SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
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) July 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 July
26, 2006 reporting IFF's financial results for the second quarter and six months
ended June 30, 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 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 July 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: July 26, 2006 By: /s/ Douglas J. Wetmore
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Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
FOR IMMEDIATE RELEASE
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IFF REPORTS SECOND QUARTER RESULTS
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EARNINGS PER SHARE INCREASE 12% ON HIGHER SALES AND LOWER COSTS
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REAFFIRMS 2006 GUIDANCE
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New York, N.Y., July 26, 2006 ... International Flavors & Fragrances Inc. (NYSE:
IFF) ("IFF" or the "Company") reported earnings per share for the second quarter
2006 of $.67 compared to $.60 in the prior year quarter, an increase of 12%.
Second quarter 2006 sales totaled $531 million, increasing 3% over the prior
year quarter; fragrance and flavor sales increased 3% and 2%, respectively.
Reported sales for the 2006 period were affected by the strength of the U.S.
dollar; had exchange rates remained constant, sales would have been one
percentage point higher.
Fragrance sales were led by fine fragrance, which increased 9%; much of the
growth resulted from new product introductions. Sales of functional fragrances
increased 1% while fragrance ingredient sales declined 3%.
The flavor sales performance benefited from new wins as well as from ease of
comparison with the prior year quarter, when flavor sales were affected by a
vendor-supplied raw material contamination issue, the impact of which
approximated $5.0 million in the 2005 quarter.
"The improvements in sales and costs are very encouraging. The IFF team will
continue to focus on customers, innovation and people to drive our growth," said
Robert Amen, Chairman and Chief Executive Officer of IFF. "We continue to
perform very well in fine fragrances, and in many of the markets we've targeted
for growth - notably Eastern Europe, India and Latin America. Near term, our
emphasis is on meeting or exceeding our 2006 targets for growth and
profitability. The Fine Fragrance team is executing its strategy of building
customer brands around the world very well. We need to build on this strength.
We are assessing our Company plan and performance to determine what adjustments
are needed to accelerate our growth in sales and profitability."
"IFF is an outstanding company that is differentiated by its innovation, strong
customer base, quality management team and dedicated employees. I am pleased to
have the opportunity to lead IFF through its next stage of growth and look
forward to leveraging our strengths as we work to accelerate IFF's value
creation."
Second Quarter 2006
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Sales performance by region and product category in comparison to the prior year
quarter follows:
Second Quarter 2006 vs. 2005
% Change in Sales by Region of Destination
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Fine Func'l. Ingr. Total Frag. Flavors Total
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N. America Reported 18% 1% 13% 10% 4% 7%
Europe Reported 3% 3% -13% -1% -3% -2%
Local Currency 5% 5% -11% 1% -1% -
L. America Reported 17% -4% -2% 1% 15% 5%
Asia Pacific Reported 2% 10% -4% 5% 1% 2%
Local Currency 2% 10% -1% 6% 3% 4%
India Reported 8% -8% 18% -1% 9% 4%
Local Currency 8% -8% 20% - 9% 5%
Total Reported 9% 1% -3% 3% 2% 3%
Local Currency 10% 2% -2% 4% 3% 4%
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- North America fine fragrance and flavor growth was driven mainly by new
product introductions while increases in ingredients and functional
fragrances were primarily volume related.
- European growth was strongest in Eastern Europe, Africa and the Middle
East, collectively increasing 15% over the 2005 quarter; a 2% decline in
Western Europe offset this growth. Fine and functional fragrance growth was
mainly the result of new product introductions while the decline in
ingredients and flavor sales was mainly volume related.
- Latin America fine fragrance sales growth resulted from new product
introductions while declines in functional fragrance and ingredients were
primarily volume related. Flavor sales were strong throughout the region;
this growth was mainly the result of new product introductions.
- Asia Pacific fine and functional fragrance sales growth resulted mainly
from new product introductions, while volume declines negatively impacted
ingredient sales. Flavor sales growth was mainly the result of new product
introductions.
