM, with
state-of-the-art manufacturing processes
and global sourcing of packaging and
ingredients. We’re also partnering with
our suppliers and customers to identify
ways we can work together to elimi-
nate costs.

As we look ahead, we expect costs
for commodities and energy to increase,
fueled by global demand. That means
HMM will remain key to protecting our
margins. Our goal is to capture a cumu-
lative $1 billion in supply chain HMM
savings from ﬁ scal 2010 through ﬁ scal
2012, and we are targeting $4 billion in
cumulative savings worldwide over the
decade to 2020.

Gross Margin
(percent of net sales)

10
09
08
07
06
Net sales less cost of sales.

39.7

35.6
35.7
36.1
35.6

Through our HMM eff orts, we’ve been
able to off set input cost inﬂ ation in recent
years and protect our margins. Productivity
initiatives, such as a new centralized
transportation management system,
contributed to margin expansion in 2010.

Our Disciplined
Uses of Cash

Our businesses are strong
generators of cash. In fi scal 2010
alone, cash fl ow from operations
totaled $2.2 billion, up 19 percent
from the prior year.

We invested $650 million of this cash in
capital projects to support growth oppor-
tunities in our businesses. Our plan for
ﬁ scal 2011 calls for $700 million in capital
investment, including projects to expand
U.S. cereal and yogurt manufacturing
capacity, and increase production of
Wanchai Ferry and Häagen-Dazs products
in international markets.

In ﬁ scal 2010, we reduced debt by
more than $600 million, resulting in total
debt of $6.4 billion at the year’s end.
Our operating-cash-ﬂ ow-to-debt ratio
increased more than 8 percentage points
to 34 percent. And our ﬁ xed-charge-cov-
erage ratio improved to 6.4 times. Debt
reﬁ nancing actions we completed in 2010

will con tribute to an expected decline in
interest expense for 2011.

We return signiﬁ cant cash to share-
holders through dividends and share repur-
chases. We paid dividends of $644 mil lion
in 2010, representing 42 percent of net
earnings. Our dividend rate increased
twice during the year, and in June 2010, our
board of directors approved a 17 percent
increase in the annualized dividend rate
eff ective with the August 2010 quarterly
payment. General Mills and its predeces-
sor ﬁ rm have paid regular dividends with-
out interruption or reduction for 112 years,
and our goal is to continue increasing
dividends over time as our earnings grow.
Share repurchases are part of our
long-term growth model. Since 2007,
we’ve reduced diluted shares outstanding
by an average of 2 percent per year. In
June 2010, the board of directors approved
a new repurchase authorization for
100 million shares.

Over 40 percent of our capital spending in
2010 was on growth projects. For example,
we’ve added production capacity for our
growing Yoplait yogurt business.

Fiscal 2010 Capital Expenditures
(percent of total investment)

Capital Expenditures
(dollars in millions)

Average Diluted Shares Outstanding
(shares in millions)

42%

10
09
08
07

42%
42%
16%

16%

42%

Growth
Essential
Cost Savings

700

650

11
10
09
08
07

563

522

460

Target

–2%
683
687
694

720

Total Debt
(dollars in millions)

Operating Cash
Flow to Debt

10
09
08

6,426

7,076
7,000

34%
26%
25%

General Mills

Our Corporate
Citizenship Initiatives

We believe it’s important for
General Mills to have a positive
infl uence on the world around
us. Our corporate citizenship
eff orts include direct philanthropy,
brand philanthropy and
extensive volunteerism.

Our philanthropic initiatives reach
around the world. General Mills donated
$100 million to our communities in ﬁ scal
2010 through corporate contributions,
foundation grants and product dona-
tions. This maintains our long-standing
tradition of donating 5 percent of pretax
earnings to beneﬁ t our communities.

Our Join My Village initiative funds
education and economic development
eff orts in Malawi, Africa. Through this
program, we’ve provided 160 scholarships
for girls; constructed houses for teachers;
and launched village savings and loan
associations, with nearly 2,000 members,

that help support community busi-
nesses. Through our African Women and
Children’s Hunger Program, more than
250,000 people have gained the training
and resources they need to develop sus-
tainable food sources in Africa.

We’re also partnering with food proces-
sors in sub-Saharan Africa to transfer our
food safety and processing knowledge to
their operations. Over the past two years,
more than 300 General Mills employees
have volunteered more than 20,000 hours
to help solve technical challenges with
several food processing ﬁ rms.

Closer to home, we donated $18 million
to Feeding America®, a food bank network
that is the largest hunger relief organiza-
tion in the U.S.

We also engage our consumers in
issues that matter to them. Our Box Tops
for Education program has contributed
$340 million to 69,000 K-8 schools in the
U.S. since it began in 1996. And our annual

Save Lids to Save Lives campaign on Yoplait
yogurt has raised more than $22 million to
support breast cancer research since the
campaign started in 1998.

It’s our employees who make all of our
eff orts successful. More than 80 percent
of General Mills U.S. employees volun-
teer in their communities, as do many of
our retirees. For more information about
our philanthropic initiatives, see the
Responsibility section of our website.

Fiscal 2010 General Mills Contributions
(dollars in millions)

$18

$22

$60

$100 million
Corporate Contributions
Foundation Grants
Product Donations

$60 million
$22 million
$18 million

Join My Village is our online partnership
with CARE®, an international relief orga-
nization, to support a variety of economic
development and educational initiatives
that help women and girls in sub-Saharan
Africa. This year, the program generated
more than $500,000 to educate girls and
empower women in Malawi.

General Mills is committed to being a good
corporate citizen. We’re contributing to
our communities around the world, and
preserving and protecting our environ-
ment. To read more about our initiatives
in these areas, see our 2010 Corporate
Social Responsibility Report available on
our website.

Annual Report 2010

Board of Directors

(as of August 2, 2010)

Bradbury H. Anderson 2, 4
Retired Chief Executive
Offi cer and Vice Chairman,
Best Buy Co., Inc.
(electronics retailer)

R. Kerry Clark 1, 2
Retired Chairman and Chief
Executive Offi cer,
Cardinal Health, Inc.
(medical services and
supplies)

Paul Danos 1, 5
Dean, Tuck School of
Business and
Laurence F. Whittemore
Professor of
Business Administration,
Dartmouth College

William T. Esrey 1, 3*
Chairman of the Board,
Spectra Energy Corp.
(natural gas infrastructure
provider) and Chairman
Emeritus, Sprint
Nextel Corporation
(telecommunications
systems)

Raymond V. Gilmartin 2, 4*
Professor of Management
Practice, Harvard Business
School and Retired
Chairman, President and
Chief Executive Offi cer,
Merck & Company, Inc.
(pharmaceuticals)

Senior Management

(as of August 2, 2010)

Mark W. Addicks
Senior Vice President;
Chief Marketing Offi cer

John R. Church
Senior Vice President,
Supply Chain

Samir Behl
Vice President;
President,
Asia/Paciﬁ c 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 Wholesome
Snacks Strategic
Business Unit

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.
Senior Vice President;
President,
U.S. Channels Sales

Peter C. Erickson
Senior Vice President,
Innovation, Technology
and Quality

Ian R. Friendly
Executive Vice President;
Chief Operating Offi cer,
U.S. Retail

Jeff rey L. Harmening
Vice President;
President, Big G Cereals

David P. Homer
Senior Vice President;
President,
General Mills Canada

Richard O. Lund
Vice President;
Controller

Judith Richards Hope 1*, 5
Distinguished Visitor from
Practice and Professor of Law,
Georgetown University
Law Center

Steve Odland 3, 4
Chairman of the Board and
Chief Executive Offi cer,
Offi ce Depot, Inc.
(offi ce products retailer)

Heidi G. Miller 3, 5
President, JPMorgan
International, JPMorgan
Chase & Co. (banking and
ﬁ nancial services)

Hilda Ochoa-Brillembourg 3, 5
Founder, President and
Chief Executive Offi cer,
Strategic Investment Group
(investment management)

Kendall J. Powell
Chairman of the Board and
Chief Executive Offi cer,
General Mills, Inc.

Lois E. Quam 2, 5
Founder and Chief Executive
Offi cer, Tysvar, LLC
(business development and
consulting)

Michael D. Rose 2*, 4
Chairman of the Board,
First Horizon National
Corporation (banking
and ﬁ nancial services)

Robert L. Ryan 1, 3
Retired Senior Vice
President and
Chief Financial Offi cer,
Medtronic, Inc.
(medical technology)

Dorothy A. Terrell 4, 5*
Limited Partner,
First Light Capital
(venture capital)

Board Committees
1 Audit
2 Compensation
3 Finance
4 Corporate Governance
5 Public Responsibility
* Denotes Committee Chair

John T. Machuzick
Senior Vice President;
President,
Bakeries and Foodservice

Shawn P. O’Grady
Senior Vice President;
President, Consumer
Foods Sales

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 Offi cer

James H. Murphy
Senior Vice President;
President, Meals

Kimberly A. Nelson
Senior Vice President;
President, Snacks

Rebecca L. O’Grady
Vice President;
President, Yoplait

Christopher D. O’Leary
Executive Vice President;
Chief Operating Offi cer,
International

Roderick A. Palmore
Executive Vice President;
General Counsel;
Chief Compliance and Risk
Management Offi cer
and Secretary

Kendall J. Powell
Chairman of the Board and
Chief Executive Offi cer

Christina L. Shea
Executive 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 Offi cer,
Cereal Partners Worldwide

Sean N. Walker
Vice President;
President, Latin America
and South Africa

Keith A. Woodward
Senior Vice President,
Financial Operations

Our Thanks to
Jeff Rotsch
After a distinguished
36-year career with
General Mills, Jeff Rotsch
retired in August 2010 as
Executive Vice President,
Worldwide Sales and
Channel Development.
Jeff led our sales organi-
zation for 13 years,
achieving record levels of
performance for the
division. He has been a
highly valued member of
our management team,
and we thank him for the
many contributions he
has made to our company.

General Mills

Financial Review

Contents

Financial Summary
18
..........................................................................................................................................................................................................................................................
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
19
..........................................................................................................................................................................................................................................................
Reports of Management and Independent Registered
45
Public Accounting Firm
..........................................................................................................................................................................................................................................................
Consolidated Financial Statements
47
..........................................................................................................................................................................................................................................................
Notes to Consolidated Financial Statements

51
..........................................................................................................................................................................................................................................................
51
..........................................................................................................................................................................................................................................................
55
..........................................................................................................................................................................................................................................................
56
..........................................................................................................................................................................................................................................................
58
..........................................................................................................................................................................................................................................................
58
..........................................................................................................................................................................................................................................................

1 Basis of Presentation and Reclassifications
2 Summary of Significant Accounting Policies
3 Acquisitions and Divestitures
4 Restructuring, Impairment, and Other Exit Costs
5 Investments in Joint Ventures
6 Goodwill and Other Intangible Assets
7 Financial Instruments, Risk Management Activities

and Fair Values

8 Debt
9 Noncontrolling Interests

59
..........................................................................................................................................................................................................................................................
64
..........................................................................................................................................................................................................................................................
65
..........................................................................................................................................................................................................................................................
65
10 Stockholders’ Equity
..........................................................................................................................................................................................................................................................
67
11 Stock Plans
..........................................................................................................................................................................................................................................................
70
12 Earnings per Share
..........................................................................................................................................................................................................................................................
71
13 Retirement and Postemployment Benefits
..........................................................................................................................................................................................................................................................
14 Income Taxes
77
..........................................................................................................................................................................................................................................................
80
15 Leases and Other Commitments
..........................................................................................................................................................................................................................................................
81
16 Business Segment and Geographic Information
..........................................................................................................................................................................................................................................................
82
17 Supplemental Information
..........................................................................................................................................................................................................................................................
84
18 Quarterly Data
..........................................................................................................................................................................................................................................................
85
Glossary
..........................................................................................................................................................................................................................................................
87
Reconciliation of Non-GAAP Measures
..........................................................................................................................................................................................................................................................
90
Total Return to Stockholders

Annual Report 2010

Financial Summary

The following table sets forth selected financial data for each of the fiscal years in the five-year period ended May 30, 2010:

2010

Fiscal Year
........................................................................................................................................................
In Millions, Except Per Share Data, Percentages and Ratios
2008
2006
............................................................................................................................................................................................................................................................................................................................................................................................
Operating data:
Net sales
Gross margin(b)
Selling, general, and administrative expenses(c)
Segment operating profit(c)(d)
Divestures (gain)
After-tax earnings from joint ventures
Net earnings attributable to General Mills
Depreciation and amortization
Advertising and media expense
Research and development expense
Average shares outstanding(e):

$14,691.3
5,233.5
2,951.8
2,643.0
(84.9)
91.9
1,304.4
453.6
732.1
208.2

$12,441.5
4,486.4
2,388.2
2,261.2
—
72.7
1,143.9
417.8
491.4
191.1

$11,711.3
4,166.5
2,176.5
2,112.8
—
69.2
1,090.3
423.9
471.4
178.4

$13,652.1
4,873.8
2,623.6
2,406.9
—
110.8
1,294.7
459.2
587.2
204.7

$14,796.5
5,873.6
3,236.1
2,861.3
—
101.7
1,530.5
457.1
908.5
218.3

2009(a)

2007

Basic
Diluted

Earnings per share(e):

Basic
Diluted

Operating ratios:
Gross margin as a percentage of net sales
Selling, general, and administrative expenses as a percentage of net sales(c)
Segment operating profit as a percentage of net sales(c)(d)
Effective income tax rate(c)
Return on average total capital(b)(c)(d)
Balance sheet data:
Land, buildings, and equipment
Total assets
Long-term debt, excluding current portion
Total debt(b)
Noncontrolling interests(c)
Stockholders’ equity(c)
Cash flow data:
Net cash provided by operating activities
Capital expenditures
Net cash used by investing activities
Net cash used by financing activities
Fixed charge coverage ratio(c)
Operating cash flow to debt ratio(b)
Share data:(e)
Low stock price
High stock price
Closing stock price
Cash dividends per common share
Number of full- and part-time employees

(a) Fiscal 2009 was a 53-week year; all other fiscal years were 52 weeks.

(b) See Glossary on page 85 for definition.

659.6
683.3

663.7
687.1

665.9
693.8

693.1
720.4

715.5
757.6

$
$

2.32
2.24

$
$

1.96
1.90

$
$

1.93
1.85

$
$

1.65
1.59

$
$

1.52
1.45

39.7%
21.9%
19.3%
35.0%
13.8%

35.6%
20.1%
18.0%
37.1%
12.3%

35.7%
19.2%
17.6%
34.0%
11.7%

36.1%
19.2%
18.2%
33.0%
11.0%

35.6%
18.6%
18.0%
33.2%
10.4%

$ 3,127.7
17,678.9
5,268.5
6,425.9
245.1
5,402.9

$ 3,034.9
17,874.8
5,754.8
7,075.5
244.2
5,172.3

$ 3,108.1
19,041.6
4,348.7
6,999.5
246.6
6,212.2

$ 3,013.9
18,183.7
3,217.7
6,206.1
1,139.2
5,318.7

$ 2,997.1
18,075.3
2,414.7
6,049.3
1,136.2
5,772.3

$ 2,181.2
649.9
721.2
1,503.8
6.42
33.9%

$ 1,828.2
562.6
288.9
1,404.5
5.33
25.8%

$ 1,729.9
522.0
442.4
1,093.0
4.91
24.7%

$ 1,751.2
460.2
597.1
1,398.1
4.51
28.2%

$ 1,843.5
360.0
370.0
1,404.3
4.67
30.5%

25.59
36.96
35.62
0.96
33,000

23.61
35.08
25.59
0.86
30,000

25.72
31.25
30.54
0.78
29,500

24.64
30.56
30.08
0.72
28,580

22.34
26.08
25.90
0.67
28,147

(c) In fiscal 2010, we adopted new accounting guidance on noncontrolling interests in financial statements. To conform to the current year’s presentation, we made certain
reclassifications in our Consolidated Statements of Earnings and our Consolidated Balance Sheets as described in Notes 1 and 16 to the Consolidated Financial Statements. Prior
year ratios affected by the reclassifications were updated accordingly.

(d) See page 87 of this report for our discussion of this measure not defined by generally accepted accounting principles.

(e) All shares and per share amounts have been adjusted for the two-for-one stock split effected in the form of a 100 percent stock dividend distributed on June 8, 2010, to shareholders

of record on May 28, 2010.

General Mills

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

EXECUTIVE OVERVIEW

We are a global consumer foods company. We develop distinc-
tive value-added food products and market them under unique
brand names. We work continuously to improve our established
products and to create new products that meet consumers’
evolving needs and preferences. In addition, we build the equity
of our brands over time with strong consumer-directed marketing
and innovative merchandising. We believe our brand-building
strategy is the key to winning and sustaining leading share
positions in markets around the globe.

Our fundamental business goal is to generate superior returns
for our stockholders over the long term. We believe that increases
in net sales, segment operating profit, earnings per share (EPS),
and return on average total capital are the key measures of
financial performance for our businesses. See the “Reconciliation
of Non-GAAP Measures” section on page 87 for a description of
our discussion of total segment operating profit, diluted EPS
excluding certain items affecting comparability and return on
average total capital, which are not defined by generally accepted
accounting principles (GAAP).

Our objectives are to consistently deliver:
• low single-digit annual growth in net sales;
• mid single-digit annual growth in total segment operating

profit;

• high single-digit annual growth in EPS; and
• improvements in return on average total capital.

We believe that this financial performance, coupled with an
attractive dividend yield, should result in long-term value creation
for stockholders. We also return a substantial amount of cash
annually to stockholders through share repurchases.

For the fiscal year ended May 30, 2010, our net sales grew
1 percent, total segment operating profit grew 8 percent, diluted
EPS grew 18 percent, and our return on average total capital
improved by 150 basis points. Diluted EPS growth excluding
certain items affecting comparability, a non-GAAP measure used
for management reporting and incentive compensation purposes,
was 16 percent (see the “Reconciliation of Non-GAAP Measures”
section on page 87 for our use of this measure and our discussion
of the items affecting comparability). Net cash provided by
operations totaled $2.2 billion in fiscal 2010, enabling us to
increase our annual dividend payments per share by 12 percent

from fiscal 2009 and continue returning cash to stockholders
through share repurchases, which totaled $692 million in fiscal
2010. We also made significant capital
investments totaling
$650 million in fiscal 2010. These results met or exceeded our
long-term targets.

We achieved each of our five key operating objectives for

fiscal 2010:
• We generated broad-based growth in net sales across our
businesses which enabled us to achieve a year-over-year
increase, despite one less week in fiscal 2010. Contributions from
volume were flat, including the loss of 2 points of growth from
divested products and a 1 point loss from an additional week in
fiscal 2009. We generated 1 point of growth from net price
realization and product mix. Foreign exchange was flat compared
to fiscal 2009.
• We increased our gross margin as a percent of net sales
410 basis points driven by a decrease in input costs and a focus
on our holistic margin management (HMM) programs, which
include cost-savings initiatives, marketing spending efficiencies,
and profitable sales mix strategies.
• We invested a significant amount in media and other brand-
building marketing programs, which contributed to net sales
growth on our consumer businesses.
• We grew our Bakeries and Foodservice segment operating
profit, including a focus on higher-margin, branded product lines
within our most attractive foodservice customer channels.
• We continued to develop our business in international mar-
kets. We focused on our core platforms of ready-to-eat cereal,
super premium ice cream, convenient meal solutions, and healthy
snacking by introducing new products and investing in consumer
spending.

Details of our financial results are provided in the “Fiscal 2010

Consolidated Results of Operations” section below.

In fiscal 2011, we expect to deliver another year of quality
growth. We are targeting low single-digit growth in net sales
driven by volume gains. We have a strong line-up of consumer
marketing, merchandising, and innovation planned to fuel growth
for our leading brands. We will continue to build our four global
platforms in markets around the world, accelerating our efforts in
rapidly growing emerging markets. The environment remains
challenging for the Bakeries and Foodservice segment, but we
believe that our focus on higher-margin branded product lines

Annual Report 2010

within the most attractive foodservice channels will drive per-
formance for this segment. We remain committed to using HMM
to help manage our costs. We are targeting mid single-digit
growth in segment operating profit, despite renewed input cost
inflation and continued investment in advertising and media.

Our businesses generate strong levels of cash flows. We use
some of this cash to reinvest in our business, and our fiscal 2011
plans call for $700 million of expenditures for capital projects. We
also prioritize returning cash to stockholders. Our plan for fiscal
2011 includes significant cash returned to stockholders through
share repurchases and dividends. Our long-term objective is to
reduce outstanding shares by a net 2 percent per year. We intend
to continue repurchasing shares in fiscal 2011 in-line with our long-
term objective. On June 28, 2010, our Board of Directors approved
a dividend increase to an annual rate of $1.12 per share, a 17 percent
increase from the rate paid in fiscal 2010. Our Board of Directors
also approved and we announced an authorization for the repur-
chase of up to 100 million shares of our common stock. This new
authorization terminated and replaced a December 11, 2006
repurchase authorization.

In May 2010, our Board of Directors approved a two-for-one
stock split to be effected in the form of a 100 percent stock
dividend to stockholders of record on May 28, 2010. The Compa-
ny’s stockholders received one additional share of common stock
for each share of common stock in their possession on that date.
The additional shares were distributed on June 8, 2010. This did
not change the proportionate interest that a stockholder main-
tained in the Company. All shares and per share amounts have
been adjusted for the two-for-one stock split throughout this
report.

Certain terms used throughout this report are defined in a

glossary on page 85 of this report.

FISCAL 2010 CONSOLIDATED RESULTS OF
OPERATIONS

In fiscal 2010, net earnings attributable to General Mills was
$1,530 million, up 17 percent from $1,304 million in fiscal 2009, and
we reported diluted EPS of $2.24 in fiscal 2010, up 18 percent from
$1.90 in fiscal 2009. Fiscal 2010 and 2009 results include losses
from the mark-to-market valuation of certain commodity posi-
tions and grain inventories. Fiscal 2010 results also include income

tax expense related to the enactment of federal health care
reform, and the fiscal 2009 results include a net divestiture gain,
income from a settlement with an insurance carrier, and the
impact of a court decision on an uncertain tax matter. Diluted EPS
excluding these items affecting comparability, a non-GAAP mea-
sure used for management reporting and incentive compensation
purposes, was $2.30 in fiscal 2010, up 16 percent from $1.99 in
fiscal 2009 (see the “Reconciliation of Non-GAAP Measures”
section on page 87 for our use of this measure and our discussion
of the items affecting comparability).

The components of net sales growth are shown in the following

table:

Components of Net Sales Growth

Fiscal 2010
vs. 2009
.........................................................................................................................................................................................
Contributions from volume growth(a)
Net price realization and mix

1 pt

Flat

Flat
Foreign currency exchange
.........................................................................................................................................................................................
1 pt
Net sales growth

(a) Measured in tons based on the stated weight of our product shipments.

Net sales grew 1 point in fiscal 2010, driven by 1 percentage
point of growth from net price realization and mix. Contributions
from volume were flat, including the loss of 2 points of growth
from divested products and a 1 percentage point loss from an
additional week in fiscal 2009. Foreign exchange did not affect
sales growth in fiscal 2010.

Cost of sales decreased $535 million in fiscal 2010 to $8,923 mil-
lion. This decrease was mainly driven by favorable mix, HMM
initiatives, and lower input costs. In fiscal 2010, we recorded a
$7 million net increase in cost of sales related to mark-to-market
valuation of certain commodity positions and grain inventories as
described in Note 7 to the Consolidated Financial Statements on
page 59 of this report, compared to a net increase of $119 million in
fiscal 2009. In fiscal 2010, we recorded a charge of $48 million
resulting from a change in the capitalization threshold for certain
equipment parts, enabled by an upgrade to our parts manage-
ment system.

Gross margin grew 12 percent in fiscal 2010 versus fiscal 2009.
Gross margin as a percent of net sales increased by 410 basis

General Mills

points from fiscal 2009 to fiscal 2010. These improvements were
driven by favorable mix, HMM initiatives and lower input costs.
Selling, general and administrative (SG&A) expenses were up
$284 million in fiscal 2010 versus fiscal 2009. SG&A expenses as a
percent of net sales in fiscal 2010 increased by 2 percentage
points compared to fiscal 2009. The increase in SG&A expenses
was primarily driven by a 24 percent increase in advertising and
media expense. In fiscal 2010, the Venezuelan government deval-
ued the Bolivar exchange rate against the U.S. dollar. The effect of
the devaluation was a $14 million foreign exchange loss. Also in
fiscal 2010, we recorded a $13 million recovery against a corporate
investment compared to write downs of $35 million related to
various corporate investments in fiscal 2009. In fiscal 2009, we
recorded a $41 million gain from a settlement with the insurance
carrier covering the loss of our La Salteña pasta manufacturing
facility in Argentina, which was destroyed by fire in fiscal 2008.
There were no divestitures in fiscal 2010. In fiscal 2009, we
recorded a net divestiture gain of $129 million related to the sale
of our Pop•Secret product line from our U.S. Retail segment for
$192 million in cash. Also in fiscal 2009, we recorded a $38 million
loss on the sale of a portion of the assets of our frozen unbaked
bread dough product line in our Bakeries and Foodservice seg-
ment,
including the discontinuation of our frozen dinner roll
product line in our U.S. Retail segment that shared a divested
facility. In addition, we recorded a $6 million loss in fiscal 2009 on
the sale of our bread concentrates product line in our Bakeries
and Foodservice segment.

