General Mills Annual Report 2011

Plain-text annual report

General Mills A Portfolio for Global Growth Annual Report 2011 G e n e r a l M i l l s A n n u a l R e p o r t 2 0 1 1 Number One General Mills Boulevard Minneapolis, MN 55426-1347 GeneralMills.com What started 70 years ago as a brand new cereal has become a mainstay on millions of breakfast tables. Today, one of every eight boxes of cereal sold in the U.S. is a Cheerios variety. WE HAVE A PORTFOLIO BUILT FOR GLOBAL GROWTH. From ready-to-eat cereal to convenient meals to wholesome snacks, we compete in growing food categories that are on-trend with consumer tastes around the world. Our brands hold leading market positions in more than 100 markets worldwide, with great opportunities for expansion. General Mills at a Glance U.S. Retail Net sales by division International Net sales by region Bakeries and Foodservice Net sales by customer type 8% 2% 13% 23% 13% 12% 31% Joint Ventures Net sales by joint venture (not consolidated, proportionate share) 15% 15%% 18% 27% 21% 30% 29% 58% % % $10.2 Billion 23% Big G Cereals 21% Meals 18% Pillsbury USA 15% Yoplait 13% Snacks 8% Baking Products 2% Small Planet Foods/Other % % $2.9 Billion 31% Europe 29% Asia/Paciﬁc 27% Canada 13% Latin America % $1.8 Billion 58% Bakeries & National Restaurant Accounts 30% Foodservice Distributors 12% Convenience Stores 85% $1.2 Billion 85% Cereal Partners Worldwide (CPW) 15% Häagen-Dazs Japan Shareholder Information World Headquarters Number One General Mills Boulevard Minneapolis, MN 55426-1347 Phone: (763) 764-7600 Website GeneralMills.com Markets New York Stock Exchange Trading Symbol: GIS Independent Auditor KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-3900 Phone: (612) 305-5000 Investor Inquiries General Shareholder Information: Investor Relations Department (800) 245-5703 or (763) 764-3202 Analysts/Investors: Kristen S. Wenker Vice President, Investor Relations (763) 764-2607 Holiday Gift Boxes General Mills Gift Boxes are a part of many shareholders’ December holiday traditions. To request an order form, call us toll free at (888) 469-7809 or write, including your name, street address, city, state, zip code and phone number (including area code) to: 2011 General Mills Holiday Gift Box Department 7803 P.O. Box 5011 Stacy, MN 55078-5011 Or you can place an order online at: GMIHolidayGift Box.com Please contact us aft er Oct. 1, 2011. i s e n a p m o C S L G y b g n i t n i r P i n o s d d A y b i n g s e D Transfer Agent and Registrar Our transfer agent can assist you with a variety of services, including change of address or questions about dividend checks. Wells Fargo Bank, N.A. 161 North Concord Exchange P.O. Box 64854 St. Paul, MN 55164-0854 Phone: (800) 670-4763 or (651) 450-4084 WellsFargo.com/shareownerservices Electronic Access to Proxy Statement, Annual Report and Form 10-K Shareholders who have access to the Internet are encouraged to enroll in the electronic delivery program. Please see the Investors section of our website, GeneralMills.com, or go directly to the website, ICSDelivery.com/GIS and follow the instructions to enroll. If your General Mills shares are not registered in your name, contact your bank or broker to enroll in this program. Notice of Annual Meeting Th e annual meeting of shareholders will be held at 11 a.m., Central Daylight Time, Sept. 26, 2011, at the Children’s Th eatre Company, 2400 Th ird Avenue South, Minneapolis, MN 55404-3597. A ticket or proof of share ownership will be required for admission. Please refer to our Proxy Statement for information concerning admission to the meeting. General Mills Direct Stock Purchase Plan Th is plan provides a convenient and economical way to invest in General Mills stock. You can increase your ownership over time through purchases of common stock and reinvestment of cash dividends, without paying brokerage commissions and other fees on your purchases and reinvestments. For more information and a copy of a plan prospectus, go to the Investors section of our website at GeneralMills.com. Visit us on the Web We have a variety of websites that appeal to consumers around the world. Below is a selection of our most popular sites. For a more complete list, see the “Our websites” page on GeneralMills.com. U.S. Sites Cheerios.com Pillsbury.com Yoplait.com Larabar.com BettyCrocker.com Get recipes, cooking tips and view instructional videos BoxTops4Education.com Sign up to support your school EatBetterAmerica.com Simple ways to eat healthy, including healthier versions of your favorite recipes QueRicaVida.com Recipes and nutritional information for Hispanic consumers Tablespoon.com Download coupons, recipes and more for a variety of our brands International Sites HaagenDazs.com.cn (China) HaagenDazs.fr (France) NatureValley.co.uk (United Kingdom) OldElPaso.com.au (Australia) LifeMadeDelicious.ca (Canada) Get recipes, promotions and entertaining ideas for many of our brands Th is Report is Printed on Recycled Paper 10% ©2011 General Mills Fiscal 2011 Financial Highlights (In millions, except per share and return on capital data) May 29, 2011 May 30, 2010 Change Fiscal Year Ended Net Sales Segment Operating Proﬁ ta Net Earnings Attributable to General Mills Diluted Earnings per Share (EPS) Adjusted Diluted EPS, Excluding Certain Items Aﬀ ecting Comparabilityb Return on Average Total Capital a Average Diluted Shares Outstanding Dividends per Share $ 14,880 $ 14,636 + 2% 2,946 1,798 2.70 2.48 2,840 1,530 2.24 2.30 + 4 + 18 + 20 + 8 13.7% 13.8% - 10 basis pts. 665 $ 1.12 683 $ 0.96 - 3 + 17 Net Sales Dollars in millions Segment Operating Proﬁta Dollars in millions Adjusted Diluted Earnings per Shareb Dollars 11 10 09 08 07 14,880 14,636 14,556 13,548 12,304 11 10 09 08 07 2,946 2,840 2,624 2,394 2,273 11 10 09 08 07 2.48 14,880 2.30 14,636 1.99 14,556 1.76 13,548 1.59 12,304 Average Diluted Shares Outstanding Shares in millions Dividends per Share Dollars Return on Average Total Capitala Percent 11 10 09 08 07 665 683 687 694 720 11 10 09 08 07 1.12 0.96 0.86 0.78 0.72 11 10 09 08 07 13.7 13.8 12.3 11.7 11.0 a See page 85 for discussion of non-GAAP measures. b Results exclude certain items aﬀ ecting comparability. See page 85 for discussion of non-GAAP measures. Annual Report 2011 1 To Our Shareholders Ken Powell Chairman and Chief Executive Oﬃ cer I’m pleased to report that General Mills achieved good sales and earnings growth in ﬁ scal 2011. Our results met the key targets we had set for the year, and represented performance consistent with our long-term growth model. Th e company’s progress in 2011 extended a strong record of business growth in recent years. Net sales for the ﬁ scal year ended May 29, 2011, grew 2 percent to reach $14.9 billion. Segment operating proﬁ t rose 4 percent to exceed $2.9 billion. And diluted earnings per share (EPS) increased 20 percent to $2.70. Th e EPS comparison included changes in mark-to-market valuation of certain commodity positions in both years, as well as certain tax items that resulted in a net earnings beneﬁ t in 2011 and a charge in 2010. Adjusted diluted earnings per share, which excludes these items from both years, grew 8 percent to $2.48. We were generally pleased with these results because ﬁ scal 2011 presented a truly challenging environment for food manufacturers. Widespread price promotion took place across the food industry for much of last year. Costs for food ingredients and energy, which had moderated in the prior year, began rising again and the cost inﬂ ation accelerated as the year went on. In addition, consumers in developed markets remained cautious in a still uncertain economic environment. Results for our U.S. Retail segment reﬂ ected these challenges, with net sales of $10.2 billion essentially matching year-ago levels and operating proﬁ t of $2.3 billion declining 2 percent from record performance in 2010. However, we posted sales increases on a number of key businesses, including Nature Valley and Fiber One grain snacks, Progresso ready-to-serve soup, Old El Paso Mexican foods, and our Small Planet Foods line of organic 2 General Mills and natural products. Sales for Big G ready-to-eat cereals declined slightly, along with sales for the U.S. cereal category overall. But we maintained our share of cereal category sales in ACNielsen-measured channels, and our market share grew on an all-channel basis. Our Bakeries and Foodservice segment, which competes primarily in U.S. channels for food eaten away from home, soundly outpaced industry trends. Net sales for this busi- ness segment grew 6 percent to $1.8 billion. Th is included 3 percent growth in sales to foodservice distributors and an 11 percent increase in sales to convenience store customers. Segment operating proﬁ t rose 16 percent to exceed the $300 million mark for the ﬁ rst time in company history. Our International segment results were strong across the board. Net sales rose 7 percent to nearly $2.9 billion. Excluding the impact of foreign currency exchange rates, constant-currency net sales grew in each of the four regions where we compete, including gains of 7 percent in Europe and 9 percent in the Asia/Paciﬁ c region. International segment operating proﬁ t totaled $291 million, up sharply from the prior year that included negative eﬀ ects from Venezuelan currency devaluation and other foreign exchange items. Excluding foreign exchange eﬀ ects, proﬁ t still grew at a double-digit rate. Our Cereal Partners Worldwide (CPW) and Häagen- Dazs Japan (HDJ) joint ventures contributed a combined $96 million in aft er-tax earnings in 2011. Combined CPW and HDJ net sales, which are not consolidated in General Mills’ results, rose 4 percent led by higher sales for CPW. Total Returns to Shareholders Percent growth, stock price change plus reinvested dividends Worldwide Net Sales* Dollars in millions Fiscal 2011 14 GIS S&P Packaged Foods Index S&P 500 Index May 2007–May 2011 Compound annual growth 23 25 -1 10 7 11 10 09 08 07 16,102 15,816 15,689 14,639 13,289 Consolidated Net Sales 07 Our Share of Ongoing Joint Venture Net Sales * See page 85 of our 2011 Annual Report for discussion of non-GAAP measures. Net Sales Performance Operating Division/Segment 2011 Net Sales % Change Small Planet Foods International Segment* Bakeries and Foodservice Segment Snacks Yoplait Meals Big G Cereals Pillsbury USA Baking Products + 13 + 7 + 6 + 5 + 1 - 1 - 2 - 2 - 4 * Does not include the impact of foreign currency translation. See page 86 of our 2011 Annual Report for a reconciliation to reported results. In total, General Mills results in ﬁ scal 2011 represented continuing growth on top of strong performance in recent years. Since 2007, General Mills net sales have grown at a 5 percent compound rate. Our segment operating proﬁ t has grown even faster, compounding at 7 percent per year. And our adjusted diluted EPS (this measure excludes certain items aﬀ ecting comparability of results) has increased at a 12 percent compound rate. Our good ﬁ nancial performance was reﬂ ected in price appreciation for General Mills stock in ﬁ scal 2011. In addition, dividends per share grew 17 percent last year. In total, stock price appreciation plus dividends generated a 14 percent return to our shareholders for the year. Th is lagged the very strong returns posted by our peer group and the broader market in 2011. However, our 14 percent return followed a 43 percent return to GIS shareholders in the previous year. As shown in the chart above, over the past four ﬁ scal years General Mills has delivered a double-digit compound annual return to shareholders — superior performance in a volatile and challenging period for the equity market overall. As we enter our next phase of growth, we are targeting continued good sales and earnings performance in the years ahead. It seems clear that food manufacturers will have to contend with higher — and more volatile — input costs. In our case, total supply chain cost inﬂ ation was 4 percent in 2011, and we’ve estimated 10 to 11 percent inﬂ ation in our plans for 2012. Th ere are multiple factors contributing to this inﬂ ationary pressure, but the fundamental driver is growth of emerging markets and their increased demand for food ingredients and energy. We adopted a new business model several years ago to help us manage higher inﬂ ation. Th is model begins with Holistic Margin Management (HMM), our discipline of using productivity, mix and price realization to oﬀ set inﬂ ation and protect our gross margin. A strong gross margin gives us the ability to fund continued high levels of investment in product improvements, new product development, sales capabilities and consumer marketing. Th ese activities fuel net sales growth and ultimately, growth in earnings. We believe this HMM-driven business model has worked very well in recent years. As you can see in the charts on page 5, it enabled us to protect and expand gross margin over a ﬁ ve-year period when our input cost inﬂ ation averaged between 4 and 5 percent. We expect HMM to help us achieve continuing high-quality sales and earnings growth as we go forward. Annual Report 2011 3 A Selection of Our New Products Launched in 2011 We remain committed to our long-term growth model, which is outlined in the following table: General Mills Long-term Growth Model Growth Factor Compound Annual Growth Target Net Sales Segment Operating Proﬁ t Earnings per Share Dividend Yield Total Return to Shareholders Low single-digit Mid single-digit High single-digit 2 to 3 percent Double-digit Our targets for ﬁ scal 2012 diﬀ er from this long-term model due to two primary factors: a sharp increase in estimated input costs, and our acquisition of a controlling interest in the international Yoplait yogurt business. Our business plans before any impact from the Yoplait acquisition assume 10 to 11 percent input cost inﬂ ation for ﬁ scal 2012, driven by higher costs for food ingredients and energy. We expect our HMM discipline of productivity, mix management and price realization to oﬀ set most, but not all, of this cost pressure. As a result, we are estimating a decline in our gross margin for the year, and we expect segment operating proﬁ t growth and earnings per share growth will be below our long-term targets. Net sales are expected to grow at a mid single-digit rate in 2012, driven by price realization and a strong lineup of new products and marketing initiatives. On July 1, 2011, we completed the purchase of a controlling interest in Yoplait SAS, headquartered in France. Sodiaal, the leading French dairy cooperative, will hold the remaining interest. We intend to work together with Sodiaal to build the Yoplait brand in existing markets and expand to new markets worldwide. We plan to consolidate this business, which will increase our reported sales and operating proﬁ t in 2012. We expect the 2012 EPS contribution from Yoplait’s operating results will be oﬀ set by some incremental amor- tization expense and by the eﬀ ect on EPS of our decision to buy back fewer shares this year to pay for this acquisition with cash. Beyond 2012, we anticipate that Yoplait will be an important source of earnings growth for General Mills. In fact, international business expansion is one of our ﬁ ve key growth drivers. Th e other four are: partnering eﬀ ec- tively with our retail and foodservice customers; building our brands through strong levels of consumer marketing; protecting and expanding margins; and generating strong levels of product innovation. Of these, innovation is the most powerful lever: It drives growth for our categories and growth in our sales, earnings and market share. We’ve got a high level of innovation planned across our busi- nesses in 2012. And our innovation and marketing eﬀ orts are focused on four big and growing consumer groups: the millennial generation, ages 17 to 34; the baby boomer gener- ation, ages 50 and over; U.S. multicultural consumers; and rising middle-class consumers in emerging global markets. You can read about many of our product and marketing initiatives in the following pages of this report. 4 General Mills Input Cost Trend Percent Gross Margin Percent of net sales -3 10 11 4 09 08 07 4 9 7 11 10 09 08 07 Includes raw materials, energy, labor expense, carrier rates, and storage and handling Net sales less cost of sales Our input cost inﬂ ation has averaged 4 to 5 percent over the past ﬁ ve years. With our Holistic Margin Management eﬀ orts, we’ve been able to oﬀ set this cost inﬂ ation and expand our gross margin over this time. 40.0 39.6 35.6 35.5 35.9 Leading Market Positions in U.S. Retail Measured Outlets Category Ready-to-eat Cereal Refrigerated Yogurt Frozen Vegetables Mexican Aisle Products Grain Snacks Dry Packaged Dinners Ready-to-serve Soup Refrigerated Dough Dessert Mixes Frozen Hot Snacks Fruit Snacks Fiscal 2011 Category Retail Sales ($ in millions) Our Dollar Share % Our Branded Rank 6,300 4,300 2,400 1,800 1,800 1,400 1,400 1,400 1,300 1,100 500 31 31 18 18 31 21 36 70 40 24 50 2 1 2 1 1 2 2 1 1 2 1 Source: ACNielsen measured outlets, which represent approximately 60 percent of our U.S. retail sales We enter 2012 conﬁ dent that we are positioned for another year of good growth. Our brands hold leading market share positions in large and attractive food categories. Our categories are on-trend with consumer demand for great- tasting, healthy and convenient foods, so these categories are growing in markets all around the world. And our busi- ness plans for 2012 include a high level of product news and marketing innovation, designed to fuel growth for our categories and for our brands. General Mills’ performance is the product of our 35,000 talented and dedicated employees around the world, and I want to close this letter with my sincere thanks to General Mills people for all that you do to build our great company. Let me also acknowledge two senior leaders who announced their retirements during 2011. Chris Shea, Executive Vice President, External Relations, and Rick Lund, Vice President, Controller and Principal Accounting Oﬃ cer, made important and lasting contributions to General Mills, and we thank them very much for their service. I’d also like to thank you for your investment in General Mills. We appreciate your conﬁ dence in our business and its prospects, and we look forward to reporting on our continuing growth. Kendall J. Powell Chairman and Chief Executive Oﬃ cer August 1, 2011 Annual Report 2011 5 WE HAVE A PORTFOLIO FOR GLOBAL Whether it’s a bowl of Cheerios in Barcelona, a cup of Yoplait yogurt in Columbus or a Nature Valley bar in Brisbane, we oﬀ er great-tasting, nutritious and convenient foods for consumers around the world. General Mills Pro Forma Net Sales* Our brands are consumer favorites and hold strong share positions in a wide variety of growing food categories. For example, we are a leading player in the $24 billion global ready-to-eat cereal category. Häagen-Dazs is the world’s best-selling brand of ice cream. And Yoplait is the second- largest brand in the $65 billion global yogurt category. 40% We market our brands in a variety of U.S. retail outlets from traditional grocery stores to convenience stores. We also compete in foodservice channels such as restaurants, store bakeries and school cafeterias. Our brands are available internationally in outlets ranging from hypermarkets to Häagen-Dazs ice cream shops. Th e demand for wholesome, convenient and great-tasting foods is growing around the world. Yet per capita consumption of foods such as cereal and yogurt is still relatively low in many markets. So we see tremendous opportunities to grow our businesses in both developed and emerging markets. Our brands are well-positioned to meet the needs of consumers everywhere, giving us a portfolio for global growth. 6 General Mills 22% 16% 4% 7% 11% % 22% Ready-to-eat Cereal 16% Refrigerated Yogurt 11% Convenient Meals 7% Wholesome Snack Bars 4% Super-premium Ice Cream 40% All Other Businesses % % % * Fiscal 2011 U.S. net sales plus ﬁ scal 2011 International net sales at estimated foreign currency translation rates plus ﬁ scal 2012 Yoplait International $1.2 billion pro forma sales plus ﬁ scal 2011 proportionate share of joint venture revenues. OUR FIVE GLOBAL BUSINESSES ARE GROWTH OPPORTUNITIES FOR US READY-TO-EAT CEREAL SUPER-PREMIUM ICE CREAM We market cereal through our wholly owned businesses in North America and through Cereal Partners Worldwide, our joint venture with Nestlé. Pro Forma Net Sales:* $3.8 billion Our Häagen-Dazs brand is sold in more than 80 countries, including China. Pro Forma Net Sales:* $750 million CONVENIENT MEALS Old El Paso Mexican foods, Wanchai Ferry frozen dim sum and entrées, Progresso soup, and Helper dinner mixes give consumers great options for a quick and easy meal. Pro Forma Net Sales:* $1.9 billion WHOLESOME SNACK BARS REFRIGERATED YOGURT Nature Valley and Cascadian Farm granola bars, Fiber One bars, and Lärabar energy bars are nutritious snack choices. Pro Forma Net Sales:* $1.1 billion Our Yoplait yogurt brand leads the U.S. yogurt market. As of July 2011, we now market Yoplait yogurt internationally in partnership with Sodiaal, a dairy cooperative in France. Pro Forma Net Sales:* $2.8 billion * See page 85 for discussion of non-GAAP measures. Annual Report 2011 7 GROWTH PROSPECTS FOR OUR PRODUCTS AROUND THE WORLD Today’s consumers are looking for foods that provide health and wellness beneﬁ ts. Health news is driving growth on many of our largest cereal brands. All Big G cereals contain at least 8 grams of whole grain per serving, making General Mills the leading source of whole grain cereal at breakfast in the U.S. Five ﬂ avors of Chex cereal are now gluten-free, contributing to 12 percent retail sales growth for the Chex fran- chise in 2011. Retail sales for MultiGrain Cheerios rose 8 percent in 2011 on strong weight manage- ment messaging. And we launched an 80-calorie version of Fiber One cereal this summer. Net sales for Cereal Partners Worldwide, our joint venture with Nestlé, grew 2 percent in 2011 on a constant-currency basis led by brands with health news such as Fitness® and Nesquik® made with whole grains. Our snack bar business is growing at a healthy clip. Nature Valley granola bars are available in nearly 80 countries, 8 General Mills and global net sales for our snack bars increased 11 percent in 2011 in constant currency. In the U.S., retail sales for our Fiber One snack bars exceeded $140 million in measured channels alone. Th is summer, we added a 90-calorie brownie to the line. And we’re launching two new ﬂ avors of Cascadian Farm organic trail mix bars. Lärabar energy bars are made with all natural ingredients — primarily fruit and nuts. Retail sales for this line grew 77 percent in 2011 as we expanded distribution in more retail outlets. And Wheaties Fuel bars contributed to 11 percent net sales growth for our products in convenience stores in 2011. Our yogurt portfolio oﬀ ers great- tasting, good-for-you options. Yoplait Original contains 50 percent of the Daily Value of calcium per serving. Th at’s twice the amount of other yogurts. Yoplait Greek competes in the fastest-growing U.S. yogurt segment. Our Bakeries and Foodservice segment is the leading provider of cereals for school breakfast programs, delivering over 1 million servings of whole grain per day in K-12 schools across the U.S. Our Pillsbury Mini Pancakes and French Toast give foodservice operators a quick and easy way to prepare individual servings of kids’ breakfast favorites, and each serving contains 16 grams of whole grain. Studies show that kids who eat breakfast tend to perform better in school, so we expect the number of school breakfast programs will grow in the years ahead. It has a creamier texture and twice the protein of regular yogurt varieties. In February, we acquired the Mountain High brand. Th is all-natural yogurt is currently distributed in the western U.S. and is a strong addition to our portfolio. We’ve made health improvements on many of our product lines. In 2011, we added gluten-free Bisquick mix to our 300 gluten-free oﬀ erings. We lowered sodium levels in a variety of Wanchai Ferry products in China, Old El Paso dinner kits in Europe, Australia and Canada, and many Green Giant vegetable products in the U.S. And we’re reducing sodium and sugar levels in Big G cereals. In the U.S. alone, more than 60 percent of our sales in 2011 came from products with health improvements. We’ll continue to focus on the health proﬁ le of our products, delivering more nutritious food options for consumers everywhere. Global Wholesome Snack Bars Net Sales Growth* Constant currency, dollars in millions, percent growth Cereal Consumption per Capita Annual kilograms per person 11 10 09 08 11 United Kingdom 6.3 9 18 Canada Australia 4.2 4.1 26 United States 3.9 * U.S. net sales plus International net sales at estimated foreign currency translation rates Mexico 2.7 France 1.8 Poland 1.2 Russia 0.3 Brazil 0.2 Turkey 0.1 Southeast Asia 0.01 Source: Euromonitor 2010 Th e world is an emerging market for ready-to-eat cereal. Th e UK, Canada, Australia and the United States account for 54 percent of cereal consumption, yet they represent just 6 percent of the world’s population. We’ll bring high levels of product innovation and consumer marketing to help grow cereal around the world. Annual Report 2011 9 AND CONVENIENT MEAL SOLUTIONS FOR CONSUMERS EVERYWHERE We help consumers around the world with convenient answers to the question, “What’s for dinner?” expand this business to Th ailand, and we see opportunities for Wanchai Ferry in additional countries in Asia. Old El Paso dinner kits bring families together around the world for a fun and easy-to-make Mexican meal. Th is brand is available in more than 60 markets, and constant-currency sales grew 4 percent to nearly $700 million in ﬁ scal 2011. We continue to develop more convenient, better-for-you options. For example, we added to our Healthy Fiesta line in Australia, introduced the reduced-sodium Smart Fiesta line in Canada, and recently launched a ﬁ sh taco kit in Europe. In China, dumplings and dim sum are dinner favorites. Our line of Wanchai Ferry frozen dim sum makes them convenient. Last year, we added noodle varieties to the line, contributing to 33 percent sales growth for the brand in China in ﬁ scal 2011. In 2012, we’ll In the U.S., our Wanchai Ferry and Macaroni Grill® dinners for two compete in the $1.4 billion frozen entrée category. Retail sales for these restaurant-quality entrées grew at a double-digit pace in 2011, exceeding $60 million. We have new varieties coming in 2012, including Grilled Chicken Alfredo and Chicken Penne Primavera ﬂ avors of Macaroni Grill® entrées. Retail sales for Progresso ready-to- serve soup exceeded $500 million in measured channels alone in ﬁ scal 2011. Watch for new ﬂ avors of our Rich & Hearty and traditional soup varieties coming this summer. Green Giant vegetables are a nutri- tious way to round out a meal. In the U.S., our line of Green Giant Valley Fresh Steamers makes garden-fresh 10 General Mills EatBetterAmerica.com QueRicaVida.com Consumers today look online for meal solutions. Our websites, like Tablespoon.com and EatBetterAmerica. com, provide recipe ideas and money- saving coupons for a variety of products. And we’re going one step further, sending consumers coupons directly to their smartphones. On QueRicaVida.com, the website for our Hispanic marketing initiative, recipes are now available through an iPad® application. Our spending on digital marketing initiatives has grown nearly 40 percent over the past three years in the U.S., and we’ll continue to develop new marketing tools using this dynamic medium. vegetables ready in seconds in the microwave. In Europe, Green Giant sales are growing at a low single-digit pace as consumers enjoy delicacies such as white asparagus and hearts of palm. Dinner isn’t complete without dessert. Our Betty Crocker dessert mixes are available from the U.S. to the UK to Australia and generate more than $500 million in retail sales in the U.S. alone. In 2012, we’re introducing Betty Crocker Fun da-middles ﬁ lled cupcake mixes in the U.S. and a line of scone mixes in Australia. As disposable incomes rise around the world and consumers lead increasingly busy lifestyles, the demand for quick and easy-to-prepare foods will grow. Our broad portfolio of well-known brands positions us well to leverage this growth in the years ahead. Old El Paso Global Net Sales Growth* Constant currency, dollars in millions, percent growth 11 10 09 08 4 6 10 5 Wanchai Ferry Global Net Sales Growth* Constant currency, dollars in millions, percent growth 11 10 09 08 26 46 27 56 * U.S. net sales plus International net sales at estimated foreign currency translation rates Annual Report 2011 11 FOOD CHOICES IN GROWING, GLOBAL CATEGORIES Above all else, consumers around the world want foods that taste great. What could be better than a rich, creamy scoop of Häagen-Dazs ice cream? We market this super-premium ice cream in more than 80 countries outside of North America. Constant- currency sales for the brand grew 7 percent in 2011, and we’re intro- ducing more new varieties around the world. In Europe, we launched Häagen- Dazs Secret Sensations, a serving of ice cream with a crème brulee or chocolate fondant center. And in Japan, we’re introducing Crepe Glacé, creamy Häagen-Dazs ice cream wrapped in a soft crepe. In China, our more than 160 ice cream shops are a big hit with consumers, and sales of mooncakes, an ice cream delicacy available during the annual Mid-Autumn Festival, continue to grow every year. We’re bringing Häagen-Dazs to new markets with two shops now open in India, and we recently opened a shop in Cairo. 12 General Mills Delicious baked goods are easy to make with Pillsbury refrigerated dough. In the U.S., category retail sales in measured channels total $1.4 billion. Crescent rolls led growth for the Pillsbury brand in 2011 with retail sales up 8 percent, due in part to a strong advertising campaign empha- sizing their great homemade taste. Pillsbury Sweet Moments bite-sized desserts are ready to eat from the refrigerator case. Th is summer, we added cheesecake versions to this line. Pillsbury Egg Scrambles and Grands! Egg Sandwiches are two new break- fast options just arriving in the frozen foods aisle. Egg Scrambles combine eggs, potatoes, ham or sausage with Green Giant vegetables. Grands! Egg Sandwiches oﬀ er scrambled eggs, cheese and meat inside a ﬂ uﬀ y biscuit. All six varieties of Egg Scrambles and Egg Sandwiches are 300 calories or less per serving. Our Yoplait Smoothie mixes also are in the frozen section. Th is blend of yogurt Yogurt is a nutritious, convenient, low-calorie food that tastes great. So it’s no wonder yogurt category sales total $65 billion worldwide. Mountain High all-natural yogurt is currently available in the western U.S. Yoplait is a leading yogurt brand, available in more than 70 countries. Per capita consumption of yogurt is still quite low in many international markets, and we see plenty of opportunities to bring the great taste of Yoplait to consumers everywhere. and fresh fruit provides an easy way to make a frozen yogurt drink — just add milk and blend. Try our newest ﬂ avor: Chocolate Banana. Our yogurt sales in foodservice channels increased 6 percent in 2011 as we increased distribution in more foodservice outlets. Our ParfaitPro yogurt gives cafeterias and restaurants a quick and easy way to make delicious yogurt parfaits. We also have a great lineup of savory snack products. New Chex Mix Gourmet Blends oﬀ er culinary-inspired ﬂ avor combinations, such as Italian Herb & Parmesan. Retail sales for Totino’s Pizza Rolls grew 4 percent in 2011 in the $1.1 billion U.S. hot snacks category as teens enjoy these fast and easy aft er-school snacks. Th is summer, we’ll introduce Totino’s Pizza Stuﬀ ers, a sandwich-sized version of Pizza Rolls, ready in minutes in the microwave. From sweet to salty, creamy to crunchy, our product portfolio delivers on a variety of taste preferences. We see great opportunities to expand our products to satisfy a whole host of tastes around the world. Häagen-Dazs Ice Cream Net Sales Growth* Constant currency, dollars in millions, percent growth Yogurt Consumption per Capita Annual kilograms per person 11 10 09 08 -3 2 8 * International net sales at estimated foreign currency translation rates; includes our share of joint venture net sales 7 France Ireland Canada 11.5 9.9 17.8 United Kingdom 9.1 Australia 8.5 United States 5.9 Brazil 5.2 Russia 3.7 China 2.3 India 0.3 Indonesia 0.2 Source: Euromonitor 2010 Annual Report 2011 13 Investing to Fuel Growth Capital Expenditures Dollars in millions Advertising and Media Expense Dollars in millions Research and Development Expense Dollars in millions 11 10 09 08 07 649 650 11 10 09 08 07 563 522 460 844 909 732 587 491 11 10 09 08 07 07 235 218 208 205 191 491 Our businesses are strong generators of earnings and cash. We reinvest some of this into research and devel- opment, consumer marketing, and capital projects that support growth and cost-savings opportunities we see in our businesses. We occasion- ally make acquisitions or divestitures to enhance the growth prospects for our business portfolio. And we return signiﬁ cant cash to shareholders through dividends and share repur- chase activity. Product quality and product innova- tion are the lifeblood of every branded consumer foods company. In 2011, our research and development expense totaled $235 million. Our investment in research and development has grown steadily over recent years, averaging roughly 1.5 percent of net sales. We support our consumer brands with strong levels of advertising investment. Advertising and media expense in 2011 totaled $844 million worldwide. Th at’s up more than 70 percent from our investment level just four years ago. Television advertising still represents the largest share of our advertising budget, but our investments in new digital media, and in vehicles targeted to U.S. multicultural consumers are growing at the fastest rates. Capital expenditures in 2011 totaled $649 million, or just over 4 percent of net sales. Th ese capital projects included new capacity for fast-growing businesses such as grain snack bars and yogurt, along with various cost- savings projects companywide. We enhanced our business portfolio in 2011 with several acquisitions and divestitures. We added the Mountain High brand of all-natural yogurt to our U.S. yogurt business. In Australia, we added Pasta Master refrigerated lasagna to our chilled pasta business. We also divested a frozen baked goods line in Australia, and a small pie shell product line that was part of our Bakeries and Foodservice segment. And during the fourth quarter of 2011, we announced a deﬁ nitive agreement to purchase a controlling interest in the international Yoplait business. We completed this transaction on July 1, 2011. Beyond these initiatives to support ongoing growth of our business, we returned roughly $1.9 billion to share- holders in 2011 through dividends and repurchase of General Mills common stock. Shareholder dividends grew 17 percent in 2011, and have increased by more than 50 percent since 2007. In June, we announced a further 9 percent increase in the dividend, to a new annualized rate of $1.22 per share. Our share repurchases reduced average diluted shares outstanding by nearly 3 percent in 2011. And since 2007, we have reduced the average diluted share count by an average of 2 percent per year. We expect our share repur- chase activity to be lower in 2012, as we will use cash to pay for the Yoplait transaction. However, we plan to repur- chase at least enough shares to oﬀ set the impact of stock option exercises in 2012. And the goal of our ongoing share repurchase program remains an average annual net reduction in diluted shares outstanding of 2 percent. 