SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 26, 2006
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INTERNATIONAL FLAVORS & FRAGRANCES INC.
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(Exact Name of Registrant as Specified in Charter)
New York 1-4858 13-1432060
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
521 West 57th Street, New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
Attached and being furnished hereby as Exhibit 99.1 is a copy of a press
release of International Flavors & Fragrances Inc. ("IFF" or the "Company")
dated April 26, 2006 reporting IFF's financial results for the first quarter
ended March 31, 2006.
Non-GAAP financial measures: To supplement the Company's financial results
presented in accordance with U.S. Generally Accepted Accounting Principles
("GAAP"), the Company uses, and has included in the attached press release,
certain non-GAAP financial measures. These non-GAAP financial measures should
not be considered in isolation, or as a substitute for, or superior to,
financial measures calculated in accordance with GAAP. These non-GAAP financial
measures as disclosed by the Company may also be calculated differently from
similar measures disclosed by other companies. To ease the use and understanding
of our supplemental non-GAAP financial measures, the Company includes the most
directly comparable GAAP financial measure.
The Company uses the non-GAAP financial measure which excludes restructuring and
other charges for preparing financial targets, internal budgets and operating
plans, evaluating actual performance against targets and budget, assessing
historical performance over reporting periods, assessing management performance
and assessing operating performance against other companies. This information
has also aided the Company's management and its Board of Directors in
decision-making and allocation of resources. A material limitation of this
financial measure is that some or all of such special charges represent actual
cash outlays and that such measure does not reflect actual GAAP expense.
Management compensates for such limitations by clarifying that this measure is
only one operating metric used for internal financial analysis and planning
purposes and should not be considered in isolation, and by providing the
corresponding GAAP financial measure.
The Company also discloses, and management internally monitors, the sales
performance of international operations on a basis that eliminates the positive
or negative effects that result from translating foreign currency sales into
U.S. dollars. Management uses this constant dollar measure because it believes
that it enhances the assessment of the sales performance of its international
operations and the comparability between reporting periods.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release of International Flavors & Fragrances Inc.,
dated April 26, 2006.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: April 26, 2006 By: /s/ Douglas J. Wetmore
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Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
IFF REPORTS FIRST QUARTER RESULTS
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CONFIRMS 2006 GUIDANCE
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New York, N.Y., April 26, 2006 ... International Flavors & Fragrances Inc.
(NYSE: IFF) ("IFF" or "the Company") reported earnings per share for the first
quarter 2006 of $.58 compared to $.55 for the prior year quarter.
First quarter 2006 sales totaled $511.4 million, declining 2% in comparison to
the prior year quarter. Reported sales for the 2006 quarter were affected by the
strength of the U.S. dollar; had exchange rates remained constant, sales would
have increased 3% in comparison to the 2005 quarter.
Fragrance sales decreased 2% while flavor sales were flat; on a local currency
basis, fragrance and flavor sales grew 2% and 4%, respectively. Fragrance sales
were led by fine fragrance, which increased 2% in dollars and 8% in local
currency; the fine fragrance performance reflected the benefit of a number of
new product wins. Sales of functional fragrances declined 4% in dollars and were
flat in local currency while fragrance ingredient sales declined 6% in dollars
and 1% in local currency.
Richard A. Goldstein, Chairman and Chief Executive Officer of IFF, commented, "I
am encouraged by our continued strong performance both in fine fragrance and in
many of the markets we have targeted for growth - notably India and Latin
America. I am confident that our improved sales performance is the result of our
focus on innovation, customer service and operating discipline. I believe these
strengths, combined with the actions announced in early January 2006 to reduce
costs and improve profitability, will create significant value for IFF's
shareholders."
Sales performance by region for the 2006 quarter compared to the prior year
follows:
- North American fragrance and flavor sales increased 6% and 4%,
respectively; in total, regional sales increased 5%. Sales of fine
fragrances increased 21%, benefiting both from new wins and strong demand
for existing fragrance compounds. Fragrance ingredient sales increased 12%,
while functional fragrance sales declined 8%. The flavor growth mainly
resulted from new wins.