Interest, net for fiscal 2010 totaled $402 million, $19 million
higher than fiscal 2009. Average interest-bearing instruments
decreased $1.0 billion in fiscal 2010,
leading to a $58 million
decrease in net interest, while average interest rates increased
60 basis points generating a $37 million increase in net interest.
The average interest rate on our total outstanding debt was
6.3 percent in fiscal 2010 compared to 5.7 percent in fiscal
2009. In fiscal 2010, we also recorded a loss of $40 million related
to the repurchase of certain notes, which represented the pre-
mium paid, the write-off of the remaining discount and unam-
ortized fees, and the settlement of the related swaps.

Restructuring, impairment, and other exit costs totaled $31 mil-

lion in fiscal 2010 as follows:

Expense (Income), in Millions
.........................................................................................................................................................................................

Discontinuation of kids’ refrigerated yogurt beverage and

microwave soup product lines

Discontinuation of the breadcrumbs product line at Federalsburg,

Maryland plant

Sale of Contagem, Brazil bread and pasta plant

$24.1

6.2

(0.6)

Charges associated with restructuring actions previously

announced

1.7
.........................................................................................................................................................................................
$31.4
Total

In fiscal 2010, we decided to exit our kids’ refrigerated yogurt
beverage product line at our Murfreesboro, Tennessee plant and
our microwave soup product line at our Vineland, New Jersey
plant to rationalize capacity for more profitable items. Our deci-
sions to exit these U.S. Retail segment products resulted in a
$24 million noncash charge against the related long-lived assets.
No employees were affected by these actions. We expect to
recognize $2 million of other exit costs related to these actions,
which we anticipate will be completed by the end of the second
quarter of fiscal 2011. We also decided to exit our breadcrumb
product line at our Federalsburg, Maryland plant in our Bakeries
and Foodservice segment. As a result of this decision, we con-
cluded that the future cash flows generated by these products
were insufficient to recover the net book value of the associated
long-lived assets. Accordingly, we recorded a noncash charge of
$6 million primarily related to the impairment of these long-lived
assets and in the fourth quarter of fiscal 2010, we sold our
manufacturing facility in Federalsburg for $3 million. In fiscal
2010, we also recorded a $1 million net gain on the sale of our
previously closed Contagem, Brazil bread and pasta plant for cash
proceeds of $6 million, and recorded $2 million of costs related to
previously announced restructuring actions. In fiscal 2010, we
paid $8 million in cash related to restructuring actions taken in
fiscal 2010 and previous years.

Our consolidated effective tax rate for fiscal 2010 was 35.0 per-
cent compared to 37.1 percent in fiscal 2009. The 2.1 percentage
point decrease primarily reflects an unfavorable court decision last
year on an uncertain tax matter, which increased fiscal 2009
income tax expense by $53 million. In addition, fiscal 2009 included

Annual Report 2010

$15 million of tax expense related to nondeductible goodwill write-
offs associated with divestitures. Fiscal 2010 income tax expense
included a $35 million increase related to the enactment of federal
health care reform (the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act
of 2010). This legislation changed the tax treatment of subsidies to
companies that provide prescription drug benefits that are at least
the equivalent of benefits under Medicare Part D (see the “Impact
of Inflation” section on page 30 for additional discussion of this
legislation).The fiscal 2010 tax rate also included increased benefits
from the domestic manufacturing deduction.

After-tax earnings from joint ventures for fiscal 2010 increased
to $102 million compared to $92 million in the same period in fiscal
2009. In fiscal 2010, net sales for CPW grew 6 percent, due to
4 percentage points of growth from net price realization and mix,
1 percentage point from favorable foreign exchange and a 1 per-
centage point increase in volume, including growth in Russia,
Southeast Asia, the Middle East and Latin America. Net sales for
Ha¨agen-Dazs Japan (HDJ) decreased 4 percent, due primarily to
an 11 percentage point decline in volume, partially offset by
favorable foreign exchange.

Average diluted shares outstanding decreased by 4 million in
fiscal 2010 from fiscal 2009, due primarily to the timing of share
repurchases including the repurchase of 21 million shares since
the end of fiscal 2009, partially offset by the issuance of shares
upon stock option exercises.

FISCAL 2010 CONSOLIDATED BALANCE SHEET
ANALYSIS

Cash and cash equivalents decreased $77 million from fiscal
2009, as discussed in the “Liquidity” section on page 30.

Receivables increased $88 million from fiscal 2009, as a result
of sales timing shifts and a $33 million increase in foreign
exchange translation. The allowance for doubtful accounts was
essentially unchanged from fiscal 2009.

Inventories were essentially flat to fiscal 2009 balances.
Prepaid expenses and other current assets decreased $91 million
from fiscal 2009, due mainly to a $48 million decrease in certain
equipment parts as a result of a change in the capitalization thresh-
old, enabled by an upgrade to our parts management system. In

addition, there was a $22 million decrease in notes receivable and a
$19 million reduction in collateral for certain derivative contracts.

Land, buildings, and equipment increased $93 million from
fiscal 2009, as capital expenditures of $650 million were partially
offset by depreciation expense of $448 million and foreign
exchange impact of $32 million in fiscal 2010.

Goodwill and other intangible assets decreased $102 million

from fiscal 2009 primarily due to foreign currency translation.

Other assets decreased $132 million from fiscal 2009, driven
mainly by a $193 million decrease in our prepaid pension assets
due to a decrease in the funded status of our pension plans and a
$60 million decrease in noncurrent interest rate derivative receiv-
ables, partially offset by an increase in advances to joint ventures,
mainly CPW, of $131 million.

Accounts payable increased $46 million to $850 million in fiscal
2010 as a result of an increase in SG&A expenses and shifts in timing.
Long-term debt, including current portion, and notes payable
decreased $650 million from fiscal 2009. In May 2010, we paid
$437 million to repurchase $400 million of debt as part of a cash
tender offer. We repurchased $221 million of our 6.0 percent notes
due 2012 and $179 million of the 5.65 percent notes due 2012.

The current and noncurrent portions of net deferred income
taxes liability decreased $318 million from fiscal 2009, due to
increased pension and post retirement liabilities and the book
versus tax treatment of our deferred compensation plans. We
also incurred $22 million of deferred income tax expense in fiscal
2010, including a $35 million increase in the net deferred income
tax liability related to changes in the tax treatment of subsidies to
companies that provide prescription drug benefits that are at
least the equivalent of benefits under Medicare Part D included in
the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010.

Other current liabilities increased $280 million from fiscal
2009, primarily driven by increases in accrued taxes of $272 mil-
lion and an $82 million increase in consumer marketing accruals.
These increases were partially offset by a $46 million decrease in
accrued interest payable.

Other liabilities increased $186 million from fiscal 2009, driven
by an increase in accrued compensation and benefits of $537 mil-
lion primarily due to a decrease in the funded status of our
pension plans, partially offset by a $265 million shift in taxes

General Mills

payable from noncurrent to current and a $78 million decrease in
noncurrent interest derivatives payable.

Retained earnings increased $887 million from fiscal 2009,
reflecting fiscal 2010 net earnings of $1,530 million less dividends
paid of $644 million. Treasury stock increased $142 million from
fiscal 2009, due to $692 million of share repurchases, partially
offset by $550 million related to stock-based compensation plans.
Additional paid-in capital increased $95 million from fiscal 2009,
due to stock compensation plan activity. Accumulated other
comprehensive loss (AOCI) increased by $609 million after-
tax from fiscal 2009, primarily driven by losses in our pension,
other postretirement, and postemployment benefit plans of
$460 million. Noncontrolling interests increased by $1 million
from fiscal 2009, due primarily to an increase in net earnings
attributable to General Mills Cereals, LLC (GMC) in fiscal 2010.

FISCAL 2009 CONSOLIDATED RESULTS OF
OPERATIONS

Net earnings attributable to General Mills were $1,304 million in
fiscal 2009, up 1 percent from $1,295 million in fiscal 2008, and we
reported diluted EPS of $1.90 in fiscal 2009, up 3 percent from
$1.85 in fiscal 2008. Fiscal 2009 and 2008 results include effects
from the mark-to-market valuation of certain commodity posi-
tions and grain inventories, and the effects of court rulings on an
uncertain tax matter. Fiscal 2009 results also include a net
divestiture gain and income from a settlement with an insurance
carrier. Diluted EPS excluding these items affecting comparabil-
ity, a non-GAAP measure used for management reporting and
incentive compensation purposes, was $1.99 in fiscal 2009, up
13 percent from $1.76 in fiscal 2008 (see the “Reconciliation of
Non-GAAP Measures” section on page 87 for our use of this
measure and our discussion of the items affecting comparability).

The components of net sales growth are shown in the following table:

Components of Net Sales Growth

Fiscal 2009
vs. 2008
.........................................................................................................................................................................................
Contributions from volume growth(a)
8 pts
Net price realization and mix
(2) pts
Foreign currency exchange
.........................................................................................................................................................................................
8 pts
Net sales growth

2 pts

(a) Measured in tons based on the stated weight of our product shipments.

Net sales for fiscal 2009 grew 8 percent to $14.7 billion, driven
by 2 percentage points of volume growth, mainly in our U.S. Retail
and International segments, and 8 percentage points of growth
from net price realization and mix. This growth was offset by
2 percentage points of unfavorable foreign currency exchange.
The 53rd week in fiscal 2009 contributed 1 percentage point of net
sales growth.

Cost of sales was up $680 million in fiscal 2009 versus fiscal
2008, while cost of sales as a percent of net sales remained
essentially flat from fiscal 2008 to fiscal 2009. Higher volume
drove $90 million of the increase in cost of sales. Higher input
costs and changes in mix increased cost of sales by $453 million.
We also recorded a $119 million net increase in cost of sales
related to mark-to-market valuation of certain commodity posi-
tions and grain inventories, compared to a net decrease of
$57 million in fiscal 2008. In fiscal 2008, we recorded $18 million
of charges to cost of sales, primarily for depreciation associated
with restructured assets. Cost of sales for fiscal 2008 also
included $21 million of costs, including product write-offs, logis-
tics, and other costs related to voluntary product recalls.

Gross margin grew 7 percent in fiscal 2009 versus fiscal 2008,
as operating leverage, cost savings initiatives, and net price
realization offset input cost inflation. Gross margin as a percent
of net sales decreased by 10 basis points from fiscal 2008 to
fiscal 2009.

SG&A expenses increased by $328 million in fiscal 2009 versus
fiscal 2008. The increase in SG&A expenses from fiscal 2008 was
largely the result of a 17 percent increase in advertising and media
expense and other consumer marketing spending consistent with
our brand-building strategy, along with higher levels of compen-
sation and benefits expense. We also recorded write-downs of
$35 million related to various corporate investments in fiscal
2009, compared to a net gain of $16 million in fiscal 2008. These
higher costs were partially offset by a $41 million settlement with
the insurance carrier covering our La Salteña pasta manufacturing
plant in Argentina that was destroyed by fire. SG&A expenses as
a percent of net sales increased by 90 basis points in fiscal 2009
compared to fiscal 2008.

During fiscal 2009 we recorded a net divestiture gain of
$85 million. We recorded a gain of $129 million related to the
sale of our Pop•Secret microwave popcorn product line from our
U.S. Retail segment. We recorded a $38 million loss on the sale of

Annual Report 2010

a portion of the assets of our frozen unbaked bread dough
product line in our Bakeries and Foodservice segment, including
the discontinuation of our frozen dinner roll product line in our
U.S. Retail segment that shared a divested facility. In addition, we
recorded a $6 million loss on the sale of our bread concentrates
product line in our Bakeries and Foodservice segment.

Interest, net for fiscal 2009 totaled $383 million, $17 million
lower than fiscal 2008. Average interest-bearing instruments
decreased $70 million in fiscal 2009 leading to a $4 million
decrease in net interest. Average interest rates also decreased
20 basis points generating a $13 million decrease in net interest.
The average interest rate on our total outstanding debt was
5.7 percent in fiscal 2009 compared to 5.9 percent in fiscal 2008.
impairment, and other exit costs totaled

Restructuring,

$42 million in fiscal 2009 as follows:

Expense, in Millions
.........................................................................................................................................................................................

Closure of Contagem, Brazil bread and pasta plant

Discontinuation of product line at Murfreesboro, Tennessee plant
Charges associated with restructuring actions previously

$16.8

8.3

announced

16.5
.........................................................................................................................................................................................
$41.6
Total

In fiscal 2009, due to declining financial results, we approved
the restructuring of our International segment’s business in Brazil.
We discontinued the production and marketing of Forno De Minas
cheese bread and Frescarini pasta brands in Brazil and closed our
Contagem, Brazil manufacturing facility. These actions affected
556 employees in our Brazilian operations. Our other product
lines in Brazil were not affected by the decision. As a result of this
decision, we incurred a charge of $17 million in the fourth quarter
of fiscal 2009, consisting primarily of $5 million of employee
severance, an $11 million noncash impairment charge to write
down assets to their net realizable value, and $1 million of other
costs associated with this restructuring action. This restructuring
action was completed in the second quarter of fiscal 2010.

Due to declining net sales and to improve manufacturing
capacity for other product lines, we decided to exit our U.S. Retail
segment’s Perfect Portions refrigerated biscuits product line at our
manufacturing facility in Murfreesboro, Tennessee. We recorded
an $8 million noncash impairment charge against long-lived
assets used for this product line. Our other product lines at
Murfreesboro were not affected by the decision, and no

employees were affected by this action, which was completed
in the second quarter of fiscal 2010.

In fiscal 2009, we also incurred $17 million of incremental plant
closure expenses related to previously announced restructuring
activities, including $10 million for the remainder of our lease
obligation at our previously closed facility in Trenton, Ontario.

In fiscal 2009, we paid $10 million in cash related to restruc-

turing actions taken in fiscal 2009 and previous years.

Our consolidated effective income tax rate for fiscal 2009 was
37.1 percent compared to 34.0 percent in fiscal 2008. The increase
in the effective rate is primarily due to the effect of a 2009
U.S. appellate court decision that reversed a 2008 U.S. district
court decision. In the third quarter of fiscal 2008, we recorded an
income tax benefit of $31 million as a result of a favorable
U.S. district court decision on an uncertain tax matter. In the
third quarter of fiscal 2009, the U.S. Court of Appeals for the
Eighth Circuit issued an opinion reversing the district court deci-
sion. As a result, we recorded $53 million (including interest) of
income tax expense related to the reversal of cumulative income
tax benefits from this uncertain tax matter recognized in fiscal
years 1992 through 2008. The rate also increased in fiscal 2009
due to $15 million of tax expense related to nondeductible good-
will write-offs associated with our divestitures.

Other items that decreased the 2009 effective income tax rate
include a favorable California appeals court decision that resulted
in the recognition of $10 million of tax benefits. In addition, we
recognized $21 million of other tax benefits, primarily related to
foreign tax credits and audit settlements.

After-tax earnings from joint ventures totaled $92 million in
fiscal 2009, compared to $111 million in fiscal 2008. Fiscal 2009
earnings were reduced by a $6 million deferred income tax
valuation allowance. In fiscal 2008, earnings included $16 million
for our share of a gain on the sale of a CPW property in the United
Kingdom offset by restructuring expenses of $8 million. Fiscal
2008 results also included $2 million for our share of a gain on the
sale of the 8th Continent soymilk business. In fiscal 2009, net
sales for CPW increased 5 percent. Volume growth of 4 percent-
age points, including growth in Russia, the Middle East, Asia, and
Latin America, and net price realization were offset by unfavor-
able foreign exchange. Net sales for our Ha¨agen-Dazs joint ven-
ture in Japan increased 2 percent in fiscal 2009 as a result of

General Mills

favorable foreign exchange of 11 percentage points and positive
net price realization, offset by a decrease in volume.

Average diluted shares outstanding decreased by 7 million
from fiscal 2008 due to the repurchase of 40 million shares of
common stock in fiscal 2009, partially offset by the issuance of
29 million shares of common stock in fiscal 2008 to settle a

forward contract with an affiliate of Lehman Brothers, Inc. (Leh-
man Brothers), the issuance of common stock upon stock option
exercises, the issuance of annual stock awards, the vesting of
restricted stock units, and the issuance of shares to acquire
Humm Foods.

RESULTS OF SEGMENT OPERATIONS

Our businesses are organized into three operating segments: U.S. Retail; International; and Bakeries and Foodservice.

The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal years

2010, 2009, and 2008:

Net Sales

In Millions
............................................................................................................................................................................................................................................................................................................................................................................................

Net Sales

Percent of
Net Sales

Percent of
Net Sales
..................................................................................................................................................................................................
Fiscal Year
..................................................................................................................................................................................................
2009

Percent of
Net Sales

Net Sales

2008

2010

U.S. Retail
International

$10,323.5
2,702.5

70%
18

$10,052.1
2,591.4

68%
18

$ 9,072.0
2,558.8

66%
19

15
Bakeries and Foodservice
............................................................................................................................................................................................................................................................................................................................................................................................
$14,796.5
Total

$13,652.1

$14,691.3

2,021.3

1,770.5

2,047.8

100%

Segment Operating Profit

Segment
Operating
Profit

Percent of
Segment
Operating
Profit

Percent of
Segment
Operating
Profit
.........................................................................................................................................................................................
Fiscal Year
.........................................................................................................................................................................................
2009

Percent of
Segment
Operating
Profit

Segment
Operating
Profit

2008

2010

U.S. Retail
International

$2,392.0
219.2

83%
8

$2,208.5
263.5

84%
10

$1,971.2
270.3

82%
11

7
Bakeries and Foodservice
............................................................................................................................................................................................................................................................................................................................................................................................
Total

$2,643.0

$2,861.3

$2,406.9

100%

165.4

250.1

171.0

100%

Segment operating profit excludes unallocated corporate
items, gain on divestitures, and restructuring, impairment, and
other exit costs because these items affecting operating profit are
centrally managed at the corporate level and are excluded from
the measure of segment profitability reviewed by our executive
management.

U.S. Retail Segment Our U.S. Retail segment reflects business
with a wide variety of grocery stores, mass merchandisers, mem-
bership stores, natural food chains, and drug, dollar and discount

chains operating throughout the United States. Our major prod-
uct categories in this business segment are ready-to-eat cereals,
refrigerated yogurt, ready-to-serve soup, dry dinners, shelf stable
and frozen vegetables, refrigerated and frozen dough products,
dessert and baking mixes, frozen pizza and pizza snacks, grain,
fruit and savory snacks, and a wide variety of organic products
including soup, granola bars, and cereal.

Annual Report 2010

Components of net sales growth are shown in the following

U.S. Retail Net Sales Percentage Change by Division

table:

Components of U.S. Retail Net Sales Growth

Fiscal 2009
vs. 2008
.........................................................................................................................................................................................
Contributions from volume growth(a)
7 pts
Net price realization and mix
.........................................................................................................................................................................................
11 pts
Net sales growth

Fiscal 2010
vs. 2009

2 pts
3 pts

4 pts

1 pt

(a) Measured in tons based on the stated weight of our product shipments.

In fiscal 2010, net sales for our U.S. Retail segment were
$10.3 billion, up 3 percent from fiscal 2009. Net price realization
and mix added 2 percentage points of growth and volume on a
tonnage basis contributed 1 percentage point of growth including
a loss of 2 percentage points from an additional week in
fiscal 2009.

Net sales for this segment totaled $10.1 billion in fiscal 2009 and
$9.1 billion in fiscal 2008. Net price realization and mix added
7 percentage points of growth and volume on a tonnage basis
contributed 4 percentage points of growth from fiscal 2008 to
fiscal 2009.

We experienced growth in all of our U.S. retail divisions in fiscal

2010 as shown in the tables below:

U.S. Retail Net Sales by Division

Fiscal Year
.....................................................................................
2008
.........................................................................................................................................................................................

2009

2010

Big G

Meals

Pillsbury
Yoplait

Snacks

$ 2,382.2

$ 2,259.5

$2,028.0

2,168.2

1,883.8
1,504.2

1,326.9

2,157.1

1,869.8
1,468.9

1,246.6

2,006.1

1,673.4
1,293.1

1,197.6

723.3
Baking Products
150.5
Small Planet Foods and other
.........................................................................................................................................................................................
$9,072.0
Total

850.7
199.5

854.8
203.4

$10,323.5

$10,052.1

Fiscal 2010
vs. 2009

Big G

Meals
Pillsbury

Yoplait

Snacks

11%

1
1

8
12

18
Baking Products
30
Small Planet Foods
.........................................................................................................................................................................................
Total

Flat
3

11%

In fiscal 2010, net sales for Big G cereals grew 5 percent driven
by MultiGrain Cheerios, Cinnamon Toast Crunch, and Fiber One
cereals and introductory sales of Chocolate Cheerios and Wheaties
Fuel. Meals division net sales increased 1 percent as gains from
Green Giant frozen vegetables and Old El Paso Mexican products
were partially offset by lower sales of Progresso ready-to-serve
soups. Pillsbury net sales grew 1 percent including gains on
Totino’s pizza and Pizza Rolls snacks and Pillsbury Toaster Strudel
pastries. Net sales for Yoplait grew 2 percent, led by introductory
sales from Yoplait Delights and Yoplait Greek style yogurt. Snacks
net sales grew 6 percent, driven by Fiber One bars, Nature Valley
grain snacks and several fruit snack varieties. Net sales for Baking
Products were flat. Small Planet Food’s net sales were up 3 per-
cent, reflecting performance of Cascadian Farm cereal and granola
bars and La¨rabar fruit and nut energy bars.

In fiscal 2009, Big G cereals net sales increased 11 percent driven
including gains on MultiGrain
by growth across the portfolio,
Cheerios, Honey Nut Cheerios, Cinnamon Toast Crunch, and the Fiber
One cereals. Net sales for Meals grew 8 percent led by Helper
dinner mixes, the new Macaroni Grill dinner mix line, and Green
Giant frozen vegetables. Pillsbury net sales increased 12 percent led
by Totino’s pizza and Pizza Rolls snacks, Pillsbury refrigerated dough
products, and new Pillsbury Savorings frozen appetizers. Yoplait net
sales grew 14 percent led by contributions from Yoplait Light. Net
sales for Snacks increased 4 percent, as gains in grain snacks
including Fiber One bars and Chex Mix more than offset the
reduction in sales from the divestiture of Pop•Secret in fiscal
2009. Baking Products net sales grew 18 percent reflecting gains
in Betty Crocker dessert mixes, Bisquick baking mix, and Gold Medal
flour. Net sales for Small Planet Foods grew 30 percent including
contributions from the La¨rabar product line acquired in fiscal 2009.

General Mills

Segment operating profit of $2.4 billion in fiscal 2010 improved
$184 million, or 8 percent, over fiscal 2009. The increase was
primarily driven by favorable supply chain costs of $218 million,
net price realization and mix of $153 million, and volume growth of
$49 million, partially offset by a 22 percent increase in advertising
and media expense and higher administrative costs.

In fiscal 2010, net sales for our International segment were
$2,702 million, up 4 percent from fiscal 2009. This growth was
driven by 3 percentage points from net price realization and mix
and 1 percentage point of favorable foreign currency exchange.
Pound volume was flat, reflecting a 2 percentage point reduction
from divested product lines.

Segment operating profit of $2.2 billion in fiscal 2009 improved
$237 million, or 12 percent, over fiscal 2008. Net price realization
and mix increased segment operating profit by $596 million, and
volume growth increased segment operating profit by $146 mil-
lion. These were partially offset by increased supply chain input
costs of $338 million, a 19 percent increase in consumer marketing
expense consistent with our brand-building strategy, and higher
administrative costs. In fiscal 2008, voluntary product recalls
reduced segment operating profit by $24 million.

International Segment In Canada, our major product categories
are ready-to-eat cereals, shelf stable and frozen vegetables, dry
dinners, refrigerated and frozen dough products, dessert and
baking mixes, frozen pizza snacks, and grain, fruit and savory
snacks. In markets outside North America, our product categories
include super-premium ice cream, grain snacks, shelf stable and
frozen vegetables, dough products, and dry dinners. Our Inter-
national segment also includes products manufactured in the
United States for export, mainly to Caribbean and Latin American
markets, as well as products we manufacture for sale to our
international joint ventures. Revenues from export activities are
reported in the region or country where the end customer is
located. These international businesses are managed through 34
sales and marketing offices.

Components of net sales growth are shown in the following

table:

Components of International Net Sales Growth

Fiscal 2009
vs. 2008
.........................................................................................................................................................................................
Contributions from volume growth(a)
9 pts
Net price realization and mix
(9) pts
Foreign currency exchange
.........................................................................................................................................................................................
1 pt
Net sales growth

Fiscal 2010
vs. 2009

3 pts
1 pt

4 pts

1 pt

Flat

(a) Measured in tons based on the stated weight of our product shipments.

Net sales totaled $2,591 million in fiscal 2009, up 1 percent from
$2,559 million in fiscal 2008. The growth in fiscal 2009 was driven
mainly by 9 percentage points of net price realization and mix and
1 percentage point of volume growth, partially offset by 9 per-
centage points of unfavorable foreign currency exchange.