14 General Mills Our Corporate Citizenship: Th ink Global, Act Local Fiscal 2011 General Mills Contributions Dollars in millions $25 $28 $65 $118 Million $65 Corporate Contributions $28 Product Donations $25 Foundation Grants Th rough our corporate citizenship initiatives, we work to make the world a better place. Our eﬀ orts include direct philanthropy, brand philanthropy and volunteering around the world. As a food company, we’re uniquely positioned to help in the battle against hunger. In 2011, we contributed $28 million in product donations to Feeding America®, the nation’s largest network of food banks, and other hunger relief agencies. We also began contributing to the Global Food Banking Network, a nonproﬁ t organi- zation dedicated to creating, supplying and strengthening food bank net- works around the world. Our goal is to alleviate hunger and improve nutri- tional wellness in communities where General Mills does business. We’re also improving communi- ties through foundation grants. Our Champions for Healthy Kids program is now in its 10th year of providing grants to organizations that promote and support healthy lifestyles for kids. In total, we’ve contributed more than $19 million to youth nutrition and ﬁ tness programs that have involved From Minneapolis to Mumbai, our employees everywhere participate in our “Th ink Global, Volunteer Local” initiative, helping to improve communities through their volunteering eﬀ orts. nearly 5 million children across the U.S. Our Box Tops for Education program also supports kids’ well-being and education. Since its inception in 1996, this program has contributed more than $400 million to K-8 schools in the U.S. Our eﬀ orts have international reach, too. Th rough Partners in Food Solutions, our employees are part- nering with food processors in Africa to produce high-quality, nutritious and aﬀ ordable foods to help sustain communities. And in India, the General Mills Foundation has provided more than $100,000 in grants to promote better health and nutrition and improved education in rural villages outside of Mumbai. It’s our people who make all of our phil- anthropic eﬀ orts successful. More than 80 percent of our U.S. employees vol- unteer in their communities. Th rough our “Th ink Global, Volunteer Local” initiative, we’ve marshaled the eﬀ orts of our employees around the world to make a diﬀ erence where they live and work. Th at’s a philosophy we embrace as individuals, and as a company, as we strive to make the world a better place for all. Sustainable business practices are critical to protecting and improving our environment. We have a wide variety of initiatives — from water conservation to agricultural prac- tices — designed to protect our natural resources and decrease our envi- ronmental impact. Read about these initiatives and more in our 2011 Corporate Social Responsibility Report and Summary Report available on CSR.GeneralMills.com. Annual Report 2011 15 Board of Directors (as of August 1, 2011) Bradbury H. Anderson2, 4 Retired Chief Executive Oﬃ cer and Vice Chairman, Best Buy Co., Inc. (electronics retailer) R. Kerry Clark1, 2 Retired Chairman and Chief Executive Oﬃ cer, Cardinal Health, Inc. (medical services and supplies) Paul Danos1, 5 Dean, Tuck School of Business and Laurence F. Whittemore Professor of Business Administration, Dartmouth College William T. Esrey1, 3* Chairman of the Board, Spectra Energy Corp. (natural gas infrastructure provider) and Chairman Emeritus, Sprint Nextel Corporation (telecommunications systems) Raymond V. Gilmartin2, 4* Adjunct Professor, Harvard Business School and Retired Chairman, President and Chief Executive Oﬃ cer, Merck & Company, Inc. (pharmaceuticals) Judith Richards Hope1*, 5 Distinguished Visitor from Practice and Professor of Law, Georgetown University Law Center Heidi G. Miller 3, 5 President, JPMorgan International, JPMorgan Chase & Co. (banking and ﬁ nancial services) Hilda Ochoa- Brillembourg3, 5 Founder, President and Chief Executive Oﬃ cer, Strategic Investment Group (investment management) Steve Odland3, 4 Adjunct Professor, Florida Atlantic University School of Business and Former Chairman of the Board and Chief Executive Oﬃ cer, Oﬃ ce Depot, Inc. (oﬃ ce products retailer) Kendall J. Powell Chairman of the Board and Chief Executive Oﬃ cer, General Mills, Inc. Michael D. Rose2*, 4 Chairman of the Board, First Horizon National Corporation (banking and ﬁ nancial services) Robert L. Ryan1, 3 Retired Senior Vice President and Chief Financial Oﬃ cer, Medtronic, Inc. (medical technology) Dorothy A. Terrell4, 5* Managing Director, FirstCap Advisors (venture capital) Board Committees 1 Audit 2 Compensation 3 Finance 4 Corporate Governance 5 Public Responsibility * Denotes Committee Chair Senior Management (as of August 1, 2011) 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, Global Strategy, Growth and Marketing Innovation Richard L. Best Senior Vice President, Global Business Solutions 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, Meals 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 Senior Vice President; President, Big G Cereals David P. Homer Senior Vice President; President, General Mills Canada 16 General Mills John T. Machuzick Senior Vice President; President, Bakeries and Foodservice Luis Gabriel Merizalde Vice President; President, Europe, Middle East and Africa Michele S. Meyer Vice President; President, Small Planet Foods Donal L. Mulligan Executive Vice President; Chief Financial Oﬃ cer James H. Murphy Senior Vice President, Global Strategy and Growth Kimberly A. Nelson Senior Vice President, External Relations; President, General Mills Foundation Christi L. Strauss Senior Vice President; Chief Executive Oﬃ cer, Cereal Partners Worldwide Anton V. Vincent Vice President; President, Baking Products Sean N. Walker Vice President; President, Latin America and South Africa Keith A. Woodward Senior Vice President, Financial Operations Jerald A. Young* Vice President; Controller Michael P. Zechmeister Vice President; Treasurer * Eﬀ ective August 15, 2011 Jonathon J. Nudi Vice President; President, Snacks Rebecca L. O’Grady Vice President; President, Yoplait Shawn P. O’Grady Senior Vice President; President, Consumer Foods Sales 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 Ann W. H. Simonds Senior Vice President; President, Pillsbury USA Financial Review Contents Financial Summary Management’s Discussion and Analysis of Financial Condition and Results of Operations Reports of Management and Independent Registered Public Accounting Firm Consolidated Financial Statements Notes to Consolidated Financial Statements 1 Basis of Presentation and Reclassiﬁ cations 2 Summary of Signiﬁ cant 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 10 Stockholders’ Equity 11 Stock Plans 12 Earnings per Share 13 Retirement Beneﬁ ts and Postemployment Beneﬁ ts 14 Income Taxes 15 Leases and Other Commitments 16 Business Segment and Geographic Information 17 Supplemental Information 18 Quarterly Data Glossary Non-GAAP Measures Total Return to Stockholders 18 19 43 45 49 49 53 53 55 56 57 63 64 65 66 69 69 77 79 79 81 82 83 85 88 Annual Report 2011 17 Financial Summary At the beginning of ﬁ scal 2011, we revised the classiﬁ cation of certain revenues and expenses to better align our income statement line items with how we manage our business. We have revised the classiﬁ cation of amounts previously reported to conform to our ﬁ scal 2011 presentation. Th ese revised classiﬁ cations had no eﬀ ect on pre- viously reported net earnings attributable to General Mills or earnings per share. See Note 1 to the Consolidated Financial Statements in this report for further details of the reclassiﬁ cations. Th e following table sets forth selected ﬁ nancial data for each of the ﬁ scal years in the ﬁ ve-year period ended May 29, 2011: In Millions, Except Per Share Data, Percentages and Ratios 2011 2010 Fiscal Year 2009 (a) 2008 2007 Operating data: Net sales Gross margin (b) Selling, general, and administrative expenses Segment operating proﬁ t (c) Divestitures (gain) Aft er-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: Basic Diluted Earnings per share: Basic $ 14,880.2 $ 14,635.6 $ 14,555.8 $ 13,548.0 $ 12,303.9 5,953.5 5,800.2 5,174.9 4,816.2 4,412.7 3,192.0 3,162.7 2,893.2 2,566.0 2,314.5 2,945.6 2,840.5 2,624.2 2,394.4 2,273.0 (17.4) 96.4 — 101.7 (84.9) 91.9 — 110.8 — 72.7 1,798.3 472.6 1,530.5 457.1 1,304.4 453.6 1,294.7 459.2 1,143.9 417.8 843.7 235.0 642.7 664.8 908.5 218.3 659.6 683.3 732.1 208.2 663.7 687.1 587.2 204.7 665.9 693.8 491.4 191.1 693.1 720.4 $ Diluted Diluted, excluding certain items aﬀ ecting comparability (c) $ Operating ratios: Gross margin as a percentage of net sales Selling, general, and administrative expenses as a percentage of net sales Segment operating proﬁ t as a percentage of net sales (c) Eﬀ ective income tax rate Return on average total capital (b) (c) Balance sheet data: Land, buildings, and equipment Total assets Long-term debt, excluding current portion Total debt (b) Noncontrolling interests $ 2.80 2.70 2.48 $ $ $ 2.32 2.24 2.30 $ $ $ 1.96 1.90 1.99 $ $ $ 1.93 1.85 1.76 $ $ $ 1.65 1.59 1.59 40.0% 39.6% 35.6% 35.5% 35.9% 21.5% 19.8% 29.7% 13.7% 21.6% 19.4% 35.0% 13.8% 19.9% 18.0% 37.1% 12.3% 18.9% 17.7% 34.0% 11.7% 18.8% 18.5% 33.0% 11.0% $ 3,345.9 $ 3,127.7 $ 3,034.9 $ 3,108.1 $ 3,013.9 18,674.5 17,678.9 17,874.8 19,041.6 18,183.7 5,542.5 5,268.5 5,754.8 4,348.7 3,217.7 6,885.1 6,425.9 7,075.5 6,999.5 6,206.1 246.7 245.1 244.2 246.6 1,139.2 Stockholders’ equity 6,365.5 5,402.9 5,172.3 6,212.2 5,318.7 Cash ﬂ ow data: Net cash provided by operating activities Capital expenditures Net cash used by investing activities Net cash used by ﬁ nancing activities Fixed charge coverage ratio Operating cash ﬂ ow to debt ratio (b) Share data: Low stock price High stock price Closing stock price Cash dividends per common share $ 1,526.8 $ 2,181.2 $ 1,828.2 $ 1,729.9 $ 1,751.2 648.8 715.1 649.9 721.2 562.6 288.9 522.0 442.4 460.2 597.1 936.6 1,503.8 1,404.5 1,093.0 1,398.1 7.03 22.2% 6.42 33.9% 5.33 25.8% 4.91 24.7% 4.51 28.2% $ 33.57 $ 25.59 $ 23.61 $ 25.72 $ 24.64 39.95 39.29 1.12 36.96 35.62 0.96 35.08 25.59 0.86 31.25 30.54 0.78 30.56 30.08 0.72 Number of full- and part-time employees 35,000 33,000 30,000 29,500 28,580 (a) Fiscal 2009 was a 53-week year; all other ﬁ scal years were 52 weeks. (b) See Glossary on page 83 of this report for deﬁ nition. (c) See page 85 of this report for our discussion of this measure not deﬁ ned by generally accepted accounting principles. Management’s Discussion and Analysis of Financial Conditions and Results of Operations EXECUTIVE OVERVIEW We are a global consumer foods company. We develop distinctive 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 pref- erences. In addition, we build the equity of our brands over time with strong consumer-directed marketing and innovative merchandising. We believe our brand-build- ing strategy is the key to winning and sustaining lead- ing share positions in markets around the globe. Our fundamental business goal is to generate supe- rior returns for our stockholders over the long term. We believe that increases in net sales, segment oper- ating proﬁ t, earnings per share (EPS), and return on average total capital are the key measures of ﬁ nancial performance for our businesses. See the “Non-GAAP Measures” section on page 85 for a description of our discussion of total segment operating proﬁ t, diluted EPS excluding certain items aﬀ ecting comparability and return on average total capital, which are not deﬁ ned 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 proﬁ t; • high single-digit annual growth in EPS; and • improvements in return on average total capital. We believe that this ﬁ nancial performance, coupled with an attractive dividend yield, should result in long- term value creation for stockholders. We also return a substantial amount of cash to stockholders through share repurchases and dividends. For the ﬁ scal year ended May 29, 2011, our net sales grew 2 percent, total segment operating proﬁ t grew 4 percent and diluted EPS grew 20 percent, however our return on average total capital declined by 10 basis points despite these positive earnings metrics. Diluted EPS excluding certain items affecting comparability increased 8 percent from ﬁ scal 2010 (see the “Non-GAAP Measures” section on page 85 for our use of this measure and our discussion of the items aﬀ ecting comparability). Net cash provided by operations totaled $1.5 billion in ﬁ scal 2011, enabling us to increase our annual dividend payments per share by 17 percent from ﬁ scal 2010 and continue returning cash to stockholders through share repurchases, which totaled $1.2 billion in ﬁ scal 2011. We also made signiﬁ cant capital investments totaling $649 million in ﬁ scal 2011. We achieved the following related to our six key oper- ating objectives for ﬁ scal 2011: • Net sales growth of 2 percent was primarily driven by volume gains in our International segment and net price realization and mix. • We achieved a 4 percent increase in total segment operating proﬁ t despite renewed input cost inﬂ ation. • Our gross margin as a percent of net sales was com- parable to ﬁ scal 2010. We took pricing actions on most of our product lines in ﬁ scal 2011 to partially oﬀ set the increases in input costs. In addition, we continued to focus on the other elements of our holistic margin man- agement (HMM) program, which include cost-savings initiatives, marketing spending eﬃ ciencies, and proﬁ table sales mix strategies. • We continued to invest in media and other brand- building marketing programs. However, our total media and advertising spending decreased from ﬁ scal 2010 lev- els, which increased 24 percent versus ﬁ scal 2009. • We grew our Bakeries and Foodservice segment oper- ating proﬁ t, including a focus on higher-margin, branded product lines within our most attractive foodservice cus- tomer channels. • We continued to grow our business in international markets. 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 to drive sales growth. Details of our ﬁ nancial results are provided in the “Fiscal 2011 Consolidated Results of Operations” section below. We expect slow improvement in the operating envi- ronment for food companies around the globe. Although we believe the environment will remain challenging in ﬁ scal 2012, we expect to deliver another year of qual- ity growth. Excluding the eﬀ ects of our acquisition of interests in Yoplait S.A.S. and Yoplait Marques S.A.S., we expect to achieve these results: • We are targeting mid single-digit growth in net sales primarily driven by net price realization, as our plans assume a modest decline in pound volume. • We have a strong lineup of consumer marketing, mer- chandising, and innovation planned to support our lead- ing brands. We will continue to build our global platforms in markets around the world, accelerating our eﬀ orts in rapidly growing emerging markets. • We are targeting low single-digit growth in total seg- ment operating proﬁ t in ﬁ scal 2012, as we expect our HMM discipline of cost savings, mix management and Annual Report 2011 19 price realization to largely oﬀ set an expected 10 to 11 percent increase in input costs. Our businesses generate strong levels of cash ﬂ ows. We use some of this cash to reinvest in our business. Our ﬁ scal 2012 plans call for $670 million of expendi- tures for capital projects, excluding expenditures that may be required for Yoplait S.A.S. On June 28, 2011, our Board of Directors approved a dividend increase to an annual rate of $1.22 per share, a 9 percent increase from the rate paid in ﬁ scal 2011. As a result of the acquisition of interests in Yoplait enti- ties, we expect to reduce our level of share repurchases in ﬁ scal 2012. We expect that share repurchases will oﬀ set normal levels of stock option exercises in ﬁ scal 2012. Certain terms used throughout this report are deﬁ ned in a glossary on page 83 of this report. FISCAL 2011 CONSOLIDATED RESULTS OF OPERATIONS In ﬁ scal 2011, net earnings attributable to General Mills was $1,798 million, up 18 percent from $1,530 million in ﬁ scal 2010, and we reported diluted EPS of $2.70 in ﬁ scal 2011, up 20 percent from $2.24 in ﬁ scal 2010. Fiscal 2011 results include gains from the mark-to-market valuation of certain commodity positions and grain inventories ver- sus ﬁ scal 2010 which included losses. Fiscal 2011 results also include the net beneﬁ t from the resolution of uncer- tain tax matters, and ﬁ scal 2010 results include income tax expense related to the enactment of federal health care reform. Diluted EPS excluding these items aﬀ ecting comparability was $2.48 in ﬁ scal 2011, up 8 percent from $2.30 in ﬁ scal 2010 (see the “Non-GAAP Measures” sec- tion on page 85 for our use of this measure and our dis- cussion of the items aﬀ ecting comparability). Th e components of net sales growth are shown in the following table: Components of Net Sales Growth Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth Fiscal 2011 vs. 2010 1 pt 1 pt Flat 2 pts (a) Measured in tons based on the stated weight of our product shipments. Net sales grew 2 percent in ﬁ scal 2011, due to 1 per- centage point of volume growth and 1 percentage point of growth from net price realization and mix. Foreign exchange was ﬂ at compared to ﬁ scal 2010. Cost of sales increased $91 million in ﬁ scal 2011 to $8,927 million. Th is increase was driven by $157 million higher net input costs and product mix and an $84 mil- lion increase attributable to higher volume, partially oﬀ - set by a $95 million net decrease in cost of sales related to mark-to-market valuation of certain commodity posi- tions and grain inventories as described in Note 7 to the Consolidated Financial Statements on page 57 of this report, compared to a net increase of $7 million in ﬁ scal 2010. In ﬁ scal 2010, we recorded a charge of $48 million resulting from a change in the capitalization threshold for certain equipment parts. Gross margin grew 3 percent in ﬁ scal 2011 versus ﬁ s- cal 2010. Gross margin as a percent of net sales increased by 40 basis points from ﬁ scal 2010 to ﬁ scal 2011. Th ese improvements were primarily driven by gains from the mark-to-market valuation of certain commodity posi- tions and grain inventories in ﬁ scal 2011 versus losses in ﬁ scal 2010. Selling, general and administrative (SG&A) expenses were up $29 million in ﬁ scal 2011 versus ﬁ scal 2010, while SG&A expenses as a percent of net sales remained essentially flat from fiscal 2010 to fiscal 2011. The increase in SG&A expenses was primarily driven by a $69 million increase in corporate pension expense par- tially oﬀ set by a 7 percent decrease in advertising and media expense. In ﬁ scal 2010, the Venezuelan govern- ment devalued the bolivar fuerte exchange rate against the U.S. dollar. Th e $14 million foreign exchange loss resulting from the devaluation was substantially oﬀ set by a $13 million recovery against a corporate investment. During ﬁ scal 2011, we recorded a net divestiture gain of $17 million. We recorded a gain of $14 million related to the sale of a foodservice frozen baked goods product line in our International segment and a gain of $3 mil- lion related to the sale of a pie shell product line in our Bakeries and Foodservice segment. Th ere were no dives- titures in ﬁ scal 2010. Interest, net for ﬁ scal 2011 totaled $346 million, $55 million lower than ﬁ scal 2010. Th e average interest rate on our total outstanding debt was 5.6 percent in ﬁ scal 2011 compared to 6.3 percent in ﬁ scal 2010, generating a $45 million decrease in net interest. Average inter- est bearing instruments increased $474 million in ﬁ scal 2011, primarily due to more share repurchases than in ﬁ scal 2010, leading to a $30 million increase in net inter- est. In ﬁ scal 2010, we also recorded a loss of $40 million related to the repurchase of certain notes, which rep- resented the premium paid, the write-oﬀ of remaining 20 General Mills discount and unamortized fees, and the settlement of related swaps. Restructuring, impairment, and other exit costs totaled $4 million in ﬁ scal 2011 as follows: Expense, in Millions Discontinuation of underperforming product line in our U.S. Retail segment Charges associated with restructuring actions previously announced Total $1.7 2.7 $4.4 In ﬁ scal 2011, we decided to exit an underperform- ing product line in our U.S. Retail segment. As a result of this decision, we concluded that the future cash ﬂ ows generated by this product line were insuﬃ cient to recover the net book value of the associated long- lived assets. Accordingly, we recorded a non-cash charge of $2 million related to the impairment of the associ- ated long-lived assets. No employees were aﬀ ected by these actions. In addition, we recorded $3 million of charges associated with restructuring actions previously announced. In ﬁ scal 2011, we paid $6 million in cash related to restructuring actions taken in ﬁ scal 2011 and previous years. Our consolidated eﬀ ective tax rate for ﬁ scal 2011 was 29.7 percent compared to 35.0 percent in ﬁ scal 2010. Th e 5.3 percentage point decrease was primarily due to a $100 million reduction to tax expense recorded in ﬁ scal 2011 related to a settlement with the Internal Revenue Service (IRS) concerning corporate income tax adjust- ments for ﬁ scal years 2002 to 2008. Th e adjustments primarily relate to the amount of capital loss, deprecia- tion, and amortization we reported as a result of the sale of noncontrolling interests in our General Mills Cereals, LLC (GMC) subsidiary. Fiscal 2010 income tax expense included a $35 million increase related to the enactment of federal health care reform (the Patient Protection and Aﬀ ordable Care Act, as amended by Health Care and Education Reconciliation Act of 2010). Th is legislation changed the tax treatment of subsidies to companies that provide prescription drug beneﬁ ts that are at least the equivalent of beneﬁ ts under Medicare Part D (see the “Impact of Inﬂ ation” section below for additional dis- cussion of this legislation). Aft er-tax earnings from joint ventures for ﬁ scal 2011 decreased to $96 million compared to $102 million in ﬁ s- cal 2010. Th e decrease is primarily due to higher adver- tising and media spending and increased service cost allocations, all in CPW. In ﬁ scal 2011, CPW net sales grew by 3 percent due to a 2 percentage point increase in volume and a 1 percentage point increase from favorable foreign exchange. Net price realization and mix was ﬂ at compared to ﬁ scal 2010. Net sales for HDJ increased 4 percent from ﬁ scal 2010 primarily due to 9 percentage points of favorable foreign exchange, partially oﬀ set by a 5 percentage point decline in net price realization and mix. Volume was ﬂ at compared to ﬁ scal 2010. Average diluted shares outstanding decreased by 18 million in ﬁ scal 2011 from ﬁ scal 2010, due primarily to the repurchase of 32 million shares since the end of ﬁ s- cal 2010, partially oﬀ set by the issuance of shares upon stock option exercises. FISCAL 2011 CONSOLIDATED BALANCE SHEET ANALYSIS Cash and cash equivalents decreased $54 million from ﬁ scal 2010, as discussed in the “Liquidity” section on page 29. Receivables increased $121 million from ﬁ scal 2010 as a result of foreign currency translation eﬀ ects of $44 million and sales timing shift s. Th e allowance for doubt- ful accounts was essentially unchanged from ﬁ scal 2010. Inventories increased $265 million from ﬁ scal 2010 primarily as a result of increased commodity prices. Prepaid expenses and other current assets increased $105 million from ﬁ scal 2010, due mainly to increases in derivatives receivable balances. Land, buildings, and equipment increased $218 mil- lion from ﬁ scal 2010, as capital expenditures of $649 mil- lion and a foreign currency translation impact of $55 million were partially oﬀ set by depreciation expense of $462 million in ﬁ scal 2011. Goodwill and other intangible assets increased $256 million from ﬁ scal 2010 primarily due to foreign currency translation of $148 million and the acquisitions of the Mountain High yoghurt business and the Pasta Master meals business. We recorded $72 million of goodwill and $45 million of other intangible assets related to these transactions. Other assets increased $99 million from ﬁ scal 2010, driven mainly by a $126 million increase in our prepaid pension assets and a $121 million increase in our invest- ment and advances to joint ventures, partially oﬀ set by a decrease of $117 million in non-current interest rate derivatives receivable. Annual Report 2011 21 Accounts payable increased $146 million to $995 mil- lion in ﬁ scal 2011, primarily due to shift s in timing of payments. Long-term debt, including current portion, and notes payable increased $459 million from ﬁ scal 2010 primar- ily due to the issuance of $1.2 billion of long-term debt in ﬁ scal 2011, partially oﬀ set by a $739 million decrease in notes payable. Th e current and non-current portions of net deferred income taxes liability increased $268 million from ﬁ scal 2010 due to contributions to our deﬁ ned beneﬁ t pension plans and book versus tax depreciation diﬀ erences. Other current liabilities decreased $441 million from ﬁ scal 2010, primarily driven by decreases in accrued taxes of $360 million and a $136 million decrease in con- sumer marketing accruals. Other liabilities decreased $386 million from ﬁ scal 2010, driven by a decrease of $175 million in pension and postretirement liabilities, a decrease of $158 million in non-current derivatives payable, and a decrease of $43 million in non-current accrued taxes payable. Retained earnings increased $1,069 million from ﬁ scal 2010, reﬂ ecting ﬁ scal 2011 net earnings of $1,798 mil- lion less dividends paid of $729 million. Treasury stock increased $595 million from ﬁ scal 2010, due to $1,164 mil- lion of share repurchases, partially oﬀ set by $568 million related to stock-based compensation plans. Additional paid in capital increased $13 million from ﬁ scal 2010, due to stock compensation plan activity. Accumulated other comprehensive loss (AOCI) decreased by $476 million aft er-tax from ﬁ scal 2010, primarily driven by foreign currency translation of $358 million and pension and postemployment activity of $128 million. FISCAL 2010 CONSOLIDATED RESULTS OF OPERATIONS Net earnings attributable to General Mills were $1,530 million in ﬁ scal 2010, up 17 percent from $1,304 million in ﬁ scal 2009, and we reported diluted EPS of $2.24 in ﬁ scal 2010, up 18 percent from $1.90 in ﬁ scal 2009. Fiscal 2010 and 2009 results include losses from the mark- to-market valuation of certain commodity positions and grain inventories. Fiscal 2010 results also include income tax expense related to the enactment of federal health care reform, and the ﬁ scal 2009 results include a net divestiture gain, income from a settlement with an insurance carrier, and the impact of a court deci- sion on an uncertain tax matter. Diluted EPS excluding these items aﬀ ecting comparability was $2.30 in ﬁ scal 2010, up 16 percent from $1.99 in ﬁ scal 2009 (see the “Non-GAAP Measures” section on page 85 for our use of this measure and our discussion of the items aﬀ ecting comparability). Th e components of net sales growth are shown in the following table: Components of Net Sales Growth Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth Fiscal 2010 vs. 2009 Flat 1 pt Flat 1 pt (a) Measured in tons based on the stated weight of our product shipments. Net sales grew 1 point in ﬁ scal 2010, driven by 1 per- centage point of growth from net price realization and mix. Contributions from volume were ﬂ at, including the loss of 2 points of growth from divested products and a 1 percentage point loss from an additional week in ﬁ scal 2009. Foreign exchange did not aﬀ ect sales growth in ﬁ scal 2010. Cost of sales decreased $546 million in ﬁ scal 2010 to $8,835 million. Th is decrease was mainly driven by favorable mix, HMM initiatives, and lower input costs. In ﬁ scal 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 57 of this report, compared to a net increase of $119 million in ﬁ scal 2009. In ﬁ scal 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 management system. Gross margin grew 12 percent in ﬁ scal 2010 ver- sus ﬁ scal 2009. Gross margin as a percent of net sales increased by 400 basis points from ﬁ scal 2009 to ﬁ scal 2010. Th ese improvements were driven by favorable mix, HMM initiatives and lower input costs. Selling, general and administrative (SG&A) expenses were up $270 million in ﬁ scal 2010 versus ﬁ scal 2009. SG&A expenses as a percent of net sales in ﬁ scal 2010 increased by 2 percentage points compared to ﬁ scal 2009. Th e increase in SG&A expenses was primarily driven by a 24 percent increase in advertising and media expense. In fiscal 2010, the Venezuelan government devalued the bolivar fuerte exchange rate against the 22 General Mills U.S. dollar. Th e eﬀ ect of the devaluation was a $14 million foreign exchange loss. Also in ﬁ scal 2010, we recorded a $13 million recovery against a corporate investment compared to write downs of $35 million related to vari- ous corporate investments in ﬁ scal 2009. In ﬁ scal 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 ﬁ re in ﬁ scal 2008. Th ere were no divestitures in ﬁ scal 2010. In ﬁ scal 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 ﬁ scal 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 ﬁ scal 2009 on the sale of our bread concentrates product line in our Bakeries and Foodservice segment. Interest, net for ﬁ scal 2010 totaled $402 million, $19 million higher than ﬁ scal 2009. Average interest-bearing instruments decreased $1.0 billion in ﬁ scal 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. Th e average interest rate on our total outstanding debt was 6.3 percent in ﬁ scal 2010 compared to 5.7 percent in ﬁ scal 2009. In ﬁ scal 2010, we also recorded a loss of $40 million related to the repurchase of certain notes, which represented the premium paid, the write-oﬀ of remaining discount and unamortized fees, and the settlement of related swaps. Restructuring, impairment, and other exit costs totaled $31 million in ﬁ scal 2010 as follows: Expense (Income), in Millions Discontinuation of kids’ refrigerated yogurt beverage and microwave soup product lines $24.1 Discontinuation of the breadcrumbs product line at Federalsburg, Maryland plant Sale of Contagem, Brazil bread and pasta plant Charges associated with restructuring actions previously announced Total 6.2 (0.6) 1.7 $31.4 In ﬁ scal 2010, we decided to exit our kids’ refriger- ated yogurt beverage product line at our Murfreesboro, Tennessee plant and our microwave soup product line at our Vineland, New Jersey plant to rationalize capac- ity for more proﬁ table items. Our decisions to exit these U.S. Retail segment products resulted in a $24 million non-cash charge against the related long-lived assets. No employees were aﬀ ected by these actions. We recog- nized $2 million of other exit costs and completed these actions in ﬁ scal 2011. We also decided to exit our bread- crumb product line at our Federalsburg, Maryland plant in our Bakeries and Foodservice segment. As a result of this decision, we concluded that the future cash ﬂ ows generated by these products were insuﬃ cient to recover the net book value of the associated long-lived assets. Accordingly, we recorded a non-cash charge of $6 mil- lion primarily related to the impairment of these long- lived assets and in the fourth quarter of ﬁ scal 2010, we sold our manufacturing facility in Federalsburg for $3 million. In ﬁ scal 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 ﬁ scal 2010, we paid $8 million in cash related to restructuring actions taken in ﬁ scal 2010 and previous years. Our consolidated eﬀ ective tax rate for ﬁ scal 2010 was 35.0 percent compared to 37.1 percent in ﬁ scal 2009. Th e 2.1 percentage point decrease primarily reﬂ ects an unfavorable court decision in ﬁ scal 2009 on an uncer- tain tax matter, which increased ﬁ scal 2009 income tax expense by $53 million. In addition, ﬁ scal 2009 included $15 million of tax expense related to nondeductible good- will write-oﬀ s associated with divestitures. Fiscal 2010 income tax expense included a $35 million increase related to the enactment of federal health care reform. Th is legislation changed the tax treatment of subsi- dies to companies that provide prescription drug ben- eﬁ ts that are at least the equivalent of beneﬁ ts under Medicare Part D (see the “Impact of Inﬂ ation” section below for additional discussion of this legislation). Th e ﬁ scal 2010 tax rate also included increased beneﬁ ts from the domestic manufacturing deduction. Aft er-tax earnings from joint ventures for ﬁ scal 2010 increased to $102 million compared to $92 million in the same period in ﬁ scal 2009. In ﬁ scal 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 percent- age point increase in volume, including growth in Russia, Southeast Asia, the Middle East and Latin America. Net sales for HDJ decreased 4 percent, due primarily to an 11 Annual Report 2011 23 percentage point decline in volume, partially oﬀ set by favorable foreign exchange. Average diluted shares outstanding decreased by 4 million in ﬁ scal 2010 from ﬁ scal 2009, due primarily to the timing of share repurchases including the repur- chase of 21 million shares since the end of ﬁ scal 2009, partially oﬀ set by the issuance of shares upon stock option exercises. RESULTS OF SEGMENT OPERATIONS Our businesses are organized into three operating segments: U.S. Retail; International; and Bakeries and Foodservice. Th e following tables provide the dollar amount and percentage of net sales and operating proﬁ t from each seg- ment for ﬁ scal years 2011, 2010, and 2009: Net Sales In Millions U.S. Retail International Bakeries and Foodservice Total Segment Operating Proﬁ t U.S. Retail International Bakeries and Foodservice Total 2011 Fiscal Year 2010 2009 Dollars Percent of Total Dollars Percent of Total Dollars Percent of Total $10,163.9 69% $10,209.8 70% $9,973.6 2,875.5 1,840.8 19 12 2,684.9 1,740.9 18 12 2,571.8 2,010.4 68% 18 14 $14,880.2 100% $14,635.6 100% $14,555.8 100% $2,347.9 80% $2,385.2 84% $2,206.6 84% 291.4 306.3 10 10 192.1 263.2 7 9 239.2 178.4 9 7 $2,945.6 100% $2,840.5 100% $2,624.2 100% Segment operating proﬁ t excludes unallocated cor- porate 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 mea- sure of segment proﬁ tability reviewed by our executive management. U.S. Retail Segment Our U.S. Retail segment reﬂ ects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, and drug, dollar and discount chains operating through- out the United States. Our major product categories in this business segment are ready-to-eat cereals, refrig- erated 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. 