To Our Shareholders,
Fiscal 2009 was a strong year for General Mills. We generated sales and earnings growth that exceeded our long-term goals and the specific targets we had set for this year. Our portfolio of leading food brands is showing its resilience in today’s challenging economic environment, and we believe our company is positioned to achieve another year of good growth in fiscal 2010.

Net sales for the year ended May 31, 2009, increased 8 percent to $14.7 billion. This includes the effects of translating international sales from foreign currencies into U.S. dollars, which reduced the sales growth rate by 2 percentage points.

Operating profit from our business segments grew faster than sales, rising 10 percent to exceed $2.6 billion. Earnings per share (EPS) grew 2 percent to $3.80, including several items that affect the comparability of results year-over-year: mark-to-market valuation of certain commodity positions, a discrete tax item, a net gain from the sale of several product lines, and proceeds from an insurance recovery.

Excluding these items, earnings per share totaled $3.98 in 2009, up 13 percent from comparable earnings of $3.52 per share in 2008. Fiscal 2009 was a 53-week year, and the extra week contributed roughly 1.5 points of net sales growth and approximately $0.07 to earnings per share. We reinvested a portion of this earnings benefit in incremental consumer marketing initiatives that we expect to help drive continuing sales growth for our brands.

A Robust Business Model
Our performance in 2009 reflects the vitality of the food categories where we compete and the powerful market positions our brands hold in these categories. Our results also are testimony to the strength of the business model we adopted several years ago in response to significant and sustained cost inflation, particularly on fuel and commodities. This business model is driven by holistic margin management (HMM), a companywide discipline of leveraging productivity, sales mix and pricing to offset input cost inflation, protect gross margin, and reinvest increasing levels of consumer marketing support in our brands to drive growth in net sales.

In 2009, our input cost inflation was 9 percent, the highest rate we’ve seen in many years. Our HMM focus enabled us to offset that cost pressure and hold gross margin essentially steady at 35.6 percent of net sales. By protecting our margin, we generated funds to increase consumer marketing support for our brands—always important, but particularly so in an economic environment where lower-priced store brands are getting increased attention.

Our consumer marketing spending rose 16 percent in 2009, building on increased investments made in each of the last three years. These marketing programs drove consumer demand for our products, and we grew our share of category sales in a number of key markets around the world.

We took actions during the past year that strengthened our business portfolio. We acquired Lärabar, a leading fruit and nutbased energy snack. We sold the Pop·Secret microwave popcorn product line. We sold two nonstrategic foodservice product lines.

And we exited pasta and cheese bread businesses in Brazil, in order to focus operations in that country on our Nature Valley and Häagen-Dazs brands. We believe our business portfolio is a strategic advantage, and in 2009 each of our operating segments and U.S. Retail divisions generated sales growth, as shown in the table below.

Our Model for Long-term Growth
General Mills’ growth in 2009 exceeded our long-term targets of low single-digit growth in net sales, mid single-digit growth in segment operating profit, and high single-digit growth in earnings per share. We believe this sales and earnings growth, coupled with a targeted dividend yield of between 2 to 3 percent, should result in returns to our shareholders (stock price appreciation and dividends) that meet or exceed the broader market’s return over time.

In fiscal 2009, General Mills stock outperformed the broader equity market, but the total return to shareholders did not reflect our company’s strong financial condition and business performance.

In response to financial market turmoil and global economic weakness, stock valuations declined sharply, and the S&P 500 stock index posted a negative 31 percent return to investors last year. In this very difficult market environment, our food company peer group fared better, posting a negative 15 percent return.

And the return to General Mills shareholders last year was a negative 14 percent. Over the most recent five years, General Mills delivered positive compound annual returns to shareholders, well ahead of our peer group and overall market performance.

Our long-term financial goals include a commitment to combine good earnings growth with increasing returns on the capital invested in our business. Four years ago, we established a goal to improve our return on average total capital (ROC) by an average of 50 basis points per year. We're done that in each of the last four years, and we are targeting another year of ROC improvement in 2010, although at a slightly more moderate rate.