Net sales growth for our International segment by geographic

region is shown in the following tables:

International Net Sales by Geographic Region

Fiscal Year
...............................................................................
2009
2008
.........................................................................................................................................................................................

2010

Europe
Canada

Asia/Pacific

$ 868.8
715.6

$ 857.8
651.8

$ 898.5
697.0

721.6

635.8

577.4

385.9
Latin America
.........................................................................................................................................................................................
$2,558.8
Total

446.0
$2,591.4

396.5
$2,702.5

International Change in Net Sales by Geographic Region

Fiscal 2010
vs. 2009

Europe
Canada

Asia/Pacific

(5)%
(6)

16
Latin America
.........................................................................................................................................................................................
Total

(11)

In fiscal 2010, net sales in Europe grew 1 percent driven by
growth in Nature Valley and Old El Paso partially offset by unfa-
vorable foreign currency exchange. Net sales in Canada increased
10 percent due to favorable foreign currency exchange and
growth from cereal and Old El Paso. In the Asia/Pacific region,
net sales grew 14 percent due to growth from Ha¨agen-Dazs shops
and Wanchai Ferry products in China. Latin America net sales
decreased 11 percent due to unfavorable foreign currency
exchange, partially offset by net price realization.

In fiscal 2009, net sales in Europe decreased by 5 percent
driven by 9 points of unfavorable foreign currency exchange,

Annual Report 2010

partially offset by net sales growth of Old El Paso across Europe
and dough products in the United Kingdom. Net sales in Canada
decreased 6 percent due to 13 points of unfavorable foreign
currency exchange partially offset by growth from cereal prod-
ucts and Fiber One bars. Net sales in the Asia/Pacific region
increased by 10 percent, including sales growth for Ha¨agen-Dazs
and Wanchai Ferry brands in China, and increased sales of Old
El Paso and Latina in Australia. Latin America net sales increased
16 percent due to net price realization and the sales volume
recovery in Argentina after a fire destroyed our La Salteña man-
ufacturing facility in fiscal 2008.

Segment operating profit for fiscal 2010 declined 17 percent to
$219 million from $264 million in fiscal 2009, reflecting unfavor-
able foreign currency effects and a 31 percent increase in adver-
tising and media expense, partially offset by favorable net price
realization.

In January 2010, the Venezuelan government devalued the
Bolivar by resetting the official exchange rate. The effect of the
devaluation was a $14 million foreign exchange loss, primarily on
the revaluation of non-Bolivar monetary balances in Venezuela.
We continue to use the official exchange rate to remeasure the
financial statements of our Venezuelan operations, as we intend
to remit dividends solely through the government-operated For-
eign Exchange Administration Board (CADIVI). The devaluation
of the Bolivar also reduced the U.S. dollar equivalent of our
Venezuelan results of operations and financial condition, but this
did not have a material impact on our results. During fiscal 2010,
Venezuela became a highly inflationary economy, which did not
have a material impact on our results in fiscal 2010.

Segment operating profit for fiscal 2009 declined 3 percent to
$264 million, from $270 million in fiscal 2008, driven by a 14 per-
centage point decrease due to unfavorable foreign exchange.
Increases in net price realization and mix and volume growth
offset increases in supply chain input costs of $16 million and a
3 percent increase in advertising and media marketing expense.

Bakeries and Foodservice Segment In our Bakeries and Foodservice
segment our major product categories are cereals, snacks, yogurt,
unbaked and fully baked frozen dough products, baking mixes, and
flour. Many products we sell are branded to the consumer and
nearly all are branded to our customers. We sell to distributors and

operators in many customer channels including foodservice, con-
venience stores, vending, and supermarket bakeries.

Components of net sales growth are shown in the following table:

Components of Bakeries and Foodservice Net Sales Growth

Fiscal 2009
vs. 2008
.........................................................................................................................................................................................
Contributions from volume growth(a)
7 pts
Net price realization and mix
Flat
Foreign currency exchange
.........................................................................................................................................................................................
1 pt
Net sales growth

Fiscal 2010
vs. 2009

(6) pts
Flat

(14) pts

(6) pts

(8) pts

(a) Measured in tons based on the stated weight of our product shipments.

For fiscal 2010, net sales for our Bakeries and Foodservice
segment decreased 14 percent to $1,770 million. The decrease
in fiscal 2010 was driven by 8 percentage points of volume decline,
including 8 percentage points from divested product lines and a
loss of 2 percentage points from an additional week in fiscal 2009.
Net price realization and mix decreased 6 percentage points,
primarily from prices indexed to commodity markets.

For fiscal 2009, net sales for our Bakeries and Foodservice
segment increased 1 percent to $2,048 million. The increase in
fiscal 2009 was driven by 7 percentage points of net price real-
ization and mix. This was offset by a 6 percentage point decrease
in volume, mainly in the Foodservice Distributors and Bakeries
and National Restaurant Accounts channels, including the effects
of divested product lines.

Net sales growth for our Bakeries and Foodservice segment by

customer channel is shown in the following tables:

Bakeries and Foodservice Net Sales by Customer Channel

Fiscal Year
...............................................................................
2008
2009
.........................................................................................................................................................................................

2010

Foodservice Distributors

Convenience Stores

Bakeries and National Restaurant

$ 559.8

$ 574.1

$ 565.5

213.4

206.9

191.5

Accounts

1,264.3
.........................................................................................................................................................................................
$2,021.3
Total

1,266.8
$2,047.8

997.3
$1,770.5

General Mills

Bakeries and Foodservice Net Sales Percentage Change by Customer
Channel

Fiscal 2010
vs. 2009

Foodservice Distributors

Convenience Stores

(2)%

Flat
Bakeries and National Restaurant Accounts
.........................................................................................................................................................................................
Total

(14)%

(21)

We realigned our Bakeries and Foodservice customer channels
in fiscal 2010 and reclassified previous years to conform to the
current year presentation.

In fiscal 2010, segment operating profit was $250 million, up
from $171 million in fiscal 2009. The increase was due to lower
input costs, plant operating performance, and increased grain
merchandising earnings.

Segment operating profit was $171 million in fiscal 2009, up
3 percent from $165 million in fiscal 2008. The increase was due to
margin expansion and HMM efforts which offset significant vol-
ume declines and lower grain merchandising activities.

Unallocated Corporate Items Unallocated corporate items include
variances to planned corporate overhead expenses, variances to
planned domestic employee benefits and incentives, all stock
compensation costs, annual contributions to the General Mills
Foundation, and other items that are not part of our measurement
of segment operating performance. This includes gains and losses
from mark-to-market valuation of certain commodity positions
until passed back to our operating segments in accordance with
our policy as discussed in Note 2 of the Consolidated Financial
Statements on page 51 of this report.

For fiscal 2010, unallocated corporate expense totaled $224 mil-
lion compared to $361 million last year. In fiscal 2010 we recorded
a $7 million net increase in expense related to mark-to-market
valuation of certain commodity positions and grain inventories,
compared to a $119 million net increase in expense last year. Also
in fiscal 2010, we recorded a $13 million recovery against a cor-
porate investment compared to $35 million of write-downs
against various investments in fiscal 2009. In fiscal 2009, we
recognized a $41 million gain from an insurance settlement.

Unallocated corporate expense totaled $361 million in fiscal
2009 compared to $157 million in fiscal 2008. The $204 million

increase in expense was driven primarily by a $176 million net
increase in expense related to mark-to-market valuations of
certain commodity positions and grain inventories. We also
recorded write-downs of $35 million related to various corporate
investments in fiscal 2009, compared to a net gain of $16 million in
fiscal 2008, and a $16 million increase in contributions to the
General Mills Foundation, offset by a fiscal 2009 gain from an
insurance settlement as discussed above under the heading
“Fiscal 2009 Consolidated Results of Operations”.

Joint Ventures In addition to our consolidated operations, we
participate in two joint ventures. We have a 50 percent equity
interest in CPW, which manufactures and markets ready-to-eat
cereal products in more than 130 countries and republics outside
the United States and Canada. CPW also markets cereal bars in
several European countries and manufactures private label cere-
als for customers in the United Kingdom. We also have a 50 per-
cent equity interest in HDJ, which manufactures, distributes, and
markets Ha¨agen-Dazs ice cream products and frozen novelties.
During fiscal 2008, the 8th Continent soy milk business was sold.
Our share of after-tax joint venture earnings increased from
$92 million in fiscal 2009 to $102 million in fiscal 2010.The increase
is mainly due to lower fiscal 2009 earnings which were reduced by
a $6 million deferred income tax valuation allowance.

Our share of after-tax joint venture earnings decreased from
$111 million in fiscal 2008 to $92 million in fiscal 2009. In fiscal
2009, earnings were reduced by a $6 million deferred income tax
valuation allowance. In fiscal 2008, earnings included $16 million
for our share of a gain on the sale of a CPW property in the United
Kingdom partially offset by restructuring expenses of $8 million.
Also, fiscal 2008 results included $2 million for our share of a gain
on the sale of the 8th Continent soymilk business.

The change in net sales for each joint venture is set forth in the

following table:

Joint Venture Change in Net Sales

Fiscal 2010
vs. 2009

CPW

2
HDJ
.........................................................................................................................................................................................
Joint Ventures

(4)

Annual Report 2010

For fiscal 2010, CPW net sales grew by 6 percent due to 4 per-
centage points of growth from net price realization and mix, 1 per-
centage point from favorable foreign exchange and a 1 percentage
point increase in volume, including growth in Russia, Southeast Asia,
the Middle East and Latin America. Net sales for HDJ decreased
4 percent from fiscal 2009 due to an 11 percentage point decline in
volume, partially offset by favorable foreign exchange.

CPW reclassified certain expenses as a reduction to net sales. To
conform to the current period presentation, CPW reduced its pre-
viously reported net sales by approximately $150 million in fiscal 2009
and $200 million in 2008. There was no effect on after-tax earnings
from joint ventures in our Consolidated Statements of Earnings.

For fiscal 2009, CPW net sales grew by 5 percent reflecting
higher volume and net price realization, slightly offset by unfa-
vorable foreign currency exchange. Net sales for HDJ increased
2 percent from fiscal 2008 as a result of favorable foreign
exchange of 11 percentage points and positive net price realiza-
tion, offset by a decrease in volume.

Selected cash flows from our joint ventures are set forth in the

following table:

Selected Cash Flows from Joint Ventures

codifies health care reforms with staggered effective dates from
2010 to 2018. Many provisions in the Act require the issuance of
additional guidance from various government agencies. Because
the Act does not take effect fully until future years, we do not
expect the Act to have a material impact on our fiscal 2011 results
of operations. Given the complexity of the Act, the extended time
period over which the reforms will be implemented, and the
unknown impact of future regulatory guidance, the full impact
of the Act on future periods will not be known until those reg-
ulations are adopted.

LIQUIDITY

The primary source of our liquidity is cash flow from operations.
Over the most recent three-year period, our operations have
generated $5.7 billion in cash. A substantial portion of this oper-
ating cash flow has been returned to stockholders through share
repurchases and dividends. We also use this source of liquidity to
fund our capital expenditures. We typically use a combination of
cash, notes payable, and long-term debt to finance acquisitions
and major capital expansions.

Fiscal Year
...................................................................
Inflow (Outflow), in Millions
2008
.........................................................................................................................................................................................

2009

2010

Advances to joint ventures
Repayments of advances

Dividends received

$(131.0)
2.9

$(14.2)
22.4

$ (20.6)
95.8

88.0

68.5

108.7

IMPACT OF INFLATION

We have experienced significant input cost volatility since fiscal
2006. Our gross margin performance in fiscal 2010 reflects the
impact of modest input cost deflation, primarily on commodities
inputs, following three consecutive years of significant input cost
inflation. We expect the cost of commodities and energy to
increase in fiscal 2011. We attempt to minimize the effects of
inflation through planning and operating practices. Our risk man-
agement practices are discussed on pages 42 through 44 of this
report.

The Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010
(collectively, the Act) was signed into law in March 2010. The Act

General Mills

Cash Flows from Operations

Fiscal Year
...............................................................................
In Millions
2008
.........................................................................................................................................................................................

2009

2010

Net earnings, including earnings

attributable to noncontrolling

interests

Depreciation and amortization

$1,535.0
457.1

$1,313.7
453.6

$1,318.1
459.2

After-tax earnings from joint ventures

(101.7)

(91.9)

(110.8)

Stock-based compensation
Deferred income taxes

107.3
22.3

117.7
215.8

Tax benefit on exercised options

(114.0)

(89.1)

133.2
98.1

(55.7)

Distributions of earnings from joint

ventures

88.0

68.5

108.7

Pension and other postretirement

benefit plan contributions

(17.2)

(220.3)

(14.2)

Pension and other postretirement
benefit plan (income) expense

Divestitures (gain), net

Gain on insurance settlement
Restructuring, impairment, and other

(37.9)

—

(27.5)

(84.9)

(41.3)

5.5

—

exit costs (income)

23.4

31.3

(1.7)

Changes in current assets and liabilities
Other, net
.........................................................................................................................................................................................

(126.7)
(83.8)

176.9
5.7

143.4
75.5

Net cash provided by operating

We strive to grow core working capital at or below our growth
in net sales. For fiscal 2010, core working capital increased 3 per-
cent, compared to net sales growth of 1 percent which included
the effects of one less week in fiscal 2010. In fiscal 2009, core
working capital declined 1 percent, compared to net sales growth
of 8 percent, and in fiscal 2008, core working capital grew
12 percent compared to net sales growth of 10 percent.

In fiscal 2009, our operations generated $1,828 million of cash
compared to $1,730 million in fiscal 2008, primarily reflecting a
$304 million reduction in the use of working capital in fiscal 2009,
partially offset by a $200 million voluntary contribution made to
our principal domestic pension plans.

Cash Flows from Investing Activities

Fiscal Year
........................................................................
In Millions
2009
2008
.........................................................................................................................................................................................

2010

Purchases of land, buildings, and

equipment

Acquisitions

Investments in affiliates, net
Proceeds from disposal of land, buildings,

and equipment

Proceeds from divestitures of product

$(649.9)

$(562.6)

$(522.0)

—

(130.7)

7.4

—

5.9

4.1

244.7

41.3

0.6

64.6

25.9

—

activities

$2,181.2

$1,828.2

$1,729.9

lines

Proceeds from insurance settlement

In fiscal 2010, our operations generated $2,181 million of cash
compared to $1,828 million in fiscal 2009. The $353 million increase
primarily reflects the $221 million increase in net earnings, including
earnings attributable to noncontrolling interests. Fiscal 2009 cash
flows from operations were also affected by several transactions.
We voluntarily contributed $200 million to our principal domestic
pension plans. In addition, net earnings, including earnings attrib-
utable to noncontrolling interests for fiscal 2009 included an
$85 million net gain on the sale of certain product lines and a
$41 million gain on the insurance settlement covering the loss at our
La Salteña pasta manufacturing facility in Argentina.

Accounts payable generated $186 million more cash
year-over-year primarily due to an increase in SG&A expense
and shifts in timing. Accounts receivable was a $203 million
increased use of cash primarily driven by sales timing shifts.
Inventory used $11 million less cash in fiscal 2010.

Other, net
.........................................................................................................................................................................................

(22.3)

52.0

(11.5)

Net cash used by investing activities

$(721.2)

$(288.9)

$(442.4)

In fiscal 2010, cash used by investing activities increased by
$432 million from fiscal 2009 primarily due to $245 million of
proceeds from the sale of certain product lines in fiscal 2009 and
the $41 million received in fiscal 2009 related to insurance pro-
ceeds from the settlement with the insurance carrier covering the
loss at our La Salteña pasta manufacturing facility in Argentina.
We also invested $131 million in affiliates in fiscal 2010, mainly our
CPW joint venture, to repay local borrowings.

Capital expenditures in fiscal 2010 increased $87 million from
fiscal 2009 as we increased manufacturing capacity for cereal,
snack bars, and yogurt products.

In fiscal 2009, cash used by investing activities decreased by
$154 million from fiscal 2008 primarily due to proceeds of
$245 million from the sale of certain product lines. We also

Annual Report 2010

received insurance proceeds of $41 million in fiscal 2009 from the
settlement with the insurance carrier covering the loss at our
La Salteña pasta manufacturing facility in Argentina. These pro-
ceeds offset the capital expenditures required to replace the
manufacturing facility that was destroyed by fire in fiscal 2008.
We expect capital expenditures to increase to approximately
$700 million in fiscal 2011, including initiatives that will: increase
manufacturing capacity for cereals and Yoplait yogurt; continue
HMM initiatives throughout the supply chain; and expand Inter-
national production capacity for Wanchai Ferry and Ha¨agen-Dazs
products.

Cash Flows from Financing Activities

Fiscal Year
.....................................................................................
In Millions
2009
2008
.........................................................................................................................................................................................

2010

Change in notes payable
Issuance of long-term debt

Payment of long-term debt

Settlement of Lehman Brothers
forward purchase contract

Repurchase of Series B-1 limited

membership interests in GMC
Repurchase of General Mills Capital,

Inc. preferred stock

Proceeds from sale of Class A

limited membership interests in

GMC

Proceeds from common stock
issued on exercised options

Tax benefit on exercised options

Purchases of common stock for

235.8
—

$(1,390.5)
1,850.0

946.6
1,450.0

(906.9)

(370.3)

(1,623.4)

—

388.8

114.0

305.2

89.1

750.0

(843.0)

(150.0)

92.3

191.4

55.7

treasury

Dividends paid

(691.8)

(643.7)

(1,296.4)

(1,432.4)

(579.5)

(529.7)

Other, net
.........................................................................................................................................................................................

(12.1)

(0.5)

—

Net cash used by financing activities

$(1,503.8)

$(1,404.5)

$(1,093.0)

Net cash used by financing activities increased by $99 million in

fiscal 2010.

In May 2010, we paid $437 million to repurchase in a cash
tender offer $400 million of our previously issued debt. We
repurchased $221 million of our 6.0 percent notes due 2012 and
$179 million of our 5.65 percent notes due 2012. As a result of the
repurchase, we recorded interest expense of $40 million which

represented the premium paid in the tender offer, the write-off of
the remaining discount and unamortized fees, and the settlement
of related swaps. We issued commercial paper to fund the
repurchase.

During fiscal 2010, we repaid $88 million of long-term bank debt

held by wholly owned foreign subsidiaries.

In January 2009, we issued $1.2 billion aggregate principal
amount of 5.65 percent notes due 2019. In August 2008, we
issued $700 million aggregate principal amount of 5.25 percent
notes due 2013. The proceeds of these notes were used to repay a
portion of our outstanding commercial paper. Interest on these
notes is payable semi-annually in arrears. These notes may be
redeemed at our option at any time for a specified make-whole
amount. These notes are senior unsecured, unsubordinated obli-
gations that include a change of control repurchase provision.

In June 2010, subsequent to our fiscal 2010 year-end, we issued
$500.0 million aggregate principal amount of 5.4 percent notes
due 2040. The significant terms of these notes are similar to our
previously issued notes.

On October 15, 2007, we settled the forward contract estab-
lished with Lehman Brothers in October 2004 in conjunction with
the issuance by Lehman Brothers of $750 million of notes that
were mandatorily exchangeable for shares of our common stock.
In settlement of that forward contract, we issued 29 million
shares of our common stock and received $750 million in cash
from Lehman Brothers. We used the cash to reduce outstanding
commercial paper balances.

On August 7, 2007, we repurchased for a net amount of $843 mil-
lion all of the outstanding Series B-1 Interests in GMC as part of a
required remarketing of those interests. The purchase price
reflected the Series B-1 Interests’ original capital account balance
of $835 million and $8 million of capital account appreciation
attributable and paid to the third-party holder of the Series B-1
Interests. The capital appreciation paid to the third-party holder of
the Series B-1 Interests was recorded as a reduction to retained
earnings, a component of stockholders’ equity, on our Consolidated
Balance Sheets, and reduced net earnings available to common
stockholders in our basic and diluted EPS calculations.

In April 2007, we issued $1.15 billion of floating rate convertible
senior notes. In April 2008, holders of $1.14 billion of those notes
In April 2009, we
tendered them to us for

repurchase.

General Mills

repurchased all of the remaining outstanding notes. We issued
commercial paper to fund the repurchases.

We and the third-party holder of all of GMC’s outstanding
Class A limited membership interests (Class A Interests) agreed
to reset, effective on June 28, 2007, the preferred rate of return
applicable to the Class A Interests to the sum of three-month
LIBOR plus 65 basis points. On June 28, 2007, we sold $92 million
of additional Class A Interests to the same third party. There was
no gain or loss associated with these transactions. As of May 30,
2010, the carrying value of all outstanding Class A Interests on our
Consolidated Balance Sheets was $245 million, and the capital
account balance of the Class A Interests upon which preferred
distributions are calculated was $248 million.

On June 28, 2007, we repurchased for $150 million all of the
outstanding Series A preferred stock of our subsidiary General
Mills Capital, Inc. using proceeds from the sale of the Class A
Interests and commercial paper. There was no gain or loss
associated with this repurchase.

During fiscal 2010, we repurchased 21 million shares of our com-
mon stock for an aggregate purchase price of $692 million. During
fiscal 2009, we repurchased 40 million shares of our common stock
for an aggregate purchase price of $1,296 million. During fiscal 2008,
we repurchased 48 million shares of our common stock for an
aggregate purchase price of $1,385 million. In fiscal 2007, our Board
of Directors authorized the repurchase of up to 150 million shares of
our common stock. On June 28, 2010, our Board of Directors
authorized the repurchase of up to 100 million shares of our common
stock.The fiscal 2011 authorization terminated and replaced the fiscal
2007 authorization. Purchases under the authorization can be made
in the open market or in privately negotiated transactions, including
the use of call options and other derivative instruments, Rule 10b5-1
trading plans, and accelerated repurchase programs. The authori-
zation has no specified termination date.

Dividends paid in fiscal 2010 totaled $644 million, or $0.96 per
share, a 12 percent per share increase from fiscal 2009. Dividends
paid in fiscal 2009 totaled $580 million, or $0.86 per share, a
10 percent per share increase from fiscal 2008 dividends of $0.78
per share. On June 28, 2010, our Board of Directors approved a
dividend increase to an annual rate of $1.12 per share, a 17 percent
increase from the rate paid in fiscal 2010.

CAPITAL RESOURCES

Total capital consisted of the following:

May 31,
In Millions
2009
.........................................................................................................................................................................................

May 30,
2010

812.2
Notes payable
508.5
Current portion of long-term debt
5,754.8
Long-term debt
.........................................................................................................................................................................................
7,075.5
Total debt
244.2
Noncontrolling interests
5,172.3
Stockholders’ equity
.........................................................................................................................................................................................
$12,492.0
Total capital

$ 1,050.1
107.3
5,268.5

6,425.9
245.1
5,402.9

$12,073.9

The decrease in total capital from fiscal 2009 to fiscal 2010 was
primarily due to a decrease in current and long-term debt, par-
tially offset by an increase in notes payable as a result of our debt
tender offer.

The following table details the fee-paid committed and uncom-

mitted credit lines we had available as of May 30, 2010:

In Billions
Amount
.........................................................................................................................................................................................

Credit facility expiring:

$1.1
October 2010
1.8
October 2012
.........................................................................................................................................................................................

Total committed credit facilities

2.9

0.3
Uncommitted credit facilities
.........................................................................................................................................................................................

Total committed and uncommitted credit facilities

$3.2

To ensure availability of funds, we maintain bank credit lines
sufficient to cover our outstanding short-term borrowings. Com-
mercial paper is a continuing source of short-term financing. We
issue commercial paper in the United States and Europe. Our
commercial paper borrowings are supported by $2.9 billion of
fee-paid committed credit lines, consisting of a $1.8 billion facility
expiring in October 2012 and a $1.1 billion facility expiring in October
2010. We also have $0.3 billion in uncommitted credit lines that
support our foreign operations. As of May 30, 2010, there were no
amounts outstanding on the fee-paid committed credit lines and
$76 million was drawn on the uncommitted lines. The credit facil-
ities contain several covenants, including a requirement to main-
tain a fixed charge coverage ratio of at least 2.5.

Annual Report 2010

Certain of our long-term debt agreements, our credit facilities,
and our noncontrolling interests contain restrictive covenants. As
of May 30, 2010, we were in compliance with all of these covenants.
We have $107.3 million of long-term debt maturing in the next
12 months that is classified as current. We believe that cash flows
from operations, together with available short- and long-term
debt financing, will be adequate to meet our liquidity and capital
needs for at least the next 12 months.

As of May 30, 2010, our total debt, including the impact of
derivative instruments designated as hedges, was 75 percent in
fixed-rate and 25 percent in floating-rate instruments, compared
to 88 percent in fixed-rate and 12 percent in floating-rate instru-
ments on May 31, 2009. The change in the fixed-rate and floating-
rate percentages was driven by the execution of fixed-to-floating
rate swaps during fiscal 2010 and refinancing of fixed-rate debt
with commercial paper.

We have an effective shelf registration statement on file with
the Securities and Exchange Commission (SEC) covering the sale
of debt securities. The shelf registration statement will expire in
December 2011.