24 General Mills Components of net sales growth are shown in the fol- lowing table: U.S. Retail Net Sales Percentage Change by Division Components of U.S. Retail Net Sales Growth Contributions from volume growth (a) Net price realization and mix Net sales growth Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 Flat Flat Flat 1 pt 1 pt 2 pts (a) Measured in tons based on the stated weight of our product shipments. In ﬁ scal 2011, net sales for our U.S. Retail segment were $10.2 billion, ﬂ at compared to ﬁ scal 2010. Volume on a tonnage basis and net price realization and mix were both ﬂ at compared to ﬁ scal 2011. Net sales for this segment totaled $10.2 billion in ﬁ scal 2010 and $10.0 billion in ﬁ scal 2009. Net price realiza- tion and mix added 1 percentage point 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 ﬁ scal 2009. Net sales for our U.S. retail divisions are shown in the tables below: U.S. Retail Net Sales by Division In Millions Big G Meals Pillsbury Yoplait Snacks Fiscal Year 2011 2010 2009 $2,293.6 $2,351.3 $2,231.9 2,131.8 2,146.0 2,139.6 1,823.9 1,858.2 1,851.9 1,499.0 1,491.2 1,471.0 1,378.3 1,315.8 1,237.7 Baking Products Small Planet Foods and other 808.6 228.7 845.2 202.1 842.6 198.9 Total $10,163.9 $10,209.8 $9,973.6 Big G Meals Pillsbury Yoplait Snacks Baking Products Small Planet Foods Total Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 (2)% 5% (1) (2) 1 5 (4) 13 Flat Flat Flat 1 6 Flat 3 2% In ﬁ scal 2011, net sales for Big G cereals declined 2 per- cent from last year which included Chocolate Cheerios and Wheaties Fuel introductory volume. Meals division net sales decreased 1 percent as Helper dinner mixes and Green Giant canned vegetables declines were par- tially oﬀ set by growth in Old El Paso Mexican products, Progresso ready-to-serve soups and Wanchai Ferry and Macaroni Grill frozen entrees. Pillsbury net sales declined 2 percent due to sales declines in Totino’s pizza. Net sales for Yoplait grew 1 percent including the acquisi- tion of the Mountain High yoghurt business. Snacks net sales grew 5 percent, driven by Nature Valley and Fiber One grain snack bars. Net sales for Baking Products declined 4 percent. Small Planet Food’s net sales were up 13 percent driven by double-digit growth for Lärabar fruit and nut energy bars. In ﬁ scal 2010, net sales for Big G cereals grew 5 per- cent driven by Multigrain Cheerios, Cinnamon Toast Crunch, and Fiber One cereals and introductory sales of Chocolate Cheerios and Wheaties Fuel. Meals divi- sion net sales were ﬂ at, as gains from Green Giant fro- zen vegetables and Old El Paso Mexican products were oﬀ set by lower sales of Progresso ready-to-serve soups. Pillsbury net sales were ﬂ at, including gains on Totino’s pizza and Pizza Rolls snacks and Pillsbury Toaster Strudel pastries offset by lower sales for Pillsbury refrigerated baked goods. Net sales for Yoplait grew 1 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 ﬂ at. Small Planet Food’s net sales were up 3 percent, reﬂ ecting performance of Cascadian Farm cereal and granola bars and Lärabar fruit and nut energy bars. Annual Report 2011 25 Segment operating proﬁ t of $2.3 billion in ﬁ scal 2011 declined $37 million, or 2 percent, from ﬁ scal 2010. Th e decrease was primarily driven by unfavorable supply chain costs of $81 million, partially oﬀ set by a 9 percent reduction in advertising and media expense. Segment operating proﬁ t of $2.4 billion in ﬁ scal 2010 improved $179 million, or 8 percent, over ﬁ scal 2009. Th e increase was primarily driven by favorable supply chain costs of $238 million, net price realization and mix of $106 million, and volume growth of $54 million, partially oﬀ set by a 22 percent increase in advertising and media expense and higher administrative costs. International Segment In Canada, our major prod- uct 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 and fruit snacks. In markets outside North America, our product categories include super- premium ice cream and frozen desserts, refrigerated yogurt, grain snacks, shelf stable and frozen vegetables, refrigerated and frozen dough products, and dry din- ners. Our International segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as prod- ucts 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. Components of net sales growth are shown in the fol- lowing table: Components of International Net Sales Growth Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth 6 pts 1 pt Flat 7 pts Flat 3 pts 1 pt 4 pts (a) Measured in tons based on the stated weight of our product shipments. In ﬁ scal 2011, net sales for our International segment were $2,876 million, up 7 percent from ﬁ scal 2010. Th is growth was driven by 6 percentage points of contribu- tions from volume and 1 percentage point from net price realization and mix. Foreign currency exchange was ﬂ at compared to ﬁ scal 2010. Net sales totaled $2,685 million in ﬁ scal 2010, up 4 percent from $2,572 million in ﬁ scal 2009. Th e growth in ﬁ scal 2010 was driven by 3 percentage points from net price realization and mix and 1 percentage point of favorable foreign currency exchange. Pound volume was ﬂ at, reﬂ ecting a 2 percentage point reduction from divested product lines. Net sales for our International segment by geographic region are shown in the following tables: International Net Sales by Geographic Region In Millions Europe Canada Asia/Paciﬁ c Latin America Total Fiscal Year 2011 2010 2009 $905.5 $859.6 $849.1 769.9 822.9 377.2 709.9 720.0 395.4 645.9 634.5 442.3 $2,875.5 $2,684.9 $2,571.8 International Change in Net Sales by Geographic Region Europe Canada Asia/Paciﬁ c Latin America Total Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 5% 8 14 (5) 7% 1% 10 13 (11) 4% In ﬁ scal 2011, net sales in Europe grew 5 percent driven by growth in Häagen Dazs and Nature Valley in the United Kingdom, and Old El Paso in France and Switzerland, partially offset by unfavorable foreign exchange. Net sales in Canada increased 8 percent due to favorable foreign exchange and growth in ready-to- eat cereals. In the Asia/Paciﬁ c region, net sales grew 14 percent driven by growth of Häagen-Dazs and Wanchai Ferry brands in China, and atta ﬂ our in India. Latin America net sales decreased 5 percent driven by unfavorable foreign exchange primarily related to the 2010 devaluation of the Venezuelan currency, partially oﬀ set by Diablitos growth in Venezuela and La Salteña growth in Argentina. In ﬁ scal 2010, net sales in Europe increased by 1 per- cent, driven by growth in Nature Valley and Old El Paso partially oﬀ set by unfavorable 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/Paciﬁ c region, net sales grew 13 percent due to growth from Häagen-Dazs shops and Wanchai Ferry products in China. Latin 26 General Mills America net sales decreased 11 percent due to unfavor- able foreign currency exchange, partially oﬀ set by net price realization. Segment operating proﬁ t for ﬁ scal 2011 grew 52 per- cent to $291 million from $192 million in ﬁ scal 2010, primarily driven by volume growth and favorable foreign currency exchange. In ﬁ scal 2010, we incurred a $14 mil- lion foreign exchange loss on the revaluation of non- bolivar fuerte monetary balances in Venezuela. Segment operating proﬁ t for ﬁ scal 2010 declined 20 percent to $192 million, from $239 million in ﬁ scal 2009, reﬂ ecting unfavorable foreign currency eﬀ ects and a 31 percent increase in advertising and media expense, par- tially oﬀ set by favorable net price realization. In January 2010, the Venezuelan government devalued the bolivar fuerte by resetting the oﬃ cial exchange rate. Th e eﬀ ect of the devaluation was a $14 million foreign exchange loss in ﬁ scal 2010, primarily on the revaluation of non-bolivar fuerte monetary balances in Venezuela. We continue to use the oﬃ cial exchange rate to remea- sure the ﬁ nancial statements of our Venezuelan opera- tions, as we intend to remit dividends solely through the government-operated Foreign Exchange Administration Board (CADIVI). Th e devaluation of the bolivar fuerte also reduced the U.S. dollar equivalent of our Venezuelan results of operations and ﬁ nancial condition, but this did not have a material impact on our results. During ﬁ scal 2010, Venezuela became a highly inﬂ ationary economy, which did not have a material impact on our results in ﬁ scal 2011 or 2010. Components of net sales growth are shown in the fol- lowing table: Components of Bakeries and Foodservice Net Sales Growth Contributions from volume growth (a) Net price realization and mix Foreign currency exchange Net sales growth Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 Flat 6 pts Flat 6 pts -8 pts -5 pts Flat -13 pts (a) Measured in tons based on the stated weight of our product shipments. For fiscal 2011, net sales for our Bakeries and Foodservice segment increased 6 percent to $1,841 mil- lion. Th e increase in ﬁ scal 2011 was driven by an increase in net price realization and mix of 6 percentage points, primarily from prices indexed to commodity markets. Contributions from volume were ﬂ at, including a 2 per- centage point decline from a divested product line. For fiscal 2010, net sales for our Bakeries and Foodservice segment decreased 13 percent to $1,741 mil- lion. Th e decrease in ﬁ scal 2010 was driven by 8 percent- age points from volume declines, including 8 percentage points from divested product lines and a loss of 2 per- centage points from an additional week in ﬁ scal 2009. Net price realization and mix decreased 5 percentage points, primarily from prices indexed to commodity markets. Net sales for our Bakeries and Foodservice segment by customer channel is shown in the following tables: 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 ﬂ our. 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 food- service, convenience stores, vending, and supermarket bakeries. Bakeries and Foodservice Net Sales by Customer Channel Fiscal Year In Millions 2011 2010 2009 Foodservice Distributors Convenience Stores Bakeries and National $557.3 225.6 $543.3 $558.1 202.8 190.4 Restaurant Accounts 1,057.9 994.8 1,261.9 Total $1,840.8 $1,740.9 2,010.4 Bakeries and Foodservice Net Sales Percentage Change by Customer Channel Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 Foodservice Distributors Convenience Stores Bakeries and National Restaurant Accounts Total 3% 11 6 6% (3)% 7 (21) (13)% Annual Report 2011 27 cereals for customers in the United Kingdom. We also have a 50 percent equity interest in HDJ, which man- ufactures, distributes, and markets Häagen-Dazs ice cream products and frozen novelties. Our share of after-tax joint venture earnings decreased from $102 million in ﬁ scal 2010 to $96 mil- lion in ﬁ scal 2011 primarily due to higher advertising and media spending and increased service cost allocations, all in CPW. Our share of aft er-tax joint venture earnings increased from $92 million in ﬁ scal 2009 to $102 million in ﬁ scal 2010. Th e increase is mainly due to lower ﬁ scal 2009 earnings which were reduced by a $6 million deferred income tax valuation allowance. Th e change in net sales for each joint venture is set forth in the following table: Joint Venture Change in Net Sales CPW HDJ Joint Ventures Fiscal 2011 vs. 2010 Fiscal 2010 vs. 2009 3% 4 4% 6% (4) 4% For ﬁ scal 2011, CPW net sales grew by 3 percent due to a 2 percentage point increase in volume and 1 per- centage point from favorable foreign exchange. Net price realization and mix was ﬂ at compared to ﬁ scal 2010. Net sales for HDJ increased 4 percent from ﬁ scal 2010 pri- marily due to 9 percentage points of favorable foreign exchange, partially oﬀ set by a 5 percentage point decline in net price realization and mix. Volume was ﬂ at com- pared to ﬁ scal 2010. For ﬁ scal 2010, CPW net sales grew by 6 percent due to 4 percentage points of growth from net price realiza- tion and mix, 1 percentage 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 ﬁ scal 2009 due to an 11 percentage point decline in volume, partially oﬀ set by favorable foreign exchange. Selected cash ﬂ ows from our joint ventures are set forth in the following table: In ﬁ scal 2011, segment operating proﬁ t was $306 mil- lion, up from $263 million in ﬁ scal 2010. Th e increase was primarily driven by net price realization and mix and increased grain merchandising earnings, partially oﬀ set by higher input costs. Segment operating proﬁ t was $263 million in ﬁ scal 2010, up from $178 million in ﬁ scal 2009. Th e increase was due to lower input costs, plant operating perfor- mance, and increased grain merchandising earnings. Unallocated Corporate Items Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee beneﬁ ts and incentives, annual contributions to the General Mills Foundation, and other items that are not part of our measurement of segment operating performance. Th is 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 49 of this report. For ﬁ scal 2011, unallocated corporate expense totaled $184 million compared to $203 million last year. In ﬁ scal 2011 we recorded a $95 million net decrease in expense related to mark-to-market valuation of certain commod- ity positions and grain inventories, compared to a $7 million net increase in expense last year. Th is was par- tially oﬀ set by a $69 million increase in corporate pen- sion expense in ﬁ scal 2011. In ﬁ scal 2010, we recorded a $13 million recovery against a corporate investment. Unallocated corporate expense totaled $203 million in ﬁ scal 2010 compared to $342 million in ﬁ scal 2009. In ﬁ scal 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 in ﬁ scal 2009. Also in ﬁ scal 2010, we recorded a $13 million recovery against a corporate investment compared to $35 mil- lion of write-downs against various investments in ﬁ scal 2009. In ﬁ scal 2009, we recognized a $41 million gain from an insurance settlement. Joint Ventures In addition to our consolidated opera- tions, 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 28 General Mills Selected Cash Flows from Joint Ventures Cash Flows from Operations Inﬂ ow (Outﬂ ow), in Millions 2011 2010 2009 In Millions Fiscal Year Fiscal Year 2011 2010 2009 Advances to joint ventures, net $(1.8) $(128.1) Dividends received 72.7 88.0 $8.2 68.5 Net earnings, including earnings attributable to IMPACT OF INFLATION We have experienced signiﬁ cant input cost volatility since ﬁ scal 2006. Our gross margin performance in ﬁ s- cal 2011 reﬂ ects the impact of input cost inﬂ ation, pri- marily on commodities inputs. We expect the cost of commodities and energy to increase at a higher rate in ﬁ scal 2012. We attempt to minimize the eﬀ ects of inﬂ ation through planning and operating practices. Our risk management practices are discussed on pages 41 through 42 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. Th e Act codiﬁ es health care reforms with staggered eﬀ ective 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 eﬀ ect fully until future years, the Act did not have a material impact on our ﬁ scal 2011 or 2010 results of operations. Given the com- plexity 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 regulations are adopted. LIQUIDITY Th e primary source of our liquidity is cash ﬂ ow from operations. Over the most recent three-year period, our operations have generated $5.5 billion in cash. A sub- stantial portion of this operating cash ﬂ ow 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 ﬁ nance acquisitions and major capital expansions. noncontrolling interests $1,803.5 $1,535.0 $1,313.7 Depreciation and amortization 472.6 457.1 453.6 Aft er-tax earnings from joint ventures (96.4) (101.7) Stock-based compensation 105.3 107.3 Deferred income taxes 205.3 22.3 Tax beneﬁ t on exercised options (106.2) (114.0) (91.9) 117.7 215.8 (89.1) Distributions of earnings from joint ventures 72.7 88.0 68.5 Pension and other postretirement beneﬁ t plan contributions (220.8) (17.2) (220.3) Pension and other postretirement beneﬁ t plan (income) expense 73.6 (37.9) Divestitures (gain), net Gain on insurance settlement Restructuring, impairment, (17.4) — — — (27.5) (84.9) (41.3) and other exit costs (income) (1.3) 23.4 31.3 Changes in current assets and liabilities (720.9) 143.4 176.9 Other, net Net cash provided by (43.2) 75.5 5.7 operating activities $1,526.8 $2,181.2 $1,828.2 In ﬁ scal 2011, our operations generated $1.5 billion of cash compared to $2.2 billion in ﬁ scal 2010. Th e $654 million decrease primarily reflects an $864 million increased use of cash for net current assets and liabili- ties and a $200 million voluntary contribution to our principal domestic pension plans, partially oﬀ set by the $268 million increase in net earnings and a $183 million change in deferred income taxes primarily related to our pension plan contribution and a change in tax legislation related to depreciation deductions. Th e increased use of cash for net current assets and liabilities reﬂ ects lower other current liabilities, primarily reﬂ ecting changes in the timing of marketing activities and related accruals and a payment of $385 million in ﬁ s- cal 2011 related to our IRS settlement as described in Note 14 to the Consolidated Financial Statements on page 77 of this report. In addition, inventories used $223 million more cash in ﬁ scal 2011 reﬂ ecting increased input costs. We strive to grow core working capital at or below our growth in net sales. For ﬁ scal 2011, core working capital increased 16 percent, compared to net sales growth of 2 Annual Report 2011 29 percent, reﬂ ecting cost inﬂ ation and higher inventories. In ﬁ scal 2010, core working capital increased 3 percent, compared to net sales growth of 1 percent, and in ﬁ scal 2009, core working capital declined 1 percent, compared to net sales growth of 7 percent. In ﬁ scal 2010, our operations generated $2.2 billion of cash compared to $1.8 billion in ﬁ scal 2009, primarily reﬂ ecting the $221 million increase in net earnings, includ- ing earnings attributable to noncontrolling interests. Cash Flows from Investing Activities In Millions 2011 2010 2009 Fiscal Year expenditures required to support Yoplait S.A.S. Th ese expenditures support initiatives that are expected to: increase manufacturing capacity for grain snacks; con- tinue HMM initiatives throughout the supply chain; expand International production capacity for Bugles, Nature Valley bars and Häagen-Dazs products; and integrate ﬁ scal 2011 acquisitions. Cash Flows from Financing Activities Fiscal Year In Millions 2011 2010 2009 Change in notes payable $ (742.6) $ 235.8 $ (1,390.5) Issuance of long-term debt Payment of long-term debt 1,200.0 (7.4) — (906.9) 1,850.0 (370.3) Purchases of land, buildings, and equipment Acquisitions $(648.8) $(649.9) $(562.6) Proceeds from common stock Investments in aﬃ liates, net (1.8) (130.7) (123.3) — — 5.9 issued on exercised options 410.4 388.8 305.2 Tax beneﬁ t on exercised options 106.2 114.0 89.1 Proceeds from disposal of land, Purchases of common buildings, and equipment 4.1 7.4 4.1 stock for treasury (1,163.5) (691.8) (1,296.4) Proceeds from divestitures of product lines 34.4 Proceeds from insurance settlement — — — Other, net Net cash used by 20.3 52.0 244.7 41.3 (22.3) investing activities $(715.1) $(721.2) $(288.9) In fiscal 2011, cash used by investing activities decreased by $6 million from ﬁ scal 2010. Th e decreased use of cash reﬂ ects $25 million of proceeds from the divestiture of a foodservice frozen baked goods prod- uct line in our International segment and $9 million of proceeds from the sale of a pie shell product line in our Bakeries and Foodservice segment in ﬁ scal 2011. In addi- tion, in ﬁ scal 2011, we paid $85 million for the acquisi- tion of the Mountain High yoghurt business for our U.S. Retail segment and $38 million for the acquisition of the Pasta Master meals business in Australia for our International segment. We also invested $131 million in aﬃ liates in ﬁ scal 2010, mainly our CPW joint venture, to repay local borrowings. In fiscal 2010, cash used by investing activities increased by $432 million from ﬁ scal 2009 primarily due to $245 million of proceeds from the sale of certain product lines in ﬁ scal 2009 and $41 million of insurance proceeds received in ﬁ scal 2009 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 aﬃ liates in ﬁ scal 2010. We expect capital expenditures to increase to approx- imately $670 million in fiscal 2012, excluding any 30 General Mills Dividends paid Other, net Net cash used by (729.4) (643.7) (579.5) (10.3) — (12.1) ﬁ nancing activities $ (936.6) $ (1,503.8) $ (1,404.5) Net cash used by ﬁ nancing activities decreased by $567 million in ﬁ scal 2011. In May 2011, we issued $300 million aggregate prin- cipal amount of 1.55 percent ﬁ xed-rate notes and $400 million aggregate principal amount of floating-rate notes, both due May 16, 2014. Th e proceeds of these notes were used to repay a portion of our outstanding commercial paper. Th e ﬂ oating-rate notes bear interest equal to three-month LIBOR plus 35 basis points, subject to quarterly reset. Interest on the ﬂ oating-rate notes is payable quarterly in arrears. Interest on the ﬁ xed-rate notes is payable semi-annually in arrears. Th e ﬁ xed-rate notes may be redeemed at our option at any time for a speciﬁ ed make whole amount. Th ese notes are senior unsecured, unsubordinated obligations that include a change of control repurchase provision. In June 2010, we issued $500 million aggregate prin- cipal amount of 5.4 percent notes due 2040. Th e pro- ceeds of these notes were used to repay a portion of our outstanding commercial paper. Interest on these notes is payable semi-annually in arrears. Th ese notes may be redeemed at our option at any time for a speci- ﬁ ed make whole amount. Th ese notes are senior unse- cured, unsubordinated obligations that include a change of control repurchase provision. In May 2010, we paid $437 million to repurchase in a cash tender oﬀ er $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. We issued commercial paper to fund the repurchase. In January 2009, we issued $1.2 billion aggregate prin- cipal 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. Th e proceeds of these notes were used to repay a portion of our outstand- ing commercial paper. Interest on these notes is payable semi-annually in arrears. Th ese notes may be redeemed at our option at any time for a speciﬁ ed make-whole amount. Th ese notes are senior unsecured, unsubordi- nated obligations that include a change of control repur- chase provision. During ﬁ scal 2011, we repurchased 32 million shares of our common stock for an aggregate purchase price of $1,164 million. During ﬁ scal 2010, we repurchased 21 million shares of our common stock for an aggregate purchase price of $692 million. During ﬁ scal 2009, we repurchased 40 million shares of our common stock for an aggregate purchase price of $1,296 million. On June 28, 2010, our Board of Directors authorized the repur- chase of up to 100 million shares of our common stock. 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. Th e authorization has no speciﬁ ed termination date. Dividends paid in ﬁ scal 2011 totaled $729 million, or $1.12 per share, a 17 percent per share increase from ﬁ s- cal 2010. Dividends paid in ﬁ scal 2010 totaled $644 mil- lion, or $0.96 per share, a 12 percent per share increase from ﬁ scal 2009 dividends of $0.86 per share. On June 28, 2011, our Board of Directors approved a dividend increase to an annual rate of $1.22 per share, a 9 percent increase from the rate paid in ﬁ scal 2011. CAPITAL RESOURCES Total capital consisted of the following: In Millions Notes payable May 29, 2011 May 30, 2010 $ 311.3 $ 1,050.1 Current portion of long-term debt 1,031.3 107.3 Long-term debt Total debt Noncontrolling interests Stockholders’ equity Total capital 5,542.5 5,268.5 6,885.1 6,425.9 246.7 245.1 6,365.5 5,402.9 $13,497.3 $12,073.9 Th e increase in total capital from ﬁ scal 2010 to ﬁ s- cal 2011 was primarily due to net earnings attributable to General Mills of $1.8 billion and an increase in cur- rent and long-term debt, partially oﬀ set by a decrease in notes payable. Th e following table details the fee-paid committed and uncommitted credit lines we had available as of May 29, 2011: In Billions Credit facility expiring: October 2012 October 2013 Total committed credit facilities Uncommitted credit facilities Total committed and uncommitted credit facilities Amount $1.8 1.1 2.9 0.3 $3.2 To ensure availability of funds, we maintain bank credit lines suﬃ cient to cover our outstanding short- term borrowings. Commercial paper is a continuing source of short-term ﬁ nancing. 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 2013. We also have $312 million in uncommitted credit lines that support our foreign opera- tions. As of May 29, 2011, there were no amounts out- standing on the fee-paid committed credit lines and $119 million was drawn on the uncommitted lines. Th e credit facilities contain several covenants, including a requirement to maintain a ﬁ xed charge coverage ratio of at least 2.5. Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 29, 2011, we were in compliance with all of these covenants. Annual Report 2011 31 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 membership interests to certain of our wholly owned subsidiaries. We continue to hold the entire managing membership interest, and therefore direct the operations of GMC. Th e third-party holder of the Class A Interests in GMC receives quarterly preferred distributions from available net income based on the application of a ﬂ oating pre- ferred return rate, currently equal to the sum of three- month LIBOR plus 65 basis points. Th e preferred return rate of the Class A Interests is adjusted every ﬁ ve years through a negotiated agreement between the Class A Interest holder and GMC, or through a remarketing auc- tion. Th e next remarketing is scheduled to occur in June 2012 and thereaft er in ﬁ ve-year intervals. Th e holder of the Class A Interests may initiate a liq- uidation of GMC under certain circumstances, including, without limitation, the bankruptcy of GMC or its sub- sidiaries, GMC’s failure to deliver the preferred distribu- tions on the Class A Interests, GMC’s failure to comply with portfolio requirements, breaches of certain cove- nants, lowering of our senior debt rating below either Baa3 by Moody’s or BBB- by Standard & Poor’s, 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. Th e 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 unrelated 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. On July 1, 2011, we acquired a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent interest in Yoplait Marques S.A.S. for an aggregate purchase price of $1.2 billion. Yoplait S.A.S. operates yogurt businesses in several countries, including France and the United Kingdom, and oversees franchise relationships around the world. Yoplait Marques S.A.S. holds the worldwide rights to Yoplait and related trademarks. We ﬁ nanced this transaction using cash available in our foreign sub- sidiaries and commercial paper. We have $1,031 million of long-term debt maturing in the next 12 months that is classiﬁ ed as current, pri- marily $1,020 million of 6.0 percent notes which mature on February 15, 2012. We believe that cash ﬂ ows from operations, together with available short- and long-term debt ﬁ nancing, will be adequate to meet our liquidity and capital needs for at least the next 12 months. As of May 29, 2011, our total debt, including the impact of derivative instruments designated as hedges, was 77 percent in ﬁ xed-rate and 23 percent in ﬂ oating- rate instruments, compared to 75 percent in ﬁ xed-rate and 25 percent in ﬂ oating-rate instruments on May 30, 2010. Th e change in the ﬁ xed-rate and ﬂ oating-rate percentages was driven by the issuance of $500 mil- lion aggregate principal amount of ﬁ xed rate debt and a decrease in notes payable in ﬁ scal 2011. We have an eﬀ ective shelf registration statement on ﬁ le with the SEC covering the sale of debt securities. Th e shelf registration statement will expire in December 2011. Growth in return on average total capital is one of our key performance measures (see the “Non-GAAP Measures” section on page 85 for our discussion of this measure, which is not deﬁ ned by GAAP). Return on average total capital decreased from 13.8 percent in ﬁ s- cal 2010 to 13.7 percent in ﬁ scal 2011 primarily reﬂ ect- ing higher working capital. We also believe that the ratio of ﬁ xed charge coverage and the ratio of operat- ing cash ﬂ ow to debt are important measures of our ﬁ nancial strength. Our ﬁ xed charge coverage ratio in ﬁ s- cal 2011 was 7.03 compared to 6.42 in ﬁ scal 2010. Th e measure increased from ﬁ scal 2010 as earnings before income taxes and aft er-tax earnings from joint ventures increased by $224 million and ﬁ xed charges decreased by $9 million, driven mainly by lower interest expense. Our operating cash ﬂ ow to debt ratio decreased 11.7 per- centage points to 22.2 percent in ﬁ scal 2011, driven by a decrease in cash ﬂ ows from operations and an increase in our year-end debt balance. 