- European fragrance sales decreased 11% while flavor sales declined 6%; in
total, regional sales declined 9%. Reported sales were unfavorably impacted
by the strength of the U.S. dollar against the Euro, Pound Sterling and
Swiss Franc; local currency sales declined 1%. Local currency fragrance
sales decreased 2%; fine and functional fragrance sales each increased 2%,
although this growth was offset by a 12% decline in sales of fragrance
ingredients. Local currency flavor sales increased 2%, mainly as a result
of new wins.
- Latin American sales increased 11%, with fragrance and flavor sales
increasing 8% and 19%, respectively. For the region, sales growth was
strongest in Venezuela, Central America and Mexico which grew 32%, 22% and
16%, respectively; Brazil grew 6% for the quarter. Fragrance sales grew in
all product categories and growth was fairly consistent across the region;
fine and functional fragrance and fragrance ingredient sales increased 9%,
7% and 12%, respectively. Flavor sales growth was also strong throughout
the region led by increases of 20%, 79% and 11% in Brazil, Central America
and Mexico, respectively.
- Asia Pacific fragrance sales decreased 7% while flavor sales declined 3%
compared to the 2005 quarter; in total, regional sales declined 5% in
reported dollars. Local currency fragrance sales were led by a 3% increase
in fine fragrances although this growth was offset by a 9% decline in
functional fragrances; sales of fragrance ingredients were flat in local
currency as were flavor sales. For the region, Thailand, South Korea and
Singapore/Malaysia sales were strongest, with respective local currency
sales increases of 14%, 14% and 6%. However, this growth was offset by
weakness in the Philippines, Indonesia, Australia and Japan which declined
22%, 7%, 7% and 4%, respectively, in local currency.
- India sales increased 16% in local currency and 14% in reported dollars.
Local currency fragrance sales increased 19%, resulting in a 17% increase
in dollars. Flavor sales increased 12% in local currency and 11% in
dollars. In both flavors and fragrances, the sales performance reflected
the benefit of new product wins and continued strength of the region's
economies.
Net income for the quarter increased 2% compared to the prior year quarter.
- Gross profit, as a percentage of sales, increased to 42.4% compared to
41.0% in the 2005 quarter. The improvement was attributable mainly to the
local currency sales performance and improved manufacturing expense
absorption, favorable product mix and the benefit of selling price
increases. Gross margin in the 2005 quarter was also unfavorably impacted
by lower expense absorption attributable to the closure of the Company's
Dijon, France facility and the transfer of related production to other
manufacturing locations; production at the Dijon facility ceased in March
2005.
- Research and Development ("R&D") expenses totaled 8.9% of sales compared to
8.6% in the prior year quarter, consistent with the Company's intended
level of R&D spending.
- Selling, General and Administrative ("SG&A") expenses, as a percentage of
sales, increased to 16.7% from 16.2%. SG&A expenses were impacted by higher
incentive plan accruals than in the prior year, driven by the improved
local currency sales and operating performance.
- Operating expenses were also impacted by the adoption of Statement of
Financial Accounting Standards No. 123(R) "Share Based Payment" ("FAS
123R") which the Company adopted effective January 1, 2006. R&D and SG&A
expense include $0.2 million and $0.7 million, respectively, of equity
compensation expense related to the adoption of FAS 123R.
- Interest expense declined 4% due to a lower average interest rate on
borrowings; the average interest rate on borrowings for 2006 was 2.3%
compared to 3.2% for 2005.
- The effective tax rate for the quarter was 28.6%, compared to 31.2% in the
prior year quarter; the rate for the 2006 quarter benefited from reversal
of accruals no longer deemed necessary regarding certain overseas
locations.
Outlook for 2006 confirmed
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Consistent with prior guidance, IFF currently expects 2006 local currency sales
to increase in the low single digits in comparison to 2005; based on current
exchange rates, this local currency performance is expected to result in a low
single digit increase in reported dollar sales.