- India fragrance sales performance in all product categories resulted
primarily from volume fluctuations while flavor sales increased due to the
combined benefit of new product introductions and volume growth.
Net income for the 2006 quarter increased 8% compared with the prior year
quarter.
- Gross profit, as a percentage of sales, improved nearly 1% compared to the
prior year quarter. The improvement resulted mainly from the local currency
sales performance, improved manufacturing expense absorption and favorable
product mix. The 2005 margin was unfavorably impacted by costs attributable
to the raw material contamination matter.
- Research and Development ("R&D") expenses totaled 8.6% of sales, consistent
with the prior year quarter.
- Selling, General and Administrative ("SG&A") expenses, as a percentage of
sales, increased to 16.5% from 16.1%, mainly as a result of higher
incentive plan accruals and equity compensation expense than the 2005
quarter.
- Interest expense increased 4% from the prior year, primarily due to higher
average levels of debt in the quarter and slightly higher interest rates.
- The effective tax rate was 28.0% compared to 30.8% in the prior year
quarter; variations in the effective rate are mainly attributable to
fluctuations in earnings in the countries in which the Company operates.
First Half 2006
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For the six-month period ended June 30, 2006, sales totaled $1,042 million,
essentially flat with the 2005 period. Reported sales for the 2006 period were
affected by the strength of the U.S. dollar; had exchange rates remained
constant, sales would have been three percentage points higher.
Sales performance by region and product category in comparison to the prior year
period follows:
Six Months 2006 vs. 2005
% Change in Sales by Region of Destination
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Fine Func'l. Ingr. Total Frag. Flavors Total
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N. America Reported 20% -3% 13% 8% 4% 6%
Europe Reported -2% -2% -16% -6% -5% -6%
Local Currency 4% 4% -12% -1% - -
L. America Reported 13% 1% 4% 4% 17% 8%
Asia Pacific Reported 2% -1% -5% -1% -1% -1%
Local Currency 2% - -1% - 2% 1%
India Reported 14% 4% 16% 8% 10% 9%
Local Currency 15% 5% 20% 10% 11% 10%
Total Reported 6% -1% -4% - 1% -
Local Currency 9% 1% -1% 3% 4% 3%
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- North America fine fragrance and flavor growth resulted mainly from new
product introductions while the decline in functional fragrances was volume
related. Ingredients sales growth was due to a combination of volume and
price.
- European growth was strongest in Eastern Europe, Africa and the Middle
East, which was offset by an overall sales decline in Western Europe. Fine
and functional fragrance growth resulted from new product introductions
while the decline in ingredients was volume related, as was the decline in
flavor sales.
- Latin America fine fragrance sales growth resulted from new product
introductions while increases in functional fragrance and ingredients were
primarily volume related. Flavor sales were strong throughout the region,
mainly benefiting from new product introductions.
- Asia Pacific fine fragrance sales growth resulted mainly from new product
introductions, while volume declines unfavorably impacted functional
fragrance and ingredients. Flavor sales growth was mainly the result of new
product introductions.
- India fragrance sales performance in all product categories resulted
primarily from volume growth while flavor sales increased due to the
combined benefit of new product introductions and volume growth.
Outlook for 2006 Reaffirmed
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Consistent with prior guidance, IFF currently expects 2006 sales to increase in
the low single digits in both local currency and reported dollars, in comparison
to 2005.
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.
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 30
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
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, earnings and other future financial results or financial position,
constitutes forward-looking information. 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
There will be a conference call today at 10:00 AM Eastern Time, at which time
the Company will discuss operating results for the second quarter 2006, and its
current expectations for 2006. The dial in number for U.S.-based participants is
1-877-704-5381; for international participants, the number is 1-913-312-1295.
The pass code will be 4210967.
