Notes to Consolidated Financial Statements

On August 31, 2000, we acquired Ducros, S.A. and Sodis, S.A.S. (Ducros) from Eridania Beghin-Say, for 2.75 billion French francs (equivalent to $379 million). The Ducros purchase contract provided for a potential adjustment to the purchase price with interest from the date of purchase. On April 29, 2003, we settled the purchase price adjustment with the prior owners of Ducros and received payment of €49.6 million (equivalent to $55.4 million). Of the $55.4 million received, $5.4 million represented interest earned on the settlement amount from the date of acquisition in accordance with the terms of the original purchase agreement. The interest income was included in "Other income, net" in the consolidated statement of income for the year ended November 30, 2003. The remaining $50.0 million of the settlement amount was recorded as a reduction to goodwill related to the acquisition.

3. DISCONTINUED OPERATIONS

On August 12, 2003, we completed the sale of substantially all the operating assets of our packaging segment (Packaging). Packaging manufactured certain products used for packaging our spices and seasonings as well as packaging products used by manufacturers in the vitamin, drug and personal care industries. Under the terms of the sale agreement, Packaging was sold for $132.5 million in cash. The proceeds were used to pay off a substantial portion of the commercial paper borrowing related to the Zatarain's acquisition in 2003. We recorded a net gain on the sale of Packaging of $11.6 million (net of income taxes of $7.9 million) in the third quarter of 2003. Included in this gain was a net pension and postretire-ment curtailment gain of $3.3 million and the write-off of goodwill of $0.7 million. We also entered into a multi-year, market priced agreement with the acquirer to purchase certain packaging products.

On July 1, 2003 we sold the assets of Jenks Sales Brokers (Jenks), a division of our wholly-owned U.K. subsidiary, to Jenks' senior management for $5.8 million in cash. Jenks provided sales and distribution services for other consumer product companies and was previously reported as a part of our consumer segment. We recorded a net loss on the sale of Jenks of $2.6 million (net of an income tax benefit of $0.6 million) in the third quarter of 2003. Included in this loss is a write-off of goodwill of $0.4 million.

The operating results of Packaging and Jenks were classified as "Income from discontinued operations, net" in the consolidated statement of income. Interest expense was allocated to discontinued operations based on the ratio of the net assets of the discontinued operations to the total net assets of McCormick. The cash flows of Packaging and Jenks were reported as "Net cash (used in)/provided by discontinued operations" in the consolidated statement of cash flows. The disclosures in the notes to consolidated financial statements exclude discontinued operations.

Summary operating results for the discontinued businesses were as follows:

The following table presents summarized cash flow information of the discontinued operations for the year ended November 30, 2003:

4. SPECIAL CHARGES

As the next step in our progress with margin improvement, we announced in September 2005 significant actions to improve the effectiveness of our supply chain and reduce costs. At that time, we also stated that a comprehensive review of our global industrial business was underway to identify improvements. These actions were included in a comprehensive restructuring plan which the Board approved in November 2005. As part of this plan, over the next three years, we will consolidate our global manufacturing, rationalize our distribution facilities, improve our go-to-market strategy and eliminate administrative redundancies. In addition, for the industrial business, we will reallocate resources to key customers and take pricing actions on lower volume products to meet new margin targets. A new business-wide forecasting process is being installed and the use of technology will be accelerated to monitor and manage the business. Through 2008, these actions are intended to reduce the number of industrial business customers and products in the U.S. by approximately 25%.

We are projecting that $50 million of annual cost savings will be achieved by 2008. We expect to drive margin improvement and increase earnings per share, as well as invest a portion of these savings in sales growth drivers such as brand advertising. These savings are expected to be recorded in both cost of sales and selling, general and administrative expenses in the consolidated statement of income.