- Gross profit, as a percentage of sales, is expected to improve slightly
from 2005 mainly due to improved sales performance, product mix,
implementation of price increases and savings resulting from restructuring
actions.
- R&D expenses are expected to approximate 9.0% of sales.
- SG&A expenses, as a percentage of sales, are expected to decrease
somewhat from 2005 levels, mainly as a result of the restructuring
activities and absence of costs associated with product contamination;
partially offsetting these savings will be the inclusion of $14.0 to $16.0
million in equity compensation expense in 2006, compared to $7.3 million in
2005. Vesting of equity compensation is time based (generally over a three
year period); the actual expense will depend upon the value of the
Company's stock and the number of equity units granted among other factors.
- Interest expense is expected to decline approximately 10% from 2005, mainly
based on anticipated lower levels of debt, and the Company's interest rate
management strategies.
- The effective tax rate is expected to approximate 30% for the full year
2006.
Based on the foregoing and consistent with previous guidance, IFF currently
expects earnings per share for 2006 to be in the range of $2.20 to $2.28. This
guidance includes $0.03 per share related to the adoption of FAS 123R; previous
per share guidance of $2.23 to $2.31 had excluded the impact of adoption of FAS
123R as the cost of implementing the Standard had not yet been determined.
Reorganization Actions
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In January 2006, the Company announced plans to eliminate approximately 300
positions in manufacturing, selling, research and administration functions,
principally in its European and North American operating regions; the reductions
represent 6% of the Company's workforce. As a result of these actions, the
Company anticipates recording pre-tax restructuring charges of $25.0 million to
$30.0 million relating primarily to employee separation expenses; of this, $23.3
million was recognized in 2005; $0.7 million was recognized in the first quarter
of 2006. The remaining charges are expected to be recognized over the balance of
2006. Annual savings from these actions are expected to approximate $16.0
million to $18.0 million.
About IFF
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IFF is a leading creator and manufacturer of flavors and fragrances used in a
wide variety of consumer products--from fine fragrances and toiletries, to
soaps, detergents and other household products, to beverages and food products.
IFF is dedicated to The Pursuit of Excellence in every area of its business,
using knowledge, creativity, innovation and technology to continually provide
customers with the highest quality products and service and superior consumer
understanding.
IFF has sales, manufacturing and creative facilities in 31 countries worldwide.
For more information, please visit our Web site at www.iff.com.
Cautionary Statement Under the Private Securities Litigation Reform Act of 1995
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Statements in this report, which are not historical facts or information, are
"forward-looking statements" within the meaning of The Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
management's reasonable current assumptions and expectations. Certain of such
forward-looking information may be identified by such terms as "expect",
"believe", "may", "outlook", "guidance" and similar terms or variations thereof.
All information concerning future revenues, tax rates or benefits, interest
savings, and other future financial results or financial position, constitutes
forward-looking information. Such forward-looking statements are based on
management's reasonable current assumptions and expectations. Such
forward-looking statements involve significant risks, uncertainties and other
factors. Actual results of the Company may differ materially from any future
results expressed or implied by such forward-looking statements. Such factors
include, among others, the following: general economic and business conditions
in the Company's markets, including economic, population health and political
uncertainties; interest rates; the price, quality and availability of raw
materials; the Company's ability to implement its business strategy, including
the achievement of anticipated cost savings, profitability and growth targets;
the impact of currency fluctuation or devaluation in the Company's principal
foreign markets and the success of the Company's hedging and risk management
strategies; the outcome of uncertainties related to litigation; uncertainties
related to any potential claims and rights of indemnification or other recovery
for customer and consumer reaction to its earlier contamination issue; the
impact of possible pension funding obligations and increased pension expense on
the Company's cash flow and results of operations; and the effect of legal and
regulatory proceedings, as well as restrictions imposed on the Company, its
operations or its representatives by foreign governments. The Company intends
its forward-looking statements to speak only as of the time of such statements
and does not undertake to update or revise them as more information becomes
available or to reflect changes in expectations, assumptions or results.