32 General Mills OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS As of May 29, 2011, we have issued guarantees and com- fort letters of $591 million for the debt and other obliga- tions of consolidated subsidiaries, and guarantees and comfort letters of $341 million for the debt and other obligations of non-consolidated aﬃ liates, mainly CPW. In addition, oﬀ -balance sheet arrangements are gener- ally limited to the future payments under non-cancelable operating leases, which totaled $261 million as of May 29, 2011. As of May 29, 2011, we had invested in six variable interest entities (VIEs). We determined whether or not we were the primary beneﬁ ciary (PB) of each VIE using a qualitative assessment that considered the VIE’s pur- pose and design, the involvement of each of the interest holders, and the risks and beneﬁ ts of the VIE. We have an interest in a contract manufacturer at our former facility in Geneva, Illinois. We are the PB and have con- solidated this entity. Th is entity had property and equip- ment with a carrying value of $14 million and long-term debt of $15 million as of May 29, 2011. Th e liabilities recognized as a result of consolidating this entity do not represent additional claims on our general assets. Th e remaining ﬁ ve VIEs, two of which we are not the PB, are not material to our results of operations, ﬁ nancial condi- tion, or liquidity as of and for the year ended May 29, 2011. We have provided minimal ﬁ nancial or other sup- port to VIEs during the current period and there are no arrangements related to VIEs that would require us to provide signiﬁ cant ﬁ nancial support in the future. Our deﬁ ned beneﬁ t plans in the United States are subject to the requirements of the Pension Protection Act (PPA). Th e PPA revised the basis and methodology for determining deﬁ ned beneﬁ t plan minimum funding requirements as well as maximum contributions to and beneﬁ ts paid from tax-qualiﬁ ed plans. Most of these provisions were applicable to our domestic deﬁ ned ben- eﬁ t pension plans in ﬁ scal 2011 on a phased-in basis. Th e PPA may ultimately require us to make additional contributions to our domestic plans. We did not make a contribution to our principal deﬁ ned beneﬁ t pension plans in ﬁ scal 2010. We made $200 million of voluntary contributions to our principal domestic plans in ﬁ scal 2011. We do not expect to be required to make any contributions in ﬁ scal 2012. Actual ﬁ scal 2012 contri- butions could exceed our current projections, and may be inﬂ uenced by our decision to undertake discretionary funding of our beneﬁ t trusts or by changes in regulatory requirements. Additionally, our projections concerning timing of the PPA funding requirements are subject to change and may be inﬂ uenced by factors such as gen- eral market conditions aﬀ ecting trust asset performance, interest rates, and our future decisions regarding certain elective provisions of the PPA. Th e following table summarizes our future estimated cash payments under existing contractual obligations, including payments due by period: In Millions Total 2012 2013-14 2017 and 2015-16 Th ereaft er Payments Due by Fiscal Year Long-term debt(a) $ 6,565.1 $1,030.1 $2,134.8 $750.1 $2,650.1 Accrued interest 114.0 114.0 — — — Operating leases (b) 261.4 74.4 88.9 48.7 49.4 Capital leases 5.9 2.2 2.7 0.8 0.2 Purchase obligations (c) 2,791.4 2,457.6 193.9 74.8 65.1 Total contractual obligations 9,737.8 3,678.3 2,420.3 874.4 2,764.8 Other long-term obligations (d) 1,731.1 — — — — Total long-term obligations $11,468.9 $3,678.3 $2,420.3 $874.4 $2,764.8 (a) Amounts represent the expected cash payments of our long-term debt and do not include $3 million for domestic capital leases or $6 million for net unamortized bond premiums and discounts and fair value adjustments. (b) Operating leases represents the minimum rental commitments under non-cancelable operating leases. (c) Th e 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 speciﬁ es all signiﬁ cant terms, including ﬁ xed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Most arrangements are cancelable without a signiﬁ cant penalty and with short notice (usually 30 days). Any amounts reﬂ ected on the Consolidated Balance Sheets as accounts payable and accrued liabilities are excluded from the table above. (d) Th e fair value of our interest rate, foreign exchange and grain derivative contracts with a payable position to the counterparty was $86 million as of May 29, 2011, 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 obli- gations mainly consist of liabilities for accrued compensation and beneﬁ ts, including the underfunded status of certain of our deﬁ ned beneﬁ t pen- sion, other postretirement, and postemployment plans, and miscellaneous liabilities. We expect to pay $18 million of beneﬁ ts from our unfunded postemployment beneﬁ t plans and $10 million of deferred compensation in ﬁ scal 2012. We are unable to reliably estimate the amount of these payments beyond ﬁ scal 2012. As of May 29, 2011, our total liability for uncertain tax positions and the associated accrued interest and penalties was $280 million. Annual Report 2011 33 SIGNIFICANT ACCOUNTING ESTIMATES For a complete description of our signiﬁ cant account- ing policies, see Note 2 to the Consolidated Financial Statements on page 49 of this report. Our signiﬁ cant accounting estimates are those that have a meaning- ful impact on the reporting of our ﬁ nancial condition and results of operations. Th ese estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, stock-based compen- sation, income taxes, and deﬁ ned beneﬁ t pension, other postretirement and postemployment beneﬁ ts. Promotional Expenditures Our promotional activities are conducted through our customers and directly or indirectly with end consumers. Th ese activities include: payments to customers to perform merchandising activ- ities on our behalf, such as advertising or in-store dis- plays; 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 advertising expenditures. Th e media and advertising expenditures are generally recognized as expense when the advertisement airs. Th e cost of payments to custom- ers and other consumer-related activities are recognized as the related revenue is recorded, which generally pre- cedes the actual cash expenditure. Th e recognition of these costs requires estimation of customer participa- tion and performance levels. Th ese estimates are made based on the forecasted customer sales, the timing and forecasted costs of promotional activities, and other fac- tors. Diﬀ erences between estimated expenses and actual costs are normally insigniﬁ cant and are recognized as a change in management estimate in a subsequent period. Our accrued trade, coupon, and consumer marketing lia- bilities were $463 million as of May 29, 2011, and $555 million as of May 30, 2010. Because our total promo- tional expenditures (including amounts classiﬁ ed as a reduction of revenues) are signiﬁ cant, if our estimates are inaccurate we would have to make adjustments in subsequent periods that could have a material eﬀ ect on our results of operations. Valuation of Long-lived Assets 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 esti- mated undiscounted future cash ﬂ ows from the opera- tion and disposition of the asset group are less than 34 General Mills the carrying amount of the asset group. Asset groups have identiﬁ able cash ﬂ ows 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 measured using discounted cash ﬂ ows or independent appraisals, as appropriate. Intangible Assets Goodwill is not subject to amortiza- tion and is tested for impairment annually and when- ever 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 oft en 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 carrying amount of net assets including goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash ﬂ ow model. Growth rates for sales and proﬁ ts 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 performed our ﬁ scal 2011 assessment as of November 29, 2010, and determined there was no impairment of goodwill for any of our reporting units as their related fair values were substantially in excess of their carrying values. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are ﬁ nite or indeﬁ nite-lived. Reaching a determination on useful life requires signiﬁ cant judgments and assumptions regard- ing the future eﬀ ects of obsolescence, demand, compe- tition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regula- tory environment, and expected changes in distribution channels), the level of required maintenance expendi- tures, and the expected lives of other related groups of assets. Our indeﬁ nite-lived intangible assets, mainly intangible assets primarily associated with the Pillsbury, Totino’s, Progresso, Green Giant, Old El Paso, and Häagen-Dazs brands, are also tested for impairment annually and whenever events or changes in circumstances indi- cate that their carrying value may not be recoverable. We performed our ﬁ scal 2011 assessment of our brand intangibles as of November 29, 2010. Our estimate of the fair value of the brands was based on a discounted cash ﬂ ow model using inputs which included: projected revenues from our annual long-range plan; assumed roy- alty 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 indeﬁ nite-lived intangible assets as their related fair values were sub- stantially in excess of the carrying values. As of May 29, 2011, we had $10.5 billion of goodwill and indeﬁ nite-lived intangible assets. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles so classiﬁ ed will contribute indeﬁ nitely to our cash ﬂ ows, materially diﬀ erent assumptions regarding future performance of our businesses or a diﬀ erent weighted-average cost of capital could result in signiﬁ cant impairment losses and amortization expense. In addition, we assess our investments in our joint ventures if we have reason to believe an impairment may have occurred including, but not limited to, ongo- ing operating losses, projected decreases in earnings, increases in the weighted average cost of capital or sig- niﬁ cant business disruptions. Th e signiﬁ cant assump- tions used to estimate fair value include revenue growth and proﬁ tability, royalty rates, capital spending, depre- ciation and taxes, foreign currency exchange rates and a discount rate. By their nature, these projections and assumptions are uncertain. If we were to determine the current fair value of our investment was less than the carrying value of the investment, then we would assess if the shortfall was of a temporary or permanent nature and write down the investment to its fair value if we concluded the impairment is other than temporary. Aft er the earthquakes and tsunami in Japan in March 2011, we assessed the fair value of our investment in HDJ and determined that it exceeded the carrying value by approximately 5 percent. As of May 29, 2011, the car- rying value of HDJ consisted of our investment of $61 million and goodwill of $524 million. Sustained declines in business results or an increase in the weighted aver- age cost of capital may adversely aﬀ ect the fair value of our investment in HDJ, and could result in a future impairment to our investment. Stock-based Compensation The valuation of stock options is a signiﬁ cant accounting estimate that requires us to use judgments and assumptions that are likely to have a material impact on our ﬁ nancial 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 market- place participant would exclude in estimating our stock price 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 insuﬃ cient to provide a reli- able measure of expected volatility. If all other assump- tions are held constant, a one percentage point increase in our ﬁ scal 2011 volatility assumption would increase the grant-date fair value of our ﬁ scal 2011 option awards by 5 percent. Our expected term represents the period of time that options granted are expected to be outstanding based on historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees have similar historical exercise behavior and therefore were aggregated into a single pool for valu- ation purposes. Th e 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 16 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 eﬀ ect at the time of grant. Th e estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pric- ing model were as follows: Fiscal Year 2011 2010 2009 Estimated fair values of stock options granted $ 4.12 $ 3.20 $ 4.70 Assumptions: Risk-free interest rate 2.9% 3.7% 4.4% Expected term Expected volatility Dividend yield 8.5 years 8.5 years 8.5 years 18.5% 18.9% 16.1% 3.0% 3.4% 2.7% Annual Report 2011 35 To the extent that actual outcomes diﬀ er from our assumptions, we are not required to true up grant- date fair value-based expense to ﬁ nal intrinsic values. However, these diﬀ erences can impact the classiﬁ ca- tion of cash tax beneﬁ ts realized upon exercise of stock options, as explained in the following two paragraphs. Furthermore, historical data has a signiﬁ cant bearing on our forward-looking assumptions. Signiﬁ cant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then signiﬁ cantly impact the year-over-year comparabil- ity of stock-based compensation expense. Any corporate income tax beneﬁ t realized upon exer- cise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax ben- eﬁ t) is presented in the Consolidated Statements of Cash Flows as a ﬁ nancing cash ﬂ ow. Th e actual impact on future years’ ﬁ nancing cash ﬂ ow will depend, in part, on the volume of employee stock option exercises dur- ing a particular year and the relationship between the exercise-date market value of the underlying stock and the original grant-date fair value previously determined for ﬁ nancial reporting purposes. Realized windfall tax beneﬁ ts are credited to addi- tional paid-in capital within the Consolidated Balance Sheets. Realized shortfall tax beneﬁ ts (amounts which are less than that previously recognized in earnings) are ﬁ rst oﬀ set against the cumulative balance of wind- fall tax beneﬁ ts, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated eﬀ ective income tax rate. We cal- culated a cumulative amount of windfall tax beneﬁ ts from post-1995 ﬁ scal years for the purpose of account- ing for future shortfall tax beneﬁ ts and currently have suﬃ cient cumulative windfall tax beneﬁ ts to absorb pro- jected arising shortfalls, such that we do not currently expect future earnings to be aﬀ ected by this provision. However, as employee stock option exercise behavior is not within our control, it is possible that materially dif- ferent reported results could occur if diﬀ erent assump- tions or conditions were to prevail. Income Taxes We apply a more-likely-than-not thresh- old to the recognition and derecognition of uncertain tax positions. Accordingly we recognize the amount of tax beneﬁ t 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 aﬀ ect earnings in the quarter of such change. We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdic- tions. A number of years may elapse before an uncertain tax position is audited and ﬁ nally resolved. While it is oft en diﬃ cult to predict the ﬁ nal outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reﬂ ect the most likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and cir- cumstances. Settlement of any particular position would usually require the use of cash. Th e number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing juris- dictions include the United States (federal and state) and Canada. Th e IRS has completed its review of our fed- eral income tax returns for ﬁ scal years 2008 and prior and has proposed adjustments related to the amount of research and development tax credits claimed. We have appealed these proposed adjustments. During ﬁ scal 2011, we reached a settlement with the IRS concerning certain corporate income tax adjust- ments for ﬁ scal years 2002 to 2008. Th e adjustments primarily relate to the amount of capital loss, deprecia- tion, and amortization we reported as a result of the sale of noncontrolling interests in our GMC subsidiary. As a result, we recorded a $108 million reduction in our total liabilities for uncertain tax positions in ﬁ scal 2011. We made payments totaling $385 million in ﬁ scal 2011 related to this settlement. In addition, we made a pay- ment of $18 million in ﬁ scal 2009 related to adjustments made at the IRS exam level for audits of ﬁ scal years 2004 to 2006. Also during ﬁ scal 2011, the Superior Court of the State of California issued an adverse decision concerning our state income tax apportionment calculations. As a result, we recorded a $12 million increase in our total liabilities for uncertain tax positions. We believe our positions are supported by substantial technical authority and have appealed this decision. We do not expect to make a payment related to this matter until it is deﬁ nitively resolved. In ﬁ scal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing a district court deci- sion rendered in ﬁ scal 2008. As a result, we recorded $53 million (including interest) of income tax expense in ﬁ scal 2009 related to the reversal of cumulative income tax beneﬁ ts from this uncertain tax matter recognized 36 General Mills in ﬁ scal years 1992 through 2008. All outstanding liabili- ties associated with this matter were paid during ﬁ scal 2011. Various tax examinations by United States state tax- ing authorities 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 prog- ress. Th e Canada Revenue Agency (CRA) has completed its review of our income tax returns in Canada for ﬁ scal years 2003 to 2005. Th e CRA has raised assessments for these years that we are currently appealing. We believe our positions are supported by substantial tech- nical authority and are vigorously defending our posi- tions. We do not anticipate that any United States or Canadian tax adjustments will have a signiﬁ cant impact on our ﬁ nancial position or results of operations. As of May 29, 2011, our total liability for uncertain tax positions and the associated accrued interest and penalties was $280 million. We do not expect to pay any amounts related to uncertain tax positions or accrued interest in the next 12 months. We are not able to rea- sonably estimate the timing of future cash ﬂ ows beyond 12 months due to uncertainties in the timing of tax audit outcomes. Deﬁ ned Beneﬁ t Pension, Other Postretirement And Postemployment Beneﬁ t Plans Deﬁ ned Beneﬁ t Pension Plans We have deﬁ ned beneﬁ t pension plans covering most United States, Canadian, and United Kingdom employees. Beneﬁ ts for salaried employees are based on length of service and ﬁ nal aver- age compensation. Beneﬁ ts for hourly employees include various monthly amounts for each year of credited ser- vice. Our funding policy is consistent with the require- ments of applicable laws. We made $200 million of voluntary contributions to our principal domestic plans in ﬁ scal 2011. We do not expect to be required to make any contributions in ﬁ scal 2012. Our principal domestic retirement plan covering salaried employees has a provi- sion that any excess pension assets would be allocated to active participants if the plan is terminated within ﬁ ve years of a change in control. Other Postretirement Beneﬁ t Plans We also sponsor plans that provide health care beneﬁ ts to the majority of our United States and Canadian retirees. Th e salaried health care beneﬁ t plan is contributory, with retiree con- tributions 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 contribu- tions to these plans in ﬁ scal 2011. Th e Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, was signed into law in March 2010. We have not fully evaluated the eﬀ ect of the Act, including possible modiﬁ cations to provider plans, but it could aﬀ ect the future cost of our beneﬁ t plans. Postemployment Beneﬁ t Plans Under certain circum- stances, we also provide accruable beneﬁ ts to former or inactive employees in the United States, Canada, and Mexico, and members of our Board of Directors, including severance and certain other beneﬁ ts payable upon death. We recognize an obligation for any of these beneﬁ ts that vest or accumulate with service. Postemployment ben- eﬁ ts 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 beneﬁ t plans are unfunded. We recognize beneﬁ ts provided during retirement or following employment over the plan participants’ active working life. Accordingly, we make various assumptions to predict and measure costs and obligations many years prior to the settlement of our obligations. Assumptions that require signiﬁ cant management judgment and have a material impact on the measurement of our net peri- odic beneﬁ t expense or income and accumulated ben- eﬁ t obligations include the long-term rates of return on plan assets, the interest rates used to discount the obli- gations for our beneﬁ t 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 perfor- mance, our estimate of future long-term returns by asset class (using input from our actuaries, investment ser- vices, and investment managers), and long-term inﬂ ation assumptions. We review this assumption annually for each plan, however, our annual investment performance for one particular year does not, by itself, signiﬁ cantly inﬂ uence our evaluation. Th e investment objective for our deﬁ ned beneﬁ t pen- sion and other postretirement beneﬁ t plans is to secure the beneﬁ t obligations 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. Th e deﬁ ned Annual Report 2011 37 beneﬁ t pension and other postretirement portfolios are broadly diversiﬁ ed across asset classes. Within asset classes, the portfolios are further diversified across investment styles and investment organizations. For the deﬁ ned beneﬁ t pension and other postretirement beneﬁ t 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 ﬁ xed income; and 10 percent to real assets (real estate, energy, and timber). Th e 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 deﬁ ned beneﬁ t pen- sion and other postretirement plan assets were 20.3 percent, 5.6 percent, 7.5 percent, 9.2 percent, and 10.0 percent for the 1, 5, 10, 15, and 20 year periods ended May 29, 2011. Our principal deﬁ ned beneﬁ t pension and other post- retirement 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 deﬁ ned beneﬁ t plans was 9.53 percent for ﬁ scal 2011, 9.55 per- cent for ﬁ scal 2010, and 9.55 percent for ﬁ scal 2009. Lowering the expected long-term rate of return on assets by 50 basis points would increase our net pension and postretirement expense by $24 million for ﬁ scal 2012. A market-related valuation basis is used to reduce year-to-year expense volatility. Th e market-related valu- ation recognizes certain investment gains or losses over a ﬁ ve-year period from the year in which they occur. Investment gains or losses for this purpose are the dif- ference 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 deter- mination of annual expense or income. Discount Rates Our discount rate assumptions are determined annually as of the last day of our ﬁ scal year for our deﬁ ned beneﬁ t pension, other postretirement, and postemployment beneﬁ t plan obligations. We also use the same discount rates to determine deﬁ ned ben- eﬁ t pension, other postretirement, and postemployment beneﬁ t plan income and expense for the following ﬁ s- cal year. We work with our actuaries to determine the timing and amount of expected future cash outﬂ ows 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. Th is forward interest rate curve is applied to our expected future cash outﬂ ows to determine our discount rate assumptions. Our weighted-average discount rates were as follows: Weighted-average Discount Rates Deﬁ ned Other Beneﬁ t Postretirement Postemployment Beneﬁ t Pension Plans Plans Beneﬁ t Plans 5.45% 5.35% 4.77% Obligations as of May 29, 2011, and ﬁ scal 2012 expense Obligations as of May 30, 2010, and ﬁ scal 2011 expense Fiscal 2010 expense 5.85% 7.49% 5.80% 7.45% 5.12% 7.06% Lowering the discount rates by 50 basis points would increase our net deﬁ ned beneﬁ t pension, other postre- tirement, and postemployment beneﬁ t plan expense for ﬁ scal 2012 by approximately $36.9 million. All obliga- tion-related experience gains and losses are amortized using a straight-line method over the average remaining 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. Th is infor- mation includes recent plan experience, plan design, overall industry experience and projections, and assump- tions 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 8.5 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. Th e trend rates are applicable for calculations only if the retirees’ beneﬁ ts increase as a result of health care inﬂ ation. Th e ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inﬂ ation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important eﬀ ect on the amounts reported for the other postretirement beneﬁ t plans. 38 General Mills A one percentage point change in the health care cost trend rate would have the following eﬀ ects: In Millions One One Percentage Percentage Point Decrease Point Increase Eﬀ ect on the aggregate of the service and interest cost components in ﬁ scal 2012 $ 6.2 $ (5.4) Eﬀ ect on the other postretirement accumulated beneﬁ t obligation as of May 29, 2011 82.4 (73.6) 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 ﬁ scal 2011, we recorded net deﬁ ned beneﬁ t pension, other postretirement, and postemployment beneﬁ t plan expense of $95 million compared to $11 million of income in ﬁ scal 2010 and $4 million of income in ﬁ scal 2009. As of May 29, 2011, we had cumulative unrecognized actuarial net losses of $1.3 billion on our deﬁ ned beneﬁ t pension plans and $180 million on our postretirement and postemployment ben- eﬁ t plans, mainly as the result of declines in the values of plan assets. Th ese unrecognized actuarial net losses will result in increases in our future pension expense and increases in postretirement expense since they cur- rently exceed the corridors deﬁ ned by GAAP. We use the Retirement Plans (RP) 2000 Mortality Table projected forward to our plans’ measurement dates to calculate the year-end deﬁ ned beneﬁ t pension, other postretirement, and postemployment beneﬁ t obligations and annual expense. Actual future net deﬁ ned beneﬁ t pension, other post- retirement, and postemployment beneﬁ t 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 popula- tions 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. Th e Act codiﬁ es health care reforms with stag- gered eﬀ ective dates from 2010 to 2018 with many pro- visions in the Act requiring the issuance of additional guidance from various government agencies. Estimates of the future impacts of several of the Act’s provisions are incorporated into our postretirement beneﬁ t 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 beneﬁ t liability in ﬁ scal 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 ﬁ nancial impacts to our postretirement beneﬁ t liability and related future expense may occur. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In May 2011, the Financial Accounting Standards Board (FASB) issued new accounting guidance for fair value measurements providing common fair value measure- ment and disclosure requirements. This guidance is eﬀ ective for interim and annual periods beginning aft er December 15, 2011, which for us is the fourth quarter of ﬁ scal 2012. We do not expect this guidance to have a material impact on our results of operations or ﬁ nancial position. In June 2011, the FASB issued new accounting guid- ance for the presentation of other comprehensive income (OCI). Th is guidance requires entities to present net income and OCI in either a single continuous statement or in separate consecutive statements. Th e guidance does not change the components of net income or OCI, when OCI should be reclassiﬁ ed to net income, or the earnings per share calculation. Th e guidance is eﬀ ective for ﬁ scal years beginning aft er December 15, 2011, which for us is the ﬁ rst quarter of ﬁ scal 2013. Th is guidance will not impact our results of operations or ﬁ nancial position. Annual Report 2011 39 CAUTIONARY STATEMENT RELEVANT TO FORWARD- LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Th is report contains or incorporates by reference for- ward-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 state- ments, including statements contained in our ﬁ lings with the SEC and in our reports to stockholders. Th e 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 sub- ject to certain risks and uncertainties that could cause actual results to diﬀ er 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 important factors that could aﬀ ect our ﬁ nancial performance and could cause our actual results in future periods to diﬀ er materially from any current opinions or statements. Our future results could be aﬀ ected by a variety of factors, such as: competitive dynamics in the consumer foods industry and the markets for our products, includ- ing new product introductions, advertising activities, pricing actions, and promotional activities of our com- petitors; economic conditions, including changes in inﬂ a- tion rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of busi- nesses or assets; changes in capital structure; changes in laws and regulations, including labeling and advertising regulations; impairments in the carrying value of good- will, 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 sig- niﬁ cant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; eﬀ ectiveness of advertising, marketing, and promotional 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 signiﬁ cant customers; ﬂ uctuations in the cost and availability of supply chain resources, including raw materials, packaging, and energy; disrup- tions or ineﬃ ciencies 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 informa- tion technology systems; foreign economic conditions, including currency rate ﬂ uctuations; and political unrest in foreign markets and economic uncertainty due to ter- rorism or war. You should also consider the risk factors that we iden- tify in Item 1A of our 2011 Form 10-K, which could also aﬀ ect our future results. We undertake no obligation to publicly revise any forward-looking statements to reﬂ ect events or circum- stances aft er the date of those statements or to reﬂ ect the occurrence of anticipated or unanticipated events. 40 General Mills 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 ﬂ uctuations in our earnings and cash ﬂ ows. In the nor- mal 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. Th e counterpar- ties in these transactions are generally highly rated insti- tutions. We establish credit limits for each counterparty. Our hedging transactions include but are not limited to a variety of derivative ﬁ nancial instruments. foreign currency cash ﬂ ow exposures. We also generally swap our foreign-denominated commercial paper bor- rowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency; the gains or losses on these derivatives oﬀ set 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 sub- sidiaries that are denominated in euros. We previously hedged a portion of these net investments by issu- ing euro-denominated commercial paper and foreign exchange forward contracts. As of May 29, 2011, we had deferred net foreign currency transaction losses of $96 million in AOCI associated with hedging activity. INTEREST RATE RISK COMMODITY PRICE RISK We are exposed to interest rate volatility with regard to future issuances of ﬁ xed-rate debt, and existing and future issuances of ﬂ oating-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 ﬁ nancing costs, and to achieve a desired proportion of ﬁ xed versus ﬂ oating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the diﬀ erence between ﬁ xed-rate and ﬂ oating-rate inter- est amounts based on an agreed upon notional principal amount. As of May 29, 2011, we had interest rate swaps with $1.3 billion of aggregate notional principal amount out- standing, with a net notional amount of $838 million that converts ﬂ oating-rate notes to ﬁ xed rates. FOREIGN EXCHANGE RISK Foreign currency ﬂ uctuations aﬀ ect our net investments in foreign subsidiaries and foreign currency cash ﬂ ows related to foreign-denominated commercial paper, third party purchases, intercompany loans, and product ship- ments. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal expo- sures are to the Australian dollar, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Swiss franc, and Mexican peso. We mainly use foreign currency forward contracts to selectively hedge our Many commodities we use in the production and dis- tribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non-fat dry milk, natural gas, and diesel fuel. Our primary objec- tive when entering into these derivative contracts is to achieve certainty with regard to the future price of com- modities purchased for use in our supply chain. We man- age 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 oﬀ set 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 of May 29, 2011, the net notional value of commod- ity derivatives was $348 million, of which $161 million related to agricultural inputs and $187 million related to energy inputs. Th ese contracts relate to inputs that gen- erally will be utilized within the next 12 months. EQUITY INSTRUMENTS Equity price movements aﬀ ect our compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We occasion- ally use equity swaps to manage this risk, but no swaps were outstanding as of May 29, 2011. Annual Report 2011 41 VALUE AT RISK Th e estimates in the table below are intended to mea- sure 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 conditions. A Monte Carlo value-at-risk (VAR) methodology was used to quantify the market risk for our exposures. Th e models assumed normal market conditions and used a 95 percent conﬁ - dence level. Th e VAR calculation used historical interest rates, for- eign exchange rates, and commodity and equity prices from the past year to estimate the potential volatility and correlation of these rates in the future. Th e market data were drawn from the RiskMetrics™ data set. Th e 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 oﬀ set by an increase or decrease in the fair value of the underlying exposure. Th e positions included in the calculations were: debt; investments; interest rate swaps; foreign exchange forwards; commodity swaps, futures and options; and equity instruments. Th e calcu- lations do not include the underlying foreign exchange and commodities-related positions that are oﬀ set by these market-risk-sensitive instruments. Th e 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 29, 2011, and May 30, 2010, and the average fair value impact during the year ended May 29, 2011. In Millions Fair Value Impact May 29, 2011 Average During Fiscal 2011 May 30, 2010 Interest rate instruments $26.5 $27.1 $27.7 Foreign currency instruments Commodity instruments 8.7 3.9 5.8 4.9 4.3 4.8 42 General Mills Reports of Management and Independent Registered Public Accounting Firm REPORT OF MANAGEMENT RESPONSIBILITIES REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Th e management of General Mills, Inc. is responsible for the fairness and accuracy of the consolidated ﬁ nan- cial statements. Th e statements have been prepared in accordance with accounting principles that are gener- ally accepted in the United States, using management’s best estimates and judgments where appropriate. Th e ﬁ nancial information throughout the Annual Report on Form 10-K is consistent with our consolidated ﬁ nancial statements. Management has established a system of internal con- trols that provides reasonable assurance that assets are adequately safeguarded 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 eﬀ ectiveness 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 ﬁ nancial reporting. Th ese formally stated and regularly communicated policies demand highly ethical conduct from all employees. Th e Audit Committee of the Board of Directors meets regularly with management, internal auditors, and our independent registered public accounting ﬁ rm to review internal control, auditing, and ﬁ nancial reporting mat- ters. The independent registered public accounting ﬁ rm, 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 recommended, and the Board of Directors approved, that the consolidated ﬁ nancial statements be included in the Annual Report. Th e Audit Committee also appointed KPMG LLP to serve as the Company’s independent registered public accounting ﬁ rm for ﬁ scal 2012, subject to ratiﬁ cation by the stockholders at the annual meeting. K. J. Powell Chairman of the Board and Chief Executive Oﬃ cer D. L. Mulligan Executive Vice President and Chief Financial Oﬃ cer July 8, 2011 Th e Board of Directors and Stockholders General Mills, Inc.: We have audited the accompanying consolidated bal- ance sheets of General Mills, Inc. and subsidiaries as of May 29, 2011, and May 30, 2010, and the related con- solidated statements of earnings, total equity and com- prehensive income, and cash ﬂ ows for each of the ﬁ scal years in the three-year period ended May 29, 2011. In connection with our audits of the consolidated ﬁ nancial statements, we have audited the accompanying ﬁ nancial statement schedule. We also have audited General Mills, Inc.’s internal control over ﬁ nancial reporting as of May 29, 2011, 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 management is responsible for these consolidated ﬁ nancial statements and ﬁ nancial statement schedule, for maintaining eﬀ ective internal control over ﬁ nancial reporting, and for its assessment of the eﬀ ectiveness of internal control over ﬁ nancial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated ﬁ nancial state- ments and ﬁ nancial statement schedule and an opinion on the Company’s internal control over ﬁ nancial report- ing based on our audits. We conducted our audits in accordance with the stan- dards of the Public Company Accounting Oversight Board (United States). Th ose standards require that we plan and perform the audits to obtain reasonable assur- ance about whether the ﬁ nancial statements are free of material misstatement and whether eﬀ ective internal control over ﬁ nancial reporting was maintained in all material respects. Our audits of the consolidated ﬁ nancial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁ nancial statements, assessing the accounting principles used and signiﬁ cant estimates made by management, and evalu- ating the overall ﬁ nancial statement presentation. Our audit of internal control over ﬁ nancial reporting included obtaining an understanding of internal control over ﬁ nancial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating eﬀ ectiveness of internal control based on the assessed risk. Our audits also included performing Annual Report 2011 43 such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A company’s internal control over ﬁ nancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external pur- poses in accordance with generally accepted accounting principles. A company’s internal control over ﬁ nancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reason- able detail, accurately and fairly reﬂ ect the transactions and dispositions of the assets of the company; (2) pro- vide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁ nancial state- ments in accordance with generally accepted account- ing principles, and that receipts and expenditures of the company are being made only in accordance with autho- rizations of management and directors of the company; and (3) provide reasonable assurance regarding preven- tion or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material eﬀ ect on the ﬁ nancial statements. Because of its inherent limitations, internal control over ﬁ nancial reporting may not prevent or detect mis- statements. Also, projections of any evaluation of eﬀ ec- tiveness to future periods are subject to the risk that In our opinion, the consolidated ﬁ nancial statements referred to above present fairly, in all material respects, the ﬁ nancial position of General Mills, Inc. and subsidiar- ies as of May 29, 2011, and May 30, 2010, and the results of their operations and their cash ﬂ ows for each of the ﬁ scal years in the three-year period ended May 29, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the accompanying ﬁ nan- cial statement schedule, when considered in relation to the basic consolidated ﬁ nancial statements taken as a whole, presents fairly, in all material respects, the infor- mation set forth therein. Also in our opinion, General Mills, Inc. maintained, in all material respects, eﬀ ective internal control over ﬁ nancial reporting as of May 29, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Minneapolis, Minnesota July 8, 2011 44 General Mills Consolidated Statements of Earnings GENERAL MILLS, INC. AND SUBSIDIARIES In Millions, Except per Share Data Net sales Cost of sales Selling, general, and administrative expenses Divestitures (gain), net Restructuring, impairment, and other exit costs Operating proﬁ t Interest, net Earnings before income taxes and aft er-tax earnings from joint ventures Income taxes Aft er-tax earnings from joint ventures Fiscal Year 2011 2010 2009 $ 14,880.2 $ 14,635.6 $ 14,555.8 8,926.7 3,192.0 (17.4) 4.4 8,835.4 3,162.7 — 31.4 9,380.9 2,893.2 (84.9) 41.6 2,774.5 2,606.1 2,325.0 346.3 2,428.2 721.1 96.4 401.6 382.8 2,204.5 1,942.2 771.2 101.7 720.4 91.9 Net earnings, including earnings attributable to noncontrolling interests 1,803.5 1,535.0 1,313.7 Net earnings attributable to noncontrolling interests Net earnings attributable to General Mills Earnings per share - basic Earnings per share - diluted Dividends per share See accompanying notes to consolidated ﬁ nancial statements. 5.2 $ 1,798.3 4.5 $ 1,530.5 9.3 $ 1,304.4 $ $ $ 2.80 2.70 1.12 $ $ $ 2.32 2.24 0.96 $ $ $ 1.96 1.90 0.86 Annual Report 2011 45 May 29, 2011 May 30, 2010 $ 619.6 $ 673.2 1,162.3 1,609.3 27.3 483.5 3,902.0 3,345.9 6,750.8 3,813.3 862.5 1,041.6 1,344.0 42.7 378.5 3,480.0 3,127.7 6,592.8 3,715.0 763.4 $ 18,674.5 $ 17,678.9 $ 995.1 $ 849.5 1,031.3 311.3 1,321.5 3,659.2 5,542.5 1,127.4 1,733.2 12,062.3 75.5 1,319.8 9,191.3 (3,210.3) (1,010.8) 6,365.5 246.7 6,612.2 107.3 1,050.1 1,762.2 3,769.1 5,268.5 874.6 2,118.7 12,030.9 75.5 1,307.1 8,122.4 (2,615.2) (1,486.9) 5,402.9 245.1 5,648.0 $ 18,674.5 $ 17,678.9 Consolidated Balance Sheets GENERAL MILLS, INC. AND SUBSIDIARIES In Millions, Except Par Value ASSETS Current assets: Cash and cash equivalents Receivables Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Land, buildings, and equipment Goodwill Other intangible assets Other assets Total assets LIABILITIES AND EQUITY Current liabilities: Accounts payable Current portion of long-term debt Notes payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes Other liabilities Total liabilities Stockholders’ equity: Common stock, 754.6 shares issued, $0.10 par value Additional paid-in capital Retained earnings Common stock in treasury, at cost, shares of 109.8 and 98.1 Accumulated other comprehensive loss Total stockholders’ equity Noncontrolling interests Total equity Total liabilities and equity See accompanying notes to consolidated ﬁ nancial statements. 46 General Mills Consolidated Statements of Total Equity and Comprehensive Income GENERAL MILLS, INC. AND SUBSIDIARIES $.10 Par Value Common Stock (One Billion Shares Authorized) Issued Treasury In Millions, Except per Share Data Par Shares Amount Additional Paid-In Capital Shares Amount Accumulated Other Retained Comprehensive Noncontrolling Interests Earnings Income (Loss) Total 754.6 Balance as of May 25, 2008 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests Other comprehensive loss Total comprehensive income Cash dividends declared ($0.86 per share) Stock compensation plans (includes income tax beneﬁ ts of $94.0) Shares purchased Shares issued for acquisition Unearned compensation related to restricted stock unit awards Distributions to noncontrolling interest holders Earned compensation $75.5 $1,111.3 (79.6) $(1,658.4) $6,510.7 $ 173.1 $246.6 $6,458.8 1,304.4 (1,050.9) 9.3 (1.2) (579.5) 23.0 16.4 19.6 (40.4) 1.8 443.1 (1,296.4) 38.6 (56.2) 117.6 (10.5) 1,313.7 (1,052.1) 261.6 (579.5) 466.1 (1,296.4) 55.0 (56.2) (10.5) 117.6 Balance as of May 31, 2009 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests Other comprehensive income (loss) Total comprehensive income Cash dividends declared ($0.96 per share) Stock compensation plans (includes income tax beneﬁ ts of $114.0) Shares purchased Unearned compensation related to restricted stock unit awards Distributions to noncontrolling interest holders Earned compensation Balance as of May 30, 2010 Comprehensive income: Net earnings, including earnings attributable to noncontrolling interests Other comprehensive income Total comprehensive income Cash dividends declared ($1.12 per share) Stock compensation plans (includes income tax beneﬁ ts of $106.2) Shares purchased Unearned compensation related to restricted stock unit awards Distributions to noncontrolling interest holders Earned compensation 754.6 75.5 1,212.1 (98.6) (2,473.1) 7,235.6 (877.8) 244.2 5,416.5 1,530.5 (609.1) 4.5 0.2 1,535.0 (608.9) 926.1 (643.7) 53.3 21.8 (21.3) 549.7 (691.8) (65.6) 107.3 (643.7) 603.0 (691.8) (65.6) (3.8) 107.3 (3.8) 754.6 75.5 1,307.1 (98.1) (2,615.2) 8,122.4 (1,486.9) 245.1 5,648.0 1,798.3 476.1 5.2 0.7 (729.4) (22.2) 20.1 (31.8) 568.4 (1,163.5) (70.4) 105.3 (4.3) 1,803.5 476.8 2,280.3 (729.4) 546.2 (1,163.5) (70.4) (4.3) 105.3 Balance as of May 29, 2011 754.6 $75.5 $1,319.8 (109.8) $(3,210.3) $9,191.3 $(1,010.8) $246.7 $6,612.2 See accompanying notes to consolidated ﬁ nancial statements. Annual Report 2011 47 Consolidated Statements of Cash Flows GENERAL MILLS, INC. AND SUBSIDIARIES In Millions Cash Flows - Operating Activities Net earnings, including earnings attributable to noncontrolling interests Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Aft er-tax earnings from joint ventures Stock-based compensation Deferred income taxes Tax beneﬁ t on exercised options Distributions of earnings from joint ventures Pension and other postretirement beneﬁ t plan contributions Pension and other postretirement beneﬁ t plan expense (income) Divestitures (gain), net Gain on insurance settlement Restructuring, impairment, and other exit costs (income) Changes in current assets and liabilities Other, net Net cash provided by operating activities Cash Flows - Investing Activities Purchases of land, buildings, and equipment Acquisitions Investments in aﬃ liates, net Proceeds from disposal of land, buildings, and equipment Proceeds from divestiture of product lines Proceeds from insurance settlement Other, net Net cash used by investing activities Cash Flows - Financing Activities Change in notes payable Issuance of long-term debt Payment of long-term debt Proceeds from common stock issued on exercised options Tax beneﬁ t on exercised options Purchases of common stock for treasury Dividends paid Other, net Net cash used by ﬁ nancing activities Eﬀ ect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year Cash Flow from Changes in Current Assets and Liabilities: Receivables Inventories Prepaid expenses and other current assets Accounts payable Other current liabilities Changes in current assets and liabilities See accompanying notes to consolidated ﬁ nancial statements. 48 General Mills Fiscal Year 2011 2010 2009 $ 1,803.5 $ 1,535.0 $ 1,313.7 472.6 (96.4) 105.3 205.3 (106.2) 72.7 (220.8) 73.6 (17.4) — (1.3) (720.9) (43.2) 1,526.8 (648.8) (123.3) (1.8) 4.1 34.4 — 20.3 (715.1) (742.6) 1,200.0 (7.4) 410.4 106.2 (1,163.5) (729.4) (10.3) (936.6) 71.3 (53.6) 673.2 $ 619.6 $ (69.8) (240.0) (96.0) 109.0 (424.1) $ (720.9) 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 (649.9) — (130.7) 7.4 — — 52.0 (721.2) 235.8 — (906.9) 388.8 114.0 (691.8) (643.7) — (1,503.8) (32.8) (76.6) 749.8 $ 673.2 $ (121.1) (16.7) 53.5 69.6 158.1 $ 143.4 453.6 (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 (562.6) — 5.9 4.1 244.7 41.3 (22.3) (288.9) (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 $ 81.8 (28.1) 30.2 (116.4) 209.4 $ 176.9 Notes to Consolidated Financial Statements GENERAL MILLS, INC. AND SUBSIDIARIES NOTE 1. BASIS OF PRESENTATION AND RECLASSIFICATIONS Income Statement Classiﬁ cations At the beginning of ﬁ scal 2011, we revised the classiﬁ cation of certain reve- nues and expenses to better align our income statement line items with how we manage our business. We have revised the classiﬁ cation of amounts previously reported in our Consolidated Statements of Earnings to conform to our ﬁ scal 2011 presentation. Th ese revised classiﬁ - cations had no eﬀ ect on previously reported net earn- ings attributable to General Mills or earnings per share. Th ese changes include: • Revising the classiﬁ cation of certain customer logis- tics allowances as a reduction of net sales (previously recorded as cost of sales). Th e impact of this change was a decrease in net sales of $160.9 million in ﬁ scal 2010 and $157.5 million in ﬁ scal 2009 and a corresponding decrease to cost of sales in each of the years. • Revising the classification of certain promotion- related costs, customer allowances, and supply chain costs as cost of sales or selling, general, and administra- tive (SG&A) expenses (previously recorded as a reduction of net sales or SG&A expenses). Th e impact of these changes was an increase to net sales of $22.0 million in ﬁ scal 2009; an increase to cost of sales of $73.4 mil- lion in ﬁ scal 2010 and $80.6 million in ﬁ scal 2009; and a decrease to SG&A expenses of $73.4 million in ﬁ scal 2010 and $58.6 million in ﬁ scal 2009. • Shift ing allocation of certain SG&A expenses, primar- ily stock-based compensation, between segment operat- ing proﬁ t and unallocated corporate items. Th e impact of this change was a decrease to segment operating proﬁ t of $20.8 million in ﬁ scal 2010 and $18.9 million in ﬁ scal 2009 and a corresponding decrease in unallocated corporate items. • Shift ing sales responsibility for a customer from our Bakeries and Foodservice segment to our U.S. Retail seg- ment. Net sales of $9.8 million in ﬁ scal 2010 and $15.0 million in ﬁ scal 2009 and segment operating proﬁ t of $4.1 million in ﬁ scal 2010 and $6.4 million in ﬁ scal 2009 previously recorded in our Bakeries and Foodservice seg- ment have now been reported in the U.S. Retail segment. In addition, certain other reclassiﬁ cations to our previ- ously reported ﬁ nancial information have been made to conform to the current period presentation. Basis of Presentation Our Consolidated Financial Statements include the accounts of General Mills, Inc. and all subsidiaries in which we have a controlling ﬁ nan- cial interest. Intercompany transactions and accounts are eliminated in consolidation. Our ﬁ scal year ends on the last Sunday in May, except for our operations in Europe and China, which have an April year-end. Fiscal 2011 and 2010 each consisted of 52 weeks, and ﬁ scal 2009 consisted of 53 weeks. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents We consider all investments purchased with an original maturity of three months or less to be cash equivalents. Inventories All inventories in the United States other than grain are valued at the lower of cost, using the last- in, ﬁ rst-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 earn- ings currently. Inventories outside of the United States are valued at the lower of cost, using the ﬁ rst-in, ﬁ rst-out (FIFO) method, or market. Shipping costs associated with the distribution of ﬁ n- ished product to our customers are recorded as cost of sales, and are recognized when the related ﬁ nished prod- uct is shipped to and accepted by the customer. Land, Buildings, Equipment, and Depreciation Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineer- ing 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 soft ware are usually depreciated over 3 to 10 years. Fully depreciated assets are retained in buildings and equipment until dis- posal. When an item is sold or retired, the accounts are relieved of its cost and related accumulated depreciation and the resulting gains and losses, if any, are recognized in earnings. As of May 29, 2011, assets held for sale were insigniﬁ cant. Long-lived assets are reviewed for impairment when- ever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may Annual Report 2011 49 not be recoverable. An impairment loss would be recog- nized when estimated undiscounted future cash ﬂ ows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identiﬁ able cash ﬂ ows and are largely 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 measured using a discounted cash ﬂ ow 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 circum- stances indicate that impairment may have occurred. Impairment testing is performed for each of our report- ing 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 asso- ciated with the operations of that reporting unit, which oft en 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 carrying amount of net assets including goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash ﬂ ow model. Growth rates for sales and proﬁ ts 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 performed our ﬁ scal 2011 assessment as of November 29, 2010, and deter- mined there was no impairment of goodwill for any of our reporting units as their related fair values were sub- stantially in excess of their carrying values. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are ﬁ nite or indeﬁ nite-lived. Reaching a determination on useful life requires signiﬁ cant judgments and assumptions regard- ing the future eﬀ ects of obsolescence, demand, com- petition, other economic factors (such as the stability of the industry, known technological advances, legis- lative action that results in an uncertain or changing regulatory environment, and expected changes in dis- tribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Our indeﬁ nite-lived intangible assets, mainly intangible assets primarily associated with the Pillsbury, Totino’s, Progresso, Green Giant, Old El Paso, and Häagen- Dazs brands, are also tested for impairment annually and whenever events or changes in circumstances indi- cate that their carrying value may not be recoverable. We performed our ﬁ scal 2011 assessment of our brand intangibles as of November 29, 2010. Our estimate of the fair value of the brands was based on a discounted cash ﬂ ow model using inputs which included: projected revenues from our annual long-range plan; assumed roy- alty 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 indeﬁ nite-lived intangible assets as their related fair values were sub- stantially in excess of the carrying values. Investments in Joint Ventures Our investments in companies over which we have the ability to exercise signiﬁ cant inﬂ uence are stated at cost plus our share of undistributed earnings or losses. We receive roy- alty income from certain joint ventures, incur various expenses (primarily research and development), and record the tax impact of certain joint venture opera- tions 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 materi- als, semi-ﬁ nished goods, and ﬁ nished goods to the joint ventures, generally at market prices. In addition, we assess our investments in our joint ventures if we have reason to believe an impairment may have occurred including, but not limited to, ongo- ing operating losses, projected decreases in earnings, increases in the weighted average cost of capital or sig- niﬁ cant business disruptions. Th e signiﬁ cant assump- tions used to estimate fair value include revenue growth and proﬁ tability, royalty rates, capital spending, depre- ciation and taxes, foreign currency exchange rates and a discount rate. By their nature, these projections and assumptions are uncertain. If we were to determine the current fair value of our investment was less than the carrying value of the investment, then we would assess if the shortfall was of a temporary or permanent nature and write down the investment to its fair value if we concluded the impairment is other than temporary. Aft er the earthquakes and tsunami in Japan in March 2011, we assessed the fair value of our investment in 50 General Mills Häagen-Dazs Japan and determined that it exceeded the carrying value by approximately 5 percent. are written oﬀ against the allowance when we deem the amount is uncollectible. Variable Interest Entities As of May 29, 2011, we had invested in six variable interest entities (VIEs). We deter- mined whether or not we were the primary beneﬁ ciary (PB) of each VIE using a qualitative assessment that con- sidered the VIE’s purpose and design, the involvement of each of the interest holders, and the risks and beneﬁ ts of the VIE. We have an interest in a contract manufac- turer at our former facility in Geneva, Illinois. We are the PB and have consolidated this entity. Th is entity had property and equipment with a carrying value of $13.6 million and long-term debt of $15.0 million as of May 29, 2011. Th e liabilities recognized as a result of con- solidating this entity do not represent additional claims on our general assets. Th e remaining ﬁ ve VIEs, two of which we are not the PB, are not material to our results of operations, ﬁ nancial condition, or liquidity as of and for the year ended May 29, 2011. We provided minimal ﬁ nancial or other support to VIEs during ﬁ scal 2011 and there are no arrangements related to VIEs that would require us to provide signiﬁ cant ﬁ nancial support in the future. Revenue Recognition We recognize sales revenue when the shipment is accepted by our customer. Sales include shipping and handling charges billed to the customer and are reported net of consumer coupon redemp- tion, trade promotion and other costs, including esti- mated 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 redemp- tion rates. Trade promotions are recorded based on esti- mated participation and performance levels for oﬀ ered 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 custom- ers to return product. In limited circumstances, product returned in saleable condition is resold to other custom- ers or outlets. Receivables from customers generally do not bear interest. Terms and collection patterns vary around the world and by channel. Th e allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our existing receiv- ables, as determined based on a review of past due bal- ances and other speciﬁ c account data. Account balances Environmental Environmental costs relating to exist- ing conditions caused by past operations that do not contribute to current or future revenues are expensed. Liabilities for anticipated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the comple- tion of feasibility studies or our commitment to a plan of action. Advertising Production Costs We expense the produc- tion costs of advertising the ﬁ rst time that the advertis- ing 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 manufacturing 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 facili- ties, including assets at facilities that are engaged in pilot plant activities. Foreign Currency Translation For all signiﬁ cant 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 average exchange rates prevailing during the year. Translation adjustments are reﬂ ected within accumulated other comprehensive loss (AOCI) in stockholders’ equity. Gains and losses from for- eign currency 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. Th ese gains and losses are recorded in AOCI. Derivative Instruments All derivatives are recognized on the Consolidated 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 Annual Report 2011 51 instrument is designated and eﬀ ective as a hedge trans- action and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in AOCI are reclassiﬁ ed to earnings in the period the hedged item aﬀ ects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI are reclassiﬁ ed to earnings at that time. Any ineﬀ ective- ness is recognized in earnings in the current period. Stock-based Compensation We generally measure com- pensation 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 com- pensation is recognized straight line over the vesting period. Our stock compensation expense is recorded in SG&A and cost of sales in the Consolidated Statements of Earnings and allocated to each reportable segment in our segment results. Certain equity-based compensation plans contain pro- visions that accelerate vesting of awards upon retire- ment, 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 immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retire- ment eligibility is achieved, if less than the stated vest- ing period. We report the beneﬁ ts of tax deductions in excess of recognized compensation cost as a ﬁ nancing cash ﬂ ow, thereby reducing net operating cash ﬂ ows and increas- ing net ﬁ nancing cash ﬂ ows. Deﬁ ned Beneﬁ t Pension, Other Postretirement, and Postemployment Benefit Plans We sponsor several domestic and foreign deﬁ ned beneﬁ t plans to provide pension, health care, and other welfare beneﬁ ts to retired employees. Under certain circumstances, we also provide accruable beneﬁ ts to former or inactive employees in the United States and Canada and members of our Board of Directors, including severance and certain other beneﬁ ts payable upon death. We recognize an obligation for any of these beneﬁ ts that vest or accumulate with service. Postemployment beneﬁ ts 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 beneﬁ t plans are unfunded. We recognize the underfunded or overfunded status of a deﬁ ned beneﬁ t postretirement plan as an asset or liability and recognize changes in the funded status in the year in which the changes occur through AOCI. Use of Estimates Preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that aﬀ ect reported amounts of assets and liabilities, disclosures of contin- gent assets and liabilities at the date of the ﬁ nancial statements, and the reported amounts of revenues and expenses during the reporting period. Th ese estimates include our accounting for promotional expenditures, valuation of long-lived assets, intangible assets, stock- based compensation, income taxes, and deﬁ ned beneﬁ t pension, post-retirement and post-employment beneﬁ ts. Actual results could diﬀ er from our estimates. Other New Accounting Standards In ﬁ scal 2011, we adopted new accounting guidance on the consolida- tion model for VIE’s. Th e guidance requires companies to qualitatively assess the determination of the primary beneﬁ ciary of a VIE based on whether the company (1) has the power to direct matters that most signiﬁ cantly impact the VIE’s economic performance, and (2) has the obligation to absorb losses or the right to receive beneﬁ ts of the VIE that could potentially be signiﬁ - cant to the VIE. Th e adoption of the guidance did not have an impact on our results of operations or ﬁ nancial condition. In ﬁ scal 2010, we adopted new accounting guidance on employer’s disclosures for post-retirement beneﬁ t plan assets. Th e guidance requires an employer to dis- close information on the investment policies and strate- gies and the signiﬁ cant 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. Th e adoption of the guidance did not have an impact on our results of operations or ﬁ nancial condition. See Note 13. In ﬁ scal 2010, we adopted new accounting guidance on accounting for equity method investments. Th e guid- ance addresses the impact of the issuance of the non- controlling interests and business combination guidance 52 General Mills on accounting for equity method investments. Th e adop- tion of the guidance did not have a material impact on our results of operations or ﬁ nancial condition. In ﬁ scal 2010, we adopted new accounting guidance issued to assist in determining whether instruments granted in share-based payment transactions are partic- ipating securities. Th e guidance provides that unvested share-based payment awards that contain non-forfeit- able rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. Th e adoption of the guidance did not have a material impact on our basic or diluted EPS. In ﬁ scal 2010, we adopted new accounting guidance on convertible debt instruments. Th e 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. Th e adoption of the guidance did not have a material impact on our results of operations or ﬁ nancial condition. NOTE 3. ACQUISITIONS AND DIVESTITURES During the third quarter of ﬁ scal 2011, we acquired the Mountain High yoghurt business for $84.8 million. We recorded the purchase price less the fair value of tan- gible and intangible net assets acquired as goodwill of $44.6 million. During the fourth quarter of ﬁ scal 2011, we acquired the Pasta Master meals business in Australia for $38.5 million. We recorded the purchase price less the fair value of tangible and intangible net assets acquired as goodwill of $26.9 million. Th e pro forma eﬀ ects of these acquisitions were not material. During the third quarter of ﬁ scal 2011, we sold a foodservice frozen baked goods product line in our International segment for $24.9 million in cash and recorded a pre-tax gain of $14.3 million. In addition, dur- ing the fourth quarter of ﬁ scal 2011, we sold a pie shell product line in our Bakeries and Foodservice segment for cash proceeds of $9.5 million and recorded a pre-tax gain of $3.1 million. During the fourth quarter of ﬁ scal 2011, we entered into deﬁ nitive agreements with PAI Partners and Sodiaal International to purchase a 51 percent controlling interest in Yoplait S.A.S. and a 50 percent interest in Yoplait Marques S.A.S. for an aggregate purchase price of $1.2 billion. Yoplait S.A.S. operates yogurt businesses in several countries, including France and the United Kingdom, and oversees franchise relationships around the world. Yoplait Marques S.A.S. holds the worldwide rights to Yoplait and related trademarks. We ﬁ nalized this transaction on July 1, 2011. Th e pro forma eﬀ ects of this acquisition were not material. Th ere were no acquisitions or divestitures in ﬁ scal 2010. In ﬁ scal 2009, we sold our bread concentrates prod- uct 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 Bakersﬁ eld, 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 fro- zen dinner roll product line within our U.S. Retail seg- ment, and we exited this product line as a result of the asset sale. We recorded a pre-tax loss of $38.3 million. In ﬁ scal 2010, we recorded cash proceeds of $3.2 mil- lion related to the repayment of the note. In ﬁ scal 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 aft er repayment of a lease obligation and transaction costs. In ﬁ scal 2009, we also acquired Humm Foods, Inc. (Humm Foods), the maker of Lärabar 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 con- sideration for the acquisition. We recorded the purchase price less tangible and intangible net assets acquired as goodwill of $41.6 million. Th e pro forma eﬀ ect of this acquisition was not material. 