Growth in return on average total capital is one of our key
performance measures (see the “Reconciliation of Non-
GAAP Measures” section on page 87 for our discussion of this
measure, which is not defined by GAAP). Return on average total
capital increased from 12.3 percent in fiscal 2009 to 13.8 percent in
fiscal 2010 primarily due to increased earnings and improvements
in core working capital. We also believe that the ratio of fixed
charge coverage and the ratio of operating cash flow to debt are
important measures of our financial strength. Our fixed charge
coverage ratio in fiscal 2010 was 6.42 compared to 5.33 in fiscal
2009. The measure increased from fiscal 2009 as earnings before
income taxes and after-tax earnings from joint ventures increased
by $262 million and fixed charges decreased by $40 million, driven
mainly by lower interest expense. Our operating cash flow to debt
ratio increased 8.1 points to 33.9 percent in fiscal 2010, driven by
an increase in cash flows from operations and a decrease in our
year-end debt balance.

Currently, Standard and Poor’s (S&P) has ratings of BBB+ on our
long-term debt and A-2 on our commercial paper. Moody’s Inves-
tors Services (Moody’s) has ratings of Baa1 for our long-term debt
and P-2 for our commercial paper. Fitch Ratings rates our long-
term debt BBB+ and our commercial paper F-2. These ratings are

not a recommendation to buy, sell or hold securities, are subject to
revision or withdrawal at any time by the rating organization, and
should be evaluated independently of any other rating.

In April 2002, we contributed assets to our subsidiary GMC. In
exchange for the contribution of these assets, GMC issued its
managing membership interest and its limited preferred mem-
bership interests to certain of our wholly owned subsidiaries. We
continue to hold the entire managing membership interest, and
therefore direct the operations of GMC.

The third-party holder of the Class A Interests in GMC receives
quarterly preferred distributions from available net income based
on the application of a floating preferred return rate, currently
equal to the sum of three-month LIBOR plus 65 basis points. The
preferred return rate of the Class A Interests is adjusted every five
years through a negotiated agreement between the Class A
Interest holder and GMC, or through a remarketing auction.
The next remarketing is scheduled to occur in June 2012 and
thereafter in five-year intervals.

The holder of the Class A Interests may initiate a liquidation of
GMC under certain circumstances, including, without limitation,
the bankruptcy of GMC or its subsidiaries, GMC’s failure to
deliver the preferred distributions on the Class A Interests,
GMC’s failure to comply with portfolio requirements, breaches
of certain covenants, lowering of our senior debt rating below
either Baa3 by Moody’s or BBB- by S&P, and a failed attempt to
remarket the Class A Interests as a result of GMC’s failure to
assist in such remarketing. In the event of a liquidation of GMC,
each member of GMC will receive the amount of its then current
capital account balance. The managing member may avoid liq-
uidation by exercising its option to purchase the Class A Interests.
We may exercise our option to purchase the Class A Interests
for consideration equal to the then current capital account value,
plus any unpaid preferred return and the prescribed make-whole
amount. If we purchase these interests, any change in the unre-
lated third-party investor’s capital account from its original value
will be charged directly to retained earnings and will increase or
decrease the net earnings used to calculate EPS in that period.

General Mills

OFF-BALANCE SHEET ARRANGEMENTS AND
CONTRACTUAL OBLIGATIONS

As of May 30, 2010, we have issued guarantees and comfort
letters of $538 million for the debt and other obligations of
consolidated subsidiaries, and guarantees and comfort letters
of $302 million for the debt and other obligations of nonconso-
lidated affiliates, mainly CPW. In addition, off-balance sheet
arrangements are generally limited to the future payments under
noncancelable operating leases, which totaled $315 million as of
May 30, 2010.

As of May 30, 2010, we had invested in three variable interest
entities (VIEs). We have an interest in a contract manufacturer at
our former facility in Geneva, Illinois. We are the primary ben-
eficiary (PB) and have consolidated this entity. This entity had
property and equipment with a carrying value of $19 million and
long-term debt of $21 million as of May 30, 2010. The liabilities
recognized as a result of consolidating this entity do not represent
additional claims on our general assets. We also have an interest
in a contract manufacturer in Greece that is a VIE. Although we
are the PB, we have not consolidated this entity because it is not
practical to do so and it is not material to our results of oper-
ations, financial condition, or liquidity as of and for the year ended
May 30, 2010. This entity had assets of $7 million and liabilities of
$1 million as of May 30, 2010. We are not the PB of the remaining
VIE. Our maximum exposure to loss from the three VIEs is limited
to the $21 million of long-term debt of the contract manufacturer
in Geneva, Illinois and our $2 million equity investment in the VIE
of which we are not the PB. We have not provided financial or
other support to these VIEs during the current period nor are
there arrangements related to these VIEs that could require us to
provide financial support in the future.

Our defined benefit plans in the United States are subject to the
requirements of the Pension Protection Act (PPA). The PPA
revised the basis and methodology for determining defined ben-
efit plan minimum funding requirements as well as maximum
contributions to and benefits paid from tax-qualified plans. Most
of these provisions were applicable to our domestic defined
benefit pension plans in fiscal 2010 on a phased-in basis. The
PPA may ultimately require us to make additional contributions to
our domestic plans. We did not make a contribution to our
principal defined benefit pension plans in fiscal 2010. Although

not required under the provisions of the PPA, we voluntarily
contributed $200 million to our principal defined benefit plans
in fiscal 2009. We do not expect to make any contributions to our
domestic plans in fiscal 2011. Actual fiscal 2011 contributions could
exceed our current projections, and may be influenced by our
decision to undertake discretionary funding of our benefit trusts
or by changes in regulatory requirements. Additionally, our pro-
jections concerning timing of the PPA funding requirements are
subject to change and may be influenced by factors such as
general market conditions affecting trust asset performance,
interest rates, and our future decisions regarding certain elective
provisions of the PPA.

The following table summarizes our future estimated cash
payments under existing contractual obligations, including pay-
ments due by period:

Total

Payments Due by Fiscal Year
................................................................................................................
2016 and
In Millions
Thereafter
.........................................................................................................................................................................................
Long-term debt(a)
Accrued interest
Operating leases(b)
Capital leases
Purchase obligations(c)
94.0
.........................................................................................................................................................................................

$ 5,371.0 $ 105.9 $1,662.6 $1,452.3

—
110.7

136.5
87.4

136.5
315.3

—
53.9

—
63.3

$2,150.2

2,019.2

2,358.5

2014–15

2012–13

177.5

67.8

2011

0.5

4.6

1.7

2.4

—

2,307.5
Total contractual obligations
Other long-term obligations(d)
—
.........................................................................................................................................................................................

2,350.7
—

1,953.2
—

1,574.5
—

8,185.9
2,466.1

Total long-term obligations

$10,652.0 $2,350.7 $1,953.2 $1,574.5

$2,307.5

(a) Amounts represent the expected cash payments of our long-term debt and do not
include $4 million for capital leases or $1 million for net unamortized bond premiums
and discounts and fair value adjustments.

(b) Operating leases represents the minimum rental commitments under noncancelable

operating leases.

(c) The majority of the purchase obligations represent commitments for raw material
and packaging to be utilized in the normal course of business and for consumer
marketing spending commitments that support our brands. For purposes of this table,
arrangements are considered purchase obligations if a contract specifies all signif-
icant terms, including fixed or minimum quantities to be purchased, a pricing struc-
ture, and approximate timing of the transaction. Most arrangements are cancelable
without a significant penalty and with short notice (usually 30 days). Any amounts
reflected on the Consolidated Balance Sheets as accounts payable and accrued
liabilities are excluded from the table above.

(d)The fair value of our interest rate and equity swaps with a payable position to the
counterparty was $180 million as of May 30, 2010, based on fair market values as of
that date. Future changes in market values will impact the amount of cash ultimately
paid or received to settle those instruments in the future. Other long-term obligations
mainly consist of liabilities for uncertain income tax positions, accrued compensation
and benefits,
including the underfunded status of certain of our defined benefit
pension, other postretirement, and postemployment plans, and miscellaneous

Annual Report 2010

liabilities. We expect to pay $18 million of benefits from our unfunded postemploy-
ment benefit plans and $13 million of deferred compensation in fiscal 2011. We are
unable to reliably estimate the amount of these payments beyond fiscal 2011. As of
May 30, 2010, our total liability for uncertain tax positions and the associated accrued
interest and penalties was $728 million. We expect to pay approximately $425 million
of tax liabilities related to uncertain tax positions and accrued interest in the next
12 months, including a portion of our potential liability for the matter resolved by the
U.S. Court of Appeals discussed within this MD&A. While fiscal years 2007 and 2008
are currently under examination by the Internal Revenue Service (IRS), we are not able
to reasonably estimate the timing of future cash flows beyond 12 months due to
uncertainties in the timing of this and other tax audit outcomes.

SIGNIFICANT ACCOUNTING ESTIMATES

For a complete description of our significant accounting policies,
see Note 2 to the Consolidated Financial Statements beginning on
page 51 of this report. Our significant accounting estimates are
those that have a meaningful impact on the reporting of our
financial condition and results of operations. These estimates
include our accounting for promotional expenditures, valuation of
long-lived assets, intangible assets, stock-based compensation,
income taxes, and defined benefit pension, other postretirement
and postemployment benefits.

Promotional Expenditures Our promotional activities are con-
ducted through our customers and directly or indirectly with
end consumers. These activities include: payments to customers
to perform merchandising activities on our behalf, such as adver-
tising or in-store displays; discounts to our list prices to lower
retail shelf prices; payments to gain distribution of new products;
coupons, contests, and other incentives; and media and adver-
tising expenditures. The media and advertising expenditures are
recognized as expense when the advertisement airs. The cost of
payments to customers and other consumer activities are rec-
ognized as the related revenue is recorded, which generally
precedes the actual cash expenditure. The recognition of these
costs requires estimation of customer participation and perfor-
mance levels. These estimates are made based on the forecasted
customer sales, the timing and forecasted costs of promotional
activities, and other factors. Differences between estimated
expenses and actual costs are normally insignificant and are
recognized as a change in management estimate in a subsequent
period. Our accrued trade, coupon, and consumer marketing
liabilities were $555 million as of May 30, 2010, and $474 million
as of May 31, 2009. Because our total promotional expenditures

(including amounts classified as a reduction of revenues) are
significant, if our estimates are inaccurate we would have to make
adjustments in subsequent periods that could have a material
effect on our results of operations.

Valuation of Long-lived Assets Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indi-
cate that the carrying amount of an asset (or asset group) may
not be recoverable. An impairment loss would be recognized
when estimated undiscounted future cash flows from the oper-
ation and disposition of the asset group are less than the carrying
amount of the asset group. Asset groups have identifiable cash
flows independent of other asset groups. Measurement of an
impairment loss would be based on the excess of the carrying
amount of the asset group over its fair value. Fair value is mea-
sured using discounted cash flows or independent appraisals, as
appropriate.

Intangible Assets Goodwill is not subject to amortization and is
tested for impairment annually and whenever events or changes
in circumstances indicate that impairment may have occurred.
Impairment testing is performed for each of our reporting units.
We compare the carrying value of a reporting unit, including
goodwill, to the fair value of the unit. Carrying value is based on
the assets and liabilities associated with the operations of that
reporting unit, which often requires allocation of shared or cor-
porate items among reporting units. If the carrying amount of a
reporting unit exceeds its fair value, we revalue all assets and
liabilities of the reporting unit, excluding goodwill, to determine if
the fair value of the net assets is greater than the net assets
including goodwill. If the fair value of the net assets is less than
the net assets including goodwill, impairment has occurred. Our
estimates of fair value are determined based on a discounted
cash flow model. Growth rates for sales and profits are deter-
mined using inputs from our annual long-range planning process.
We also make estimates of discount rates, perpetuity growth
assumptions, market comparables, and other factors.

General Mills

stability of the industry, known technological advances, legisla-
tive action that results in an uncertain or changing regulatory
environment, and expected changes in distribution channels), the
level of required maintenance expenditures, and the expected
lives of other related groups of assets.

Our indefinite-lived intangible assets, mainly intangible assets
primarily associated with the Pillsbury, Totino’s, Progresso, Green
Giant, Old El Paso, and Ha¨agen-Dazs brands, are also tested for
impairment annually and whenever events or changes in circum-
stances indicate that their carrying value may not be recoverable.
We performed our fiscal 2010 assessment of our brand intangi-
bles as of December 1, 2009. Our estimate of the fair value of the
brands was based on a discounted cash flow model using inputs
which included: projected revenues from our annual long-range
plan; assumed royalty rates that could be payable if we did not
own the brands; and a discount rate. As of our assessment date,
there was no impairment of any of our intangibles as their related
fair values were substantially in excess of the carrying values.

As of May 30, 2010, we had $10.3 billion of goodwill and
indefinite-lived intangible assets. While we currently believe that
the fair value of each intangible exceeds its carrying value and
that those intangibles so classified will contribute indefinitely to
our cash flows, materially different assumptions regarding future
performance of our businesses or a different weighted-average
cost of capital could result in significant impairment losses and
amortization expense.

Stock-based Compensation The valuation of stock options is a
significant accounting estimate which requires us to use judg-
ments and assumptions that are likely to have a material impact
on our financial statements. Annually, we make predictive
assumptions regarding future stock price volatility, employee
exercise behavior, dividend yield, and the forfeiture rate.

We estimate our future stock price volatility using the historical
volatility over the expected term of the option, excluding time
periods of volatility we believe a marketplace participant would
exclude in estimating our stock price volatility. For the fiscal 2010
grants, we have excluded historical volatility for fiscal 2002 and
prior, primarily because volatility driven by our acquisition of The
Pillsbury Company (Pillsbury) in fiscal 2002 does not reflect what
we believe to be expected future volatility. We also have con-
sidered, but did not use, implied volatility in our estimate, because

trading activity in options on our stock, especially those with
is insufficient to provide a
tenors of greater than 6 months,
reliable measure of expected volatility. If all other assumptions
are held constant, a one percentage point increase in our fiscal
2010 volatility assumption would increase the grant-date fair
value of our fiscal 2010 option awards by 7 percent.

Our expected term represents the period of time that options
granted are expected to be outstanding based on historical data
to estimate option exercise and employee termination within the
valuation model. Separate groups of employees have similar
historical exercise behavior and therefore were aggregated into
a single pool for valuation purposes. The weighted-average
expected term for all employee groups is presented in the table
below. An increase in the expected term by 1 year, leaving all
other assumptions constant, would change the grant date fair
value by less than 1 percent.

The risk-free interest rate for periods during the expected term
of the options is based on the U.S. Treasury zero-coupon yield
curve in effect at the time of grant.

The estimated fair values of stock options granted and the
assumptions used for the Black-Scholes option-pricing model
were as follows:

Fiscal Year
...........................................................................................
2009
2008
.........................................................................................................................................................................................

2010

Estimated fair values of stock

options granted

Assumptions:

Risk-free interest rate

Expected term
Expected volatility

Dividend yield

3.20

4.70

5.28

3.7%

4.4%

5.1%

8.5 years

18.9%

3.4%

16.1%

2.7%

15.6%

2.7%

To the extent that actual outcomes differ from our assump-
tions, we are not required to true up grant-date fair value-based
expense to final intrinsic values. However, these differences can
impact the classification of cash tax benefits realized upon exer-
cise of stock options, as explained in the following two para-
graphs. Furthermore, historical data has a significant bearing on
our forward-looking assumptions. Significant variances between
actual and predicted experience could lead to prospective revi-
sions in our assumptions, which could then significantly impact
the year-over-year comparability of stock-based compensation
expense.

Annual Report 2010

Realized windfall tax benefits are credited to additional paid-in
capital within the Consolidated Balance Sheets. Realized shortfall
tax benefits (amounts which are less than that previously rec-
ognized in earnings) are first offset against the cumulative bal-
ance of windfall tax benefits, if any, and then charged directly to
income tax expense, potentially resulting in volatility in our con-
solidated effective income tax rate. We calculated a cumulative
amount of windfall tax benefits from post-1995 fiscal years for the
purpose of accounting for future shortfall tax benefits and cur-
rently have sufficient cumulative windfall tax benefits to absorb
projected arising shortfalls, such that we do not currently expect
future earnings to be affected by this provision. However, as
employee stock option exercise behavior is not within our control,
it is possible that materially different reported results could occur
if different assumptions or conditions were to prevail.

Income Taxes We apply a more-likely-than-not threshold to the
recognition and derecognition of uncertain tax positions. Accord-
ingly we recognize the amount of tax benefit that has a greater
than 50 percent likelihood of being ultimately realized upon
settlement. Future changes in judgment related to the expected
ultimate resolution of uncertain tax positions will affect earnings
in the quarter of such change.

The number of years with open tax audits varies depending on
the tax jurisdiction. Our major taxing jurisdictions include the
United States (federal and state) and Canada. We are no longer
subject to United States federal examinations by the IRS for fiscal
years before 2002.

The IRS has concluded its field examination of our 2006 and
prior federal tax years, which resulted in payments of $18 million
in fiscal 2009 and $56 million in fiscal 2008 to cover the additional
U.S.
income tax liability plus interest related to adjustments
during these audit cycles. The IRS also proposed additional
adjustments for the fiscal 2002 to 2006 audit cycles related to
the amount of capital loss and depreciation and amortization we
reported as a result of our sale of noncontrolling interests in our
GMC subsidiary. The IRS has proposed adjustments that effec-
tively eliminate most of the tax benefits associated with this
transaction. We believe our positions are supported by substan-
tial technical authority and are vigorously defending our positions.
We are currently in negotiations with the IRS Appeals Division for
fiscal 2002 to 2006. Our potential
liability for this matter is
significant. We have determined that a portion of this matter
should be included as a tax liability and have accordingly included
it in our total liabilities for uncertain tax positions as disclosed in
Note 14 to our Consolidated Financial Statements beginning on
page 77 of this report. The IRS initiated its audit of our fiscal 2007
and 2008 tax years during fiscal 2009.

In the third quarter of fiscal 2008, we recorded an income tax
benefit of $31 million as a result of a favorable U.S. district court
decision on an uncertain tax matter. In the third quarter of fiscal
2009, the U.S. Court of Appeals for the Eighth Circuit issued an
opinion reversing the district court decision. As a result, we
recorded $53 million (including interest) of income tax expense
related to the reversal of cumulative income tax benefits from this
uncertain tax matter recognized in fiscal years 1992 through 2008.
We expect to make cash tax and interest payments of approx-
imately $32 million in connection with this matter.

As of May 30, 2010, our total liability for uncertain tax positions
and the associated accrued interest and penalties was $728 mil-
lion. We expect to pay approximately $425 million of tax liabilities
related to uncertain tax positions and accrued interest in the next
12 months, including a portion of our potential liability for the
matter resolved by the IRS Appeals Division and the U.S. Court of
Appeals for the Eighth Circuit as discussed in the preceding

General Mills

paragraphs. While fiscal years 2007 and 2008 are currently under
examination by the IRS, we are not able to reasonably estimate
the timing of future cash flows beyond 12 months due to uncer-
tainties in the timing of this and other tax audit outcomes.

Various tax examinations by United States state taxing author-
ities could be conducted for any open tax year, which vary by
jurisdiction, but are generally from 3 to 5 years. Currently, several
state examinations are in progress. The Canada Revenue Agency is
conducting an audit of our income tax returns in Canada for fiscal
years 2003 (which is our earliest tax year still open for examina-
tion) through 2005. We do not anticipate that any United States
state tax or Canadian tax adjustments will have a significant impact
on our financial position or results of operations.

Defined Benefit Plans

Defined Benefit Pension Plans We have defined benefit pension plans
covering most domestic, Canadian, and United Kingdom employees.
Benefits for salaried employees are based on length of service and
final average compensation. Benefits for hourly employees include
various monthly amounts for each year of credited service. Our
funding policy is consistent with the requirements of applicable laws.
We made $200 million of voluntary contributions to our principal
domestic plans in fiscal 2009. We did not make any contributions in
fiscal 2010, and we do not expect to be required to make any
contributions in fiscal 2011. Our principal domestic retirement plan
covering salaried employees has a provision that any excess pension
assets would be allocated to active participants if the plan is ter-
minated within five years of a change in control.

Other Postretirement Benefit Plans We also sponsor plans that
provide health care benefits to the majority of our domestic and
Canadian retirees. The salaried health care benefit plan is con-
tributory, with retiree contributions based on years of service. We
make decisions to fund related trusts for certain employees and
retirees on an annual basis. We did not make voluntary contri-
butions to these plans in fiscal 2010. The Patient Protection and
Affordable Care Act, as modified by the Health Care and Edu-
cation Reconciliation Act of 2010, was enacted in March 2010. The
effect of the Act, including possible modifications to provider
plans, has not yet been fully evaluated, but could affect the future
cost of our benefit plans.

Postemployment Benefit Plans Under certain circumstances, we
also provide accruable benefits to former or inactive employees in
the United States, Canada, and Mexico, and members of our
Board of Directors, including severance and certain other benefits
payable upon death. We recognize an obligation for any of these
benefits that vest or accumulate with service. Postemployment
benefits that do not vest or accumulate with service (such as
severance based solely on annual pay rather than years of ser-
vice) are charged to expense when incurred. Our postemploy-
ment benefit plans are unfunded.

We recognize benefits provided during retirement or following
employment over the plan participants’ active working life.
Accordingly, we make various assumptions to predict and mea-
sure costs and obligations many years prior to the settlement of
our obligations. Assumptions that require significant manage-
ment judgment and have a material impact on the measurement
of our net periodic benefit expense or income and accumulated
benefit obligations include the long-term rates of return on plan
assets, the interest rates used to discount the obligations for our
benefit plans, and the health care cost trend rates.

Expected Rate of Return on Plan Assets Our expected rate of
return on plan assets is determined by our asset allocation,
our historical long-term investment performance, our estimate
of future long-term returns by asset class (using input from our
actuaries, investment services, and investment managers), and
long-term inflation assumptions. We review this assumption
annually for each plan, however, our annual investment perfor-
mance for one particular year does not, by itself, significantly
influence our evaluation.

The investment objective for our defined benefit pension and
other postretirement benefit plans is to secure the benefit obli-
gations to participants at a reasonable cost to us. Our goal is to
optimize the long-term return on plan assets at a moderate level
of risk. The defined benefit pension and other postretirement
portfolios are broadly diversified across asset classes. Within
asset classes, the portfolios are further diversified across invest-
ment styles and investment organizations. For the defined benefit
pension and other postretirement benefit plans, the long-term
investment policy allocations are: 30 percent to equities in the
United States; 20 percent to international equities; 10 percent to
private equities; 30 percent to fixed income; and 10 percent to real

Annual Report 2010

assets (real estate, energy, and timber). The actual allocations to
these asset classes may vary tactically around the long-term
policy allocations based on relative market valuations.

Our historical investment returns (compound annual growth
rates) for our United States defined benefit pension and other
postretirement plan assets were a 17 percent gain in the 1 year
period ended May 30, 2010, and returns of 5 percent, 6 percent,
9 percent, and 10 percent for the 5, 10, 15, and 20 year periods
ended May 30, 2010.

Our principal defined benefit pension and other postretirement
plans in the United States have an expected return on plan assets
of 9.6 percent. On a weighted-average basis, the expected rate of
return for all defined benefit plans was 9.55 percent for fiscal 2010,
9.55 percent for fiscal 2009, and 9.56 percent for fiscal 2008.

Lowering the expected long-term rate of return on assets by
50 basis points would increase our net pension and postretire-
ment expense by $23 million for fiscal 2011. A market-related
valuation basis is used to reduce year-to-year expense volatility.
The market-related valuation recognizes certain investment gains
or losses over a five-year period from the year in which they
occur. Investment gains or losses for this purpose are the differ-
ence between the expected return calculated using the market-
related value of assets and the actual return based on the market-
related value of assets. Our outside actuaries perform these
calculations as part of our determination of annual expense or
income.

Discount Rates Our discount rate assumptions are determined
annually as of the last day of our fiscal year for all of our defined
benefit pension, other postretirement, and postemployment ben-
efit plan obligations. We also use the same discount rates to
determine defined benefit pension, other postretirement, and
postemployment benefit plan income and expense for the fol-
lowing fiscal year. We work with our actuaries to determine the
timing and amount of expected future cash outflows to plan
participants and, using the top quartile of AA-rated corporate
bond yields, to develop a forward interest rate curve, including a
margin to that index based on our credit risk. This forward interest
rate curve is applied to our expected future cash outflows to
determine our discount rate assumptions.

Our weighted-average discount rates were as follows:

Weighted-Average Discount Rates

Defined
Postemployment
Benefit
Benefit
Pension
Plans
Plans
.........................................................................................................................................................................................

Other
Postretirement
Benefit
Plans

Obligations as of May 30,

2010, and fiscal 2011

expense

5.85%

5.80%

5.12%

Obligations as of May 31,

2009, and fiscal 2010

expense

Fiscal 2009 expense

7.49%
6.88%

7.45%
6.90%

7.06%
6.64%

Lowering the discount rates by 50 basis points would increase
our net defined benefit pension, other postretirement, and post-
employment benefit plan expense for fiscal 2011 by approximately
$31 million. All obligation-related experience gains and losses are
amortized using a straight-line method over the average remain-
ing service period of active plan participants.

