Management's Discussion and Analysis

    Cash payments to pension plans, including unfunded plans, were $41.2 million in 2006, $32.8 million in 2005 and $30.6 million in 2004. We plan to make 2007 pension plan contributions similar to those made in 2006. Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual return on plan assets. We base our investment of plan assets, in part, on the duration of each plan's liabilities. Across all plans, approximately 66% of assets are invested in equities, 27% in fixed income investments and 7% in other investments.

    The increase of our debt-to-total-capital ratio in 2006 (total capital includes debt, minority interest and shareholders' equity) was the result of an increase in our total debt of $81.0 million, partially offset by a significant increase in capital. The increase in debt is due to the acquisition of Simply Asia Foods and the increase in equity is primarily due to the effect of foreign currency translation adjustments. During the year, the level of our short-term debt varies. It is usually lower, however, at the end of the year. The average short-term borrowings outstanding for the year ended November 30, 2006 and 2005 were $271.9 million and $299.3 million, respectively.

    The reported values of our assets and liabilities held in our non-U.S. subsidiaries and affiliates have been significantly affected by fluctuations in foreign exchange rates between periods. During the year ended November 30, 2006, the exchange rates for the Euro, British pound sterling and Canadian dollar were substantially higher versus the U.S. dollar than in 2005. Exchange rate fluctuations resulted in an increase in accounts receivable of $23 million, inventory of $12 million, goodwill of $59 million and other comprehensive income of $110 million since November 30, 2005.

    In March 2006, we entered into interest rate swap contracts for a total notional amount of $100 million to receive interest at 5.20% and pay a variable rate of interest based on three-month LIBOR minus .05%. We designated these swaps, which expire on December 15, 2015, as fair value hedges of the changes in fair value of $100 million of the $200 million 5.20% medium-term notes due 2015 that we issued in December 2005. As of November 30, 2006, the fair value of this swap contract was an unrealized gain of $2.3 million, which was offset by a corresponding increase in value of the hedged debt. Any unrealized gain or loss on this swap will be offset by a corresponding increase or decrease in value of the hedged debt. No hedge ineffectiveness is recognized as the interest rate swap qualifies for the "shortcut" treatment.

    We have available credit facilities with domestic and foreign banks for various purposes. The amount of unused credit facilities at November 30, 2006 was $499.1 million. Management believes that internally generated funds and the existing sources of liquidity under our credit facilities are sufficient to meet current liquidity needs and longerterm financing requirements. If an acquisition would require funds in excess of existing sources of liquidity, funding from additional credit facilities or equity issuances would be sought.

Acquisitions

On June 27, 2006, we purchased the assets of Epicurean International (Simply Asia Foods) for $97.6 million in cash. This business operates in North America and is included in our consumer segment from the date of acquisition. Simply Asia Foods develops, imports and markets a line of authentic, easy-to-prepare Asian products under the Thai Kitchen® and Simply Asia® brands and has annual sales of approximately $50 million. Its primary products include noodle and soup bowls, meal kits, coconut milk, and various sauces and pastes. Acquisitions such as Simply Asia Foods are a part of our growth strategy to improve margins and increase sales and profits.

    The excess purchase price over the estimated fair value of the net tangible assets purchased was $91.0 million. The allocation of the purchase price included in our financial statements is based on preliminary estimates, subject to revision after appraisals have been finalized. Revisions to the allocation, which may be significant, will be reported as changes to various assets and liabilities, including goodwill and other intangible assets. As of November 30, 2006, $26.3 million was allocated to other intangibles assets and $64.7 million remained in goodwill. We expect the final valuation to result in a value for brands and other intangible assets, a portion of which will be amortizable and a portion of which will be non-amortizable. Based on preliminary estimates, we have included amortization expense in our income statement.

    The $97.6 million purchase price was initially funded with commercial paper. In July 2006, we issued $100 million of 5.80% senior notes due 2011 to pay down this commercial paper debt (see note 7 of the financial statements).

    On August 1, 2006, we invested $5.0 million in an industrial joint venture in South Africa.