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 completion (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. Th ese activities result in various restruc- turing costs, including asset write-offs, exit charges Annual Report 2011 53 In ﬁ scal 2010, we decided to exit our kids’ refriger- ated yogurt beverage product line at our Murfreesboro, Tennessee plant and our microwave soup product line at our Vineland, New Jersey plant to rationalize capac- ity for more profitable items. Our decisions to exit these U.S. Retail segment products resulted in a $24.1 million non-cash charge against the related long-lived assets. No employees were aﬀ ected by these actions. We also decided to exit our breadcrumbs product line at our Federalsburg, Maryland facility in our Bakeries and Foodservice segment. As a result of this decision, we concluded that the future cash ﬂ ows generated by these products were insuﬃ cient to recover the net book value of the associated long-lived assets. Accordingly, we recorded a non-cash charge of $6.2 million primarily related to the impairment of these long-lived assets and in the fourth quarter of ﬁ scal 2010, we sold our bread- crumbs manufacturing facility in Federalsburg for $2.9 million. In ﬁ scal 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 pre- viously announced restructuring actions. In ﬁ scal 2010, we paid $8.0 million in cash related to restructuring actions taken in ﬁ scal 2010 and previous years. In fiscal 2009, we recorded restructuring, impair- ment, and other exit costs pursuant to approved plans as follows: Expense, in Millions Closure of Contagem, Brazil bread and pasta plant $16.8 Discontinuation of product line at Murfreesboro, Tennessee plant Charges associated with restructuring actions previously announced Total 8.3 16.5 $41.6 including severance, contract termination fees, and decommissioning and other costs. Depreciation associ- ated with restructured assets, as used in the context of our disclosures regarding restructuring activity, refers to the increase in depreciation expense caused by shorten- ing the useful life or updating the salvage value of depre- ciable ﬁ xed 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 ﬁ scal 2011, we recorded restructuring, impairment, and other exit costs pursuant to approved plans as follows: Expense, in Millions Discontinuation of underperforming product line in our U.S. Retail segment Charges associated with restructuring actions previously announced Total $1.7 2.7 $4.4 In ﬁ scal 2011, we decided to exit an underperform- ing product line in our U.S. Retail segment. As a result of this decision, we concluded that the future cash ﬂ ows generated by this product line were insuﬃ cient to recover the net book value of the associated long- lived assets. Accordingly, we recorded a non-cash charge of $1.7 million related to the impairment of the associ- ated long-lived assets. No employees were aﬀ ected by these actions. In addition, we recorded $2.7 million of charges associated with restructuring actions previously announced. In ﬁ scal 2011, we paid $5.9 million in cash related to restructuring actions taken in ﬁ scal 2011 and previous years. In ﬁ scal 2010, we recorded restructuring, impairment, and other exit costs pursuant to approved plans as follows: Expense (Income), in Millions Discontinuation of kids’ refrigerated yogurt beverage and microwave soup product lines $24.1 Discontinuation of the breadcrumbs product line at Federalsburg, Maryland plant Sale of Contagem, Brazil bread and pasta plant Charges associated with restructuring actions previously announced Total 6.2 (0.6) 1.7 $31.4 54 General Mills Th e roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows: Results from our CPW and HDJ joint ventures are reported for the 12 months ended March 31. Joint venture balance sheet activity follows: Contract Severance Termination Other Exit Costs Total In Millions In Millions Reserve balance as of May 25, 2008 $ 7.6 $ — $ 0.3 $ 7.9 2009 charges, including foreign currency translation 5.5 10.3 — 15.8 Cumulative investments Goodwill and other intangibles Aggregate advances May 29, 2011 May 30, 2010 $519.1 $398.1 597.1 293.3 512.6 238.2 Utilized in 2009 Reserve balance as of May 31, 2009 (4.7) — (0.2) (4.9) Joint venture earnings and cash ﬂ ow activity follows: 8.4 10.3 0.1 18.8 Fiscal Year In Millions 2011 2010 2009 Sales to joint ventures $10.2 $ 10.7 $14.2 Net advances (repayments) Dividends received 1.8 72.7 128.1 88.0 (8.2) 68.5 Summary combined ﬁ nancial information for the joint ventures on a 100 percent basis follows: In Millions Net sales Gross margin Fiscal Year 2011 2010 2009 $2,444.9 $2,360.0 $2,280.0 1,066.3 1,053.2 873.5 Earnings before income taxes Earnings aft er income taxes 233.4 164.2 251.2 234.7 202.3 175.3 In Millions Current assets Noncurrent assets Current liabilities Noncurrent liabilities May 29, 2011 May 30, 2010 $ 904.7 $ 731.7 1,138.0 907.3 1,690.1 1,322.0 103.3 112.1 2010 charges, including foreign currency translation 0.2 0.8 — 1.0 Utilized in 2010 (6.0) (3.0) — (9.0) Reserve balance as of May 30, 2010 2011 charges, including 2.6 8.1 0.1 10.8 foreign currency translation — — — — Utilized in 2011 (0.9) (2.6) (0.1) (3.6) Reserve balance as of May 29, 2011 $ 1.7 $ 5.5 $ — $ 7.2 Th e 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 reﬂ ected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets. NOTE 5. INVESTMENTS IN JOINT VENTURES We have a 50 percent equity interest in Cereal Partners Worldwide (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 coun- tries and manufactures private label cereals for cus- tomers 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 Häagen- Dazs Japan, Inc. (HDJ). Th is joint venture manufactures, distributes, and markets Häagen-Dazs ice cream prod- ucts and frozen novelties. Annual Report 2011 55 NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS Th e changes in the carrying amount of goodwill for ﬁ scal 2009, 2010, and 2011 are as follows: Bakeries Th e components of goodwill and other intangible assets are as follows: May 29, 2011 May 30, 2010 $6,750.8 $6,592.8 In Millions Balance as of U.S. Joint Retail International Foodservice Ventures and Total May 25, 2008 $5,107.0 $146.4 $955.7 $577.0 $6,786.1 Acquisition Divestitures Deferred tax adjustment related 41.6 (17.8) — — — 41.6 (0.1) (23.7) — (41.6) In Millions Goodwill Other intangible assets: Intangible assets not subject to amortization: Brands 3,771.7 3,679.6 to divestitures (46.5) (4.5) (12.8) — (63.8) Intangible assets subject to amortization: Patents, trademarks, and other ﬁ nite-lived intangibles Less accumulated amortization 69.2 (27.6) Intangible assets subject to amortization 41.6 54.4 (19.0) 35.4 Deferred tax adjustment resulting from change in acquisition-related income tax liabilities 14.0 1.3 3.8 — 19.1 Other intangible assets Total 3,813.3 3,715.0 $10,564.1 $10,307.8 Other activity, primarily foreign currency translation — (19.8) — (58.6) (78.4) Balance as of May 31, 2009 5,098.3 123.3 923.0 518.4 6,663.0 Other activity, primarily foreign currency translation — (1.3) — (68.9) (70.2) Balance as of May 30, 2010 5,098.3 122.0 923.0 449.5 6,592.8 Acquisitions Divestitures Other activity, primarily foreign 44.6 — 26.9 (0.5) — (1.9) — — 71.5 (2.4) currency translation — 14.2 — 74.7 88.9 Balance as of May 29, 2011 $5,142.9 $162.6 $921.1 $524.2 $6,750.8 56 General Mills Th e changes in the carrying amount of other intan- gible assets for ﬁ scal 2009, 2010, and 2011 are as follows: NOTE 7. FINANCIAL INSTRUMENTS, RISK MANAGEMENT ACTIVITIES, AND FAIR VALUES In Millions Balance as of U.S. Retail International Joint Ventures Total May 25, 2008 $3,175.2 $518.8 $83.2 $3,777.2 Acquisition Other activity, primarily foreign 19.4 — — 19.4 currency translation 14.3 (56.2) (7.7) (49.6) Balance as of May 31, 2009 3,208.9 462.6 75.5 3,747.0 Other activity, primarily foreign Financial Instruments Th e carrying values of cash and cash equivalents, receiv- ables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable secu- rities are carried at fair value. As of May 29, 2011, and May 30, 2010, a comparison of cost and market values of our marketable debt and equity securities is as follows: Cost Market Value Gross Gains Gross Losses Fiscal Year Fiscal Year Fiscal Year Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 2011 2010 currency translation (2.3) (17.3) (12.4) (32.0) Available for sale: Balance as of May 30, 2010 3,206.6 445.3 63.1 3,715.0 Acquisitions Other activity, primarily foreign 39.3 6.0 — 45.3 currency translation (3.4) 46.6 9.8 53.0 Balance as of May 29, 2011 $ 3,242.5 $497.9 $72.9 $3,813.3 Debt securities $ 8.9 $11.8 $ 9.0 $11.9 $0.1 $0.1 $— $— Equity securities 2.0 6.1 6.0 15.5 4.0 9.4 — — Total $10.9 $17.9 $15.0 $27.4 $4.1 $9.5 $— $— Earnings include $10.5 million of realized gains from sales of available-for-sale marketable securities. Gains and losses are determined by specific identification. Classiﬁ cation of marketable securities as current or non- current is dependent upon our intended holding period, the security’s maturity date, or both. Th e aggregate unre- alized gains and losses on available-for-sale securities, net of tax eﬀ ects, are classiﬁ ed in AOCI within stockholders’ equity. Scheduled maturities of our marketable securities are as follows: In Millions Available for Sale Cost Market Value Under 1 year (current) $ 2.7 $ 2.7 From 1 to 3 years From 4 to 7 years Over 7 years Equity securities Total 0.7 5.2 0.3 2.0 $10.9 0.7 5.3 0.3 6.0 $15.0 Marketable securities with a market value of $2.3 mil- lion as of May 29, 2011, were pledged as collateral for certain derivative contracts. Th e fair value and carrying amount of long-term debt, including the current portion, were $7,164.5 million and $6,573.8 million as of May 29, 2011. Th e fair value of long-term debt was estimated using market quotations and discounted cash ﬂ ows based on our current incre- mental borrowing rates for similar types of instruments. Annual Report 2011 57 Risk Management Activities As a part of our ongoing operations, we are exposed to market risks such as changes in interest rates, for- eign currency exchange rates, and commodity prices. To manage these risks, we may enter into various deriva- tive transactions (e.g., futures, options, and swaps) pur- suant to our established policies. Commodity Price Risk Many commodities we use in the production and dis- tribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), non- fat dry milk, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, and over-the- counter options and swaps. We oﬀ set our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close to our planned cost as possible. We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assess- ments required to achieve hedge accounting for com- modity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings. Although we do not meet the criteria for cash ﬂ ow hedge accounting, we nonetheless believe that these instruments are eﬀ ective 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 cor- porate items outside of segment operating results until such time that the exposure we are managing aﬀ ects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating proﬁ t, allowing our operating segments to realize the economic eﬀ ects of the derivative without experiencing any resulting mark-to-market volatility, which remains in unallocated corporate items. Unallocated corporate items for ﬁ scal 2011 and ﬁ scal 2010 included: In Millions 2011 2010 2009 Net gain (loss) on mark-to-market valuation of commodity positions $160.3 $(54.7) $(249.6) Fiscal Year Net loss (gain) on commodity positions reclassiﬁ ed from unallocated corporate items to segment operating proﬁ t (93.6) 55.7 134.8 Net mark-to-market revaluation of certain grain inventories 28.5 (8.1) (4.1) Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items $ 95.2 $ (7.1) $(118.9) As of May 29, 2011, the net notional value of com- modity derivatives was $347.5 million, of which $160.7 million related to agricultural inputs and $186.8 million related to energy inputs. Th ese 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 ﬁ xed-rate debt, and existing and future issuances of ﬂ oating-rate debt. Primary expo- sures include U.S. Treasury rates, LIBOR, and commer- cial 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 ﬁ nancing costs, and to achieve a desired proportion of ﬁ xed versus ﬂ oating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counter- party to exchange the diﬀ erence between ﬁ xed-rate and ﬂ oating-rate interest amounts based on an agreed upon notional principal amount. Floating Interest Rate Exposures —Floating-to-ﬁ xed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Eﬀ ectiveness is assessed based on either the perfectly eﬀ ective hypothetical derivative method or changes in the present value of interest payments on the underly- ing debt. Eﬀ ective gains and losses deferred to AOCI are reclassiﬁ ed into earnings over the life of the associated debt. Ineﬀ ective gains and losses are recorded as net interest. Th e amount of hedge ineﬀ ectiveness was less than $1 million in each of ﬁ scal 2011, 2010 and 2009. 58 General Mills Fixed Interest Rate Exposures — Fixed-to-ﬂ oating interest rate swaps are accounted for as fair value hedges with eﬀ ectiveness 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. Ineﬀ ective gains and losses on these derivatives and the underlying hedged items are recorded as net interest. Th e amount of hedge ineﬀ ectiveness was less than $1 million in each of ﬁ scal 2011, 2010 and 2009. During the fourth quarter of ﬁ scal 2011, we entered into swaps to convert $300.0 million of 1.55 percent ﬁ xed-rate notes due May 16, 2014, to ﬂ oating rates. We also entered into $500.0 million of forward start- ing swaps with an average ﬁ xed rate of 3.9 percent in advance of a planned debt ﬁ nancing. During the fourth quarter of ﬁ scal 2010, in advance of a planned debt ﬁ nancing, we entered into $500.0 mil- lion of treasury lock derivatives with an average ﬁ xed rate of 4.3 percent. All of these treasury locks were cash settled for $17.1 million during the ﬁ rst quarter of ﬁ scal 2011, coincident with the issuance of our $500.0 million 30-year ﬁ xed-rate notes. As of May 29, 2011, a $16.2 mil- lion pre-tax loss remained in AOCI, which will be reclas- siﬁ ed to earnings over the term of the underlying debt. During the second quarter of ﬁ scal 2010 we entered into $700.0 million of interest rate swaps to convert $700.0 million of 5.65 percent ﬁ xed-rate notes to ﬂ oat- ing 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 Th e Pillsbury Company (Pillsbury) and other financing needs, we entered into pay-ﬁ xed interest rate swap contracts dur- ing ﬁ scal 2001 and 2002 totaling $7.1 billion to lock in our interest payments on the associated debt. Th e remaining $1.6 billion of these pay-ﬁ xed swap contracts along with $1.6 billion of oﬀ setting pay-ﬂ oating swaps were cash settled for $22.3 million during the third quarter of ﬁ scal 2011. As of May 29, 2011, a $0.5 million pre-tax loss remained in AOCI, which will be reclassiﬁ ed to earnings over the remaining term of the underlying debt. As of May 29, 2011, a $12.7 million pre-tax loss on cash settled interest rate swaps for our $1.0 billion 10-year note issued January 24, 2007, remained in AOCI, which will be reclassiﬁ ed to earnings over the term of the underlying debt. Th e following table summarizes the notional amounts and weighted-average interest rates of our interest rate swaps. Average ﬂ oating rates are based on rates as of the end of the reporting period. In Millions May 29, 2011 May 30, 2010 Pay-ﬂ oating swaps - notional amount $ 838.0 $ 2,155.6 Average receive rate Average pay rate Pay-ﬁ xed swaps - notional amount Average receive rate Average pay rate Pay-ﬁ xed forward starting swaps - 1.8% 0.2% — — — 4.8% 0.3% $ 1,600.0 0.3% 7.3% notional amount $ 500.0 $ — Th e swap contracts mature at various dates from ﬁ s- cal 2012 to 2014 as follows: In Millions Pay Floating Pay Fixed Fiscal Year Maturity Date 2012 2013 2014 Total $ 3.4 $500.0 534.6 300.0 — — $838.0 $500.0 Foreign Exchange Risk Foreign currency ﬂ uctuations aﬀ ect our net investments in foreign subsidiaries and foreign currency cash ﬂ ows related to foreign-denominated commercial paper, third party purchases, intercompany loans, and product ship- ments. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal expo- sures are to the Australian dollar, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Swiss franc, and Mexican peso. We mainly use foreign currency forward contracts to selectively hedge our for- eign currency cash ﬂ ow exposures. We also generally swap our foreign-denominated commercial paper bor- rowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency; the gains or losses on these derivatives oﬀ set the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months forward. As of May 29, 2011, the notional value of foreign exchange derivatives was $2,436.5 million. Th e amount of hedge ineﬀ ectiveness was less than $1 million in each of ﬁ scal 2011, 2010 and 2009. Annual Report 2011 59 As discussed in Note 3, during the fourth quarter of ﬁ scal 2011 we entered into deﬁ nitive agreements with PAI Partners and Sodiaal International to purchase inter- ests in Yoplait entities for $1.2 billion. To reduce the risk of the U.S. dollar cost of the euro-denominated acquisi- tion, we purchased call options covering €637 million at a cost of $12.7 million. As of May 29, 2011, we recorded a $2.2 million unrealized gain on these derivatives. We also have many net investments in foreign sub- sidiaries that are denominated in euros. We hedged a portion of these net investments by issuing euro-denom- inated commercial paper and foreign exchange forward contracts. As of May 29, 2011, we had deferred net for- eign currency transaction losses of $95.7 million in AOCI associated with hedging activity. Fair Value Measurements And Financial Statement Presentation We categorize assets and liabilities into one of three lev- els 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 signiﬁ cant management judgment. Th e three levels are deﬁ ned as follows: Level 1: Level 2: Level 3: Unadjusted quoted prices in active mar- kets 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 reﬂ ecting manage- ment’s assumptions about the inputs used in pricing the asset or liability. Th e fair values of our assets, liabilities, and derivative positions recorded at fair value as of May 29, 2011, and May 30, 2010, were as follows: In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total May, 29, 2011 May 29, 2011 Fair Values of Assets Fair Values of Liabilities Derivatives designated as hedging instruments: Interest rate contracts (a) (b) Foreign exchange contracts (c) (d) Total Derivatives not designated as hedging instruments: Interest rate contracts (a) (b) Foreign exchange contracts (c) (d) Commodity contracts (c) (e) Grain contracts (c) (e) Total Other assets and liabilities reported at fair value: Marketable investments (a) (f) Total $ — $ 11.2 $ — $ 11.2 $ — $(21.3) $ — $(21.3) — 10.1 — 10.1 — (14.9) — (14.9) — 21.3 — 21.3 — (36.2) — (36.2) — 2.2 — 2.2 — (0.9) — (0.9) — 57.1 — 57.1 — (19.9) — (19.9) 14.6 16.3 — 30.9 — — — — — 61.1 14.6 136.7 — 61.1 — 151.3 (29.0) — — (49.8) — (29.0) — (49.8) 5.9 9.1 — 15.0 — — 5.9 9.1 — 15.0 — — — — — — Total assets, liabilities, and derivative positions recorded at fair value $20.5 $167.1 $ — $187.6 $ — $(86.0) $ — $(86.0) 60 General Mills In Millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total May, 30, 2011 May 30, 2011 Fair Values of Assets Fair Values of Liabilities Derivatives designated as hedging instruments: Interest rate contracts (a) (b) Foreign exchange contracts (c) (d) Total Derivatives not designated as hedging instruments: Interest rate contracts (a) (b) Foreign exchange contracts (c) (d) Commodity contracts (c) (e) Grain contracts (c) (e) Total Other assets and liabilities reported at fair value: Marketable investments (a) (f) Long-lived assets (g) Total $ — $ 5.8 $ — $ 5.8 $ — $ (17.1) $ — $ (17.1) — 8.6 — 8.6 — (12.5) — (12.5) — 14.4 — 14.4 — (29.6) — (29.6) — 124.3 — 124.3 — (163.1) — (163.1) — — 9.5 7.4 — 9.5 — (1.0) — (1.0) — 7.4 (5.6) — — (5.6) — 11.9 — 11.9 — (13.0) — (13.0) — 153.1 — 153.1 (5.6) (177.1) — (182.7) 15.5 11.9 — 27.4 — — — 0.4 — 0.4 15.5 12.3 — 27.8 — — — — — — — — — — Total assets, liabilities, and derivative positions recorded at fair value $15.5 $179.8 $ — $195.3 $(5.6) $(206.7) $ — $(212.3) (a) Th ese 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) Based on LIBOR and swap rates. (c) Th ese contracts are recorded as prepaid expenses and other current assets or as other current liabilities, as appropriate, based on whether in a gain or loss position. (d) Based on observable market transactions of spot currency rates and forward currency prices. (e) Based on prices of futures exchanges and recently reported transactions in the marketplace. (f) Based on prices of common stock and bond matrix pricing. (g) We recorded a $6.6 million non-cash impairment charge in ﬁ scal 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. Th ese assets had a book value of $7.0 million and were associated with the exit activities described in Note 4. We did not signiﬁ cantly change our valuation techniques from prior periods. Annual Report 2011 61 Information related to our cash ﬂ ow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the ﬁ scal years ended May 29, 2011, and May 30, 2010, follows: In Millions Derivatives in Cash Flow Hedging Relationships: Amount of loss recognized in other comprehensive income (OCI) (a) Amount of loss reclassiﬁ ed from AOCI into earnings (a) (b) Amount of gain (loss) recognized in earnings (c) (d) Derivatives in Fair Value Hedging Relationships: Amount of net gain recognized in earnings (e) Derivatives Not Designated as Hedging Instruments: Interest Rate Foreign Exchange Contracts Contracts Equity Contracts Commodity Contracts Total Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 $(20.9) $(11.7) $(18.9) $(13.3) $ — $ — $ — $ — $(39.8) $(25.0) (13.1) (18.0) (16.7) (26.4) — — — — (29.8) (44.4) (0.4) (0.3) 0.3 (0.5) — — — — (0.1) (0.8) 0.3 0.2 — — — — — — 0.3 0.2 Amount of gain (loss) recognized in earnings (e) 1.0 0.2 23.7 13.3 — 0.2 160.3 (54.7) 185.0 (41.0) (a) Eﬀ ective portion. (b) Loss reclassiﬁ ed 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 ineﬀ ective portion of the hedging relationship. No amounts were reported as a result of being excluded from the assessment of hedge eﬀ ectiveness. (d) Gain (loss) recognized in earnings is reported in SG&A expenses for foreign exchange contracts. (e) Gain (loss) recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts. Amounts Recorded In Accumulated Other Comprehensive Loss Unrealized losses from interest rate cash ﬂ ow hedges recorded in AOCI as of May 29, 2011, totaled $30.0 million aft er tax. Th ese deferred losses are primarily related to interest rate swaps that we entered into in contemplation of future borrowings and other ﬁ nanc- ing requirements and that are being reclassiﬁ ed into net interest over the lives of the hedged forecasted transac- tions. Unrealized losses from foreign currency cash ﬂ ow hedges recorded in AOCI as of May 29, 2011, were $5.8 million aft er-tax. Th e net amount of pre-tax gains and losses in AOCI as of May 29, 2011, that we expect to be reclassiﬁ ed into net earnings within the next 12 months is $11.7 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 rat- ing agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instru- ments in net liability positions. Th e aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on May 29, 2011, was $6.3 million. We would be required to post this amount of collateral to the counterparties if the contingent features were triggered. Concentrations Of Credit And Counterparty Credit Risk During ﬁ scal 2011, Wal-Mart Stores, Inc. and its aﬃ liates (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 rep- resented 6 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 29, 2011, Wal-Mart accounted for 26 percent of our U.S. Retail receivables, 5 percent of our International receivables, and 9 percent of 62 General Mills our Bakeries and Foodservice receivables. Th e ﬁ ve larg- est customers in our U.S. Retail segment accounted for 53 percent of its ﬁ scal 2011 net sales, the ﬁ ve largest customers in our International segment accounted for 24 percent of its ﬁ scal 2011 net sales, and the ﬁ ve larg- est customers in our Bakeries and Foodservice segment accounted for 45 percent of its ﬁ scal 2011 net sales. We enter into interest rate, foreign exchange, and cer- tain commodity and equity derivatives, primarily with a diversiﬁ ed group of highly rated counterparties. We continually monitor our positions and the credit rat- ings of the counterparties involved and, by policy, limit the amount of credit exposure to any one party. Th ese transactions may expose us to potential losses due to the risk of nonperformance by these counterparties; however, we have not incurred a material loss. We also enter into commodity futures transactions through vari- ous regulated exchanges. Th e amount of loss due to the credit risk of the coun- terparties, should the counterparties fail to perform according to the terms of the contracts, is $63.1 million against which we do not hold collateral. Under the terms of master swap agreements, some of our transactions require collateral or other security to support ﬁ nancial 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 Th e components of notes payable and their respective weighted-average interest rates at the end of the periods were as follows: May 29, 2011 May 30, 2010 Weighted- average Interest Rate Notes Payable Weighted- average Interest Rate Notes Payable In Millions U.S. commercial paper $192.5 0.2% $ 973.0 0.3% Financial institutions 118.8 11.5 77.1 10.6 Total $311.3 4.5% $1,050.1 1.1% To ensure availability of funds, we maintain bank credit lines suﬃ cient to cover our outstanding short- term borrowings. Commercial paper is a continuing source of short-term ﬁ nancing. We issue commercial paper in the United States and Europe. Our commer- cial paper borrowings are supported by $2.9 billion of fee-paid committed credit lines, consisting of a $1.8 bil- lion facility expiring in October 2012 and a $1.1 billion facility expiring in October 2013. We also have $311.8 mil- lion in uncommitted credit lines that support our foreign operations. As of May 29, 2011, there were no amounts outstanding on the fee-paid committed credit lines and $118.8 million was drawn on the uncommitted lines. Th e credit facilities contain several covenants, including a requirement to maintain a ﬁ xed charge coverage ratio of at least 2.5. We were in compliance with all credit facility covenants as of May 29, 2011. Long-Term Debt In May 2011, we issued $300.0 million aggregate principal amount of 1.55 percent ﬁ xed-rate notes and $400.0 million aggregate principal amount of ﬂ oating-rate notes, both due May 16, 2014. Th e pro- ceeds of these notes were used to repay a portion of our outstanding commercial paper. Th e ﬂ oating-rate notes bear interest equal to three-month LIBOR plus 35 basis points, subject to quarterly reset. Interest on the ﬂ oating- rate notes is payable quarterly in arrears. Interest on the ﬁ xed-rate notes is payable semi-annually in arrears. Th e ﬁ xed-rate notes may be redeemed at our option at any time for a speciﬁ ed make whole amount. Th ese notes are senior unsecured, unsubordinated obligations that include a change of control repurchase provision. In June 2010, we issued $500.0 million aggregate prin- cipal amount of 5.4 percent notes due 2040. Th e pro- ceeds of these notes were used to repay a portion of our outstanding commercial paper. Interest on these notes is payable semi-annually in arrears. Th ese notes may be redeemed at our option at any time for a speciﬁ ed make whole amount. Th ese notes are senior unsecured, unsub- ordinated obligations that include a change of control repurchase provision. In May 2010, we paid $437.0 million to repurchase in a cash tender oﬀ er $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. We issued commercial paper to fund the repurchase. In January 2009, we issued $1.2 billion aggregate prin- cipal 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. Th e proceeds of these notes were used to repay a portion of our out- standing commercial paper. Interest on these notes is payable semi-annually in arrears. Th ese notes may be redeemed at our option at any time for a speciﬁ ed make Annual Report 2011 63 whole amount. Th ese notes are senior unsecured, unsub- ordinated obligations that include a change of control repurchase provision. Certain of our long-term debt agreements contain restrictive covenants. As of May 29, 2011, we were in compliance with all of these covenants. As of May 29, 2011, the $48.4 million pre-tax loss recorded in AOCI associated with our previously des- ignated interest rate swaps will be reclassiﬁ ed to net interest over the remaining lives of the hedged transac- tions. Th e amount expected to be reclassiﬁ ed from AOCI to net interest in ﬁ scal 2012 is $4.3 million pre-tax. A summary of our long-term debt is as follows: In Millions May 29, 2011 May 30, 2010 5.65% notes due February 15, 2019 $1,150.0 $1,150.0 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 5.4% notes due June 15, 2040 1.55% notes due May 16, 2014 Floating-rate notes due May 16, 2014 Medium-term notes, 0.1% to 6.5%, 1,019.5 1,000.0 750.0 700.0 520.8 500.0 300.0 400.0 1,019.5 1,000.0 750.0 700.0 520.8 — — — due ﬁ scal 2012 or later 204.4 204.4 Debt of consolidated contract manufacturer 15.0 Other, including capital leases 14.1 20.9 10.2 Less amount due within one year (1,031.3) (107.3) Total long-term debt $5,542.5 $5,268.5 6,573.8 5,375.8 Principal payments due on long-term debt in the next ﬁ ve years based on stated contractual maturities, our intent to redeem, or put rights of certain note holders are $1,031.3 million in ﬁ scal 2012, $733.6 million in ﬁ scal 2013, $1,402.6 million in ﬁ scal 2014, $750.1 million in ﬁ s- cal 2015, and less than $1 million in ﬁ scal 2016. NOTE 9. NONCONTROLLING INTERESTS Our principal noncontrolling interest relates to our sub- sidiary General Mills Cereals, LLC (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 membership interest, and therefore direct the opera- tions 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 29, 2011, the carrying value of all outstanding Class A Interests was $242.3 million, clas- siﬁ ed as noncontrolling interests on our Consolidated Balance Sheets. Th e holder of the Class A Interests receives quarterly preferred distributions from available net income based on the application of a ﬂ oating 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 ﬁ nancial reporting purposes, the assets, liabili- ties, results of operations, and cash ﬂ ows of GMC are included in our Consolidated Financial Statements. Th e return to the third-party investor is reﬂ ected in net earnings attributable to noncontrolling interests in the Consolidated Statements of Earnings. In addition, we have seven foreign subsidiaries that have minority interests totaling $4.4 million as of May 29, 2011. Our noncontrolling interests contain restrictive cov- enants. As of May 29, 2011, we were in compliance with all of these covenants. 64 General Mills NOTE 10. STOCKHOLDERS’ EQUITY In Millions Pretax Tax Net Fiscal 2010 Cumulative preference stock of 5.0 million shares, with- out par value, is authorized but unissued. During ﬁ scal 2011, we repurchased 31.8 million shares of common stock for an aggregate purchase price of $1,163.5 million. During ﬁ scal 2010, we repurchased 21.3 million shares of common stock for an aggregate pur- chase price of $691.8 million. During ﬁ scal 2009, we repurchased 40.4 million shares of common stock for an aggregate purchase price of $1,296.4 million. On June 28, 2010, our Board of Directors authorized the repurchase of up to 100 million shares of our com- mon stock. 