Health Care Cost Trend Rates We review our health care cost
trend rates annually. Our review is based on data we collect about
our health care claims experience and information provided by
our actuaries. This information includes recent plan experience,
plan design, overall
industry experience and projections, and
assumptions used by other similar organizations. Our initial
health care cost trend rate is adjusted as necessary to remain
consistent with this review, recent experiences, and short-term
expectations. Our initial health care cost trend rate assumption is
9.0 percent for all retirees. Rates are graded down annually until
the ultimate trend rate of 5.2 percent is reached in 2019 for all
retirees. The trend rates are applicable for calculations only if the
retirees’ benefits increase as a result of health care inflation. The
ultimate trend rate is adjusted annually, as necessary, to approx-
imate the current economic view on the rate of long-term infla-
tion plus an appropriate health care cost premium. Assumed
trend rates for health care costs have an important effect on the
amounts reported for the other postretirement benefit plans.

General Mills

future impacts of several of the Act’s provisions are incorporated
into our postretirement benefit liability including the elimination
of lifetime maximums and the imposition of an excise tax on high
cost health plans.These changes resulted in a $24 million increase
in our postretirement benefit liability as of May 30, 2010. Given
the complexity of the Act, the extended time period over which
the reforms will be implemented, and the unknown impact of
future regulatory guidance, further financial impacts to our pos-
tretirement benefit liability and related future expense may occur.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued new accounting guidance that
changes the consolidation model for variable interest entities
(VIEs). The guidance requires companies to qualitatively assess
the determination of the primary beneficiary of a VIE based on
whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and
(2) has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE.
fiscal years beginning after
The guidance is effective for
November 15, 2009, which for us is fiscal 2011. We are currently
evaluating the impact of the guidance on our results of operations
and financial position.

A one percentage point change in the health care cost trend

rate would have the following effects:

One
Percentage
Point
In Millions
Decrease
.........................................................................................................................................................................................

One
Percentage
Point
Increase

Effect on the aggregate of the service and
interest cost components in fiscal 2011

Effect on the other postretirement accumulated

$ 7.9

$ (6.8)

benefit obligation as of May 30, 2010

96.7

(85.0)

Any arising health care claims cost-related experience gain or
loss is recognized in the calculation of expected future claims.
Once recognized, experience gains and losses are amortized
using a straight-line method over 15 years, resulting in at least
the minimum amortization required being recorded.

Financial Statement Impact In fiscal 2010, we recorded net defined
benefit pension, other postretirement, and postemployment ben-
efit plan income of $11 million compared to $4 million of income in
fiscal 2009 and $19 million of expense in fiscal 2008. As of May 30,
2010, we had cumulative unrecognized actuarial net losses of
$1.4 billion on our defined benefit pension plans and $225 million
on our postretirement benefit plans, mainly as the result of
declines in the values of plan assets. These unrecognized actuarial
net losses will result in decreases in our future pension income
and increases in postretirement expense since they currently
exceed the corridors defined by GAAP.

We use the Retirement Plans (RP) 2000 Mortality Table pro-
jected forward to our plans’ measurement dates to calculate the
year-end defined benefit pension, other postretirement, and
postemployment benefit obligations and annual expense.

Actual future net defined benefit pension, other postretire-
ment, and postemployment benefit plan income or expense will
depend on investment performance, changes in future discount
rates, changes in health care cost trend rates, and other factors
related to the populations participating in these plans.

The Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010 was
signed into law in March 2010. The Act codifies health care
reforms with staggered effective dates from 2010 to 2018 with
many provisions in the Act requiring the issuance of additional
guidance from various government agencies. Estimates of the

Annual Report 2010

CAUTIONARY STATEMENT RELEVANT TO FORWARD-
LOOKING INFORMATION FOR THE PURPOSE OF “SAFE
HARBOR” PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 that are based on our current expectations
and assumptions. We also may make written or oral forward-
looking statements, including statements contained in our filings
with the SEC and in our reports to stockholders.

The words or phrases “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimate,” “plan,” “project,” or similar
expressions identify “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical
results and those currently anticipated or projected. We wish to
caution you not to place undue reliance on any such forward-
looking statements.

In connection with the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, we are identifying impor-
tant factors that could affect our financial performance and could
cause our actual results in future periods to differ materially from
any current opinions or statements.

Our future results could be affected by a variety of factors, such
as: competitive dynamics in the consumer foods industry and the
markets for our products, including new product introductions,
advertising activities, pricing actions, and promotional activities
of our competitors; economic conditions, including changes in
inflation rates,
interest rates, tax rates, or the availability of
capital; product development and innovation; consumer accep-
tance of new products and product improvements; consumer
reaction to pricing actions and changes in promotion levels;
acquisitions or dispositions of businesses or assets; changes in
including
capital structure; changes in laws and regulations,
labeling and advertising regulations; impairments in the carrying
value of goodwill, other intangible assets, or other long-lived
assets, or changes in the useful lives of other intangible assets;
changes in accounting standards and the impact of significant
accounting estimates; product quality and safety issues, including
recalls and product liability; changes in consumer demand for our

products; effectiveness of advertising, marketing, and promo-
tional programs; changes in consumer behavior, trends, and
preferences, including weight loss trends; consumer perception
of health-related issues, including obesity; consolidation in the
retail environment; changes in purchasing and inventory levels of
significant customers; fluctuations in the cost and availability of
supply chain resources, including raw materials, packaging, and
energy; disruptions or inefficiencies in the supply chain; volatility
in the market value of derivatives used to manage price risk for
certain commodities; benefit plan expenses due to changes in
plan asset values and discount rates used to determine plan
liabilities; failure of our information technology systems; resolu-
tion of uncertain income tax matters; foreign economic condi-
tions, including currency rate fluctuations; and political unrest in
foreign markets and economic uncertainty due to terrorism or
war.

You should also consider the risk factors that we identify in
Item 1A of the 2010 Form 10-K, which could also affect our future
results.

We undertake no obligation to publicly revise any forward-
looking statements to reflect events or circumstances after the
date of those statements or to reflect the occurrence of antic-
ipated or unanticipated events.

Quantitative and Qualitative Disclosures
About Market Risk

We are exposed to market risk stemming from changes in
interest rates, foreign exchange rates, commodity prices, and
equity prices. Changes in these factors could cause fluctuations in
our earnings and cash flows. In the normal course of business, we
actively manage our exposure to these market risks by entering
into various hedging transactions, authorized under established
policies that place clear controls on these activities. The counter-
parties in these transactions are generally highly rated institu-
tions. We establish credit limits for each counterparty. Our hedg-
ing transactions include but are not limited to a variety of deriv-
ative financial instruments.

General Mills

INTEREST RATE RISK

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

As of May 30, 2010, we had $3.8 billion of aggregate notional
principal amount outstanding, with a net notional amount of
$556 million that converts floating-rate notes to fixed rates. This
includes notional amounts of offsetting swaps that neutralize our
exposure to interest rates on other interest rate swaps.

FOREIGN EXCHANGE RISK

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

We also have many net investments in foreign subsidiaries that
are denominated in euros. We previously hedged a portion of
these net investments by issuing euro-denominated commercial
paper and foreign exchange forward contracts. As of May 30,

2010, we had deferred net foreign currency transaction losses of
$96 million in AOCI associated with hedging activity.

COMMODITY PRICE RISK

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

As of May 30, 2010, the net notional value of commodity
derivatives was $464 million, of which $295 million related to
agricultural
inputs and $169 million related to energy inputs.
These contracts relate to inputs that generally will be utilized
within the next 12 months.

EQUITY INSTRUMENTS

Equity price movements affect our compensation expense as
certain investments made by our employees in our deferred
compensation plan are revalued. We use equity swaps to manage
this market risk.

VALUE AT RISK

The estimates in the table below are intended to measure the
maximum potential fair value we could lose in one day from
adverse changes in market interest rates, foreign exchange rates,
commodity prices, and equity prices under normal market con-
ditions. A Monte Carlo value-at-risk (VAR) methodology was
used to quantify the market risk for our exposures. The models
assumed normal market conditions and used a 95 percent con-
fidence level.

Annual Report 2010

The table below presents the estimated maximum potential
VAR arising from a one-day loss in fair value for our interest rate,
foreign currency, commodity, and equity market-risk-sensitive
instruments outstanding as of May 30, 2010, and May 31, 2009,
and the average fair value impact during the year ended May 30,
2010.

Fair Value Impact
..........................................................................

May 31,
2009
In Millions
.........................................................................................................................................................................................

May 30,
2010

Average
during
fiscal 2010

Interest rate instruments

Foreign currency instruments
Commodity instruments

Equity instruments

$27.7

$35.9

$44.4

4.3
4.8

—

4.7
7.8

0.9

5.8
10.4

1.8

The VAR calculation used historical

interest rates, foreign
exchange rates, and commodity and equity prices from the past
year to estimate the potential volatility and correlation of these
rates in the future. The market data were drawn from the
RiskMetricsTM data set. The calculations are not intended to
represent actual losses in fair value that we expect to incur.
Further, since the hedging instrument (the derivative) inversely
correlates with the underlying exposure, we would expect that
any loss or gain in the fair value of our derivatives would be
generally offset by an increase or decrease in the fair value of the
underlying exposure. The positions included in the calculations
were: debt; investments; interest rate swaps; foreign exchange
forwards; commodity swaps, futures and options; and equity
instruments. The calculations do not include the underlying for-
eign exchange and commodities-related positions that are offset
by these market-risk-sensitive instruments.

General Mills

Reports of Management and Independent Registered
Public Accounting Firm

REPORT OF MANAGEMENT RESPONSIBILITIES

is responsible for the
The management of General Mills, Inc.
fairness and accuracy of the consolidated financial statements.
The statements have been prepared in accordance with account-
ing principles that are generally accepted in the United States,
using management’s best estimates and judgments where appro-
priate. The financial information throughout the Annual Report on
Form 10-K is consistent with our consolidated financial statements.
Management has established a system of internal controls that
provides reasonable assurance that assets are adequately safe-
guarded and transactions are recorded accurately in all material
respects, in accordance with management’s authorization. We
maintain a strong audit program that independently evaluates the
adequacy and effectiveness of internal controls. Our internal
controls provide for appropriate separation of duties and respon-
sibilities, and there are documented policies regarding use of our
assets and proper financial reporting. These formally stated and
regularly communicated policies demand highly ethical conduct
from all employees.

The Audit Committee of the Board of Directors meets regularly
with management, internal auditors, and our independent regis-
tered public accounting firm to review internal control, auditing,
and financial reporting matters. The independent registered pub-
lic accounting firm, internal auditors, and employees have full and
free access to the Audit Committee at any time.

The Audit Committee reviewed and approved the Company’s
annual
financial statements. The Audit Committee recom-
mended, and the Board of Directors approved, that the consol-
idated financial statements be included in the Annual Report. The
Audit Committee also appointed KPMG LLP to serve as the
Company’s independent registered public accounting firm for
fiscal 2011, subject to ratification by the stockholders at the annual
meeting.

K. J. Powell
Chairman of the Board
and Chief Executive Officer

D. L. Mulligan
Executive Vice President
and Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Stockholders
General Mills, Inc.:

We have audited the accompanying consolidated balance
sheets of General Mills, Inc. and subsidiaries as of May 30,
2010, and May 31, 2009, and the related consolidated statements
of earnings, total equity and comprehensive income, and cash
flows for each of the fiscal years in the three-year period ended
May 30, 2010. In connection with our audits of the consolidated
financial statements, we have audited the accompanying financial
statement schedule. We also have audited General Mills Inc.’s
internal control over financial reporting as of May 30, 2010, based
on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). General Mills, Inc.’s manage-
ment is responsible for these consolidated financial statements
and financial statement schedule, for maintaining effective inter-
nal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement sched-
ule and an opinion on the Company’s internal control over finan-
cial reporting based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement and whether effective
internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial state-
ments included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assess-
ing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effec-
tiveness of internal control based on the assessed risk. Our audits

Annual Report 2010

also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits pro-
vide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a pro-
cess designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and disposi-
tions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expendi-
tures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the finan-
cial statements.

Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate

because of changes in conditions, or that the degree of compli-
ance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred
to above present fairly,
in all material respects, the financial
position of General Mills, Inc. and subsidiaries as of May 30,
2010, and May 31, 2009, and the results of their operations and
their cash flows for each of the fiscal years in the three-year
period ended May 30, 2010, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the accom-
panying financial statement schedule, when considered in rela-
tion to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein. Also in our opinion, General Mills, Inc. maintained,
in all material respects, effective internal control over financial
reporting as of May 30, 2010, based on criteria established in
Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.

As disclosed in Note 1 to the Consolidated Financial State-
ments, the Company changed its method of accounting for
noncontrolling interests in fiscal year 2010.

Minneapolis, Minnesota
July 9, 2010

General Mills

Consolidated Statements of Earnings

GENERAL MILLS, INC. AND SUBSIDIARIES

Fiscal Year
........................................................................................
(In Millions, Except per Share Data)
2009
2008
............................................................................................................................................................................................................................................................................................................................................................................................

2010

Net sales

Cost of sales

Selling, general, and administrative expenses

$14,796.5
8,922.9

$14,691.3
9,457.8

$13,652.1
8,778.3

3,236.1

2,951.8

2,623.6

Divestitures (gain), net
Restructuring, impairment, and other exit costs

—
21.0
............................................................................................................................................................................................................................................................................................................................................................................................
2,229.2
Operating profit

(84.9)
41.6

—
31.4

2,606.1

2,325.0

Interest, net

399.7
............................................................................................................................................................................................................................................................................................................................................................................................
1,829.5
Earnings before income taxes and after-tax earnings from joint ventures

2,204.5

1,942.2

382.8

401.6

622.2
Income taxes
110.8
After-tax earnings from joint ventures
............................................................................................................................................................................................................................................................................................................................................................................................
1,318.1
Net earnings, including earnings attributable to noncontrolling interests

720.4
91.9

771.2
101.7

1,313.7

1,535.0

23.4
Net earnings attributable to noncontrolling interests
............................................................................................................................................................................................................................................................................................................................................................................................

9.3

4.5

Net earnings attributable to General Mills

Earnings per share – basic

Earnings per share – diluted

Dividends per share

See accompanying notes to consolidated financial statements.

$ 1,530.5

$ 1,304.4

$ 1,294.7

2.32

2.24

0.96

1.96

1.90

0.86

1.93

1.85

0.78

Annual Report 2010

Consolidated Balance Sheets

GENERAL MILLS, INC. AND SUBSIDIARIES

May 31,
(In Millions, Except Par Value)
2009
............................................................................................................................................................................................................................................................................................................................................................................................

May 30,
2010

ASSETS
Current assets:

Cash and cash equivalents

Receivables
Inventories

Deferred income taxes

673.2

749.8

1,041.6
1,344.0

42.7

953.4
1,346.8

15.6

Prepaid expenses and other current assets

469.3
............................................................................................................................................................................................................................................................................................................................................................................................
3,534.9
3,034.9

Total current assets
Land, buildings, and equipment

3,480.0
3,127.7

378.5

Goodwill

6,592.8

6,663.0

3,747.0
Other intangible assets
895.0
Other assets
............................................................................................................................................................................................................................................................................................................................................................................................
$17,874.8

3,715.0
763.4

Total assets

$17,678.9

LIABILITIES AND EQUITY
Current liabilities:

Accounts payable

Current portion of long-term debt
Notes payable

849.5

107.3
1,050.1

803.4

508.5
812.2

Other current liabilities

1,481.9
............................................................................................................................................................................................................................................................................................................................................................................................
3,606.0
5,754.8

Total current liabilities

3,769.1
5,268.5

Long-term debt

1,762.2

Deferred income taxes

874.6

1,165.3

1,932.2
Other liabilities
............................................................................................................................................................................................................................................................................................................................................................................................
12,458.3
............................................................................................................................................................................................................................................................................................................................................................................................
Stockholders’ equity:

2,118.7
12,030.9

Total liabilities

Common stock, 754.6 shares issued, $0.10 par value
Additional paid-in capital

Retained earnings

75.5
1,307.1

8,122.4

75.5
1,212.1

7,235.6

Total stockholders’ equity

Common stock in treasury, at cost, shares of 98.1 and 98.6
Accumulated other comprehensive loss

(2,473.1)
(877.8)
............................................................................................................................................................................................................................................................................................................................................................................................
5,172.3
............................................................................................................................................................................................................................................................................................................................................................................................
244.2
Noncontrolling interests
............................................................................................................................................................................................................................................................................................................................................................................................
5,416.5
Total equity
............................................................................................................................................................................................................................................................................................................................................................................................
$17,874.8
Total liabilities and equity

(2,615.2)
(1,486.9)

245.1
5,648.0

$17,678.9

5,402.9

See accompanying notes to consolidated financial statements.

General Mills

Consolidated Statements of Total Equity and
Comprehensive Income

GENERAL MILLS, INC. AND SUBSIDIARIES

$.10 Par Value Common Stock
(One Billion Shares Authorized)
......................................................................................................

(In Millions, Except per Share Data)
Total
............................................................................................................................................................................................................................................................................................................................................................................................
Balance as of May 27, 2007
$1,139.2 $ 6,457.9
Comprehensive income:

$100.5 $ 5,791.0 (323.4) $(6,198.0) $5,745.3

$ (120.1)

Amount

1,004.6

Issued
.............................................................
Additional
Paid-In
Capital Shares

Par
Amount

Treasury
.....................................

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Noncontrolling
Interests

Net earnings, including earnings attributable to noncontrolling

interests

Other comprehensive income

1,318.1
296.4
............................................................................................................................................................................................................................................................................................................................................................................................
1,614.5
Total comprehensive income
(529.7)
Cash dividends declared ($0.78 per share)
Stock compensation plans (includes income tax benefits of $55.7)
382.6
(1,384.6)
Shares purchased
—
Retirement of treasury shares
750.0
Shares issued under forward purchase contract
(104.1)
Unearned compensation related to restricted stock unit awards
66.2
Adoption of FIN 48
Repurchase of Series B-1 limited membership interests in General Mills

13.0
(47.8)
(5,055.8) 250.0
28.6

261.6
(1,384.6)
5,080.8
581.8

168.2
(104.1)
57.8

23.4
3.2

(529.7)

(250.0)

1,294.7

(25.0)

293.2

121.0

8.4

Cereals, LLC (GMC)

(843.0)
(150.0)
Repurchase of GM Capital Inc. Series A preferred stock
92.3
Sale of GMC Class A limited membership interests in GMC
(26.5)
Distributions to noncontrolling interest holders
Earned compensation
133.2
............................................................................................................................................................................................................................................................................................................................................................................................
Balance as of May 25, 2008
6,458.8
Comprehensive income:

(835.0)
(150.0)
92.3
(26.5)

(1,658.4) 6,510.7

133.2
1,111.3

(79.6)

246.6

754.6

173.1

(8.0)

75.5

Net earnings, including earnings attributable to noncontrolling

interests

Other comprehensive loss

1,313.7
(1,052.1)
............................................................................................................................................................................................................................................................................................................................................................................................
261.6
Total comprehensive income
(579.5)
Cash dividends declared ($0.86 per share)
Stock compensation plans (includes income tax benefits of $94.0)
466.1
(1,296.4)
Shares purchased
55.0
Shares issued for acquisition
(56.2)
Unearned compensation related to restricted stock unit awards
(10.5)
Distributions to noncontrolling interest holders
Earned compensation
117.6
............................................................................................................................................................................................................................................................................................................................................................................................
Balance as of May 31, 2009
5,416.5
Comprehensive income:

443.1
(1,296.4)
38.6

19.6
(40.4)
1.8

(2,473.1) 7,235.6

117.6
1,212.1

16.4
(56.2)

9.3
(1.2)

(1,050.9)

(579.5)

(877.8)

1,304.4

(10.5)

(98.6)

754.6

244.2

23.0

75.5

Net earnings, including earnings attributable to noncontrolling

interests

Other comprehensive income (loss)

1,535.0
(608.9)
............................................................................................................................................................................................................................................................................................................................................................................................
926.1
Total comprehensive income
(643.7)
Cash dividends declared ($0.96 per share)
603.0
Stock compensation plans (includes income tax benefits of $114.0)
(691.8)
Shares purchased
(65.6)
Unearned compensation related to restricted stock unit awards
(3.8)
Distributions to noncontrolling interest holders
Earned compensation
107.3
............................................................................................................................................................................................................................................................................................................................................................................................
$ 245.1 $ 5,648.0
Balance as of May 30, 2010

107.3
$ 75.5 $ 1,307.1

(98.1) $(2,615.2) $8,122.4

549.7
(691.8)

21.8
(21.3)

$(1,486.9)

(609.1)

(643.7)

1,530.5

4.5
0.2

(65.6)

754.6

(3.8)

53.3

See accompanying notes to consolidated financial statements.

Annual Report 2010

Consolidated Statements of Cash Flows

GENERAL MILLS, INC. AND SUBSIDIARIES

Fiscal Year
.........................................................................................
(In Millions)
2008
2009
............................................................................................................................................................................................................................................................................................................................................................................................
Cash Flows – Operating Activities

2010

Net earnings, including earnings attributable to noncontrolling interests
Adjustments to reconcile net earnings to net cash provided by operating activities:

$ 1,535.0

$ 1,313.7

$ 1,318.1

Depreciation and amortization
After-tax earnings from joint ventures
Stock-based compensation
Deferred income taxes
Tax benefit on exercised options
Distributions of earnings from joint ventures
Pension and other postretirement benefit plan contributions
Pension and other postretirement benefit plan (income) expense
Divestitures (gain), net
Gain on insurance settlement
Restructuring, impairment, and other exit costs (income)
Changes in current assets and liabilities
Other, net

459.2
(110.8)
133.2
98.1
(55.7)
108.7
(14.2)
5.5
—
—
(1.7)
(126.7)
(83.8)
............................................................................................................................................................................................................................................................................................................................................................................................
1,729.9
............................................................................................................................................................................................................................................................................................................................................................................................
Cash Flows – Investing Activities

453.6
(91.9)
117.7
215.8
(89.1)
68.5
(220.3)
(27.5)
(84.9)
(41.3)
31.3
176.9
5.7
1,828.2

457.1
(101.7)
107.3
22.3
(114.0)
88.0
(17.2)
(37.9)
—
—
23.4
143.4
75.5
2,181.2

Net cash provided by operating activities

Purchases of land, buildings, and equipment
Acquisitions
Investments in affiliates, net
Proceeds from disposal of land, buildings, and equipment
Proceeds from divestiture of product lines
Proceeds from insurance settlement
Other, net

(522.0)
0.6
64.6
25.9
—
—
(11.5)
............................................................................................................................................................................................................................................................................................................................................................................................
(442.4)
............................................................................................................................................................................................................................................................................................................................................................................................
Cash Flows – Financing Activities

(562.6)
—
5.9
4.1
244.7
41.3
(22.3)
(288.9)

(649.9)
—
(130.7)
7.4
—
—
52.0
(721.2)

Net cash used by investing activities

Change in notes payable
Issuance of long-term debt
Payment of long-term debt
Settlement of Lehman Brothers forward purchase contract
Repurchase of Series B-1 limited membership interests in GMC
Repurchase of General Mills Capital, Inc. preferred stock
Proceeds from sale of Class A limited membership interests in GMC
Proceeds from common stock issued on exercised options
Tax benefit on exercised options
Purchases of common stock for treasury
Dividends paid
Other, net

946.6
1,450.0
(1,623.4)
750.0
(843.0)
(150.0)
92.3
191.4
55.7
(1,432.4)
(529.7)
(0.5)
............................................................................................................................................................................................................................................................................................................................................................................................
(1,093.0)
Net cash used by financing activities
............................................................................................................................................................................................................................................................................................................................................................................................
49.4
Effect of exchange rate changes on cash and cash equivalents
............................................................................................................................................................................................................................................................................................................................................................................................
243.9
Increase (decrease) in cash and cash equivalents
............................................................................................................................................................................................................................................................................................................................................................................................
417.1
Cash and cash equivalents - beginning of year
............................................................................................................................................................................................................................................................................................................................................................................................
661.0
Cash and cash equivalents - end of year

(1,390.5)
1,850.0
(370.3)
—
—
—
—
305.2
89.1
(1,296.4)
(579.5)
(12.1)
(1,404.5)
(46.0)
88.8
661.0
749.8

235.8
—
(906.9)
—
—
—
—
388.8
114.0
(691.8)
(643.7)
—
(1,503.8)
(32.8)
(76.6)
749.8
673.2

Cash Flow from Changes in Current Assets and Liabilities:

Receivables
Inventories
Prepaid expenses and other current assets
Accounts payable
Other current liabilities

(94.1)
(165.1)
(65.9)
125.1
73.3
............................................................................................................................................................................................................................................................................................................................................................................................
$ (126.7)
Changes in current assets and liabilities

$ (121.1)
(16.7)
53.5
69.6
158.1
143.4

81.8
(28.1)
30.2
(116.4)
209.4
176.9

See accompanying notes to consolidated financial statements.

General Mills

Notes to Consolidated Financial Statements

GENERAL MILLS, INC. AND SUBSIDIARIES

NOTE 1. BASIS OF PRESENTATION AND
RECLASSIFICATIONS

Basis of Presentation Our Consolidated Financial Statements
include the accounts of General Mills, Inc. and all subsidiaries
in which we have a controlling financial interest. Intercompany
transactions and accounts are eliminated in consolidation.

Our fiscal year ends on the last Sunday in May. Fiscal 2010 and
2008 each consisted of 52 weeks, and fiscal 2009 consisted of
53 weeks.