A replay of the call will be available from 1:00 PM Eastern Time beginning
Wednesday, July 26, 2006 and ending at Midnight Wednesday, August 9. 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 4210967.
The call can also be monitored via the World Wide Web 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 June 30, Six Months Ended June 30,
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2005 2006 2005 2006
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Net Sales $515,578 $530,505 $1,038,630 $1,041,937
Cost of goods sold 299,065 302,889 607,462 597,707
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Gross margin on sales 216,513 227,616 431,168 444,230
Research & development 44,380 45,588 89,133 91,190
Selling and administrative 82,866 87,684 167,610 173,272
Amortization 3,767 3,711 7,535 7,421
Restructuring and other charges (income) - (304) - 357
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85,500 90,937 166,890 171,990
Interest expense (6,062) (6,300) (11,638) (11,673)
Other income (expense), net 2,558 286 3,114 (153)
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Pretax income 81,996 84,923 158,366 160,164
Income taxes 25,283 23,741 49,110 45,292
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Net income $56,713 $61,182 $109,256 $114,872
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Including restructuring and other charges (income):
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Net income
Earnings per share - basic $56,713 $61,182 $109,256 $114,872
Earnings per share - diluted $0.60 $0.67 $1.16 $1.26
$0.60 $0.67 $1.14 $1.25
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Excluding restructuring and other charges (income):
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Net income
Results per share - basic $56,713 $61,085 $109,256 $115,236
Results per share - diluted $0.60 $0.67 $1.16 $1.26
$0.60 $0.67 $1.14 $1.25
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Average shares outstanding (in thousands):
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Basic 93,876 90,869 94,100 91,202
Diluted 95,255 91,787 95,640 91,997
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International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
(Unaudited)
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December 31, June 30,
2005 2006
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Cash & short-term investments $ 272,897 $ 30,152
Receivables 368,519 419,397
Inventories 430,794 443,339
Other current assets 119,064 102,646
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Total current assets 1,191,274 995,534
Property, plant and equipment, net 499,145 487,631
Goodwill and other intangibles, net 772,651 765,230
Other assets 175,126 204,185
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Total assets $2,638,196 $2,452,580
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Bank borrowings, overdrafts
and current portion of long-term debt $ 819,392 $ 308,936
Other current liabilities 383,304 395,525
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Total current liabilities 1,202,696 704,461
Commercial paper and long-term debt 131,281 415,791
Non-current liabilities 388,872 386,330
Shareholders' equity 915,347 945,998
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Total liabilities and shareholders' equity $2,638,196 $2,452,580
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International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30,
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2005 2006
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Cash flows from operating activities:
Net Income $109,256 $114,872
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 46,429 44,602
Deferred income taxes 17,488 329
Gain on disposal of assets (1,520) (3,881)
Changes in assets and liabilities
Current receivables (50,426) (60,327)
Inventories 1,192 1,163
Current payables (40,524) (2,336)
Others, net (24,354) 26,543
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Net cash provided by operations 57,541 120,965
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Cash flows from investing activities:
Net change in short-term investments 35 25
Additions to property, plant and equipment (38,149) (19,806)
Proceeds from disposal of assets 433 6,504
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Net cash used in investing activities (37,681) (13,277)
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Cash flows from financing activities:
Cash dividends paid to shareholders (33,104) (33,990)
Net change in bank loans 7,852 (32,508)
Net change in commercial paper outstanding 91,891 281,521
Repayments of long-term debt (11,655) (499,306)
Proceeds from issuance of stock under stock option and
employee stock purchase plans 17,764 23,146
Purchase of treasury stock (60,988) (91,315)
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Net cash (used in) provided by financing activities 11,760 (352,452)
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Effect of exchange rates changes on cash and cash equivalents (4,352) 2,052
Net change in cash and cash equivalents 27,268 (242,712)
Cash and cash equivalents at beginning of year 32,596 272,545
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Cash and cash equivalents at end of period $59,864 $29,833
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