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. Th e authorization has no speciﬁ ed termination date. Net earnings attributable to General Mills Net earnings attributable to noncontrolling interests Net earnings, including earnings attributable to noncontrolling interests $1,530.5 4.5 $1,535.0 Other comprehensive income (loss): Foreign currency translation $(163.3) $ — $ (163.3) Net actuarial loss (786.3) 314.8 (471.5) Other fair value changes: Securities 1.9 (0.7) 1.2 Hedge derivatives (25.0) 10.6 (14.4) Reclassiﬁ cation to earnings: Hedge derivatives 44.4 (17.0) 27.4 Amortization of losses and prior service costs 19.1 (7.6) 11.5 Other comprehensive income Th e following table provides details of total compre- (loss) in accumulated hensive income: other comprehensive loss (909.2) 300.1 (609.1) In Millions Pretax Tax Net Fiscal 2011 Other comprehensive loss attributable to noncontrolling interests 0.2 — 0.2 Other comprehensive income (loss) $(909.0) $300.1 $ (608.9) Total comprehensive income $ 926.1 Net earnings attributable to General Mills Net earnings attributable to noncontrolling interests Net earnings, including earnings attributable to noncontrolling interests $1,798.3 5.2 $1,803.5 Other comprehensive income (loss): Foreign currency translation $358.3 $ — $ 358.3 Net actuarial gain 93.5 (32.4) 61.1 Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation to earnings: (5.8) (39.8) 2.2 14.4 (3.6) (25.4) Hedge derivatives 29.8 (11.3) 18.5 Amortization of losses and prior service costs 108.7 (41.5) 67.2 Other comprehensive income (loss) in accumulated other comprehensive loss 544.7 (68.6) 476.1 Other comprehensive income attributable to noncontrolling interests 0.7 — 0.7 Other comprehensive income (loss) $545.4 $(68.6) $ 476.8 Total comprehensive income $2,280.3 Annual Report 2011 65 In Millions Pretax Tax Net Foreign currency translation adjustments $ 553.2 $ 194.9 Fiscal 2009 In Millions May 29, 2011 May 30, 2010 Net earnings attributable to General Mills Net earnings attributable to noncontrolling interests Net earnings, including earnings attributable to noncontrolling interests Unrealized gain (loss) from: $ 1,304.4 Securities Hedge derivatives 9.3 Pension, other postretirement, and postemployment beneﬁ ts: Net actuarial loss $ 1,313.7 Prior service costs 2.0 (35.8) 5.6 (28.9) (1,509.5) (1,611.0) (20.7) (47.5) Other comprehensive income (loss): Accumulated other comprehensive loss $(1,010.8) $(1,486.9) Foreign currency translation $ (286.6) $ — $ (286.6) Net actuarial loss (1,254.0) 477.8 (776.2) Other fair value changes: Securities Hedge derivatives Reclassiﬁ cation to earnings: (0.6) 0.2 8.0 (3.4) (0.4) 4.6 Hedge derivatives (11.9) 4.6 (7.3) Amortization of losses and prior service costs 24.2 (9.2) 15.0 Other comprehensive income (loss) in accumulated other comprehensive loss (1,520.9) 470.0 (1,050.9) Other comprehensive income attributable to noncontrolling interests (1.2) — (1.2) Other comprehensive income (loss) $(1,522.1) $470.0 $(1,052.1) Total comprehensive income $ 261.6 During ﬁ scal 2009, we incurred unrecognized losses in excess of $1.1 billion on assets, primarily equity secu- rities, in our deﬁ ned beneﬁ t pension and other postre- tirement beneﬁ t plans. Th ese losses were recognized in other comprehensive income. In ﬁ scal 2010 and future years, the losses are reﬂ ected in pension expense using the market-related value of the plan assets over a ﬁ ve year period and amortized using a declining balance method over the average remaining service period of active plan participants. In ﬁ scal 2011, 2010, and 2009, except for reclassiﬁ - cations to earnings, changes in other comprehensive income (loss) were primarily non-cash items. Accumulated other comprehensive loss balances, net of tax eﬀ ects, were as follows: NOTE 11. STOCK PLANS We use broad-based stock plans to help ensure that man- agement’s interests are aligned with those of our stock- holders. As of May 29, 2011, a total of 16,942,290 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 Compensation Plan (2009 Plan) and the 2006 Compensation Plan for Non-Employee Directors (2006 Director Plan). Th e 2009 Plan also provides 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 and the Executive Incentive Plan (EIP), under which no further awards may be granted. Th e stock plans provide for full vesting of options, restricted shares, restricted stock units, and cash-settled share- based units upon completion of speciﬁ ed service peri- ods or in certain circumstances, following a change of control. Stock Options Th e estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows: Fiscal Year 2011 2010 2009 Estimated fair values of stock options granted $ 4.12 $3.20 $4.70 Assumptions: Risk-free interest rate 2.9% 3.7% 4.4% Expected term 8.5 years 8.5 years 8.5 years Expected volatility 18.5% 18.9% 16.1% Dividend yield 3.0% 3.4% 2.7% 66 General Mills Th e valuation of stock options is a signiﬁ cant account- ing estimate that requires us to use judgments and assumptions that are likely to have a material impact on our ﬁ nancial statements. Annually, we make predic- tive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the for- feiture rate. We estimate the fair value of each option on the grant date using a 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. We also have con- sidered, but did not use, implied volatility in our esti- mate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insuﬃ cient 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 exercises and employee terminations within the valuation model. Separate groups of employees have similar historical exercise behavior and therefore were aggregated into a single pool for valuation purposes. Th e weighted-average expected term for all employee groups is presented in the table above. Th e 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 eﬀ ect at the time of grant. Any corporate income tax beneﬁ t realized upon exer- cise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax ben- eﬁ t) is presented in the Consolidated Statements of Cash Flows as a ﬁ nancing cash ﬂ ow. Realized windfall tax beneﬁ ts are credited to addi- tional paid-in capital within the Consolidated Balance Sheets. Realized shortfall tax beneﬁ ts (amounts which are less than that previously recognized in earnings) are ﬁ rst oﬀ set against the cumulative balance of windfall tax beneﬁ ts, if any, and then charged directly to income tax expense, potentially resulting in volatility in our consolidated eﬀ ective income tax rate. We calculated a cumulative memo balance of windfall tax beneﬁ ts from post-1995 ﬁ scal years for the purpose of accounting for future shortfall tax beneﬁ ts. Options may be priced at 100 percent or more of the fair market value on the date of grant, and generally vest four years aft er the date of grant. Options generally expire within 10 years and one month aft er the date of grant. Information on stock option activity follows: Weighted- average Exercise Weighted- average Exercise Exercisable Price Per Outstanding Price Per Share (Th ousands) (Th ousands) Options Options Share Balance as of May 25, 2008 76,389.2 $21.23 106,042.4 $22.68 Granted Exercised Forfeited or expired Balance as of 6,495.4 31.74 (17,548.4) 19.60 (382.4) 27.50 May 31, 2009 67,619.2 21.96 94,607.0 23.84 Granted Exercised Forfeited or expired Balance as of 6,779.4 27.99 (20,013.6) 19.87 (268.2) 24.82 May 30, 2010 47,726.6 22.89 81,104.6 25.17 Granted Exercised Forfeited or expired Balance as of 5,234.3 37.38 (18,665.4) 22.59 (126.2) 31.26 May 29, 2011 39,221.7 $23.78 67,547.3 $26.82 Stock-based compensation expense related to stock option awards was $26.8 million in ﬁ scal 2011, $34.4 mil- lion in ﬁ scal 2010, and $40.0 million in ﬁ scal 2009. 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: In Millions 2011 2010 2009 Fiscal Year Net cash proceeds Intrinsic value of $410.4 $388.5 $305.9 options exercised $275.6 $271.8 $226.7 Annual Report 2011 67 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 Compensation Committee of the Board of Directors), may be granted to key employees under the 2009 Plan. 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 unre- stricted four years aft er 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 vest. Th e sale or transfer of these shares and units is restricted during the vesting period. Participants hold- ing restricted stock, but not restricted stock units, are entitled to vote on matters submitted to holders of com- mon stock for a vote. Information on restricted stock unit and cash-settled share-based units activity follows: Equity Classiﬁ ed Liability Classiﬁ ed Share- Settled Units (Th ousands) Weighted- Average Grant-Date Fair Value Share- Settled Units (Th ousands) Weighted- Average Grant-Date Fair Value Cash-Settled Share-Based Units (Th ousands) Weighted- Average Grant-Date Fair Value Non-vested as of May 30, 2010 Granted Vested Forfeited or expired Non-vested as of May 29, 2011 10,209.8 2,406.7 (3,161.0) (285.6) 9,169.9 $28.49 35.47 26.46 31.61 $30.92 424.3 127.7 (78.1) (36.7) 437.2 $28.64 37.40 29.02 30.04 $31.01 3,703.7 1,217.2 (245.2) (160.6) $29.65 37.40 31.33 31.36 4,515.1 $31.58 In Millions Number of units granted (thousands) Weighted average price per unit Fiscal Year 2011 2010 2009 3,751.6 4,745.7 4,348.0 $36.16 $28.03 $31.70 68 General Mills Th e total grant-date fair value of restricted stock unit awards that vested during ﬁ scal 2011 was $93.6 million, and $26.1 million vested during ﬁ scal 2010. As of May 29, 2011, unrecognized compensa- tion expense related to non-vested stock options and restricted stock units was $170.7 million. Th is expense will be recognized over 19 months, on average. Stock-based compensation expense related to restricted stock units and cash-settled share-based pay- ment awards was $141.2 million for ﬁ scal 2011, $131.0 million for ﬁ scal 2010, and $101.4 million for ﬁ scal 2009. NOTE 12. EARNINGS PER SHARE Basic and diluted earnings per share (EPS) were calcu- lated using the following: In Millions, Except per Share Data 2011 2010 2009 Net earnings attributable to General Mills $1,798.3 $1,530.5 $1,304.4 Fiscal Year Average number of common shares - basic EPS Incremental share eﬀ ect from: (a) Stock options Restricted stock, restricted 642.7 659.6 663.7 16.6 17.7 17.9 stock units, and other 5.5 6.0 5.5 Average number of common shares - diluted EPS 664.8 683.3 687.1 Earnings per share - basic Earnings per share - diluted $2.80 $2.70 $2.32 $1.96 $2.24 $1.90 (a) 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: In Millions 2011 2010 2009 Anti-dilutive stock options and restricted stock units 4.8 6.3 14.2 Fiscal Year NOTE 13. RETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS Deﬁ ned Beneﬁ t Pension Plans We have deﬁ ned beneﬁ t pension plans covering most United States, Canadian, and United Kingdom employees. Beneﬁ ts for salaried employees are based on length of service and ﬁ nal aver- age compensation. Beneﬁ ts for hourly employees include various monthly amounts for each year of credited ser- vice. Our funding policy is consistent with the require- ments of applicable laws. We made $200.0 million of voluntary contributions to our principal domestic plans in ﬁ scal 2011. We do not expect to be required to make any contributions in ﬁ scal 2012. Our principal domestic retirement plan covering salaried employees has a provi- sion that any excess pension assets would be allocated to active participants if the plan is terminated within ﬁ ve years of a change in control. Other Postretirement Beneﬁ t Plans We also sponsor plans that provide health care beneﬁ ts to the majority of our United States and Canadian retirees. Th e salaried health care beneﬁ t plan is contributory, with retiree con- tributions 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 contribu- tions to these plans in ﬁ scal 2011 or ﬁ scal 2010. Health Care Cost Trend Rates Assumed health care cost trends are as follows: Fiscal Year 2011 2010 Health care cost trend rate for next year 8.5% 9.0% Rate to which the cost trend rate is assumed to decline (ultimate rate) Year that the rate reaches the 5.2% 5.2% ultimate trend rate 2019 2019 We review our health care cost trend rates annu- ally. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. Th is information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other simi- lar 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 8.5 percent for all retirees. Rates are graded down annually Annual Report 2011 69 until the ultimate trend rate of 5.2 percent is reached in 2019 for all retirees. Th e trend rates are applicable for calculations only if the retirees’ beneﬁ ts increase as a result of health care inﬂ ation. Th e ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inﬂ ation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important eﬀ ect on the amounts reported for the other postretire- ment beneﬁ t plans. A one percentage point change in the health care cost trend rate would have the following eﬀ ects: In Millions One Percentage Point Increase One Percentage Point Decrease Eﬀ ect on the aggregate of the service and interest cost components in ﬁ scal 2012 $ 6.2 $ (5.4) Eﬀ ect on the other postretirement accumulated beneﬁ t obligation as of May 29, 2011 82.4 (73.6) Th e Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Act) was signed into law in March 2010. Th e Act codiﬁ es health care reforms with staggered eﬀ ective dates from 2010 to 2018. Estimates of the future impacts of several of the Act’s provisions are incorporated into our postretirement beneﬁ t liability including the elimination of lifetime maximums and the imposition of an excise tax on high cost health plans. Th ese changes resulted in a $24.0 million increase in our postretirement beneﬁ t liability in ﬁ scal 2010. Postemployment Beneﬁ t Plans Under certain circum- stances, we also provide accruable beneﬁ ts 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 pay- able upon death. We recognize an obligation for any of these beneﬁ ts that vest or accumulate with service. Postemployment beneﬁ ts 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 beneﬁ t plans are unfunded. We use our ﬁ scal year end as the measurement date for our deﬁ ned beneﬁ t pension and other postretirement beneﬁ t plans. 70 General Mills Summarized ﬁ nancial information about deﬁ ned beneﬁ t pension, other postretirement, and postemployment ben- eﬁ ts plans is presented below: In Millions Change in Plan Assets: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2011 2010 2011 2010 2011 2010 Fair value at beginning of year $3,529.8 $3,157.8 $ 284.3 $ 235.6 Actual return on assets Employer contributions Plan participant contributions Beneﬁ ts payments Foreign currency Fair value at end of year Change in Projected Beneﬁ t Obligation: 688.9 535.9 220.7 17.1 4.1 3.5 (188.2) (182.6) 8.7 (1.9) $4,264.0 $3,529.8 60.7 0.1 11.8 (3.1) — 41.0 0.1 11.3 (3.7) — $ 353.8 $ 284.3 Beneﬁ t obligation at beginning of year $4,030.0 $3,167.3 $1,060.6 $ 852.0 $ 130.3 $ 112.5 Service cost Interest cost Plan amendment Curtailment/other Plan participant contributions Medicare Part D reimbursements Actuarial loss (gain) Beneﬁ ts payments Foreign currency 101.4 70.9 230.9 230.3 — — 4.1 — 25.8 — 3.5 — 18.7 60.1 (35.3) — 12.9 61.6 7.5 — 11.8 11.3 4.5 4.7 271.2 716.4 2.0 168.1 (188.2) (182.6) (56.9) (57.5) 9.0 (1.6) 0.3 — 8.0 5.1 — 4.2 — — (0.5) (16.1) 0.3 7.2 5.6 — 10.6 — — 11.8 (17.6) 0.2 Projected beneﬁ t obligation at end of year $4,458.4 $4,030.0 $1,065.8 $1,060.6 $ 131.3 $ 130.3 Plan assets less than beneﬁ t obligation as of ﬁ scal year end $ (194.4) $ (500.2) $ (712.0) $ (776.3) $(131.3) $(130.3) Th e accumulated beneﬁ t obligation for all deﬁ ned beneﬁ t pension plans was $3,991.6 million as of May 29, 2011, and $3,620.3 million as of May 30, 2010. Amounts recognized in AOCI as of May 29, 2011, and May 30, 2010, are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year Total Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 2011 2010 Net actuarial loss $(1,313.9) $(1,369.9) $(181.3) $(225.2) $(14.3) $(15.9) $(1,509.5) $(1,611.0) Prior service (costs) credits (35.8) (41.3) 20.7 1.0 (5.6) (7.2) (20.7) (47.5) Amounts recorded in accumulated other comprehensive loss $(1,349.7) $(1,411.2) $(160.6) $(224.2) $(19.9) $(23.1) $(1,530.2) $(1,658.5) Annual Report 2011 71 Plans with accumulated beneﬁ t obligations in excess of plan assets are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year In Millions 2011 2010 2011 2010 2011 2010 Projected beneﬁ t obligation Accumulated beneﬁ t obligation Plan assets at fair value $335.1 $299.6 $ — $ — $ — $ — 280.6 252.5 1,065.8 1,060.6 131.3 130.3 9.0 17.3 353.8 284.3 — — Components of net periodic beneﬁ t expense (income) are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2011 2010 2009 2011 2010 2009 2011 2010 2009 In Millions Service cost Interest cost $ 101.4 $ 70.9 $ 76.5 $ 18.7 $ 12.9 $ 14.2 230.9 230.3 215.4 60.1 61.6 61.2 Expected return on plan assets (408.5) (400.1) (385.8) Amortization of losses 81.4 8.4 7.8 (33.2) 14.4 (29.2) 2.0 (30.0) 7.2 $ 8.0 5.1 — 2.1 $ 7.2 5.7 — 1.0 $ 6.5 4.9 — 1.0 Amortization of prior service costs (credits) Other adjustments Net expense (income) 9.0 — 6.9 — 7.4 — (0.6) (1.6) (1.4) — — — 2.4 4.2 2.4 10.6 2.2 8.4 $ 14.2 $ (83.6) $ (78.7) $ 59.4 $ 45.7 $ 51.2 $ 21.8 $ 26.9 $ 23.0 We expect to recognize the following amounts in net periodic beneﬁ t expense (income) in ﬁ scal 2012: In Millions Amortization of losses Amortization of prior service costs (credits) Deﬁ ned Beneﬁ t Pension Plans Other Postretirement Beneﬁ t Plans Postemployment Beneﬁ t Plans $108.2 8.6 $14.4 (3.4) $1.8 2.1 Assumptions Weighted-average assumptions used to determine ﬁ scal year-end beneﬁ t obligations are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2011 2010 2011 2010 2011 2010 5.45% 5.85% 5.35% 5.80% 4.77% 5.12% 4.92 4.93 — — 4.92 4.93 Discount rate Rate of salary increases 72 General Mills Weighted-average assumptions used to determine ﬁ scal year net periodic beneﬁ t expense (income) are as follows: Deﬁ ned Beneﬁ t Pension Plans Fiscal Year Other Postretirement Beneﬁ t Plans Fiscal Year Postemployment Beneﬁ t Plans Fiscal Year 2011 2010 2009 2011 2010 2009 2011 2010 2009 Discount rate 5.85% 7.49% 6.88% 5.80% 7.45% 6.90% 5.12% 7.06% 6.64% Rate of salary increases 4.93 4.92 4.93 — — — 4.93 4.93 4.93 Expected long-term rate of return on plan assets 9.53 9.55 9.55 9.33 9.33 9.35 — — — Discount Rate Our discount rate assumptions are deter- mined annually as of the last day of our ﬁ scal year for our deﬁ ned beneﬁ t pension, other postretirement, and postemployment beneﬁ t plan obligations. We also use the same discount rates to determine deﬁ ned beneﬁ t pension, other postretirement, and postemployment beneﬁ t plan income and expense for the following ﬁ s- cal year. We work with our actuaries to determine the timing and amount of expected future cash outﬂ ows 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. Th is forward interest rate curve is applied to our expected future cash outﬂ ows to determine our dis- count rate assumptions. Fair Value of Plan Assets We categorize plan assets with a three level fair value hierarchy as described in Note 7. Th e fair values of our pension and postretire- ment beneﬁ t plans assets at May 29, 2011, and May 30, 2010, by asset category were as follows: In Millions Level 1 Level 2 Level 3 Total Assets May 29, 2011 Fair value measurement of pension plan assets: Equity (a) Fixed income (b) Real asset investments (c) Other investments (d) Cash and accruals $ 1,052.5 $ 900.2 $ 568.5 $ 2,521.2 794.7 113.0 — 155.9 174.4 95.2 52.2 — 0.2 356.9 0.3 — 969.3 565.1 52.5 155.9 Total fair value measurement of pension plan assets $ 2,116.1 $ 1,222.0 $925.9 $4,264.0 Fair value measurement of postretirement beneﬁ t plan assets: Equity (a) Fixed income (b) Real asset investments (c) Other investments (d) Cash and accruals $ 13.5 $ 131.0 26.3 $ 170.8 1.8 — — 20.4 55.9 7.2 83.9 — 0.2 13.6 — — 57.9 20.8 83.9 20.4 Fair value measurement of postretirement beneﬁ t plan assets $ 35.7 $ 278.0 $ 40.1 $ 353.8 Annual Report 2011 73 In Millions Level 1 Level 2 Level 3 Total Assets May 30, 2010 Fair value measurement of pension plan assets: Equity (a) Fixed income (b) Real asset investments (c) Other investments (d) Cash and accruals $ 744.5 $ 716.6 $ 512.8 $ 1,973.9 700.0 72.4 — 158.9 206.0 75.8 39.9 — 3.9 298.7 0.3 — 909.9 446.9 40.2 158.9 Total fair value measurement of pension plan assets $ 1,675.8 $ 1,038.3 $ 815.7 $ 3,529.8 Fair value measurement of postretirement beneﬁ t plan assets: Equity (a) Fixed income (b) Real asset investments (c) Other investments (d) Cash and accruals $10.1 1.1 0.1 — 28.4 81.4 46.1 3.7 71.4 — 25.7 1.7 14.6 — — 117.2 48.9 18.4 71.4 28.4 Fair value measurement of postretirement beneﬁ t plan assets $ 39.7 $ 202.6 $ 42.0 $ 284.3 (a) Primarily publicly traded common stock and private equity partnerships for purposes of total return and to maintain equity exposure consistent with policy allocations. Investments include: i) United States and international equity securities, mutual funds and equity futures valued at closing prices from national exchanges; and ii) commingled funds, privately held securities and private equity partnerships valued at unit values or net asset values provided by the investment managers, which are based on the fair value of the underlying investments. Various methods are used to determine fair values and may include the cost of the investment, most recent ﬁ nancing, and expected cash ﬂ ows. For some of these investments, realization of the estimated fair value is dependent upon transactions between willing sellers and buyers. (b) Primarily government and corporate debt securities for purposes of total return and managing ﬁ xed income exposure to policy allocations. Investments include: i) ﬁ xed income securities and bond futures generally valued at closing prices from national exchanges, ﬁ xed income pricing models and/or inde- pendent ﬁ nancial analysts; and ii) ﬁ xed commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments. (c) Publicly traded common stock and limited partnerships in the energy and real estate sectors for purposes of total return. Investments include: i) energy and real estate securities generally valued at closing prices from national exchanges; and ii) commingled funds, private securities, and limited partnerships valued at unit values or net asset values provided by the investment managers, which are generally based on the fair value of the underlying investments. (d) Global balanced fund of equity, ﬁ xed income and real estate securities for purposes of meeting Canadian pension plan asset allocation policies and insurance and annuity contracts for purposes of providing a stable stream of income for retirees and to fund postretirement medical beneﬁ ts. Fair values are derived from unit values provided by the investment managers, which are generally based on the fair value of the underlying investments and contract fair values from the providers. 74 General Mills Th e following table is a roll forward of the Level 3 investments of our pension and postretirement beneﬁ t plan assets during the years ended May 29, 2011, and May 30, 2010: In Millions Pension beneﬁ t plan assets: Equity Fixed income Real asset investments Other investments Balance as of May 30, 2010 Transfers In/(Out) Fiscal 2011 Purchases, Sales Issuances, and Settlements (Net) Net Balance as of Gain May 29, 2011 $512.8 3.9 298.7 0.3 $2.4 (0.9) — — $(48.1) $101.4 $568.5 (4.3) 16.0 — 1.5 0.2 42.2 356.9 — 0.3 Fair value activity of pension level 3 plan assets $815.7 $1.5 $(36.4) $145.1 $925.9 Postretirement beneﬁ t plan assets: Equity Fixed income Real asset investments 25.7 1.7 14.6 $ — — — $ (3.7) $ 4.3 $ 26.3 (1.5) (2.2) — 1.2 0.2 13.6 Fair value activity of postretirement beneﬁ t level 3 plan assets: $ 42.0 $ — $ (7.4) $ 5.5 $ 40.1 In Millions Pension beneﬁ t plan assets: Equity Fixed income Real asset investments Other investments Fiscal 2010 Balance as of May 31, 2009 Transfers In/(Out) Purchases, Sales Issuances, and Net Balance as of Settlements (Net) Gain/(Loss) May 30, 2010 $423.9 $ — $ 17.0 $ 71.9 $512.8 4.2 275.2 0.5 — — — (1.2) 25.0 (0.3) 0.9 (1.5) 0.1 3.9 298.7 0.3 Fair value activity of pension level 3 plan assets $703.8 $ — $ 40.5 $ 71.4 $815.7 Postretirement beneﬁ t plan assets: Equity Fixed income Real asset investments $ 23.8 $ — $ (1.5) $ 3.4 $ 25.7 1.5 17.0 — — — (0.6) 0.2 (1.8) 1.7 14.6 Fair value activity of postretirement beneﬁ t level 3 plan assets: $ 42.3 $ — $ (2.1) $ 1.8 $ 42.0 Th e net change in Level 3 assets attributable to unre- alized gains at May 29, 2011, were $96.8 million for our pension plan assets, and $1.9 million for our postretire- ment plan assets. 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, invest- ment services, and investment managers), and long- term inﬂ ation assumptions. We review this assumption annually for each plan, however, our annual investment performance for one particular year does not, by itself, signiﬁ cantly inﬂ uence our evaluation. Annual Report 2011 75 Other Deﬁ ned Beneﬁ t Pension Postretirement Medicare Postemployment Beneﬁ t Subsidy Beneﬁ t Plans Plans Plans Gross Payments Receipts In Millions 2012 2013 2014 2015 2016 $ 204.8 $ 58.6 $ 5.0 213.8 223.3 233.2 243.8 62.6 64.6 66.6 39.6 5.5 6.0 6.5 7.1 2017-2021 1,402.3 387.7 38.9 $18.4 17.3 16.3 15.1 14.4 66.6 Deﬁ ned Contribution Plans Th e General Mills Savings Plan is a deﬁ ned contribution plan that covers domestic salaried, hourly, nonunion, and certain union employees. Th is plan is a 401(k) savings plan that includes a num- ber of investment funds, including a Company stock fund and an Employee Stock Ownership Plan (ESOP). We sponsor another money purchase plan for certain domestic hourly employees with net assets of $18.1 mil- lion as of May 29, 2011, and $16.8 million as of May 30, 2010. We also sponsor deﬁ ned contribution plans in many of our foreign locations. Our total recognized expense related to deﬁ ned contribution plans was $41.8 million in ﬁ scal 2011, $64.5 million in ﬁ scal 2010, and $59.5 million in ﬁ scal 2009. We matched a percentage of employee contributions to the General Mills Savings Plan with a base match plus a variable year-end match that depended on annual results. Eﬀ ective April 1, 2010, the company match is directed to investment options of the participant’s choosing. Prior to April 1, 2010, the company match was invested in Company stock in the ESOP. Th e number of shares of our common stock allocated to participants in the ESOP was 11.2 million as of May 29, 2011, and 11.9 million as of May 30, 2010. Th e ESOP’s only assets are our common stock and temporary cash balances. Th e ESOP’s share of the total deﬁ ned contribution expense was $53.7 million in ﬁ s- cal 2010 and $50.6 million in ﬁ scal 2009. Th e ESOP’s expense was calculated by the “shares allocated” method. Th e Company stock fund and the ESOP held $648.1 million and $610.3 million of Company common stock as of May 29, 2011, and May 30, 2010. Weighted-average asset allocations for the past two ﬁ scal years for our deﬁ ned beneﬁ t pension and other postretirement beneﬁ t plans are as follows: Deﬁ ned Beneﬁ t Pension Plans Other Postretirement Beneﬁ t Plans Fiscal Year Fiscal Year 2011 2010 2011 2010 Asset category: United States equities 30.1% 32.6% 37.6% 37.3% International equities 18.9 17.1 18.7 Private equities Fixed income Real assets 13.5 23.9 13.6 14.7 22.4 13.2 7.3 30.1 6.3 18.3 9.9 28.1 6.4 Total 100.0% 100.0% 100.0% 100.0% Th e investment objective for our deﬁ ned beneﬁ t pen- sion and other postretirement beneﬁ t plans is to secure the beneﬁ t obligations 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. Th e deﬁ ned beneﬁ t pension and other postretirement portfolios are broadly diversiﬁ ed across asset classes. Within asset classes, the portfolios are further diversified across investment styles and investment organizations. For the deﬁ ned beneﬁ t pension and other postretirement beneﬁ t 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 ﬁ xed income; and 10 percent to real assets (real estate, energy, and timber). Th e actual allocations to these asset classes may vary tactically around the long-term policy allocations based on relative market valuations. Contributions and Future Beneﬁ t Payments We do not expect to make contributions to our deﬁ ned ben- eﬁ t, other postretirement, and postemployment beneﬁ ts plans in ﬁ scal 2012. Actual ﬁ scal 2012 contributions could exceed our current projections, as inﬂ uenced by our decision to undertake discretionary funding of our beneﬁ t trusts and future changes in regulatory require- ments. Estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid from ﬁ scal 2012 to 2021 as follows: 76 General Mills NOTE 14. INCOME TAXES Th e tax eﬀ ects of temporary diﬀ erences that give rise to deferred tax assets and liabilities are as follows: Th e components of earnings before income taxes and aft er-tax earnings from joint ventures and the corre- sponding income taxes thereon are as follows: In Millions Accrued liabilities In Millions 2011 2010 2009 Fiscal Year Earnings before income taxes and aft er-tax earnings from joint ventures: United States $2,144.8 $2,060.4 $1,717.5 Compensation and employee beneﬁ ts Pension liability Tax credit carryforwards Stock, partnership, and miscellaneous investments Capital losses Net operating losses 283.4 144.1 224.7 Other May 29,2011 May 30, 2010 $ 129.5 $ 148.5 582.9 74.1 62.0 500.6 92.1 140.9 123.7 584.9 183.8 — 474.9 93.1 119.9 150.7 Foreign Total earnings before income taxes and aft er-tax earnings from joint ventures $2,428.2 $2,204.5 $1,942.2 Income taxes: Currently payable: Federal State and local Foreign Total current Deferred: Federal State and local Foreign Total deferred Total income taxes $ 370.0 $ 616.0 $ 457.8 76.9 68.9 87.4 45.5 37.3 9.5 515.8 748.9 504.6 178.9 30.8 38.5 (4.9) (4.4) (11.3) 155.7 36.3 23.8 205.3 22.3 215.8 $ 721.1 $ 771.2 $ 720.4 Th e following table reconciles the United States statu- tory income tax rate with our eﬀ ective income tax rate: Fiscal Year 2011 2010 2009 United States statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax beneﬁ ts Foreign rate diﬀ erences Enactment date eﬀ ect of health care reform 2.7 (2.0) — Court decisions and audit settlements (3.7) Domestic manufacturing deduction Other, net (1.6) (0.7) 2.5 (1.8) 1.3 — (1.8) (0.2) 2.9 (2.3) — 2.7 (1.1) (0.1) Eﬀ ective income tax rate 29.7% 35.0% 37.1% Gross deferred tax assets 1,705.8 1,755.8 Valuation allowance Net deferred tax assets Brands Fixed assets Intangible assets Tax lease transactions Inventories Stock, partnership, and miscellaneous investments Unrealized hedges Other 404.5 1,301.3 1,289.1 394.6 122.3 63.0 53.0 424.5 34.9 20.0 392.0 1,363.8 1,279.5 307.6 107.4 68.7 55.6 348.2 11.4 17.3 Gross deferred tax liabilities Net deferred tax liability 2,401.4 2,195.7 $ 1,100.1 $ 831.9 In ﬁ scal 2011, we changed the classiﬁ cation of certain gross deferred tax assets and liabilities to better reﬂ ect current components and reclassiﬁ ed the components for ﬁ scal 2010 to conform to the current year presentation. We have established a valuation allowance against cer- tain of the categories of deferred tax assets described above as current evidence does not suggest we will real- ize suﬃ cient taxable income of the appropriate character (e.g., ordinary income versus capital gain income) within the carry forward period to allow us to realize these deferred tax beneﬁ ts. Of the total valuation allowance of $404.5 million, $168.2 million relates to a deferred tax asset for losses recorded as part of the Pillsbury acquisition. Of the remaining valuation allowance, $92.1 million relates to capital loss carryforwards and $140.9 million relates to state and foreign operating loss carryforwards. We have approximately $60.2 million of U.S. foreign tax credit carryforwards for which no valuation allowance has been recorded. As of May 29, 2011, we believe it is more likely than not that the remainder of our deferred tax assets are realizable. Annual Report 2011 77 Th e carryforward periods on our foreign loss carryfor- wards are as follows: $102.0 million do not expire; $8.9 million expire in ﬁ scal 2012 and 2013; and $18.3 million expire in ﬁ scal 2014 and beyond. We have not recognized a deferred tax liability for unremitted earnings of $2.4 billion from our foreign operations because our subsidiaries have invested or will invest the undistributed earnings indeﬁ nitely, or the earnings will be remitted in a tax-free transaction. It is not practicable for us to determine the amount of unrecognized deferred tax liabilities on these indeﬁ nitely reinvested earnings. Deferred taxes are recorded for earnings of our foreign operations when we determine that such earnings are no longer indeﬁ nitely reinvested. We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdic- tions. A number of years may elapse before an uncertain tax position is audited and ﬁ nally resolved. While it is oft en diﬃ cult to predict the ﬁ nal outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reﬂ ect the most likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and cir- cumstances. Settlement of any particular position would usually require the use of cash. Th e number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing juris- dictions include the United States (federal and state) and Canada. Th e IRS has completed its review of our fed- eral income tax returns for ﬁ scal years 2008 and prior and has proposed adjustments related to the amount of research and development tax credits claimed. We have appealed these proposed adjustments. During ﬁ scal 2011, we reached a settlement with the IRS concerning certain corporate income tax adjust- ments