Management's Discussion and Analysis

Results of Operations - 2005 compared to 2004

For the year ended November 30, 2005, we reported sales of $2.6 billion, an increase of 2.6% versus 2004, including a 1.0% increase from favorable foreign exchange rates. Key initiatives that drove sales in 2005 included acquisitions, new products, improved marketing and price increases. Sales from Silvo, acquired at the end of 2004, contributed 1.5% to the sales increase. During 2005, net sales were negatively impacted by several factors. First, industrial sales were reduced by lower pricing of vanilla products and the elimination of lower-margin products in Europe. Second, consumer sales in the fourth quarter were affected by the impact of Hurricane Katrina on sales in the Gulf region of the U.S. Third, consumer sales of a limited range of higher volume spice and herb items in France continued to be adversely impacted by low priced products in alternative retail channels. We estimate that these three factors lowered sales for 2005 by approximately 2%.

Gross profit margin increased to 40.0% in 2005 from 39.9% in 2004. In 2005, we exceeded our goal of lowering costs by $25 million, achieving savings of $33 million. Improved segment mix through a higher proportion of consumer versus industrial sales and pricing actions also improved gross profit margin. Significant cost increases in certain raw materials, packaging and fuel offset much of the gross profit margin increase.

Selling, general and administrative expenses were higher in 2005 than 2004 on a dollar basis but declined as a percentage of net sales. The dollar increase was primarily due to increased distribution expenses and higher sales promotion expenses. The increase in distribution expenses was primarily due to higher fuel costs. In our consumer business, we increased sales promotion expenses in order to launch several new products and to support our brand name. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to lower incentive compensation associated with our 2005 results. In addition, advertising was down slightly as we suspended some of our advertising for the Zatarain's brand following Hurricane Katrina.

Special charges were $11.2 million in 2005 compared to a credit of $2.5 million in 2004. The 2004 special charges included a net gain of $8.7 million recorded in 2004 for funds received from a class action lawsuit that was settled in our favor. The charges in the current year are primarily due to the implementation of the new restructuring plan, discussed later in MD&A and in note 4 of the notes to consolidated financial statements.

Interest expense in 2005 increased $7.2 million. Average borrowings during the year increased slightly, however, higher interest rates on our variable rate debt during 2005 accounted for most of this increase.

Other income decreased to $0.4 million in 2005 compared to $2.1 million in 2004 due to lower interest income.

The effective tax rate was 32.7% in 2005 up from 30.3% in 2004. The increase in the effective tax rate was due to the final utilization of certain net operating loss carryforwards in 2004 which were no longer available in 2005 and the mix of earnings among the different tax jurisdictions in which we operate.

Income from unconsolidated operations increased 41% in 2005 compared to 2004. This increase is mainly attributable to higher income from our joint venture in Mexico where more effective marketing programs and promotions, new product launches, reduced expenses and lower soybean oil costs all contributed to the improved performance.

Net income was $214.9 million in 2005 compared to $214.5 million in 2004. Diluted earnings per share in 2005 were $1.56 and included an $11.2 million charge ($0.05 per share) for actions taken under our restructuring plan. In 2004 earnings per share were $1.52 and included a special credit of $2.5 million. Earnings per share rose as a result of higher sales, an increase in unconsolidated income and lower shares outstanding, offset in part by the increase in special charges, a higher effective tax rate, an increase in interest expense and a decrease in other income.