## EXECUTIVE OVERVIEW 

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

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

Our objectives are to consistently deliver: 

• low single-digit annual growth in net sales; 

• mid single-digit annual growth in total segment operating profit; 

• high single-digit annual growth in EPS; and 

• improvements in return on average total capital. 

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

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

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

We achieved each of our five key operating objectives for fiscal 2010: 

• We generated broad-based growth in net sales across our businesses which enabled us to achieve a year-over-year increase, despite one less week in fiscal 2010. Contributions from volume were flat, including the loss of 2 points of growth from divested products and a 1 point loss from an additional week in fiscal 2009. We generated 1 point of growth from net price realization and product mix. Foreign exchange was flat compared to fiscal 2009. 

• We increased our gross margin as a percent of net sales 410 basis points driven by a decrease in input costs and a focus on our holistic margin management (HMM) programs, which include cost-savings initiatives, marketing spending efficiencies, and profitable sales mix strategies. 

• We invested a significant amount in media and other brand- building marketing programs, which contributed to net sales growth on our consumer businesses. 

• We grew our Bakeries and Foodservice segment operating profit, including a focus on higher-margin, branded product lines within our most attractive foodservice customer channels. 

• We continued to develop our business in international mar- kets. We focused on our core platforms of ready-to-eat cereal, super premium ice cream, convenient meal solutions, and healthy snacking by introducing new products and investing in consumer spending. 

Details of our financial results are provided in the “Fiscal 2010 Consolidated Results of Operations” section below. 

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