for ﬁ scal years 2002 to 2008. Th e adjustments primarily relate to the amount of capital loss, deprecia- tion, and amortization we reported as a result of the sale of noncontrolling interests in our GMC subsidiary. As a result, we recorded a $108.1 million reduction in our total liabilities for uncertain tax positions in ﬁ scal 2011. We made payments totaling $385.3 million in ﬁ scal 2011 related to this settlement. In addition, we made a payment of $17.6 million in ﬁ scal 2009 related to adjust- ments made in connection with IRS audits of ﬁ scal years 2004 to 2006. During 2011, the Superior Court of the State of California issued an adverse decision concerning our state income tax apportionment calculations. As a result, 78 General Mills we recorded an $11.5 million increase in our total liabili- ties for uncertain tax positions. We believe our posi- tions are supported by substantial technical authority and have appealed this decision. We do not expect to make a payment related to this matter until it is deﬁ ni- tively resolved. In fiscal 2009, the U.S. Court of Appeals for the Eighth Circuit issued an opinion reversing a district court decision rendered in ﬁ scal 2008. As a result, we recorded $52.6 million (including interest) of income tax expense in ﬁ scal 2009 related to the reversal of cumula- tive income tax beneﬁ ts from this uncertain tax matter recognized in ﬁ scal years 1992 through 2008. All out- standing liabilities associated with this matter were paid during ﬁ scal 2011. Various tax examinations by United States state tax- ing authorities 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 prog- ress. Th e Canada Revenue Agency (CRA) has completed its review of our income tax returns in Canada for ﬁ scal years 2003 to 2005. Th e CRA has raised assessments for these years that we are currently appealing. We believe our positions are supported by substantial tech- nical authority and are vigorously defending our posi- tions. We do not anticipate that any United States or Canadian tax adjustments will have a signiﬁ cant impact on our ﬁ nancial position or results of operations. We apply a more-likely-than-not threshold to the rec- ognition and derecognition of uncertain tax positions. Accordingly we recognize the amount of tax beneﬁ t 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 aﬀ ect earnings in the quar- ter of such change. Th e following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for ﬁ scal 2011. Approximately $152 mil- lion of this total represents the amount that, if recog- nized, would aﬀ ect our eﬀ ective income tax rate in future periods. Th is amount diﬀ ers from the gross unrecog- nized tax beneﬁ ts presented in the table because certain of the liabilities below would impact deferred taxes if recognized or are the result of stock compensation items impacting additional paid-in capital. We also would record a decrease in U.S. federal income taxes upon rec- ognition of the state tax beneﬁ ts included therein. In Millions Fiscal Year 2011 2010 Noncancelable future lease commitments are: Balance, beginning of year $552.9 $570.1 In Millions Tax positions related to current year: Additions 25.0 19.7 Tax positions related to prior years: 2012 2013 2014 2015 2016 Aft er 2016 Total noncancelable future Operating Leases $ 74.4 Capital Leases $ 2.2 52.5 36.4 26.1 22.6 49.4 $ 261.4 1.8 0.9 0.5 0.3 0.2 $ 5.9 $(0.4) $ 5.5 $226.2 $552.9 lease commitments Less: interest Present value of obligations under capital leases Additions Reductions Settlements Lapses in statutes of limitations Balance, end of year 75.6 (131.2) (287.9) (8.2) 7.1 (37.6) (1.9) (4.5) As of May 29, 2011, we do not expect to pay any unrecognized tax beneﬁ t liabilities within the next 12 months. We are not able to reasonably estimate the timing of future cash ﬂ ows beyond 12 months due to uncertainties in the timing of tax audit outcomes. Th e remaining amount of our unrecognized tax liability was classiﬁ ed in other liabilities. We report accrued interest and penalties related to unrecognized tax beneﬁ t liabilities in income tax expense. For ﬁ scal 2011, we recognized a net beneﬁ t of $10.5 million associated with tax-related net interest and penalties, and had $53.4 million of accrued inter- est and penalties as of May 29, 2011. For ﬁ scal 2010, we recognized a net $16.2 million of tax-related interest and penalties, and had $174.8 million of accrued interest and penalties as of May 30, 2010. NOTE 15. LEASES AND OTHER COMMITMENTS An analysis of rent expense by type of property for operating leases follows: Fiscal Year In Millions 2011 2010 2009 Warehouse space $ 63.4 $ 55.7 $ 51.4 Equipment Other 32.1 30.6 56.9 51.6 39.1 49.5 Total rent expense $ 152.4 $ 137.9 $ 140.0 Some operating leases require payment of property taxes, insurance, and maintenance costs in addition to the rent payments. Contingent and escalation rent in excess of minimum rent payments and sublease income netted in rent expense were insigniﬁ cant. Th ese future lease commitments will be partially oﬀ set by estimated future sublease receipts of approximately $13 million. Depreciation on capital leases is recorded as depreciation expense in our results of operations. As of May 29, 2011, we have issued guarantees and comfort letters of $591.2 million for the debt and other obligations of consolidated subsidiaries, and guarantees and comfort letters of $340.6 million for the debt and other obligations of non-consolidated aﬃ liates, mainly CPW. In addition, oﬀ -balance sheet arrangements are generally limited to the future payments under non-can- celable operating leases, which totaled $261.4 million as of May 29, 2011. We are involved in various claims, including envi- ronmental matters, arising in the ordinary course of business. In the opinion of management, the range of reasonably possible losses on these matters, either indi- vidually or in aggregate, will not have a material adverse eﬀ ect on our ﬁ nancial position or results of operations. NOTE 16. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION We operate in the consumer foods industry. We have three operating segments by type of customer and geo- graphic region as follows: U.S. Retail, 68.3 percent of our ﬁ scal 2011 consolidated net sales; International, 19.3 percent of our ﬁ scal 2011 consolidated net sales; and Bakeries and Foodservice, 12.4 percent of our ﬁ scal 2011 consolidated net sales. Our U.S. Retail segment reﬂ ects 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 product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, Annual Report 2011 79 ready-to-serve soup, dry dinners, shelf stable and frozen vegetables, refrigerated and frozen dough products, des- sert 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. In Canada, our major product categories are ready- to-eat cereals, shelf stable and frozen vegetables, dry dinners, refrigerated and frozen dough products, des- sert and baking mixes, frozen pizza snacks, and grain and fruit snacks. In markets outside North America, our product categories include super-premium ice cream and frozen desserts, refrigerated yogurt, grain snacks, shelf stable and frozen vegetables, refrigerated and fro- zen dough products, and dry dinners. Our International 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 coun- try where the end customer is located. In our Bakeries and Foodservice segment our major product categories are cereals, snacks, yogurt, unbaked and fully baked frozen dough products, baking mixes, and ﬂ our. 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, convenience stores, vending, and supermarket bakeries. Substantially all of this segment’s operations are located in the United States. Operating proﬁ t for these segments excludes unal- located corporate items, restructuring, impairment, and other exit costs, and divestiture gains and losses. Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee ben- eﬁ ts and incentives, annual contributions to the General Mills Foundation, and other items that are not part of our measurement of segment operating performance. Th ese include gains and losses arising from the revalu- ation of certain grain inventories and gains and losses from mark-to-market valuation of certain commodity positions until passed back to our operating segments. Th ese items aﬀ ecting operating proﬁ t are centrally man- aged at the corporate level and are excluded from the measure of segment proﬁ tability reviewed by execu- tive management. Under our supply chain organization, our manufacturing, warehouse, and distribution activi- ties are substantially integrated across our operations in order to maximize eﬃ ciency and productivity. As a result, ﬁ xed assets and depreciation and amortization 80 General Mills expenses are neither maintained nor available by operat- ing segment. As discussed in Note 1, at the beginning of ﬁ scal 2011 we revised certain SG&A expense classiﬁ cations between segment operating proﬁ t and unallocated cor- porate items and shift ed selling responsibility for a cus- tomer from our Bakeries and Foodservice segment to the U.S. Retail segment. All prior period amounts have been restated to conform to the current period presentation. Our operating segment results were as follows: In Millions Net sales: U.S. Retail Fiscal Year 2011 2010 2009 $10,163.9 $10,209.8 $ 9,973.6 International 2,875.5 2,684.9 2,571.8 Bakeries and Foodservice 1,840.8 1,740.9 2,010.4 Total Operating proﬁ t: U.S. Retail International $14,880.2 $14,635.6 $14,555.8 $ 2,347.9 $ 2,385.2 $ 2,206.6 291.4 192.1 239.2 Bakeries and Foodservice 306.3 263.2 178.4 Total segment operating proﬁ t 2,945.6 2,840.5 2,624.2 Unallocated corporate items 184.1 203.0 342.5 Divestitures (gain), net (17.4) — (84.9) Restructuring, impairment, and other exit costs 4.4 31.4 41.6 Operating proﬁ t $ 2,774.5 $ 2,606.1 $ 2,325.0 Th e following table provides ﬁ nancial information by geographic area: In Millions Net sales: United States Non-United States Fiscal Year 2011 2010 2009 $11,987.8 $11,934.4 $11,942.1 2,613.7 2,892.4 2,701.2 Total $14,880.2 $14,635.6 $14,555.8 In Millions Cash and cash equivalents: United States Non-United States Total In Millions Land, buildings, and equipment: United States Non-United States Total May 29, 2011 May 30, 2010 $123.7 $ 66.1 495.9 607.1 $619.6 $ 673.2 May 29, 2011 May 30, 2010 $2,752.1 $2,619.7 593.8 508.0 $3,345.9 $3,127.7 NOTE 17. SUPPLEMENTAL INFORMATION Th e components of certain Consolidated Balance Sheet accounts are as follows: In Millions Receivables: May 29, 2011 May 30, 2010 From customers $1,178.6 $1,057.4 Less allowance for doubtful accounts (16.3) (15.8) Total In Millions Inventories: $1,162.3 1,041.6 May 29, 2011 May 30, 2010 Raw materials and packaging Finished goods Grain Excess of FIFO or weighted-average cost over LIFO cost (a) Total $ 286.2 $ 247.5 1,273.6 1,131.4 218.0 107.4 (168.5) (142.3) $1,609.3 $1,344.0 (a) Inventories of $1,034.1 million as of May 29, 2011, and $958.3 million as of May 30, 2010, were valued at LIFO. In Millions Other assets: Pension assets Investments in and advances to joint ventures Life insurance Derivative receivables Miscellaneous Total In Millions Other current liabilities: Accrued payroll Accrued interest Accrued taxes Derivative payable Accrued customer advances Grain contracts Miscellaneous Total Accrued trade and consumer promotions 463.0 May 29, 2011 May 30, 2010 $128.6 $ 2.2 519.1 398.1 87.2 13.3 114.3 88.2 130.1 144.8 $862.5 $763.4 May 29, 2011 May 30, 2010 $ 303.3 $ 331.4 114.0 80.4 34.8 36.4 28.7 136.5 555.2 440.2 18.1 25.5 12.7 260.9 242.6 $1,321.5 $1,762.2 May 29, 2011 May 30, 2010 $ 22.2 $ 180.2 In Millions Prepaid expenses and other current assets: Prepaid expenses Accrued interest receivable, May 29, 2011 May 30, 2010 In Millions $161.0 $127.5 including interest rate swaps 29.0 64.9 Other noncurrent liabilities: Interest rate swaps Accrued compensation and beneﬁ ts, including obligations for underfunded other postretirement and Derivative receivables, primarily commodity-related Other receivables Grain contracts Miscellaneous Total In Millions Land, buildings, and equipment: Land Buildings Buildings under capital lease Equipment Equipment under capital lease Capitalized soft ware Construction in progress 109.1 48.8 104.7 101.4 57.3 22.4 11.4 24.5 $483.5 $378.5 postemployment beneﬁ t plans 1,412.8 1,588.1 Accrued income taxes Miscellaneous Total 233.3 276.3 64.9 74.1 $1,733.2 $2,118.7 Certain Consolidated Statements of Earnings amounts May 29, 2011 May 30, 2010 are as follows: Fiscal Year In Millions 2011 2010 2009 Depreciation and amortization $472.6 $457.1 $453.6 Research and development expense 235.0 218.3 208.2 Advertising and media expense (including production and communication costs) 843.7 908.5 732.1 $ 61.2 $ 58.0 1,777.7 1,653.8 25.0 19.6 4,719.7 4,405.6 18.9 367.7 521.9 25.0 318.7 469.0 Total land, buildings, and equipment 7,492.1 6,949.7 Less accumulated depreciation Total (4,146.2) (3,822.0) $3,345.9 $3,127.7 Annual Report 2011 81 Th e components of interest, net are as follows: Certain Consolidated Statements of Cash Flows Fiscal Year amounts are as follows: Expense (Income), in Millions 2011 2010 2009 Fiscal Year Interest expense Capitalized interest Interest income Loss on debt repurchase $360.9 $374.5 $409.5 In Millions 2011 2010 2009 (7.2) (7.4) — (6.2) (5.1) Cash interest payments $333.1 $384.1 $292.8 (6.8) (21.6) Cash paid for income taxes 699.3 672.5 395.3 40.1 — Interest, net $346.3 $401.6 $382.8 In ﬁ scal 2009, we acquired Humm Foods by issuing 1.8 million shares of our common stock to its sharehold- ers, with a value of $55.0 million, as consideration. Th is acquisition is treated as a non-cash transaction in our Consolidated Statement of Cash Flows. NOTE 18. QUARTERLY DATA (UNAUDITED) Summarized quarterly data for ﬁ scal 2011 and ﬁ scal 2010 follows: In Millions, Except Per Share Amounts 2011 2010 2011 2010 2011 2010 2011 2010 First Quarter Fiscal Year Second Quarter Fiscal Year Th ird Quarter Fiscal Year Fourth Quarter Fiscal Year Net sales Gross margin Net earnings attributable to General Mills (a) EPS: Basic Diluted $3,533.1 $3,482.4 $4,066.6 $4,034.7 $3,646.2 $3,589.3 $3,634.3 $3,529.2 1,524.3 1,440.8 1,634.0 1,728.3 1,430.8 1,359.8 1,364.4 1,271.3 472.1 420.6 613.9 565.5 392.1 332.5 320.2 211.9 $ 0.73 $ 0.64 $ 0.96 $ 0.86 $ 0.61 $ 0.50 $ 0.50 $ 0.32 $ 0.70 $ 0.62 $ 0.92 $ 0.83 $ 0.59 $ 0.48 $ 0.48 $ 0.31 Dividends per share $ 0.28 $ 0.24 $ 0.28 $ 0.23 $ 0.28 $ 0.25 $ 0.28 $ 0.24 Market price of common stock: High Low $ 38.93 $ 30.20 $ 37.54 $ 34.56 $ 37.20 $ 36.18 $ 39.95 $ 36.96 $ 33.57 $ 25.59 $ 34.99 $ 28.99 $ 34.60 $ 34.00 $ 35.99 $ 34.74 (a) Net earnings in the fourth quarter of ﬁ scal 2010 included interest expense of $40.1 million related to the repurchase of certain notes and a non-cash income tax charge of $35.0 million resulting from a change in deferred tax assets. 82 General Mills Glossary AOCI. Accumulated other comprehensive income (loss). Average total capital. Used for calculating return on average total capital. Notes payable, long-term debt including current portion, noncontrolling interests, and stockholders’ equity, excluding AOCI and certain aft er- tax earnings adjustments. The average is calculated using the average of the beginning of ﬁ scal year and end of ﬁ scal year Consolidated Balance Sheet amounts for these line items. Core working capital. Accounts receivable plus inven- tories less accounts payable, all as of the last day of our ﬁ scal year. Depreciation associated with restructured assets. Th e increase in depreciation expense caused by updat- ing the salvage value and shortening the useful life of depreciable ﬁ xed assets to coincide with the end of pro- duction under an approved restructuring plan, but only if impairment is not present. Derivatives. Financial instruments such as futures, swaps, options, and forward contracts that we use to man- age our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and stock prices. Fixed charge coverage ratio. The sum of earnings before income taxes and ﬁ xed charges (before tax), divided by the sum of the ﬁ xed charges (before tax) and interest. Interest bearing instruments. Notes payable, long- term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classiﬁ ed within prepaid expenses and other current assets and other assets. LIBOR. London Interbank Oﬀ ered Rate. Mark-to-market. Th e act of determining a value for ﬁ nancial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item. Net mark-to-market valuation of certain commod- ity positions. Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating proﬁ t when the exposure we are hedging aﬀ ects earnings. Net price realization. Th e impact of list and promoted price changes, net of trade and other price promotion costs. Noncontrolling interests. Interests of subsidiaries held by third parties. Notional principal amount. Th e principal amount on which ﬁ xed-rate or ﬂ oating-rate interest payments are calculated. OCI. Other comprehensive income (loss). Generally Accepted Accounting Principles (GAAP). Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our ﬁ nancial statements. Operating cash ﬂ ow to debt ratio. Net cash provided by operating activities, divided by the sum of notes pay- able and long-term debt, including current portion. Goodwill. Th e diﬀ erence between the purchase price of acquired companies and the related fair values of net assets acquired. Reporting unit. An operating segment or a business one level below an operating segment. Hedge accounting. Accounting for qualifying hedges that allows changes in a hedging instrument’s fair value to oﬀ set corresponding changes in the hedged item in the same reporting period. Hedge accounting is permit- ted for certain hedging instruments and hedged items only if the hedging relationship is highly eﬀ ective, and only prospectively from the date a hedging relationship is formally documented. Return on average total capital. Net earnings attrib- utable to General Mills, excluding aft er-tax net interest, and adjusted for certain items aﬀ ecting year-over-year comparability, divided by average total capital. Segment operating proﬁ t margin. Segment operating proﬁ t divided by net sales for the segment. Annual Report 2011 83 Supply chain input costs. Costs incurred to produce and deliver product, including ingredient and conversion costs, inventory management, logistics, warehousing, and others. Total debt. Notes payable and long-term debt, includ- ing current portion. Transaction gains and losses. The impact on our Consolidated Financial Statements of foreign exchange rate changes arising from speciﬁ c transactions. Translation adjustments. Th e impact of the conver- sion of our foreign aﬃ liates’ ﬁ nancial statements to U.S. dollars for the purpose of consolidating our ﬁ nancial statements. Variable interest entities (VIEs). A legal structure that is used for business purposes that either (1) does not have equity investors that have voting rights and share in all the entity’s proﬁ ts and losses or (2) has equity investors that do not provide suﬃ cient ﬁ nancial resources to support the entity’s activities. Working capital. Current assets and current liabili- ties, all as of the last day of our ﬁ scal year. 84 General Mills Non-GAAP Measures Th is report includes measures of ﬁ nancial performance that are not deﬁ ned by generally accepted accounting principles (GAAP). For each of these non-GAAP ﬁ nan- cial measures, we are providing below a reconciliation of the diﬀ erences between the non-GAAP measure and the most directly comparable GAAP measure. Th ese non- GAAP measures are used in reporting to our executive management and/or as a component of the board of director’s measurement of our performance for incentive compensation purposes. Management and the board of directors believe that these measures provide useful information to investors. Th ese non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure. TOTAL SEGMENT OPERATING PROFIT In Millions Net sales: U.S. Retail International Bakeries and Foodservice Total Operating proﬁ t: U.S. Retail International Bakeries and Foodservice Total segment operating proﬁ t 2011 2010 2009 2008 2007 Fiscal Year $ 10,163.9 $ 10,209.8 $ 9,973.6 $ 9,028.2 $ 8,407.7 2,875.5 2,684.9 2,571.8 2,535.5 2,104.5 1,840.8 1,740.9 2,010.4 1,984.3 1,791.8 $ 14,880.2 $ 14,635.6 $ 14,555.8 $ 13,458.0 $ 12,303.9 $ 2,347.9 $ 2,385.2 $ 2,206.6 $ 1,976.7 $ 1,921.3 291.4 306.3 192.1 263.2 239.2 178.4 247.5 170.2 200.6 151.1 2,945.6 2,840.5 2,624.2 2,394.4 2,273.0 Memo: Segment operating proﬁ t as a % of net sales 19.8% 19.4% 18.0% 17.7 % 18.5% Unallocated corporate items Divestitures (gain), net Restructuring, impairment and other exit costs 184.1 (17.4) 4.4 203.0 — 31.4 342.5 (84.9) 41.6 144.2 — 21.0 174.8 — 39.3 Operating Proﬁ t $ 2,774.5 $ 2,606.1 $ 2,325.0 $ 2,229.2 $ 2,058.9 ADJUSTED DILUTED EPS, EXCLUDING CERTAIN ITEMS AFFECTING COMPARABILITY Per Share Data 2011 2010 2009 2008 2007 Fiscal Year Diluted earnings per share, as reported Mark-to-market eﬀ ects (a) Divestitures gain, net (b) Gain from insurance settlement (c) Uncertain tax items (d) Tax charge - health care reform (e) Diluted earnings per share, excluding certain items aﬀ ecting comparability $2.70 (0.09) — — (0.13) $2.24 0.01 — — — — 0.05 $1.90 0.11 (0.06) (0.04) 0.08 — $1.85 (0.05) — — (0.04) — $1.59 — — — — — $2.48 $2.30 $1.99 $1.76 $1.59 (a) Net (gain) loss from mark-to-market valuation of certain commodity positions and grain inventories. (b) Net gain on divestitures of certain product lines. (c) Gain on settlement with insurance carrier covering the loss of a manufacturing facility in Argentina. (d) Eﬀ ects of court decisions and audit settlements on uncertain tax matters. (e) Enactment date charges related to the Patient Protection and Aﬀ ordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, aﬀ ecting deferred taxes associated with Medicare Part D subsidies. Annual Report 2011 85 RETURN ON AVERAGE TOTAL CAPITAL In Millions 2011 2010 2009 2008 2007 2006 Fiscal Year Net earnings attributable to General Mills $ 1,798.3 $ 1,530.5 $ 1,304.4 $ 1,294.7 $ 1,143.9 Interest, net, aft er-tax 243.5 261.1 240.8 263.8 242.9 Earnings before interest, aft er-tax 2,041.8 1,791.6 1,545.2 1,558.5 1,386.8 Mark-to-market eﬀ ects Divestitures gain, net Gain from insurance settlement Uncertain tax items Tax charge - heath care reform Earnings before interest, aft er-tax for return on capital calculation Current portion of long-term debt Notes payable Long-term debt Total debt Noncontrolling interests Stockholders’ equity Total capital Accumulated other comprehensive (income) loss Aft er-tax earnings adjustments (a) Adjusted total capital Adjusted average total capital Return on average total capital (60.0) 4.5 — — (88.9) — — — — 74.9 (38.0) (26.9) 52.6 35.0 — (35.9) — — (30.7) — — — — — — $ 1,892.9 $ 1,831.1 $ 1,607.8 $ 1,491.9 $ 1,386.8 $ 1,031.3 $ 107.3 $ 508.5 $ 442.0 $ 1,734.0 $ 2,131.5 311.3 1,050.1 812.2 2,208.8 1,254.4 1,503.2 5,542.5 5,268.5 5,754.8 4,348.7 3,217.7 2,414.7 6,885.1 6,425.9 7,075.5 6,999.5 6,206.1 6,049.4 246.7 245.1 244.2 246.6 1,139.2 1,136.2 6,365.5 5,402.9 5,172.3 6,212.2 5,318.7 5,772.3 13,497.3 12,073.9 12,492.0 13,458.3 12,664.0 12,957.9 1,010.8 1,486.9 (310.5) (161.6) 877.8 (201.1) (173.1) (263.7) 120.1 (197.1) (125.4) (197.1) $ 14,197.6 $ 13,399.2 $ 13,168.7 $ 13,021.5 $ 12,587.0 $ 12,635.4 $ 13,798.4 $ 13,283.9 $ 13,095.1 $ 12,804.3 $ 12,611.2 13.7% 13.8% 12.3% 11.7% 11.0% (a) Sum of current year and previous year aft er-tax adjustments. I N T E R N AT I O N A L S E GM E N T A N D R E G I O N S A L E S GROW TH RATES EXCLUDING IMPACT OF FOREIGN EXCHANGE Th e reconciliation of International segment and region sales growth rates as reported to growth rates exclud- ing the impact of foreign currency exchange below dem- onstrates the eﬀ ect of foreign currency exchange rate ﬂ uctuations from year to year. To present this infor- mation, current-period results for entities reporting in Europe Canada Asia/Paciﬁ c Latin America Total International segment 86 General Mills currencies other than U.S. dollars are converted into U.S. dollars at the average exchange rates in eﬀ ect during the corresponding period of the prior ﬁ scal year, rather than the actual average exchange rates in eﬀ ect during the current ﬁ scal year. Th erefore, the foreign currency impact is equal to current-year results in local curren- cies multiplied by the change in the average foreign cur- rency exchange rates between the current ﬁ scal period and the corresponding period of the prior ﬁ scal year. Fiscal Year 2011 Percentage Change in Net Sales Impact of Foreign Percentage Change in Net Sales on Constant as Reported Currency Exchange Currency Basis 5% 8 14 (5) 7% (2)% 5 5 (16) Flat 7% 3 9 11 7% WORLDWIDE NET SALES INCLUDING PROPORTIONATE SHARE OF ONGOING JOINT VENTURES Th e 8th Continent business was sold in ﬁ scal 2008. To view the performance of our joint ventures on an ongo- ing basis, we have provided certain information exclud- ing 8th Continent. Th e reconciliation of this non-GAAP measure is shown in the following table: In Millions Consolidated net sales Proportionate share of ongoing joint venture net sales Fiscal Year 2011 2010 2009 2008 2007 $14,880 $14,636 $14,556 $13,548 $12,304 1,222 1,180 1,133 1,091 985 Worldwide net sales, including proportionate share of ongoing joint ventures $16,102 $15,816 $15,689 $14,639 $13,289 PRO FORMA NET SALES FOR CERTAIN GLOBAL BUSINESSES Th e components of the pro forma net sales for our ﬁ ve global businesses and the basis for calculating each component are described below. Ready-to-eat Cereal Fiscal 2011 U.S. net sales plus ﬁ scal 2011 international net sales in local currency, translated to U.S. dollars (USD) utilizing an estimated ﬁ scal 2011 foreign exchange rate set at the beginning of the ﬁ scal year, and used for management reporting and planning purposes. Also includes our proportionate share of Cereal Partners Worldwide net sales, which represents ﬁ scal 2011 net sales in local currency, translated to USD at monthly average actual rates. Super-premium Ice Cream Fiscal 2011 international net sales in local currency, translated to USD utilizing an estimated ﬁ scal 2011 for- eign exchange rate set at the beginning of the ﬁ scal year, and used for management reporting and planning purposes. For multi-year comparisons, all international net sales are converted from local currency to USD using the estimated ﬁ scal 2011 foreign exchange rate. Also includes our proportionate share of Häagen-Dazs Japan net sales, which represents ﬁ scal 2011 net sales in local currency, translated to USD at monthly average actual rates. Convenient Meals and Wholesome Snack Bars Fiscal 2011 U.S. net sales plus ﬁ scal 2011 international net sales in local currency, translated to USD utilizing an estimated ﬁ scal 2011 foreign exchange rate set at the beginning of the ﬁ scal year, and used for management reporting and planning purposes. For multi-year com- parisons, all international net sales are converted from local currency to USD using the estimated ﬁ scal 2011 foreign exchange rate. Refrigerated Yogurt Fiscal 2011 U.S. net sales plus $1.2 billion of estimated pro forma ﬁ scal 2012 net sales from the international Yoplait yogurt business we acquired in July 2011. Annual Report 2011 87 Total Return to Stockholders Th ese line graphs compare the cumulative total return for holders of our common stock with the cumulative total return of the Standard & Poor’s 500 Stock Index and Standard & Poor’s 500 Packaged Foods Index for the last ﬁ ve-year and ten-year ﬁ scal periods. Th e graphs assume the investment of $100 in each of General Mills’ common stock and the speciﬁ ed indexes at the begin- ning of the applicable period, and assume the reinvest- ment of all dividends. On July 8, 2011, there were approximately 33,400 record holders of our common stock. Total Return to Stockholders 5 Years x e d n I n r u t e R l a t o T x e d n I n r u t e R l a t o T 200 180 160 140 120 100 80 60 40 20 0 May 06 May 07 May 08 May 09 May 10 May 11 Total Return to Stockholders 10 Years 260 240 220 200 180 160 140 120 100 80 60 40 20 0 May 01 May 02 May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11 General Mills (GIS) S&P 500 S&P Packaged Foods 88 General Mills WE HAVE A PORTFOLIO BUILT FOR GLOBAL GROWTH. From ready-to-eat cereal to convenient meals to wholesome snacks, we compete in growing food categories that are on-trend with consumer tastes around the world. Our brands hold leading market positions in more than 100 markets worldwide, with great opportunities for expansion. General Mills at a Glance U.S. Retail Net sales by division International Net sales by region Bakeries and Foodservice Net sales by customer type 8% 2% 13% 23% 13% 12% 31% Joint Ventures Net sales by joint venture (not consolidated, proportionate share) 15% 15%% 18% 27% 21% 30% 29% 58% % % $10.2 Billion 23% Big G Cereals 21% Meals 18% Pillsbury USA 15% Yoplait 13% Snacks 8% Baking Products 2% Small Planet Foods/Other % % $2.9 Billion 31% Europe 29% Asia/Paciﬁc 27% Canada 13% Latin America % $1.8 Billion 58% Bakeries & National Restaurant Accounts 30% Foodservice Distributors 12% Convenience Stores 85% $1.2 Billion 85% Cereal Partners Worldwide (CPW) 15% Häagen-Dazs Japan Shareholder Information World Headquarters Number One General Mills Boulevard Minneapolis, MN 55426-1347 Phone: (763) 764-7600 Website GeneralMills.com Markets New York Stock Exchange Trading Symbol: GIS Independent Auditor KPMG LLP 4200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-3900 Phone: (612) 305-5000 Investor Inquiries General Shareholder Information: Investor Relations Department (800) 245-5703 or (763) 764-3202 Analysts/Investors: Kristen S. Wenker Vice President, Investor Relations (763) 764-2607 Holiday Gift Boxes General Mills Gift Boxes are a part of many shareholders’ December holiday traditions. To request an order form, call us toll free at (888) 469-7809 or write, including your name, street address, city, state, zip code and phone number (including area code) to: 2011 General Mills Holiday Gift Box Department 7803 P.O. Box 5011 Stacy, MN 55078-5011 Or you can place an order online at: GMIHolidayGift Box.com Please contact us aft er Oct. 1, 2011. i s e n a p m o C S L G y b g n i t n i r P i n o s d d A y b i n g s e D Transfer Agent and Registrar Our transfer agent can assist you with a variety of services, including change of address or questions about dividend checks. Wells Fargo Bank, N.A. 161 North Concord Exchange P.O. Box 64854 St. Paul, MN 55164-0854 Phone: (800) 670-4763 or (651) 450-4084 WellsFargo.com/shareownerservices Electronic Access to Proxy Statement, Annual Report and Form 10-K Shareholders who have access to the Internet are encouraged to enroll in the electronic delivery program. Please see the Investors section of our website, GeneralMills.com, or go directly to the website, ICSDelivery.com/GIS and follow the instructions to enroll. If your General Mills shares are not registered in your name, contact your bank or broker to enroll in this program. Notice of Annual Meeting Th e annual meeting of shareholders will be held at 11 a.m., Central Daylight Time, Sept. 26, 2011, at the Children’s Th eatre Company, 2400 Th ird Avenue South, Minneapolis, MN 55404-3597. A ticket or proof of share ownership will be required for admission. Please refer to our Proxy Statement for information concerning admission to the meeting. General Mills Direct Stock Purchase Plan Th is plan provides a convenient and economical way to invest in General Mills stock. You can increase your ownership over time through purchases of common stock and reinvestment of cash dividends, without paying brokerage commissions and other fees on your purchases and reinvestments. For more information and a copy of a plan prospectus, go to the Investors section of our website at GeneralMills.com. Visit us on the Web We have a variety of websites that appeal to consumers around the world. Below is a selection of our most popular sites. For a more complete list, see the “Our websites” page on GeneralMills.com. U.S. Sites Cheerios.com Pillsbury.com Yoplait.com Larabar.com BettyCrocker.com Get recipes, cooking tips and view instructional videos BoxTops4Education.com Sign up to support your school EatBetterAmerica.com Simple ways to eat healthy, including healthier versions of your favorite recipes QueRicaVida.com Recipes and nutritional information for Hispanic consumers Tablespoon.com Download coupons, recipes and more for a variety of our brands International Sites HaagenDazs.com.cn (China) HaagenDazs.fr (France) NatureValley.co.uk (United Kingdom) OldElPaso.com.au (Australia) LifeMadeDelicious.ca (Canada) Get recipes, promotions and entertaining ideas for many of our brands Th is Report is Printed on Recycled Paper 10% ©2011 General Mills General Mills A Portfolio for Global Growth Annual Report 2011 G e n e r a l M i l l s A n n u a l R e p o r t 2 0 1 1 Number One General Mills Boulevard Minneapolis, MN 55426-1347 GeneralMills.com What started 70 years ago as a brand new cereal has become a mainstay on millions of breakfast tables. Today, one of every eight boxes of cereal sold in the U.S. is a Cheerios variety.

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