Conference call
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There will be a conference call today at 10:00 AM Eastern Time, at which time
the Company will discuss operating results for the 2006 first quarter, and its
current expectations for 2006. The dial in number for U.S.-based callers is
1-888-202-2422; for international callers, the number is 1-913-981-5592. The
pass code for the call is 4442951.
A replay of the conference call will be available from 1:00 PM Eastern Time
beginning on Wednesday April 26, 2006 and ending at Midnight on Wednesday, May
10. The dial in number for the replay for U.S.-based listeners is
1-888-203-1112; for international listeners, the number is 1-719-457-0820. The
replay pass code will be 4442951.
The call can also be monitored at www.iff.com. Real Network's Real Player or
Microsoft Media Player is required to access the webcast. They can be downloaded
from www.real.com or www.microsoft.com/windows/mediaplayer. A replay of the
conference call will be available on the Company's website for twelve months.
Contact
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Douglas J. Wetmore
Senior Vice President and
Chief Financial Officer
Phone: 212-708-7145
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International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
Quarter Ended March 31,
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2005 2006
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Net Sales $523,052 $511,432
Cost of goods sold 308,397 294,818
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Gross margin on sales 214,655 216,614
Research & development 44,753 45,602
Selling and administrative 84,744 85,588
Amortization 3,768 3,710
Restructuring and other charges - 661
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81,390 81,053
Interest expense (5,576) (5,373)
Other income (expense), net 556 (439)
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Pretax income 76,370 75,241
Income taxes 23,827 21,551
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Net income $ 52,543 $ 53,690
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Including restructuring and other charges:
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Net income $ 52,543 $ 53,690
Earnings per share - basic $.56 $.59
Earnings per share - diluted $.55 $.58
Excluding restructuring and other charges:
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Net income $ 52,543 $ 54,151
Results per share - basic $.56 $.59
Results per share - diluted $.55 $.59
Average shares outstanding (in thousands):
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Basic 94,325 91,535
Diluted 96,025 92,207
International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
(Unaudited)
December 31, 2005 March 31, 2006
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Cash & short-term investments $ 272,897 $ 205,581
Receivables 368,519 399,151
Inventories 430,794 437,560
Other current assets 119,064 111,270
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Total current assets 1,191,274 1,153,562
Property, plant and equipment, net (1,2) 499,145 485,624
Goodwill and other intangibles, net 772,651 768,941
Other assets 175,126 178,820
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Total assets $2,638,196 $2,586,947
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Commercial paper, bank borrowings, overdrafts
and current portion of long-term debt (3) $ 819,392 $ 805,705
Other current liabilities 383,304 370,562
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Total current liabilities 1,202,696 1,176,267
Long-term debt (3) 131,281 130,155
Non-current liabilities 388,872 390,284
Shareholders' equity 915,347 890,241
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Total liabilities and shareholders' equity $2,638,196 $2,586,947
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Notes:
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1. Capital spending - Quarter: $9 million
2. Depreciation - Quarter: $19 million
3. At December 31, 2005 and March 31, 2006, long-term debt includes
unamortized gains of $2.3 million and $1.6 million, respectively; at March
31, 2006 commercial paper, bank borrowings, overdrafts and current portion
of long-term debt includes unamortized gains of $1.7 million on various
interest rate swaps the Company has entered into. Such gains have been
deferred and are being amortized over the remaining term of the underlying
debt.
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2006 vs 2005 1st Quarter
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% Change in Sales by Region of Destination Fragrances Flavors Total
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North America 6 4 5
Europe - Reported (11) (6) (9)
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Europe - Local Currency (2) 2 (1)
Latin America 8 19 11
Asia Pacific - Reported (7) (3) (5)
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Asia Pacific - Local Currency (5) - (2)
India - Reported 17 11 14
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India - Local Currency 19 12 16
Total - Reported (2) - (2)
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Total - Local Currency 2 4 3