SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2006
-----------------------------------------
Commission file number 1-4858
-----------------------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(Exact name of registrant as specified in its charter)
New York 13-1432060
--------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
521 West 57th Street, New York, N.Y. 10019-2960
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [|X|] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [X ] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12B-2 of the Exchange Act).
Yes [ ] No [X]
Number of shares outstanding as of May 1, 2006: 90,838,142
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(Unaudited)
ASSETS 3/31/06 12/31/05
---------------------------------------------------------------------------------------- ------------- -------------
Current Assets:
Cash and cash equivalents $ 205,251 $ 272,545
Short-term investments 330 352
Trade receivables 363,513 319,644
Allowance for doubtful accounts (15,047) (14,821)
Inventories: Raw materials 200,760 197,268
Work in process 11,600 11,866
Finished goods 225,200 221,660
------------- -------------
Total Inventories 437,560 430,794
Deferred income taxes 68,451 75,366
Other current assets 93,504 107,394
------------- -------------
Total Current Assets 1,153,562 1,191,274
------------- -------------
Property, Plant and Equipment, at cost 1,018,297 1,025,707
Accumulated depreciation (532,673) (526,562)
------------- -------------
485,624 499,145
------------- -------------
Goodwill 665,582 665,582
Intangible Assets, net 103,359 107,069
Other Assets 178,820 175,126
------------- -------------
Total Assets $ 2,586,947 $ 2,638,196
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY 3/31/06 12/31/05
---------------------------------------------------------------------------------------- ------------- -------------
Current Liabilities:
Bank borrowings, overdrafts and current portion of long-term debt $ 805,705 $ 819,392
Accounts payable 105,298 98,588
Accrued payrolls and bonuses 19,862 23,260
Dividends payable 16,800 17,189
Income taxes 43,342 41,089
Restructuring and other charges 23,901 30,099
Other current liabilities 161,359 173,079
------------- -------------
Total Current Liabilities 1,176,267 1,202,696
------------- -------------
Other Liabilities:
Long-term debt 130,155 131,281
Deferred gains 66,956 67,713
Retirement liabilities 209,530 207,452
Other liabilities 113,798 113,707
------------- -------------
Total Other Liabilities 520,439 520,153
------------- -------------
Commitments and Contingencies (Note 9)
Shareholders' Equity:
Common stock 12 1/2 cent par value; authorized 500,000,000 shares;
issued 115,761,840 shares 14,470 14,470
Capital in excess of par value 72,696 71,894
Retained earnings 1,788,945 1,752,055
Accumulated other comprehensive income:
Cumulative translation adjustment (42,532) (47,369)
Accumulated losses on derivatives qualifying as hedges (net of tax) (1,800) (2,606)
Minimum pension liability adjustment (net of tax) (100,380) (100,380)
------------- -------------
1,731,399 1,688,064
Treasury stock, at cost - 25,150,525 shares in 2006 and 23,047,349 shares in 2005 (841,158) (772,717)
------------- -------------
Total Shareholders' Equity 890,241 915,347
------------- -------------
Total Liabilities and Shareholders' Equity $ 2,586,947 $ 2,638,196
============= =============
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
3 Months Ended 3/31
---------------------------
2006 2005
------------- -------------
Net sales $ 511,432 $ 523,052
------------- -------------
Cost of goods sold 294,818 308,397
Research and development expenses 45,602 44,753
Selling and administrative expenses 85,588 84,744
Amortization of intangibles 3,710 3,768
Restructuring and other charges 661 -
Interest expense 5,373 5,576
Other (income) expense, net 439 (556)
------------- -------------
436,191 446,682
------------- -------------
Income before taxes on income 75,241 76,370
Taxes on income 21,551 23,827
------------- -------------
Net income 53,690 52,543
Other comprehensive income:
Foreign currency translation adjustments 4,837 (26,863)
Accumulated gains (losses) on derivatives qualifying as hedges (net of tax) 806 (842)
------------- -------------
Comprehensive income $ 59,333 $ 24,838
============= =============
Net Income per share - basic $0.59 $0.56
Net Income per share - diluted $0.58 $0.55
Average number of shares outstanding - basic 91,535 94,325
Average number of shares outstanding - diluted 92,207 96,025
Dividends declared per share $0.185 $0.175
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
3 Months Ended March 31,
-----------------------------
2006 2005
------------- -------------
Cash flows from operating activities:
Net income $ 53,690 $ 52,543
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 22,261 22,889
Deferred income taxes 9,953 11,695
Gain on disposal of assets (1,644) (753)
Changes in assets and liabilities:
Current receivables (45,164) (48,257)
Inventories (1,694) 5,284
Current payables (1,110) (29,451)
Changes in other assets, net (2,134) (21,554)
Changes in other liabilities, net 7,037 (6,406)
------------- -------------
Net cash provided by (used in) operations 41,195 (14,010)
------------- -------------
Cash flows from investing activities:
Net change in short-term investments 25 35
Additions to property, plant and equipment (9,033) (15,687)
Proceeds from disposal of assets 4,670 166
------------- -------------
Net cash used in investing activities (4,338) (15,486)
------------- -------------
Cash flows from financing activities:
Cash dividends paid to shareholders (17,189) (16,571)
Net change in bank borrowings and overdrafts (19,398) 18,084
Net change in commercial paper outstanding - 44,977
Proceeds from long-term debt - 2,291
Repayments of long-term debt (6) (11,654)
Proceeds from issuance of stock under stock option and
employee stock purchase plans 6,636 13,552
Purchase of treasury stock (75,561) (29,986)
------------- -------------
Net cash (used in) provided by financing activities (105,518) 20,693
------------- -------------
Effect of exchange rate changes on cash and cash equivalents 1,367 (980)
------------- -------------
Net change in cash and cash equivalents (67,294) (9,783)
Cash and cash equivalents at beginning of year 272,545 32,596
------------- -------------
Cash and cash equivalents at end of period $ 205,251 $ 22,813
============= =============
Interest paid $ 1,622 $ 674
Income taxes paid $ 8,056 $ 9,484
See Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
------------------------------------------
These interim statements and management's related discussion and analysis should
be read in conjunction with the consolidated financial statements and their
related notes and management's discussion and analysis of results of operations
and financial condition included in the Company's 2005 Annual Report on Form
10-K. These interim statements are unaudited. In the opinion of the Company's
management, all adjustments, including normal recurring accruals, necessary for
a fair presentation of the results for the interim periods have been made.