Earnings growth is the primary driver of our ROC improvement, but disciplined use of cash also plays a role. In 2009, cash generated by our operations totaled $1.8 billion, up 6 percent.

We return much of this operating cash to shareholders, through dividends and share repurchases. In 2009, shareholder dividends grew 10 percent to $1.72 per share, and in June 2009 the board of directors approved a 9 percent dividend increase, bringing the new annualized rate to $1.88 per share. We invested more than $1.2 billion to repurchase shares of the company's common stock in 2009, reducing the average number of diluted shares outstanding by 1 percent.

The company's financial condition remains very sound. Total debt at year end was up just 1 percent from year earlier levels, despite the strong growth of our business. As a result, two key measures of our financial strength -the ratio of operating cash flow to debt, and the ratio of earnings to fixed charges -improved from 2008 levels.

In summary, 2009 was a very good year for General Mills. We strengthened our position as a global food company, and our prospects for continued growth are excellent.

The Drivers of our Continuing Growth
We have tremendous strengths to leverage as we move forward. We compete in growing food categories that are on-trend with consumers?demand for products that offer great taste, convenience, nutrition and value. Our brands hold leading share positions in a wide array of U.S. and international markets for food at home. And our brands hold large and growing positions in the U.S. foodservice industry, which represents half a trillion dollars annually in sales of food eaten away from home.

We see five key drivers of our continuing growth. They are:

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

We work continuously to improve our established brands and to create successful new products. In 2009, we continued our efforts to improve the nutritional profile of our products by reducing fat, sodium or sugar, and adding ingredients such as fiber and whole grains. Since 2005, we have improved the nutritional attributes for products representing 45 percent of our U.S. Retail business, and we are extending these efforts to our international product lines.

New products are an important contributor to our growth, too. Within our U.S. Retail segment, more than 5 percent of our 2009 net sales came from products that were introduced in the past year. And 6 percent of our International segment sales came from new products. We plan to launch more than 150 products worldwide in the first half of 2010 alone.

We're supporting both new and established brands with increased levels of consumer spending. Our plans for 2010 include a high single-digit increase in consumer marketing investment.

And we're reaching consumers in a variety of ways, from impactful TV advertising to our own branded Web sites. Through our consumer marketing initiatives, we increase awareness of our brands and drive sales of our products at everyday nonpromoted prices.

Our growth depends on partnering effectively with our retail and foodservice customers. In 2009, we continued to advance the capabilities we bring to our customers in areas such as shopper and category insights, effective in-store merchandising and supply chain efficiences to lead profitable sales growth across different channels and retail formats. And our efforts are being recognized. Food retailers ranked our U.S. Retail sales force No. 4 in the 2008 Cannondale PoweRanking survey, with a composite score up significantly from the prior year. And our Bakeries and Foodservice sales team moved up to No. 3 in Cannondale's Foodservice ranking.

We're rapidly growing sales for our brands in international markets. In 2009, net sales for our wholly owned International businesses totaled $2.6 billion. Our key brand platforms in this fastgrowing segment are Hagen-Dazs super-premium ice cream, Old El Paso Mexican foods, Wanchai Ferry Asian cuisine, and Nature Valley granola bars. We also have 50 percent stakes in two international joint ventures, Hagen-Dazs Japan and Cereal Partners Worldwide (CPW). CPW now operates in 130 markets across the globe, and net sales for its ready-to-eat cereals grew to exceed $2 billion in fiscal 2009. Foreign exchange effects currently are dampening reported sales and earnings growth rates for our International operations, but constant-currency growth is robust.

We expect international expansion to be a key driver of sales and profit increases for us in the years ahead. Our companywide focus on protecting margins is generating industry-leading results. After five consecutive years of significant cost increases for fuel and commodities, we expect the rate of input cost inflation to moderate in fiscal 2010. We believe savings from our holistic margin management initiatives will drive margin expansion this year and contribute to earnings growth for our businesses worldwide.

