Management's Discussion and Analysis
Commodity Risk -We purchase certain raw materials which are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other factors beyond our control. While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments. We have not used derivatives to manage the volatility related to this risk.
Credit Risk - The customers of our consumer business are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers, some of which are highly leveraged. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs and discount chains. This has caused some customers to be less profitable. This has increased our exposure to credit risk. Several customers over the past two years have filed for bankruptcy protection; however, these bankruptcies have not had a material effect on our results. We believe that the risks have been adequately provided for in our bad debt allowance.
Contractual Obligations and Commercial Commitments
The following table reflects a summary of our contractual obligations and commercial commitments as of November 30, 2006:
Contractual Cash Obligations Due by Year
| Total | Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Short-term borrowings | $ | 80.8 | $ | 80.8 | - | - | - | ||||||||
| Long-term debt | 570.8 | .6 | $ | 200.8 | $ | 114.4 | $ | 255.0 | |||||||
| Operating leases | 78.7 | 19.5 | 31.8 | 22.3 | 5.1 | ||||||||||
| Interest payments | 237.6 | 35.0 | 53.4 | 43.2 | 106.0 | ||||||||||
| Raw material purchase obligations(a) | 167.4 | 167.4 | - | - | - | ||||||||||
| Other purchase obligations(b) | 1.3 | 1.3 | - | - | - | ||||||||||
| Total contractual cash obligations | $ | 1,136.6 | $ | 304.6 | $ | 286.0 | $ | 179.9 | $ | 366.1 | |||||
(a) Raw material purchase obligations outstanding as of year-end may not be indicative of outstanding obligations throughout the year due to our response to varying raw material cycles.
(b) Other purchase obligations primarily consist of advertising media commitments.
In 2007, our pension and postretirement funding is expected to be approximately $47 million. Pension and postretirement funding can vary significantly each year due to changes in legislation and our significant assumptions. As a result, we have not presented pension and postretirement funding in the table above.
Commercial Commitments Expiration by Year
| Total | Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Guarantees | $ | 3.1 | $ | 2.1 | $ | .5 | $ | .5 | - | ||||||
| Standby and trade letters of credit | 28.7 | 28.7 | - | - | - | ||||||||||
| Lines of credit | 499.1 | 99.1 | - | 400.0 | - | ||||||||||
| Total commercial commitments | $ | 530.9 | $ | 129.9 | $ | .5 | $ | 400.5 | - | ||||||