Management's Discussion and Analysis

Financial Condition

We generate strong cash flow from operations which enables us to fund operating projects and investments that are designed to meet our growth objectives, make substantial share repurchases, increase our dividend and fund capital projects and restructuring costs.

In the consolidated statement of cash flows, the changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency exchange rates, as these do not reflect actual cash flows. Accordingly, the amounts in the consolidated statement of cash flows do not agree with changes in the operating assets and liabilities that are presented in the consolidated balance sheet. In addition, the net cash flows from operating, investing and financing activities are presented excluding the effects of discontinued operations.

In the consolidated statement of cash flows, net cash provided by continuing operating activities was $339.2 million in 2005 compared to $349.5 million in 2004 and $201.8 million in 2003. When 2005 is compared to 2004, the change in operating cash flow was primarily the result of a reduction in receivables in 2005 as compared to an increase in 2004 and higher dividends received from unconsolidated affiliates in 2005 compared to 2004. These favorable cash flows were offset by an increase in inventory in 2005 as compared to 2004 when inventory decreased and a decrease in other liabilities in 2005 compared to an increase in 2004. The decrease in accounts receivable was primarily due to a large amount of collections made near year end in France and the U.K. Due to the success of our joint venture in Mexico and our Signature Brands joint venture, we received significantly more dividend payments in 2005 compared to 2004. In 2005, inventory increased slightly. However, in 2004 inventory decreased $28 million in anticipation of lower cost vanilla beans in 2005. The decrease in other liabilities in 2005 compared to an increase in 2004 was due to the timing of liability payments.

Net cash used in continuing investing activities was $77.0 million in 2005 versus $141.5 million in 2004 and $100.7 million in 2003. Net capital expenditures (capital expenditures less proceeds from the sale of fixed assets) were $71.5 million in 2005, $67.0 million in 2004and $81.7 million in 2003. Net capital expenditures are generally in line with the rate of depreciation except in 2003, when B2K spending was higher than in 2004 and 2005. Acquisition of business cash flow was for a small business in France in 2005, the Silvo business in 2004 and the Zatarain's and Uniqsauces businesses in 2003. Net capital expenditures are expected to be higher in 2006 due to spending on the 2005 restructuring plan.

Net cash used in continuing financing activities was $294.4 million in 2005, $178.4 million in 2004 and $137.7 million in 2003. Our total borrowings decreased $67.6 million in 2005, compared to an increase of $19.3 million in 2004 and an increase of $16.4 million in 2003. Part of the decrease in 2005 is due to a corresponding decrease in cash of approximately $40 million. In the fourth quarter of 2005, we paid off $30 million of medium-term notes at maturity.