We Have Exceptional People
General Mills people are our most powerful competitive advantage. We have more than 30,000 employees around the world, and I want to thank them for all of their contributions to the company. Their talent and commitment give me great confidence in our ability to achieve our future growth goals. I'd also like to acknowledge the contributions of our board of directors, and welcome R. Kerry Clark, chairman and chief executive officer of Cardinal Health, Inc., as its newest member.

In closing, let me also thank you for your investment in General Mills. I look forward to reporting on our continuing progress.

Sincerely,
Kendall J. Powell
Chairman of the Board and Chief Executive Officer

Download General Mills Annual Report 2009

PDF format, 6.5MB, 96Pages.

GENERAL MILLS
Number One General Mills Boulevard
Minneapolis, MN 55426-1347
www.generalmills.com

General Mills has a distinguished portfolio of leading food brands. Many are long-standing favorites, as appealing to consumers today as when they were introduced decades ago.

The operating environment for our business is ever-changing, but our brands are resilient and generate continuing growth. Ours is a portfolio for all seasons.

BUILD OUR BRANDS
We have a broad portfolio of well-known brands that compete in growing food categories. We’ve built these brands over the years by innovating to meet changing consumer needs. In 2009, net sales for our U.S. Retail segment, which generated 68 percent of total company sales, grew 11 percent as we combined product improvements on established products and new innovations with increased marketing support. We’ll generate growth in 2010 and beyond with more product innovation and increased levels of brand-building support.

Consumers want products that provide health benefits. Cheerios is our largest cereal franchise, thanks to its whole grain goodness. Retail sales for the entire franchise grew 11 percent in fiscal 2009, led by MultiGrain Cheerios and Honey Nut Cheerios.

Health benefits also drive growth on Yoplait yogurt. Retail sales for Yoplait Light reduced-calorie yogurt grew 18 percent this year. In 2010, we’ll introduce a light version of YoPlus probiotic yogurt and new Yoplait Delights parfaits.

We launched the Nature Valley brand in 1975 with all natural, crunchy oats and honey granola bars. More than 30 years later, the brand is still going strong. Fiber One bars are a newer addition to our snack portfolio, offering 35 percent of an adult’s daily value of fiber. Retail sales for these bars grew at a strong double-digit rate in fiscal 2009, and we recently added a chocolate mocha flavor to the line. Increasingly, consumers are looking for value, and our brands are affordable food choices. Cereal is still an economical option for breakfast—a bowl of Cheerios with milk is less than 50 cents per serving.

And Progresso soup, Hamburger Helper and Totino’s pizza each make an affordable meal at less than $1.50 per serving. Consumers are eating more meals at home and want convenient options their whole family will enjoy. We created the dry dinner mix category in 1971 with the introduction of Hamburger Helper, and it continues to be the market leader. In 2010, we’re bringing restaurant-quality meals home with new flavors of our Macaroni Grill entrees and Wanchai Ferry Asian dinner kits.

And we’re taking the Wanchai Ferry brand into the frozen section of the store with a new line of complete meals for two that are ready in just 14 minutes.

Retail sales for Betty Crocker dessert mixes grew 9 percent in 2009 as consumers bake more at home. This summer, we launched the first nationally branded glutenfree baking mixes. Pillsbury refrigerated dough posted a 6 percent increase in retail sales in 2009, and we’ve got some innovative new products coming in 2010. For example, Pillsbury Simply… cookies offer delicious, homemade cookies with no trans fat, artifi cial fl avors, colors or preservatives.

And if you’re looking for something savory, we’re adding to our line of Pillsbury Savorings frozen heat-and-eat appetizers launched last summer.

We’re investing behind our brands with increased levels of advertising and online initiatives. Consumers can find recipes and valuable coupons through our Pillsbury Web site. And Betty Crocker is providing cooking tips and even a cooking school online. In total, we increased our U.S. Retail consumer marketing spending by 19 percent in fiscal 2009, and we expect to increase spending in 2010 at a high single-digit rate.

By investing in our leading brands, we’re increasing their market share and driving growth for retailers, too. In 2009, we increased our total number of products available in U.S. grocery stores, despite heightened attention to store brands in the current environment. We’ll continue to innovate to meet consumer needs and invest in our brands to drive growth in 2010 and beyond.