In December 2007, the Financial Accounting Standards Board
(FASB) issued new guidance on noncontrolling interests in finan-
cial statements. The guidance establishes accounting and report-
ing standards that require: the ownership interest in subsidiaries
held by parties other than the parent to be clearly identified and
presented in the Consolidated Balance Sheets within equity, but
separate from the parent’s equity; the amount of consolidated net
earnings attributable to the parent and the noncontrolling interest
to be clearly identified and presented on the face of the Consol-
idated Statements of Earnings; and changes in a parent’s own-
ership interest while the parent retains its controlling financial
interest in its subsidiary to be accounted for consistently.

We adopted the guidance at the beginning of fiscal 2010. To
conform to the current period presentation, we made the follow-
ing reclassifications to net earnings attributable to noncontrolling
interests in our Consolidated Statements of Earnings:

Fiscal Year
................................
In Millions
2009
2008
.........................................................................................................................................................................................

$22.0
From interest, net
1.4
From selling, general, and administrative (SG&A) expenses
.........................................................................................................................................................................................

$7.2
2.1

Total net earnings attributable to noncontrolling interests

$9.3

$23.4

Also, noncontrolling interests previously reported as minority
interests have been reclassified to a separate section in equity on
the Consolidated Balance Sheets as a result of the adoption. In
addition, certain other reclassifications to our previously reported
financial information have been made to conform to the current
period presentation.

for each share of common stock in their possession on that date.
The additional shares were distributed on June 8, 2010. This did
not change the proportionate interest that a stockholder main-
tained in the Company. All shares and per share amounts have
been adjusted for the two-for-one stock split throughout this
report.

Change in Reporting Period As part of a long-term plan to conform
the fiscal year ends of all our operations, we have changed the
reporting period of certain countries within our International
segment from an April fiscal year end to a May fiscal year end
to match our fiscal calendar. Accordingly, in the year of change,
our results include 13 months of results from the affected oper-
ations compared to 12 months in previous fiscal years. In fiscal
2010, we changed many of the countries in our Asia/Pacific
region, and in fiscal 2009 we changed most countries in our Latin
America region. The impact of these changes was not material to
our results of operations and, therefore, we did not restate prior
period financial statements for comparability. Countries within
the International segment that remain on an April fiscal year end
include our European operations and China.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Cash and Cash Equivalents We consider all
investments pur-
chased with an original maturity of three months or less to be
cash equivalents.

Inventories All inventories in the United States other than grain
and certain organic products are valued at the lower of cost, using
the last-in, first-out (LIFO) method, or market. Grain inventories
and all related cash contracts and derivatives are valued at
market with all net changes in value recorded in earnings
currently.

Inventories outside of the United States are valued at the lower

of cost, using the first-in, first-out (FIFO) method, or market.

Shipping costs associated with the distribution of finished
product to our customers are recorded as cost of sales, and
are recognized when the related finished product is shipped to
and accepted by the customer.

Annual Report 2010

Land, Buildings, Equipment, and Depreciation Land is recorded at
including capitalized
historical cost. Buildings and equipment,
interest and internal engineering costs, are recorded at cost
and depreciated over estimated useful lives, primarily using the
straight-line method. Ordinary maintenance and repairs are
charged to cost of sales. Buildings are usually depreciated over
40 to 50 years, and equipment, furniture, and software are usually
depreciated over 3 to 10 years. Fully depreciated assets are
retained in buildings and equipment until disposal. When an item
is sold or retired, the accounts are relieved of its cost and related
accumulated depreciation; the resulting gains and losses, if any,
are recognized in earnings. As of May 30, 2010, assets held for
sale were insignificant.

Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset (or asset group) may not be recoverable. An
impairment loss would be recognized when estimated undis-
counted future cash flows from the operation and disposition
of the asset group are less than the carrying amount of the asset
group. Asset groups have identifiable cash flows and are largely
independent of other asset groups. Measurement of an impair-
ment loss would be based on the excess of the carrying amount of
the asset group over its fair value. Fair value is measured using a
discounted cash flow model or independent appraisals, as
appropriate.

Goodwill and Other Intangible Assets Goodwill is not subject to
amortization and is tested for impairment annually and whenever
events or changes in circumstances indicate that impairment may
have occurred. Impairment testing is performed for each of our
reporting units. We compare the carrying value of a reporting unit,
including goodwill, to the fair value of the unit. Carrying value is
based on the assets and liabilities associated with the operations
of that reporting unit, which often requires allocation of shared or
corporate items among reporting units. If the carrying amount of
a reporting unit exceeds its fair value, we revalue all assets and
liabilities of the reporting unit, excluding goodwill, to determine if
the fair value of the net assets is greater than the net assets
including goodwill. If the fair value of the net assets is less than
the net assets including goodwill, impairment has occurred. Our
estimates of fair value are determined based on a discounted
cash flow model. Growth rates for sales and profits are

determined using inputs from our annual long-range planning
process. We also make estimates of discount rates, perpetuity
growth assumptions, market comparables, and other factors.

We evaluate the useful lives of our other intangible assets,
mainly brands, to determine if they are finite or indefinite-lived.
Reaching a determination on useful life requires significant judg-
ments and assumptions regarding the future effects of obsoles-
cence, demand, competition, other economic factors (such as the
stability of the industry, known technological advances, legisla-
tive action that results in an uncertain or changing regulatory
environment, and expected changes in distribution channels), the
level of required maintenance expenditures, and the expected
lives of other related groups of assets.

Investments in Joint Ventures Our investments in companies over
which we have the ability to exercise significant influence are
stated at cost plus our share of undistributed earnings or losses.
We receive royalty income from certain joint ventures,
incur
various expenses (primarily research and development), and
record the tax impact of certain joint venture operations that
are structured as partnerships. In addition, we make advances to
our joint ventures in the form of loans or capital investments. We
also sell certain raw materials, semi-finished goods, and finished
goods to the joint ventures, generally at market prices.

Variable Interest Entities As of May 30, 2010, we had invested in
three variable interest entities (VIEs). We have an interest in a
contract manufacturer at our former facility in Geneva, Illinois.
We are the primary beneficiary (PB) and have consolidated this

General Mills

entity. This entity had property and equipment with a carrying
value of $19.4 million and long-term debt of $20.9 million as of
May 30, 2010.The liabilities recognized as a result of consolidating
this entity do not represent additional claims on our general
assets. We also have an interest in a contract manufacturer in
Greece that is a VIE. Although we are the PB, we have not
consolidated this entity because it is not practical to do so and
it is not material to our results of operations, financial condition,
or liquidity as of and for the year ended May 30, 2010. This entity
had assets of $6.7 million and liabilities of $1.4 million as of
May 30, 2010. We are not the PB of the remaining VIE. Our
maximum exposure to loss from the three VIEs is limited to the
$20.9 million of long-term debt of the contract manufacturer in
Geneva, Illinois and our $2.2 million equity investment in the VIE
of which we are not the PB. We have not provided financial or
other support to these VIEs during the current period nor are
there arrangements related to these VIEs that could require us to
provide financial support in the future.

Revenue Recognition We recognize sales revenue when the ship-
ment is accepted by our customer. Sales include shipping and
handling charges billed to the customer and are reported net of
consumer coupon redemption, trade promotion and other costs,
including estimated allowances for returns, unsalable product,
and prompt pay discounts. Sales, use, value-added, and other
excise taxes are not recognized in revenue. Coupons are recorded
when distributed, based on estimated redemption rates. Trade
promotions are recorded based on estimated participation and
performance levels for offered programs at the time of sale. We
generally do not allow a right of return. However, on a limited
case-by-case basis with prior approval, we may allow customers
to return product. In limited circumstances, product returned in
saleable condition is resold to other customers or outlets. Receiv-
ables from customers generally do not bear interest. Terms and
collection patterns vary around the world and by channel. The
allowance for doubtful accounts represents our estimate of prob-
able nonpayments and credit losses in our existing receivables, as
determined based on a review of past due balances and other
specific account data. Account balances are written off against
the allowance when we deem the amount is uncollectible.

Environmental Environmental costs relating to existing conditions
caused by past operations that do not contribute to current or
future revenues are expensed. Liabilities for anticipated reme-
diation costs are recorded on an undiscounted basis when they
are probable and reasonably estimable, generally no later than
the completion of feasibility studies or our commitment to a plan
of action.

Advertising Production Costs We expense the production costs of
advertising the first time that the advertising takes place.

Research and Development All expenditures for research and
development (R&D) are charged against earnings in the year
incurred. R&D includes expenditures for new product and man-
ufacturing process innovation, and the annual expenditures are
comprised primarily of internal salaries, wages, consulting, and
other supplies attributable to time spent on R&D activities. Other
costs include depreciation and maintenance of research facilities,
including assets at facilities that are engaged in pilot plant
activities.

Foreign Currency Translation For all significant foreign operations,
the functional currency is the local currency. Assets and liabilities
of these operations are translated at the period-end exchange
rates. Income statement accounts are translated using the aver-
age exchange rates prevailing during the year. Translation adjust-
ments are reflected within accumulated other comprehensive
loss in stockholders’ equity. Gains and losses from foreign cur-
rency transactions are included in net earnings for the period
except for gains and losses on investments in subsidiaries for
which settlement is not planned for the foreseeable future and
foreign exchange gains and losses on instruments designated as
net investment hedges. These gains and losses are recorded in
accumulated other comprehensive loss.

Derivative Instruments All derivatives are recognized on the Con-
solidated Balance Sheets at fair value based on quoted market
prices or our estimate of their fair value, and are recorded in either
current or noncurrent assets or liabilities based on their maturity.
Changes in the fair values of derivatives are recorded in net
earnings or other comprehensive income, based on whether the
instrument is designated and effective as a hedge transaction

Annual Report 2010

and, if so, the type of hedge transaction. Gains or losses on
derivative instruments reported in accumulated other compre-
hensive loss are reclassified to earnings in the period the hedged
item affects earnings. If the underlying hedged transaction ceases
to exist, any associated amounts reported in accumulated other
comprehensive loss are reclassified to earnings at that time. Any
ineffectiveness is recognized in earnings in the current period.

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

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

Stock-based Compensation We generally recognize compensa-
tion expense for grants of restricted stock units using the value of
a share of our stock on the date of grant. We estimate the value of
stock option grants using the Black-Scholes valuation model.
Stock compensation is recognized straight line over the vesting
period. All of our stock compensation expense is recorded in
SG&A in the Consolidated Statement of Earnings and in unallo-
cated corporate items in our segment results.

Certain equity-based compensation plans contain provisions
that accelerate vesting of awards upon retirement, disability, or
death of eligible employees and directors. We consider a stock-
based award to be vested when the employee’s retention of the
award is no longer contingent on providing subsequent service.
Accordingly, the related compensation cost is recognized imme-
diately for awards granted to retirement-eligible individuals or

over the period from the grant date to the date retirement
eligibility is achieved, if less than the stated vesting period.

We report the benefits of tax deductions in excess of recog-
nized compensation cost as a financing cash flow, thereby reduc-
ing net operating cash flows and increasing net financing cash
flows.

Defined Benefit Pension, Other Postretirement, and Postemployment
Benefit Plans We sponsor several domestic and foreign defined
benefit plans to provide pension, health care, and other welfare
benefits to retired employees. Under certain circumstances, we
also provide accruable benefits to former or inactive employees in
the United States and Canada and members of our Board of
Directors, including severance and certain other benefits payable
upon death. We recognize an obligation for any of these benefits
that vest or accumulate with service. Postemployment benefits
that do not vest or accumulate with service (such as severance
based solely on annual pay rather than years of service) are
charged to expense when incurred. Our postemployment benefit
plans are unfunded.

We recognize the underfunded or overfunded status of a
defined benefit postretirement plan as an asset or liability and
recognize changes in the funded status in the year in which the
changes occur through accumulated other comprehensive loss.

Use of Estimates Preparing our Consolidated Financial State-
ments in conformity with accounting principles generally
accepted in the United States requires us to make estimates
and assumptions that affect reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. These esti-
mates include our accounting for promotional expenditures, val-
uation of long-lived assets, intangible assets, stock-based com-
pensation, income taxes, and defined benefit pension, post-retire-
ment and post-employment benefits. Actual results could differ
from our estimates.

Other New Accounting Standards In fiscal 2010, we adopted new
accounting guidance on employer’s disclosures for post-retire-
ment benefit plan assets. The guidance requires an employer to
disclose information on the investment policies and strategies

General Mills

and the significant concentrations of risk in plan assets. An
employer must also disclose the fair value of each major category
of plan assets as of each annual reporting date together with the
information on the inputs and valuation techniques used to
develop such fair value measurements. The adoption of the
guidance did not have an impact on our results of operations
or financial condition. See Note 13.

In fiscal 2010, we adopted new accounting guidance on
accounting for equity method investments. The guidance
addresses the impact of the issuance of the noncontrolling inter-
ests and business combination guidance on accounting for equity
method investments. The adoption of the guidance did not have a
material impact on our results of operations or financial condition.
In fiscal 2010, we adopted new accounting guidance issued to
assist in determining whether instruments granted in share-
based payment transactions are participating securities. The
guidance provides that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equiv-
alents (whether paid or unpaid) are participating securities and
shall be included in the computation of EPS pursuant to the two-
class method. The adoption of the guidance did not have a
material impact on our basic or diluted EPS.

In fiscal 2010, we adopted new accounting guidance on con-
vertible debt instruments. The guidance requires issuers to
account separately for the liability and equity components of
convertible debt instruments that may be settled in cash or other
assets. The adoption of the guidance did not have a material
impact on our results of operations or financial condition.

In fiscal 2009, we adopted the measurement date provisions of
new accounting guidance related to defined benefit pension and
other postretirement plans. The guidance requires the funded
status of a plan to be measured as of the date of the year-end
statement of financial position and requires additional disclosures
in the notes to consolidated financial statements. The guidance
also requires that employers recognize on a prospective basis the
funded status of their defined benefit pension and other postre-
tirement plans in their consolidated balance sheets and recognize
as a component of other comprehensive income, net of income
tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net
periodic benefit cost. The adoption of the measurement date

provisions did not have a material
operations or financial condition.

impact on our results of

In fiscal 2009, we adopted new accounting guidance on fair
value measurements. The guidance provides a single definition of
fair value, a framework for measuring fair value, and expanded
disclosures about fair value measurements. The guidance applies
to instruments accounted for under previously issued pronounce-
ments that prescribe fair value as the relevant measure of value.
We adopted the guidance at the beginning of fiscal 2009 for all
instruments valued on a recurring basis, and the adoption did not
have a material impact on our financial statements. The FASB
deferred the effective date of the guidance until the beginning of
fiscal 2010 as it relates to fair value measurement requirements
for nonfinancial assets and liabilities that are not remeasured at
fair value on a recurring basis. This includes fair value calculated
in impairment assessments of goodwill, indefinite-lived intangible
assets, and other long-lived assets. We adopted the guidance at
the beginning of fiscal 2010 for all fair value measurements of
nonfinancial assets and liabilities that are not remeasured at fair
value on a recurring basis, and the adoption did not have a
material impact on our financial statements.

In fiscal 2009, we adopted new accounting guidance on share-
based payment awards. The guidance requires that tax benefits
from dividends paid on unvested restricted shares be charged
directly to stockholders’ equity instead of benefiting income tax
expense. The adoption of the guidance did not have a material
impact on our results of operations or financial condition.

NOTE 3. ACQUISITIONS AND DIVESTITURES

There were no acquisitions or divestitures in fiscal 2010.

In fiscal 2009, we sold our bread concentrates product line
within our Bakeries and Foodservice segment, including a plant in
Cedar Rapids, Iowa, for $8.3 million in cash. We recorded a pre-
tax loss of $5.6 million on the transaction. We also sold a portion
of the assets of the frozen unbaked bread dough product line
within our Bakeries and Foodservice segment, including plants in
Bakersfield, California; Hazleton, Pennsylvania; Montreal,
Canada; and Vinita, Oklahoma, for $43.9 million in cash, an
$11.9 million note receivable, and contingent future payments
based on the post-sale performance of the product line. Certain
assets sold were shared with a frozen dinner roll product line

Annual Report 2010

within our U.S. Retail segment, and we exited this product line as a
result of the asset sale.We recorded a pre-tax loss of $38.3 million.
In fiscal 2010, we recorded cash proceeds of $3.2 million related to
the repayment of the note. Additional cash proceeds will be
recognized in the future as the note is repaid and if the buyer
is required to make any performance-based contingent pay-
ments. In fiscal 2009, we sold our Pop•Secret microwave popcorn
product line from our U.S. Retail segment for $192.5 million in
cash, and we recorded a pre-tax gain of $128.8 million. We
received cash proceeds of $158.9 million after repayment of a
lease obligation and transaction costs. In fiscal 2009, we also
acquired Humm Foods, Inc. (Humm Foods), the maker of La¨rabar
fruit and nut energy bars. We issued 1.8 million shares of our
common stock with a value of $55.0 million to the shareholders of
Humm Foods as consideration for the acquisition. We recorded
the purchase price less tangible and intangible net assets
acquired as goodwill of $41.6 million. The pro forma effect of this
acquisition was not material.

During fiscal 2008, the 8th Continent soymilk business was
sold. Our 50 percent share of the after-tax gain on the sale was
$2.2 million, of which we recognized $1.7 million in after-tax
earnings from joint ventures in fiscal 2008. In fiscal 2010, we
recorded an additional gain of $0.6 million when certain condi-
tions related to the sale were satisfied. Also during fiscal 2008, we
acquired a controlling interest in HD Distributors (Thailand)
Company Limited. Prior to acquiring the controlling interest,
we accounted for our investment as a joint venture. The purchase
price, net of cash acquired, resulted in a $1.3 million cash inflow
classified in acquisitions on the Consolidated Statements of Cash
Flows.

NOTE 4. RESTRUCTURING, IMPAIRMENT, AND
OTHER EXIT COSTS

We view our restructuring activities as a way to meet our long-
term growth targets. Activities we undertake must meet internal
rate of return and net present value targets. Each restructuring
action normally takes one to two years to complete. At comple-
tion (or as each major stage is completed in the case of multi-year
programs), the project begins to deliver cash savings and/or
reduced depreciation. These activities result in various restruc-
including asset write-offs, exit charges including
turing costs,

severance, contract termination fees, and decommissioning and
other costs. Depreciation associated with restructured assets as
used in the context of our disclosures regarding restructuring
activity refers to the increase in depreciation expense caused by
shortening the useful life or updating the salvage value of depre-
ciable fixed assets to coincide with the end of production under an
approved restructuring plan. Any impairment of the asset is
recognized immediately in the period the plan is approved.

In fiscal 2010, we recorded restructuring, impairment, and other

exit costs pursuant to approved plans as follows:

Discontinuation of kids’ refrigerated yogurt beverage and microwave

soup product lines

Discontinuation of the breadcrumbs product line at Federalsburg,

Maryland plant

$24.1

6.2

(0.6)
Sale of Contagem, Brazil bread and pasta plant
1.7
Charges associated with restructuring actions previously announced
.........................................................................................................................................................................................
$31.4
Total

In fiscal 2010, we decided to exit our kids’ refrigerated yogurt
beverage product line at our Murfreesboro, Tennessee plant and
our microwave soup product line at our Vineland, New Jersey
plant to rationalize capacity for more profitable items. Our deci-
sions to exit these U.S. Retail segment products resulted in a
$24.1 million noncash charge against the related long-lived assets.
No employees were affected by these actions. We expect to
recognize $2.1 million of other exit costs related to these actions,
which we anticipate will be completed by the end of the second
quarter of fiscal 2011. We also decided to exit our breadcrumbs
product line at our Federalsburg, Maryland in our Bakeries and
Foodservice segment. As a result of this decision, we concluded
that the future cash flows generated by these products were
insufficient to recover the net book value of the associated long-
lived assets. Accordingly, we recorded a noncash charge of
$6.2 million primarily related to the impairment of these long-
lived assets and in the fourth quarter of fiscal 2010, we sold our
breadcrumbs manufacturing facility in Federalsburg for $2.9 mil-
lion. In fiscal 2010, we also recorded a $0.6 million net gain on the
sale of our previously closed Contagem, Brazil bread and pasta
plant for cash proceeds of $5.9 million, and recorded $1.7 million of
costs related to previously announced restructuring actions. In

General Mills

fiscal 2010, we paid $8 million in cash related to restructuring
actions taken in fiscal 2010 and previous years.
In fiscal 2009, we recorded restructuring,

impairment, and

other exit costs pursuant to approved plans as follows:

Closure of Contagem, Brazil bread and pasta plant

$16.8

8.3
Discontinuation of product line at Murfreesboro, Tennessee plant
16.5
Charges associated with restructuring actions previously announced
.........................................................................................................................................................................................
$41.6
Total

In fiscal 2009, due to declining financial results, we approved
the restructuring of our International segment’s business in Brazil.
We discontinued the production and marketing of Forno De Minas
cheese bread and Frescarini pasta brands in Brazil and closed our
Contagem, Brazil manufacturing facility. These actions affected
556 employees in our Brazilian operations. Our other product
lines in Brazil were not affected by the decision. As a result of this
decision, we incurred a charge of $16.8 million in the fourth
quarter of fiscal 2009, consisting primarily of $5.3 million of
employee severance, a $10.2 million noncash impairment charge
to write down assets to their net realizable value, and $1.3 million
of other costs associated with this restructuring action. This
restructuring action was completed in the second quarter of
fiscal 2010.

In fiscal 2009, due to declining net sales and to improve
manufacturing capacity for other product lines, we decided to
exit our U.S. Retail segment’s Perfect Portions refrigerated biscuits
product line at our manufacturing facility in Murfreesboro, Ten-
nessee. We recorded an $8.0 million noncash impairment charge
against long lived assets used for this product line and $0.3 million
of other costs associated with this restructuring action. Our other
product lines at Murfreesboro were not affected by the decision,
and no employees were affected by this action, which was
completed in the second quarter of fiscal 2010.

In fiscal 2009, we also incurred $16.5 million of incremental plant
closure expenses related to previously announced restructuring
activities, including $10.3 million for the remainder of our lease
obligation at our previously closed facility in Trenton, Ontario.

In fiscal 2008, we recorded restructuring,

impairment, and

other exit costs pursuant to approved plans as follows:

Closure of Poplar, Wisconsin plant
Closure and sale of Allentown, Pennsylvania frozen waffle plant

Closure of leased Trenton, Ontario frozen dough plant

Restructuring of production scheduling and discontinuation of cake

product line at Chanhassen, Minnesota plant

Gain on sale of previously closed Vallejo, California plant

$ 2.7
9.4

10.9

1.6
(7.1)

3.5
Charges associated with restructuring actions previously announced
.........................................................................................................................................................................................
$21.0
Total

The roll forward of our restructuring and other exit cost

reserves, included in other current liabilities, is as follows:

In Millions
Total
.........................................................................................................................................................................................

Severance

Contract
Termination

Other
Exit Costs

Reserve balance as of May 27, 2007

$ 3.4

$ —

$ 0.9 $ 4.3

2008 charges, including foreign currency

— 20.9
translation
(17.3)
Utilized in 2008
.........................................................................................................................................................................................
7.9
Reserve balance as of May 25, 2008

20.9
(16.7)

—
—

(0.6)

0.3

7.6

—

2009 charges, including foreign currency

translation

5.5

10.3

— 15.8

Utilized in 2009
.........................................................................................................................................................................................

(4.7)

(0.2)

(4.9)

—

Reserve balance as of May 31, 2009
2010 charges, including foreign currency

translation

8.4

0.2

10.3

0.1

18.8

0.8

—

1.0

(9.0)
Utilized in 2010
.........................................................................................................................................................................................
$ 0.1 $ 10.8
Reserve balance as of May 30, 2010

$ 2.6

$ 8.1

(6.0)

(3.0)

—

The charges recognized in the roll forward of our reserves for
restructuring and other exit costs do not include items charged
directly to expense (e.g., asset impairment charges, the gain or
loss on the sale of restructured assets, and the write-off of spare
parts) and other periodic exit costs recognized as incurred, as
those items are not reflected in our restructuring and other exit
cost reserves on our Consolidated Balance Sheets.

Annual Report 2010

May 30,
2010

Current assets

Noncurrent assets

Current liabilities
Noncurrent liabilities

$ 731.7 $ 835.4

907.3

895.0

1,322.0
112.1

1,394.6
66.9

CPW reclassified certain expenses as a reduction to net sales.
To conform to the current period presentation, CPW reduced its
previously reported net sales by approximately $150 million in
fiscal 2009 and $200 million in 2008. There was no effect on after-
tax earnings from joint ventures in our Consolidated Statements
of Earnings.

NOTE 6. GOODWILL AND OTHER INTANGIBLE
ASSETS

The components of goodwill and other intangible assets are as
follows:

May 30,
2010

$ 6,592.8 $ 6,663.0
Goodwill
.........................................................................................................................................................................................
Other intangible assets:

Intangible assets not subject to amortization:

Brands

3,679.6

3,705.3

Intangible assets subject to amortization:

Patents, trademarks, and other finite-lived

56.1
.........................................................................................................................................................................................

intangibles

54.4

Less accumulated amortization

(19.0)

(14.4)

.........................................................................................................................................................................................

Intangible assets subject to amortization

41.7
.........................................................................................................................................................................................
3,747.0
Other intangible assets
.........................................................................................................................................................................................
$10,307.8 $10,410.0
Total

3,715.0

35.4

NOTE 5. INVESTMENTS IN JOINT VENTURES

We have a 50 percent equity interest in Cereal Partners World-
wide (CPW), which manufactures and markets ready-to-eat
cereal products in more than 130 countries and republics outside
the United States and Canada. CPW also markets cereal bars in
several European countries and manufactures private label cere-
als for customers in the United Kingdom. We have guaranteed a
portion of CPW’s debt and its pension obligation in the United
Kingdom.

We also have a 50 percent equity interest in Ha¨agen-Dazs
Japan, Inc. (HDJ). This joint venture manufactures, distributes,
and markets Ha¨agen-Dazs ice cream products and frozen
novelties.

Results from our CPW and HDJ joint ventures are reported for

the 12 months ended March 31.

During fiscal 2008, the 8th Continent soy milk business was
sold, and our 50 percent share of the after-tax gain on the sale
was $2.2 million, of which $1.7 million was recorded in fiscal 2008.
In fiscal 2010 we recorded an additional gain of $0.6 million when
certain conditions related to the sale were satisfied.

Joint venture balance sheet activity follows:

May 30,
2010

Cumulative investments

Goodwill and other intangibles

Aggregate advances

$ 398.1 $ 283.3

512.6

238.2

593.9

114.8

Joint venture earnings and cash flow activity follows:

Fiscal Year
...............................................................
In Millions
2009
2008
.........................................................................................................................................................................................

2010

Sales to joint ventures

Net advances (repayments)

Dividends received

$ 10.7

$14.2

$ 12.8

128.1

88.0

(8.2)

68.5

(75.2)

108.7

Summary combined financial information for the joint ventures

on a 100 percent basis follows:

Fiscal Year
...............................................................................
In Millions
2009
2008
.........................................................................................................................................................................................

2010

Net sales
Gross margin

Earnings before income taxes

Earnings after income taxes

$2,360.0
1,053.2

$2,280.0
873.5

$2,207.7
906.6

251.2

202.3

234.7

175.3

231.7

190.4

General Mills

May 27, 2007
Finalization of purchase

accounting

Adoption of FIN 48
Other activity, primarily
foreign currency
translation

May 25, 2008
Acquisition of Humm

Foods
Divestitures
Deferred tax

adjustment related
to divestitures

Deferred tax

adjustment resulting
from change in
acquisition-related
income tax liabilities
Other activity, primarily
foreign currency
translation

May 31, 2009
Other activity, primarily
foreign currency
translation

The changes in the carrying amount of goodwill for fiscal 2008,

The changes in the carrying amount of other intangible assets

2009, and 2010 are as follows:

for fiscal 2008, 2009, and 2010 are as follows:

International

U.S.
Retail

Bakeries
and
Foodservice

Joint
Ventures

$5,202.9

$142.2

$981.8

$508.5 $6,835.4

—
(110.9)

(0.3)
(10.6)

—
(30.4)

(16.3)

(16.6)
— (151.9)

119.2
.........................................................................................................................................................................................
Balance as of

84.8

15.0

15.1

4.3

5,107.0

146.4

955.7

577.0

6,786.1

41.6
(17.8)

—
(0.1)

—
(23.7)

—
—

41.6
(41.6)

In Millions
Total
U.S. Retail
.........................................................................................................................................................................................

International

Joint
Ventures

Balance as of May 27, 2007
Finalization of purchase

$3,175.2

$460.9

$ 57.9 $3,694.0

accounting

—

15.6

16.3

31.9

Other activity, primarily

foreign currency translation

51.3
.........................................................................................................................................................................................
83.2 3,777.2
Balance as of May 25, 2008

3,175.2

518.8

42.3

9.0

—

Acquisition of Humm Foods
Other activity, primarily

19.4

—

19.4

foreign currency translation

14.3

(56.2)

(7.7)

(49.6)

.........................................................................................................................................................................................
75.5 3,747.0
Balance as of May 31, 2009

3,208.9

462.6

Other activity, primarily

foreign currency translation

(2.3)

(17.3)

(12.4)

(32.0)

$445.3

(46.5)

(4.5)

(12.8)

—

(63.8)

NOTE 7. FINANCIAL INSTRUMENTS, RISK
MANAGEMENT ACTIVITIES, AND FAIR VALUES

14.0

1.3

3.8

—

19.1

(78.4)
.........................................................................................................................................................................................
Balance as of

(58.6)

(19.8)

—

5,098.3

123.3

923.0

518.4

6,663.0

(70.2)
.........................................................................................................................................................................................
Balance as of

(68.9)

(1.3)

—

May 30, 2010

$5,098.3

$122.0

$923.0

$449.5 $6,592.8

Financial Instruments The carrying values of cash and cash equiv-
alents, receivables, accounts payable, other current liabilities, and
notes payable approximate fair value. Marketable securities are
carried at fair value. As of May 30, 2010, and May 31, 2009, a
comparison of cost and market values of our marketable debt and
equity securities is as follows:

Gross
Losses
..........................
Fiscal Year
..........................
In Millions
2009
.........................................................................................................................................................................................

Gross
Gains
.........................
Fiscal Year
.........................
2009 2010 2009 2010

Cost
...............................
Fiscal Year
...............................
2009

Market
Value
...............................
Fiscal Year
...............................

2010

Available for sale:

Debt securities

$11.8 $35.1 $11.9 $35.0 $0.1 $0.1 $— $(0.2)

Equity securities

—
.........................................................................................................................................................................................
Total

$17.9 $41.2 $27.4 $48.8 $9.5 $7.8 $— $(0.2)

7.7 —

15.5

13.8

6.1

9.4

6.1

Earnings include insignificant realized gains from sales of
available-for-sale marketable securities. Gains and losses are
determined by specific identification. Classification of marketable
securities as current or noncurrent is dependent upon manage-
ment’s intended holding period, the security’s maturity date, or
both. The aggregate unrealized gains and losses on availa-
ble-for-sale securities, net of tax effects, are classified in AOCI

Annual Report 2010

within stockholders’ equity. Scheduled maturities of our market-
able securities are as follows:

Available for
Sale
................................
Market
In Millions
Value
.........................................................................................................................................................................................

Cost

Under 1 year (current)

From 1 to 3 years
From 4 to 7 years

Over 7 years

$ 4.8 $ 4.8

0.8
4.1

2.1

0.8
4.1

2.2

Equity securities
15.5
.........................................................................................................................................................................................
$17.9 $27.4
Total

6.1

Marketable securities with a market value of $2.3 million as of
May 30, 2010, were pledged as collateral for certain derivative
contracts.

The fair values and carrying amounts of long-term debt, includ-
ing the current portion, were $5,958.8 million and $5,375.8 million
as of May 30, 2010.The fair value of long-term debt was estimated
using market quotations and discounted cash flows based on our
current
types of
incremental borrowing rates for similar
instruments.

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

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

As discussed in Note 2, we do not perform the assessments
required to achieve hedge accounting for commodity derivative
positions. Pursuant to this policy, unallocated corporate items for
fiscal 2010 and fiscal 2009 included:

Fiscal Year
...................................................................
In Millions
2008
.........................................................................................................................................................................................

2009

2010

Net gain (loss) on mark-to-market valuation

of commodity positions

$(54.7)

$(249.6)

$115.3

Net loss (gain) on commodity positions

reclassified from unallocated corporate

items to segment operating profit

55.7

134.8

(55.7)

Net mark-to-market revaluation of certain

grain inventories

(8.1)

(4.1)

(2.6)

commodity positions recognized in
unallocated corporate items

$ (7.1)

$(118.9)

$ 57.0

As of May 30, 2010, the net notional value of commodity
derivatives was $464.2 million, of which $295.2 million related
to agricultural inputs and $169.0 million related to energy inputs.
These contracts relate to inputs that generally will be utilized
within the next 12 months.

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

Floating Interest Rate Exposures – Except as discussed below,
floating-to-fixed interest rate swaps are accounted for as cash
flow hedges, as are all hedges of forecasted issuances of debt.
Effectiveness is assessed based on either the perfectly effective
hypothetical derivative method or changes in the present value of
interest payments on the underlying debt. Effective gains and
losses deferred to AOCI are reclassified into earnings over the life

General Mills

of the associated debt. Ineffective gains and losses are recorded
as net interest. The amount of hedge ineffectiveness was less
than $1 million in each of fiscal 2010, 2009 and 2008.

Fixed Interest Rate Exposures – Fixed-to-floating interest rate
swaps are accounted for as fair value hedges with effectiveness
assessed based on changes in the fair value of the underlying debt
and derivatives, using incremental borrowing rates currently
available on loans with similar terms and maturities. Ineffective
gains and losses on these derivatives and the underlying hedged
items are recorded as net interest. The amount of hedge inef-
fectiveness was less than $1 million in each of fiscal 2010, 2009
and 2008.

In advance of a planned debt financing in fiscal 2011, we entered
into $500 million of treasury lock derivatives with an average fixed
rate of 4.3 percent. All of these treasury locks were cash settled
for $17.1 million coincident with the issuance of our $500 million
30-year fixed-rate notes, which settled subsequent to our fiscal
2010 year end, on June 1, 2010. As of May 30, 2010, a $16.8 million
pre-tax loss remained in AOCI, which will be reclassified to
earnings over the term of the underlying debt.

During the second quarter of fiscal 2010 we entered into
$700 million of swaps to convert $700 million of 5.65 percent
fixed-rate notes due September 10, 2012, to floating rates. In May
2010, we repurchased $179.2 million of our 5.65 percent notes, and
as a result, we received $2.7 million to settle a portion of these
swaps that related to the repurchased debt.

In anticipation of our acquisition of The Pillsbury Company
(Pillsbury) and other financing needs, we entered into pay-fixed
interest rate swap contracts during fiscal 2001 and 2002 totaling
$7.1 billion to lock in our interest payments on the associated debt.
As of May 30, 2010, we still owned $1.6 billion of Pillsbury-related
pay-fixed swaps that were previously neutralized with offsetting
pay-floating swaps in fiscal 2002.

In advance of a planned debt financing in fiscal 2007, we
entered into $700.0 million pay-fixed, forward-starting interest
rate swaps with an average fixed rate of 5.7 percent. All of these
forward-starting interest rate swaps were cash settled for
$22.5 million coincident with our $1.0 billion 10-year fixed-rate
note offering on January 24, 2007. As of May 30, 2010, a
$14.9 million pre-tax loss remained in AOCI, which will be
reclassified to earnings over the term of the underlying debt.

The following table summarizes the notional amounts and
weighted-average interest rates of our interest rate swaps. As
discussed above, we have neutralized all of our Pillsbury-related
pay-fixed swaps with pay-floating swaps; however, we cannot
present them on a net basis in the following table because the
offsetting occurred with different counterparties. Average float-
ing rates are based on rates as of the end of the reporting period.

May 30,
2010

Pay-floating swaps – notional amount

$2,155.6

$1,859.3

Average receive rate

Average pay rate

4.8%

0.3%

5.7%

0.3%

Pay-fixed swaps – notional amount

$1,600.0

$2,250.0

Average receive rate

Average pay rate

0.3%

7.3%

0.5%

6.4%

The swap contracts mature at various dates from fiscal 2011 to

2013 as follows:

Fiscal Year
Maturity Date
......................................................
In Millions
Pay Floating
Pay Fixed
.........................................................................................................................................................................................

2011

17.6

—

850.0
2012
750.0
2013
.........................................................................................................................................................................................
$1,600.0
Total

1,603.3
534.7

$2,155.6

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

Annual Report 2010

The amount of hedge ineffectiveness was less than $1 million in

each of fiscal 2010, 2009 and 2008.

We also have many net investments in foreign subsidiaries that
are denominated in euros. We hedged a portion of these net
investments by issuing euro-denominated commercial paper and
foreign exchange forward contracts. As of May 30, 2010, we had
deferred net foreign currency transaction losses of $95.7 million in
accumulated other comprehensive loss (AOCI) associated with
hedging activity.

Fair Value Measurements And Financial Statement Presentation
We categorize assets and liabilities into one of three levels based
on the assumptions (inputs) used in valuing the asset or liability.
Level 1 provides the most reliable measure of fair value, while

Level 3 generally requires significant management judgment. The
three levels are defined as follows:

Level 1:

Level 2:

Level 3:

Unadjusted quoted prices in active markets for
identical assets or liabilities.
Observable inputs other
than quoted prices
included in Level 1, such as quoted prices for similar
assets or liabilities in active markets or quoted
prices for identical assets or liabilities in inactive
markets.
Unobservable inputs reflecting management’s
assumptions about the inputs used in pricing the
asset or liability.

The fair values of our assets, liabilities, and derivative positions recorded at fair value as of May 30, 2010, were as follows:

Fair Values of Liabilities
..............................................................................
In Millions
Level 2 Level 3
Total
............................................................................................................................................................................................................................................................................................................................................................................................
Derivatives designated as hedging instruments:

Fair Values of Assets
..........................................................................
Level 1
Level 2 Level 3

Total Level 1

Interest rate contracts(a)(d)
Foreign exchange contracts(b)(c)

$— $ (17.1)
(12.5)
............................................................................................................................................................................................................................................................................................................................................................................................
Total
(29.6)
............................................................................................................................................................................................................................................................................................................................................................................................
Derivatives not designated as hedging instruments:

5.8 $ — $ (17.1)
(12.5)
—
8.6
(29.6)
—
14.4

$ — $
—
—

$— $
—
—

5.8
8.6
14.4

—
—

Interest rate contracts(a)(d)
Foreign exchange contracts(b)
Commodity contracts(b)(f)

— (163.1)
—
(1.0)
(5.6)
—
............................................................................................................................................................................................................................................................................................................................................................................................
Total
— (169.7)
............................................................................................................................................................................................................................................................................................................................................................................................
Other assets and liabilities reported at fair value:

— (163.1)
(1.0)
—
—
(5.6)
(164.1)
(5.6)

— 124.3
—
9.5
7.4
—
— 141.2

Marketable investments(a)(e)
Grain contracts(b)(f)
Long-lived assets(g)

—
(13.0)
—
............................................................................................................................................................................................................................................................................................................................................................................................
(13.0)
Total
............................................................................................................................................................................................................................................................................................................................................................................................
$— $(212.3)
Total assets, liabilities, and derivative positions recorded at fair value

—
(13.0)
—
(13.0)
$— $195.3 $(5.6) $(206.7)

11.9
11.9
0.4
24.2
$15.5 $179.8

27.4
11.9
0.4
39.7

15.5
—
—
15.5

—
—
—
—

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

recorded as cash and cash equivalents.

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

(d) Based on LIBOR and swap rates.

(e) Based on prices of common stock and bond matrix pricing.

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

(g) We recorded a $6.6 million noncash impairment charge in fiscal 2010 to write down certain long-lived assets to their fair value of $0.4 million. Fair value was based on recently
reported transactions for similar assets in the marketplace. These assets had a book value of $7.0 million and were associated with the exit activities described in Note 4.
We did not significantly change our valuation techniques from prior periods.

General Mills

Information related to our cash flow hedges, net investment hedges, and other derivatives not designated as hedging instruments for

the fiscal years ended May 30, 2010, and May 31, 2009, follows:

Total
...................................
Fiscal Year
...................................
In Millions
2009
............................................................................................................................................................................................................................................................................................................................................................................................
Derivatives in Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in OCI(a)
Amount of gain (loss) reclassified from AOCI into earnings(a)(b)
Amount of gain (loss) recognized in earnings(c)(d)

$(11.7) $ (1.1) $(13.3) $ 9.1 $ — $ — $ — $

— $(25.0)
— (44.4)
(0.8)
—

27.7 — —
0.3 — —

$8.0
11.9
0.2

(18.0)
(0.3)

(26.4)
(0.5)

(15.8)
(0.1)

—
—

2010

Equity
Contracts
.........................
Fiscal Year
.........................
2009 2010 2009

Commodity
Contracts
......................................
Fiscal Year
......................................
2009

Interest Rate
Contracts
...................................
Fiscal Year
...................................
2009

Foreign
Exchange
Contracts
...................................
Fiscal Year
...................................

Derivatives in Fair Value Hedging Relationships:
Amount of net gain recognized in earnings(d)
Derivatives in Net Investment Hedging Relationships:

Amount of gain recognized in OCI(a)

Derivatives Not Designated as Hedging Instruments:
Amount of gain (loss) recognized in earnings(e)

(a) Effective portion.

0.2

—

— — —

6.0 — —

—

0.2

—

6.0

0.2

3.3

13.3

(70.2) 0.2

0.2

(54.7)

(249.6)

(41.0) (316.3)

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

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

of hedge effectiveness.

(d)Net gain recognized in earnings is related to the ineffective portion of the hedging relationship and the related hedged items. No amounts were reported as a result of being

excluded from the assessment of hedge effectiveness.

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

Amounts Recorded in Accumulated Other Comprehensive Loss
Unrealized losses from interest rate cash flow hedges recorded
in AOCI as of May 30, 2010, totaled $25.1 million after tax. These
deferred losses are primarily related to interest rate swaps we
entered into in contemplation of future borrowings and other
financing requirements and are being reclassified into net interest
over the lives of the hedged forecasted transactions. As of
May 30, 2010, we had no amounts from commodity derivatives
recorded in AOCI. Unrealized losses from foreign currency cash
flow hedges recorded in AOCI as of May 30, 2010, were $3.8 mil-
lion after-tax. The net amount of pre-tax gains and losses in AOCI
as of May 30, 2010, that we expect to be reclassified into net
earnings within the next 12 months is $17.5 million of expense.

Credit-risk-related Contingent Features Certain of our derivative
instruments contain provisions that require us to maintain an
investment grade credit rating on our debt from each of the major
credit rating agencies. If our debt were to fall below investment
grade, the counterparties to the derivative instruments could
request full collateralization on derivative instruments in net
liability positions. The aggregate fair value of all derivative

instruments with credit-risk-related contingent features that
were in a liability position on May 30, 2010, was $16.3 million.
We have not posted any collateral associated with these con-
tracts. If the credit-risk-related contingent features underlying
these agreements were triggered on May 30, 2010, we would be
required to post an additional $16.3 million of collateral to the
counterparties.

Concentrations of Credit and Counterparty Credit Risk During fis-
cal 2010, Wal-Mart Stores, Inc. and its affiliates (Wal-Mart)
accounted for 23 percent of our consolidated net sales and
30 percent of our net sales in the U.S. Retail segment. No other
customer accounted for 10 percent or more of our consolidated
net sales. Wal-Mart also represented 5 percent of our net sales in
the International segment and 7 percent of our net sales in the
Bakeries and Foodservice segment. As of May 30, 2010, Wal-Mart
accounted for 28 percent of our U.S. Retail receivables, 4 percent
of our International receivables, and 7 percent of our Bakeries and
Foodservice receivables. The five largest customers in our
U.S. Retail segment accounted for 54 percent of
its fiscal
2010 net sales, the five largest customers in our International

Annual Report 2010

segment accounted for 23 percent of its fiscal 2010 net sales, and
the five largest customers in our Bakeries and Foodservice seg-
ment accounted for 45 percent of its fiscal 2010 net sales.

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

transactions

through

various

futures

the contracts,

The amount of loss due to the credit risk of the counterparties,
should the counterparties fail to perform according to the terms
of
is $60.1 million against which we hold
$20.0 million of collateral. Under the terms of master swap
agreements, some of our transactions require collateral or other
security to support financial instruments subject to threshold
levels of exposure and counterparty credit risk. Collateral assets
are either cash or U.S.Treasury instruments and are held in a trust
account that we may access if the counterparty defaults.

NOTE 8. DEBT

Notes Payable The components of notes payable and their
respective weighted-average interest rates at the end of the
periods were as follows:

May 31, 2009
...............................................
Weighted-
Average
Interest
In Millions
Rate
.........................................................................................................................................................................................

May 30, 2010
...................................................
Weighted-
Average
Interest
Rate

Notes
Payable

U.S. commercial paper

$ 973.0

Euro commercial paper

—

0.3% $401.8

—

275.0

0.5%

0.5

12.9
Financial institutions
.........................................................................................................................................................................................
Total

1.1% $812.2

$1,050.1

135.4

10.6

77.1

2.6%

expiring in October 2012 and a $1.1 billion facility expiring in October
2010. We also have $278.9 million in uncommitted credit lines that
support our foreign operations. As of May 30, 2010, there were no
amounts outstanding on the fee-paid committed credit lines and
$76.5 was drawn on the uncommitted lines. The credit facilities
contain several covenants, including a requirement to maintain a
fixed charge coverage ratio of at least 2.5. We were in compliance
with all credit facility covenants as of May 30, 2010.

Long-term Debt In May 2010, we paid $437.0 million to repur-
chase in a cash tender offer $400.0 million of our previously
issued debt. We repurchased $220.8 million of our 6.0 percent
notes due 2012 and $179.2 million of our 5.65 percent notes due
2012. As a result of the repurchase, we recorded interest expense
of $40.1 million which represented the premium paid in the tender
offer, the write-off of the remaining discount and unamortized
fees, and the settlement of related swaps. We issued commercial
paper to fund the repurchase.

During fiscal 2010, we repaid $88.0 million of long-term bank

debt held by wholly owned foreign subsidiaries.

In January 2009, we issued $1.2 billion aggregate principal
amount of 5.65 percent notes due 2019. In August 2008, we
issued $700.0 million aggregate principal amount of 5.25 percent
notes due 2013. The proceeds of these notes were used to repay a
portion of our outstanding commercial paper. Interest on these
notes is payable semi-annually in arrears. These notes may be
redeemed at our option at any time for a specified make-whole
amount. These notes are senior unsecured, unsubordinated obli-
gations that include a change of control repurchase provision.

In June 2010, subsequent to our fiscal 2010 year end, we issued
$500.0 million aggregate principal amount of 5.4 percent notes
due 2040. The significant terms of these notes are similar to our
previously issued notes.

Certain of our long-term debt and noncontrolling interests
agreements contain restrictive covenants. As of May 30, 2010,
we were in compliance with all of these covenants.

As of May 30, 2010, the $40.6 million pre-tax loss recorded in
AOCI associated with our previously designated interest rate
swaps will be reclassified to net interest over the remaining lives
of the hedged transactions.The amount expected to be reclassified
from AOCI to net interest in fiscal 2011 is $13.1 million pre-tax.

General Mills

A summary of our long-term debt is as follows:

May 30,
2010

5.65% notes due February 15, 2019
6% notes due February 15, 2012

5.7% notes due February 15, 2017

5.2% notes due March 17, 2015
5.25% notes due August 15, 2013

5.65% notes due September 10, 2012

Medium-term notes, 4.8% to 9.1%, due fiscal 2011 or

later

Debt of consolidated contract manufacturer

$1,150.0
1,019.5

$1,150.0
1,240.3

1,000.0

750.0
700.0

520.8

204.4

20.9

750.0
700.0

700.0

204.4

26.5

Floating-rate notes due January 22, 2010
Other, including capital leases
.........................................................................................................................................................................................
6,263.3

500.0
(7.9)

—
10.2

5,375.8

Less amount due within one year
.........................................................................................................................................................................................

(107.3)

(508.5)

Total long-term debt

$5,268.5

$5,754.8

Principal payments due on long-term debt in the next five years
based on stated contractual maturities, our intent to redeem, or
put rights of certain note holders are $107.3 million in fiscal 2011,
$1,031.3 million in fiscal 2012, $633.6 million in fiscal 2013,
$702.6 million in fiscal 2014, and $750.1 million in fiscal 2015.

NOTE 9. NONCONTROLLING INTERESTS

As discussed in Note 1, at the beginning of fiscal 2010, we adopted
new accounting guidance on noncontrolling interests in financial
statements. As a result of this adoption, noncontrolling interests,
previously reported primarily as minority interests, were reclas-
sified to a separate section in equity on the Consolidated Balance
Sheets.

Our principal noncontrolling interest relates to our subsidiary
GMC. GMC issued a managing membership interest and limited
preferred membership interests to certain of our wholly owned
subsidiaries. We continue to hold the entire managing member-
ship interest, and therefore direct the operations of GMC. We
currently hold all interests in GMC other than Class A Limited
Membership Interests (Class A Interests) which are held by an
unrelated third-party investor. As of May 30, 2010, the carrying
value of all outstanding Class A Interests was $242.3 million,
classified as noncontrolling interests on our Consolidated Balance
Sheets.

The holder of the Class A Interests receives quarterly preferred
distributions from available net income based on the application
of a floating preferred return rate, currently equal to the sum of
three-month LIBOR plus 65 basis points, to the holder’s capital
account balance established in the most recent mark-to-market
valuation (currently $248.1 million).

For financial reporting purposes, the assets, liabilities, results of
operations, and cash flows of GMC are included in our Consol-
idated Financial Statements. The return to the third-party investor
is reflected in net earnings attributable to noncontrolling interests
in the Consolidated Statements of Earnings.

In addition, we have 7 foreign subsidiaries that have minority

interests totaling $2.8 million as of May 30, 2010.

Our noncontrolling interests contain restrictive covenants. As
of May 30, 2010, we were in compliance with all of these
covenants.

NOTE 10. STOCKHOLDERS’ EQUITY

Cumulative preference stock of 5.0 million shares, without par
value, is authorized but unissued.

All common stock share and per share amounts have been

adjusted for the two-for-one stock split on May 28, 2010.

During fiscal 2010, we repurchased 21.3 million shares of com-
mon stock for an aggregate purchase price of $691.8 million.
During fiscal 2009, we repurchased 40.4 million shares of com-
mon stock for an aggregate purchase price of $1,296.4 million.
During fiscal 2008, we repurchased 47.8 million shares of com-
mon stock for an aggregate purchase price of $1,384.6 million.

On December 10, 2007, our board of directors approved the
retirement of 250.0 million shares of common stock in treasury.
This action reduced common stock by $25.0 million, reduced
additional paid-in capital by $5,055.8 million, and reduced com-
mon stock in treasury by $5,080.8 million on our Consolidated
Balance Sheets.

In fiscal 2007, our board of directors authorized the repurchase
of up to 150 million shares of our common stock. On June 28, 2010,
our Board of Directors authorized the repurchase of up to
100 million shares of our common stock. The fiscal 2011 autho-
rization terminated and replaced the fiscal 2007 authorization.
Purchases under the authorization can be made in the open
including the
market or in privately negotiated transactions,

Annual Report 2010

use of call options and other derivative instruments, Rule 10b5-1
trading plans, and accelerated repurchase programs. The autho-
rization has no specified termination date.

In October 2004, Lehman Brothers Holdings Inc. (Lehman
Brothers) issued $750.0 million of notes, which were mandatorily
exchangeable for shares of our common stock. In connection with
the issuance of those notes, an affiliate of Lehman Brothers
entered into a forward purchase contract with us, under which
we were obligated to deliver to such affiliate between 28.0 million
and 34.0 million shares of our common stock, subject to adjust-
ment under certain circumstances. We delivered 28.6 million
shares in October 2007, in exchange for $750.0 million in cash
from Lehman Brothers. We used the cash to reduce outstanding
commercial paper balances.

The following table provides details of total comprehensive

income:

Fiscal 2010
........................................................................
In Millions
Net
.........................................................................................................................................................................................

Pretax

Tax

Fiscal 2009
...............................................................................
In Millions
Net
.........................................................................................................................................................................................

Pretax

Tax

Net earnings attributable to General

Mills

$ 1,304.4

Net earnings attributable to
noncontrolling interests

9.3
.........................................................................................................................................................................................
Net earnings, including earnings

attributable to noncontrolling
interests

$ 1,313.7
.........................................................................................................................................................................................

Other comprehensive income (loss):

Foreign currency translation
Net actuarial loss arising during

$ (286.6)

$ — $ (286.6)

period

(1,254.0)

477.8

(776.2)

Other fair value changes:

Securities
Hedge derivatives

Reclassification to earnings:

Hedge derivatives
Amortization of losses and prior

(0.6)
8.0

0.2
(3.4)

(0.4)
4.6

(11.9)

4.6

(7.3)

15.0
.........................................................................................................................................................................................

service costs

(9.2)

24.2

Net earnings attributable to General Mills
Net earnings attributable to

$1,530.5

Other comprehensive income (loss) in
accumulated other comprehensive

noncontrolling interests

4.5
.........................................................................................................................................................................................
Net earnings, including earnings

$1,535.0
.........................................................................................................................................................................................

attributable to noncontrolling interests

Other comprehensive income (loss):

loss

(1,520.9)

470.0

(1,050.9)

Other comprehensive loss attributable

to noncontrolling interests

(1.2)

—

(1.2)

.........................................................................................................................................................................................

Other comprehensive income (loss)
.........................................................................................................................................................................................

$(1,522.1)

$(1,052.1)

$470.0

Foreign currency translation

$(163.3)

$ — $ (163.3)

Total comprehensive income

261.6

Net actuarial loss arising during period
Other fair value changes:

(786.3)

314.8

(471.5)

Securities

Hedge derivatives

Reclassification to earnings:

Hedge derivatives

Amortization of losses and prior

1.9

(25.0)

(0.7)

10.6

1.2

(14.4)

44.4

(17.0)

27.4

11.5
.........................................................................................................................................................................................

service costs

(7.6)

19.1

Other comprehensive income (loss) in

accumulated other comprehensive loss

(909.2)

300.1

(609.1)

Other comprehensive income attributable

0.2
.........................................................................................................................................................................................

to noncontrolling interests

0.2

—

$(909.0)

$ (608.9)

$300.1

Total comprehensive income

$ 926.1

General Mills

Fiscal 2008
.....................................................................
In Millions
Net
.........................................................................................................................................................................................

Pretax

Tax

Net earnings attributable to General Mills

Net earnings attributable to noncontrolling

$1,294.7

interests

23.4
.........................................................................................................................................................................................

Net earnings, including earnings

Accumulated other comprehensive loss balances, net of tax

effects, were as follows:

May 30,
2010

Foreign currency translation adjustments
Unrealized gain (loss) from:

attributable to noncontrolling interests

$1,318.1
.........................................................................................................................................................................................
Other comprehensive income (loss):

Securities

Hedge derivatives

Foreign currency translation

$243.1

$ — $ 243.1

Pension, other postretirement, and

194.9

358.2

5.6

(28.9)

4.4

(41.9)

61.4

(22.0)

39.4

postemployment benefits:

Net actuarial loss

(1,611.0)

(1,168.2)

Minimum pension liability
Other fair value changes:

Securities

Hedge derivatives

Reclassification to earnings:

Hedge derivatives

Amortization of losses and prior

1.5

59.6

(0.6)

(21.3)

0.9

38.3

(64.5)

23.5

(41.0)

12.5
.........................................................................................................................................................................................

service costs

(8.1)

20.6

Other comprehensive income (loss) in

accumulated other comprehensive
income

Other comprehensive income attributable

321.7

(28.5)

293.2

to noncontrolling interests

3.2
.........................................................................................................................................................................................

3.2

—

$ 296.4
Other comprehensive income (loss)
.........................................................................................................................................................................................

$(28.5)

$324.9

Total comprehensive income

$1,614.5

During fiscal 2009, we incurred unrecognized losses in excess
of $1.1 billion on assets, primarily equity securities, in our defined
benefit pension and other postretirement benefit plans. These
losses were recognized in other comprehensive income. In fiscal
2010 and future years, the losses are reflected in pension expense
using the market-related value of the plan assets over a five-year
period and amortized using a declining balance method over the
average remaining service period of active plan participants.

In fiscal 2010, 2009, and 2008, except for reclassifications to
earnings, changes in other comprehensive income (loss) were
primarily noncash items.

Prior service costs

(47.5)

(30.3)

.........................................................................................................................................................................................

Accumulated other comprehensive loss

$(1,486.9)

$ (877.8)

NOTE 11. STOCK PLANS

All shares and per share amounts have been adjusted for the
two-for-one stock split on May 28, 2010.

We use broad-based stock plans to help ensure that manage-
ment’s interests are aligned with those of our stockholders. As of
May 30, 2010, a total of 24,337,402 shares were available for grant
in the form of stock options, restricted shares, restricted stock
units, and shares of common stock under the 2009 Stock Com-
pensation Plan (2009 Plan) and the 2006 Compensation Plan for
Non-Employee Directors (2006 Director Plan). On September 21,
2009, our stockholders approved the 2009 Plan, replacing the
2007 Stock Compensation Plan (2007 Plan). Restricted shares
and restricted stock units may also be granted under our Exec-
utive Incentive Plan (EIP) through September 25, 2010. The 2009
Plan and EIP also provide for the issuance of cash-settled share-
based units. Stock-based awards now outstanding include some
granted under the 1995, 1996, 1998 (senior management), 1998
(employee), 2001, 2003, 2005, and 2007 stock plans, under which
no further awards may be granted. The stock plans provide for full
vesting of options, restricted shares, restricted stock units, and
cash-settled share-based units upon completion of specified
service periods or in certain circumstances, following a change
of control.

Annual Report 2010

term of the options is based on the U.S. Treasury zero-coupon
yield curve in effect at the time of grant.

Any corporate income tax benefit realized upon exercise or
vesting of an award in excess of that previously recognized in
earnings (referred to as a windfall tax benefit) is presented in the
Consolidated Statements of Cash Flows as a financing cash flow.
Realized windfall tax benefits are credited to additional paid-in
capital within the Consolidated Balance Sheets. Realized shortfall
tax benefits (amounts which are less than that previously rec-
ognized in earnings) are first offset against the cumulative bal-
ance of windfall tax benefits, if any, and then charged directly to
income tax expense, potentially resulting in volatility in our con-
solidated effective income tax rate. We calculated a cumulative
memo balance of windfall tax benefits from post-1995 fiscal years
for the purpose of accounting for future shortfall tax benefits.

Options may be priced at 100 percent or more of the fair market
value on the date of grant, and generally vest four years after the
date of grant. Options generally expire within 10 years and one
month after the date of grant.

Stock Options The estimated fair values of stock options granted
and the assumptions used for the Black-Scholes option-pricing
model were as follows:

2010

Estimated fair values of stock

options granted

Assumptions:

Risk-free interest rate

Expected term
Expected volatility

Dividend yield

3.20

4.70

5.28

3.7%

4.4%

5.1%

8.5 years

18.9%

3.4%

16.1%

2.7%

15.6%

2.7%

The valuation of stock options is a significant accounting
estimate which requires us to use judgments and assumptions
that are likely to have a material impact on our financial state-
ments. Annually, we make predictive assumptions regarding
future stock price volatility, employee exercise behavior, dividend
yield, and the forfeiture rate.

We estimate the fair value of each option on the grant date
using the Black-Scholes option-pricing model, which requires us
to make predictive assumptions regarding future stock price
volatility, employee exercise behavior, and dividend yield. We
estimate our future stock price volatility using the historical
volatility over the expected term of the option, excluding time
periods of volatility we believe a marketplace participant would
exclude in estimating our stock price volatility. For fiscal 2010 and
all future grants, we have excluded historical volatility for fiscal
2002 and prior, primarily because volatility driven by our acqui-
sition of Pillsbury does not reflect what we believe to be expected
future volatility. We also have considered, but did not use, implied
volatility in our estimate, because trading activity in options on
our stock, especially those with tenors of greater than 6 months,
is insufficient to provide a reliable measure of expected volatility.
Our expected term represents the period of time that options
granted are expected to be outstanding based on historical data
to estimate option exercise and employee termination within the
valuation model. Separate groups of employees have similar
historical exercise behavior and therefore were aggregated into
a single pool for valuation purposes. The weighted-average
expected term for all employee groups is presented in the table
above. The risk-free interest rate for periods during the expected

General Mills

Information on stock option activity follows:

Weighted-
Average
Exercise
Price
Per Share
.........................................................................................................................................................................................

Weighted-
Average
Exercise
Price
Per Share

Options
Exercisable
(Thousands)

Options
Outstanding
(Thousands)

Balance as of

May 27, 2007
Granted

Exercised

79,011.8

$20.58

107,546.4
10,998.8

(12,270.2)

$21.54
29.38

18.75

Forfeited or
expired

25.21
.........................................................................................................................................................................................

(232.6)

Balance as of

May 25, 2008

76,389.2

21.23

106,042.4

Granted
Exercised

Forfeited or

6,495.4
(17,548.4)

22.68

31.74
19.60

27.50
.........................................................................................................................................................................................

(382.4)

expired

Balance as of

May 31, 2009

67,619.2

21.96

94,607.0

Granted
Exercised

Forfeited or

6,779.4
(20,013.6)

23.84

27.99
19.87

24.82
expired
.........................................................................................................................................................................................
Balance as of

(268.2)

May 30, 2010

47,726.6

$22.89

81,104.6

$25.17

Stock-based compensation expense related to stock option
awards was $34.4 million in fiscal 2010, $40.0 million in fiscal
2009, and $52.8 million in fiscal 2008.

Net cash proceeds from the exercise of stock options less
shares used for withholding taxes and the intrinsic value of
options exercised were as follows:

Fiscal Year
..................................................................
In Millions
2008
.........................................................................................................................................................................................

2009

2010

Net cash proceeds

Intrinsic value of options exercised

$388.5

$271.8

$305.9

$226.7

$192.0

$134.4

Restricted Stock, Restricted Stock Units, and Cash-settled Share-
based Units Stock and units settled in stock subject to a restricted
period and a purchase price, if any (as determined by the Com-
pensation Committee of the Board of Directors), may be granted
to key employees under the 2009 Plan. Restricted shares and
restricted stock units, up to 50 percent of the value of an
individual’s cash incentive award, may also be granted through
the EIP. Certain restricted stock and restricted stock unit awards
require the employee to deposit personally owned shares (on a
one-for-one basis) during the restricted period. Restricted stock
and restricted stock units generally vest and become unrestricted
four years after the date of grant. Participants are entitled to
dividends on such awarded shares and units, but only receive
those amounts if the shares or units ultimately vest. The sale or
transfer of these shares and units is restricted during the vesting
period. Participants holding restricted stock, but not restricted
stock units, are entitled to vote on matters submitted to holders
of common stock for a vote.

Information on restricted stock unit and cash-settled share-based units activity follows:

Liability Classified
.................................................................................................................................................
Weighted-
Average
Grant-Date Fair
Value
............................................................................................................................................................................................................................................................................................................................................................................................

Equity Classified
.....................................................................
Weighted-
Average
Grant-Date Fair
Value

Weighted-
Average
Grant-Date Fair
Value

Cash-Settled
Share-Based
Units
(Thousands)

Share-Settled
Units
(Thousands)

Nonvested as of May 31, 2009

Granted

Vested

8,782.1
2,494.3

(898.3)

$28.35
28.12

26.02

317.6
141.0

(17.2)

$28.98
27.92

28.95

1,749.9
2,110.4

(74.3)

$31.70
27.92

29.85

28.86
............................................................................................................................................................................................................................................................................................................................................................................................

Forfeited or expired

(168.3)

(82.3)

(17.1)

28.85

29.13

Nonvested as of May 30, 2010

10,209.8

$28.49

424.3

$28.64

3,703.7

$29.65

Fiscal Year
...............................................................................
2008
............................................................................................................................................................................................................................................................................................................................................................................................

2009

2010

Number of units granted (thousands)

Weighted average price per unit

Annual Report 2010

4,745.7

4,348.0

3,904.4

$ 28.03

$ 31.70

$ 29.31

The total grant-date fair value of restricted stock unit awards
that vested during fiscal 2010 was $26.1 million, and restricted
stock unit awards with a grant-date fair value of $79.9 million
vested during fiscal 2009.

As of May 30, 2010, unrecognized compensation expense related
to nonvested stock options and restricted stock units was $187.2 mil-
lion. This expense will be recognized over 21 months, on average.
Stock-based compensation expense related to restricted stock
units and cash-settled share-based payment awards was
$131.0 million for fiscal 2010, $101.4 million for fiscal 2009, and
$80.4 million for fiscal 2008.

NOTE 12. EARNINGS PER SHARE

All shares and per share amounts have been adjusted for the
two-for-one stock split on May 28, 2010.

Basic and diluted earnings per share (EPS) were calculated using
the following:

Fiscal Year
...............................................................................
In Millions, Except per Share Data
2009
2008
.........................................................................................................................................................................................

2010

Net earnings attributable to General

$1,530.5

$1,304.4

$1,294.7

Mills
Capital appreciation paid on
Series B-1 Interests in GMC(a)

—

(8.0)

calculations

$1,286.7
.........................................................................................................................................................................................
Average number of common shares –

$1,304.4

$1,530.5

basic EPS

659.6

663.7

665.9

Incremental share effect from:

Stock options(b)
Restricted stock, restricted stock

17.7

17.9

21.3

units, and other(b)

Forward purchase contract(c)

5.6
1.0
.........................................................................................................................................................................................
Average number of common shares –

5.5
—

6.0
—

diluted EPS

693.8
.........................................................................................................................................................................................
1.93
Earnings per share – basic
1.85
Earnings per share – diluted

1.96
1.90

2.32
2.24

683.3

687.1

$
$

(a) On August 7, 2007, we repurchased all of the Series B-1 limited membership interests
in GMC for $843 million, of which $8 million related to capital appreciation paid to the
third-party holders of the interests and reduced net earnings available to common
stockholders in our basic and diluted EPS calculations.

(b) Incremental shares from stock options and restricted stock units are computed by the
treasury stock method. Stock options and restricted stock units excluded from our
computation of diluted EPS because they were not dilutive were as follows:

Fiscal Year
...............................................
In Millions
2010
2009
2008
.........................................................................................................................................................................................

Anti-dilutive stock options and restricted stock units

6.3

14.2

9.4

by issuing 28.6 million shares of common stock.

General Mills

NOTE 13. RETIREMENT AND POSTEMPLOYMENT
BENEFITS

Defined Benefit Pension Plans We have defined benefit pension plans
covering most domestic, Canadian, and United Kingdom employees.
Benefits for salaried employees are based on length of service and
final average compensation. Benefits for hourly employees include
various monthly amounts for each year of credited service. Our
funding policy is consistent with the requirements of applicable laws.
We made $200.0 million of voluntary contributions to our principal
domestic plans in fiscal 2009. We did not make any contributions in
fiscal 2010, and we do not expect to be required to make any
contributions in fiscal 2011. Our principal domestic retirement plan
covering salaried employees has a provision that any excess pension
assets would be allocated to active participants if the plan is ter-
minated within five years of a change in control.

Health Care Cost Trend Rates Assumed health care costs trends
are as follows:

Fiscal Year
.................................................................................
2009
2010
.........................................................................................................................................................................................

Health care cost trend rate for next

year

9.0% and 9.0% 9.0% and 9.5%

Rate to which the cost trend rate is

assumed to decline (ultimate rate)

Year that the rate reaches the

ultimate trend rate

5.2%

2019

5.2%

2018

We review our health care cost trend rates annually. Our
review is based on data we collect about our health care claims
experience and information provided by our actuaries. This infor-
mation includes recent plan experience, plan design, overall
industry experience and projections, and assumptions used by
other similar organizations. Our initial health care cost trend rate
is adjusted as necessary to remain consistent with this review,

recent experiences, and short-term expectations. Our initial
health care cost trend rate assumption is 9.0 percent for all
retirees. Rates are graded down annually until the ultimate trend
rate of 5.2 percent is reached in 2019 for all retirees. The trend
rates are applicable for calculations only if the retirees’ benefits
increase as a result of health care inflation.The ultimate trend rate
is adjusted annually, as necessary, to approximate the current
economic view on the rate of long-term inflation plus an appro-
priate health care cost premium. Assumed trend rates for health
care costs have an important effect on the amounts reported for
the other postretirement benefit plans.

A one percentage point change in the health care cost trend

rate would have the following effects:

One
Percentage
Point
Increase

Effect on the aggregate of the service and

interest cost components in fiscal 2011

$ 7.9

$ (6.8)

Effect on the other postretirement accumulated

benefit obligation as of May 30, 2010

96.7

(85.0)

The Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010
(collectively, the Act) was signed into law in March 2010. The Act
codifies health care reforms with staggered effective dates from
2010 to 2018. Estimates of the future impacts of several of the
Act’s provisions are incorporated into our postretirement benefit
liability including the elimination of lifetime maximums and the
imposition of an excise tax on high cost health plans. These
changes resulted in a $24.0 million increase in our postretirement
benefit liability as of May 30, 2010.

Annual Report 2010

service) are charged to expense when incurred. Our postemploy-
ment benefit plans are unfunded.

We use our fiscal year end as the measurement date for all our
defined benefit pension and other postretirement benefit plans.

Summarized financial information about defined benefit pension, other postretirement, and postemployment benefits plans is

presented below:

Postemployment
Benefit Plans
.............................................
Fiscal Year
.............................................
In Millions
2010
2009
............................................................................................................................................................................................................................................................................................................................................................................................
Change in Plan Assets:

Defined Benefit
Pension Plans
....................................................
Fiscal Year
....................................................
2009

2010

Other
Postretirement
Benefit Plans
...............................................
Fiscal Year
...............................................
2010
2009

Fair value at beginning of year
Actual return on assets
Employer contributions
Plan participant contributions
Benefits payments
Foreign currency

$ 349.6
(94.4)
0.1
11.0
(30.7)
—
....................................................................................................................................................................................................................................................................................................................................
$ 235.6
Fair value at end of year
....................................................................................................................................................................................................................................................................................................................................
Change in Projected Benefit Obligation:

$ 4,128.7
(1,009.1)
220.2
3.1
(177.4)
(7.7)

$3,157.8
535.9
17.1
3.5
(182.6)
(1.9)

$ 235.6
41.0
0.1
11.3
(3.7)
—

$ 3,157.8

$ 284.3

$3,529.8

Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendment
Curtailment/other
Plan participant contributions
Medicare Part D reimbursements
Actuarial loss (gain)
Benefits payments
Foreign currency

$ 104.6
6.5
4.9
2.3
8.4
—
—
1.6
(15.6)
(0.2)
............................................................................................................................................................................................................................................................................................................................................................................................
Projected benefit obligation

$ 3,224.1
76.5
215.4
0.3
—
3.1
—
(166.8)
(177.4)
(7.9)

$ 852.0
12.9
61.6
7.5
—
11.3
4.7
168.1
(57.5)
—

$3,167.3
70.9
230.3
25.8
—
3.5
—
716.4
(182.6)
(1.6)

$ 112.5
7.2
5.6
—
10.6
—
—
11.8
(17.6)
0.2

$ 911.3
14.2
61.2
(1.3)
—
11.0
4.7
(92.0)
(57.8)
0.7

at end of year

$ 112.5
............................................................................................................................................................................................................................................................................................................................................................................................
$(112.5)
Plan assets less than benefit obligation as of fiscal year end

$ (500.2)

$ (776.3)

$ 3,167.3

$(130.3)

$(616.4)

$4,030.0

$1,060.6

$ 130.3

$ 852.0

(9.5)

The accumulated benefit obligation for all defined benefit plans was $3,620.3 million as of May 30, 2010, and $2,885.3 million as of

May 31, 2009.

Amounts recognized in accumulated other comprehensive loss as of May 30, 2010, and May 31, 2009, are as follows:

Total
......................................................
Fiscal Year
......................................................
In Millions
2009
............................................................................................................................................................................................................................................................................................................................................................................................
$(1,168.2)
$(1,369.9)
Net actuarial loss
(30.3)
Prior service (costs) credits
(41.3)
............................................................................................................................................................................................................................................................................................................................................................................................
$(1,198.5)
Amounts recorded in accumulated other comprehensive loss $(1,411.2)

$(1,028.2)
(29.6)
$(1,057.8)

$(1,611.0)
(47.5)
$(1,658.5)

$(225.2)
1.0
$(224.2)

$(130.3)
6.8
$(123.5)

$ (9.7)
(7.5)
$(17.2)

$(15.9)
(7.2)
$(23.1)

2010

Defined Benefit
Pension Plans
......................................................
Fiscal Year
......................................................
2009

2010

Other
Postretirement
Benefit Plans
.............................................
Fiscal Year
.............................................
2009

2010

Postemployment
Benefit Plans
.......................................
Fiscal Year
.......................................
2009

2010

General Mills

Plans with accumulated benefit obligations in excess of plan assets are as follows:

Postemployment
Benefit Plans
.........................................
Fiscal Year
.........................................
In Millions
2010
2009
............................................................................................................................................................................................................................................................................................................................................................................................

Defined Benefit
Pension Plans
.........................................
Fiscal Year
.........................................
2010
2009

Other
Postretirement
Benefit Plans
.............................................
Fiscal Year
.............................................
2010
2009

Projected benefit obligation
Accumulated benefit obligation

Plan assets at fair value

$299.6
252.5

17.3

$225.2
194.4

15.9

Components of net periodic benefit (income) costs are as follows:

— $ — $ — $ —
112.5

852.0

130.3

1,060.6

284.3

235.6

—

Postemployment
Benefit Plans
.........................................................
Fiscal Year
.........................................................
In Millions
2009
2008
............................................................................................................................................................................................................................................................................................................................................................................................

Defined Benefit
Pension Plans
........................................................................
Fiscal Year
........................................................................
2009
2008

Other Postretirement
Benefit Plans
...............................................................
Fiscal Year
...............................................................
2008

2009

2010

Service cost

Interest cost

Expected return on plan assets

Amortization of losses
Amortization of prior service costs (credits)

Other adjustments

$ 70.9

$ 76.5

$ 80.1

$ 12.9

$ 14.2

$ 16.4

$ 7.2

$ 6.5

$ 5.4

230.3

215.4

196.7

61.6

61.2

58.8

(400.1)

(385.8)

(360.6)

(29.2)

(30.0)

(30.3)

8.4
6.9

—

7.8
7.4

—

22.7
7.5

—

2.0
(1.6)

—

7.2
(1.4)

—

15.3
(1.4)

—

10.6

5.7

—

1.0
2.4

4.9

—

1.0
2.2

8.4

3.7

—

(0.2)
2.2

2.3

—
Settlement or curtailment losses
............................................................................................................................................................................................................................................................................................................................................................................................

0.3

—

Net (income) expense

$ (83.6)

$ (78.7)

$ (53.3)

$ 45.7

$ 51.2

$ 58.8

$26.9

$23.0

$13.4

Annual Report 2010

We expect to recognize the following amounts in net periodic benefit (income) costs in fiscal 2011:

Postemployment
In Millions
Benefit Plans
............................................................................................................................................................................................................................................................................................................................................................................................

Defined Benefit
Pension Plans