Note 1. Net Income Per Share:
Net income per share is based on the weighted average number of shares
outstanding. A reconciliation of the shares used in the computation of basic and
diluted net income per share is as follows:
Three Months Ended March 31,
---------------------------------------- --------------------- ----------------
(Shares in thousands) 2006 2005
---------------------------------------- --------------------- ----------------
Basic 91,535 94,325
----------------- ----------------
Assumed conversion under stock plans 672 1,700
----------------- ----------------
Diluted 92,207 96,025
Stock options to purchase 1,875,375 and 552,862 shares were outstanding for the
first quarter of 2006 and 2005, respectively, but were not included in the
computation of diluted net income per share for the respective periods since the
impact was anti- dilutive.
Note 2. Restructuring and Other Charges:
As described in Note 2 to the Consolidated Financial Statements in the Company's
2005 Annual Report, the Company has undertaken a significant reorganization,
including management changes, consolidation of production facilities and related
actions.
The Company undertook a plan to eliminate approximately 300 positions in
manufacturing, selling, research and administration functions, principally in
its European and North American operating regions. The majority of affected
positions involve employee separation while the balance relates to open
positions that will not be filled. As a result of these actions, the Company
recognized pre-tax charges of $23.3 million in 2005 and $0.7 million in the
first quarter of 2006.
Movements in the liabilities related to the restructuring charges, included in
restructuring and other charges or other liabilities as appropriate, were (in
millions):
Asset-
Employee- Related
Related and Other Total
--------------- --------------- -------------
Balance December 31, 2005 $ 29.5 $ 4.9 $ 34.4
Additional charges 0.2 0.5 0.7
Cash and other costs (6.7) (0.2) (6.9)
-------------- ------------- --------------
Balance March 31, 2006 $ 23.0 $ 5.2 $ 28.2
============== ============= ==============
Consistent with the original plan, the balance of the employee-related
liabilities are expected to be utilized by 2008 as obligations are satisfied;
the asset-related charges will be utilized in 2007 on final decommissioning and
disposal of the affected equipment.
Note 3. Goodwill and Other Intangible Assets, Net
Goodwill by operating segment at March 31, 2006 and December 31, 2005 is as
follows:
(DOLLARS IN THOUSANDS) Amount
------------------------------------------------------- -------------
North America $ 218,575
Europe 258,607
India 29,209
Latin America 49,046
Asia Pacific 110,145
--------------
Total $ 665,582
==============
Trademark and other intangible assets consist of the following amounts:
March 31, December 31,
(DOLLARS IN THOUSANDS) 2006 2005
---------------------------------------- ------------- -------------
Gross carrying value $ 177,498 $ 177,498
Accumulated amortization 74,139 70,429
------------- -------------
Total $ 103,359 $ 107,069
============= =============
Amortization expense for the period ended March 31, 2005 was $3.7 million;
estimated annual amortization is $14.8 million in 2006, $13.5 million in 2007
and $6.8 million in 2008 through 2011.
Note 4. Comprehensive Income:
Changes in the accumulated other comprehensive income component of shareholders'
equity were as follows:
Accumulated
losses on Minimum
derivatives Pension
Translation qualifying as Obligation,
2006(Dollars in thousands) adjustments hedges, net of tax net of tax Total
-------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2005 $ (47,369) $ (2,606) $ (100,380) $ (150,355)
Change 4,837 806 - 5,643
---------------------- ---------------------- --------------------- --------------------
Balance March 31, 2006 $ (42,532) $ (1,800) $ (100,380) $ (144,712)
-------------------------------------------------------------------------------------------------------------------------------
Accumulated
losses on Minimum
derivatives Pension
Translation qualifying as Obligation,
2005(Dollars in thousands) adjustments hedges, net of tax net of tax Total
-------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2004 $ 8,227 $ (5,694) $ (110,705) $ (108,172)
Change (26,863) (842) - (27,705)
---------------------- ---------------------- --------------------- --------------------
Balance March 31, 2005 $ (18,636) $ (6,536) $ (110,705) $ (135,877)
-------------------------------------------------------------------------------------------------------------------------------
Note 5. Borrowings:
Debt consists of the following:
(Dollars in Thousands) Rate Maturities March 31, 2006 December 31, 2005
------------------------------------------------------- ----------- ---------- ------------------ ----------------
Bank borrowings and overdrafts $ 304,687 $ 314,622
Current portion of long-term debt 6.45% 2006 499,267 499,208
Current portion of deferred realized gains on
interest rate swaps 1,751 5,562
----------------- ----------------
Total current debt 805,705 819,392
----------------- ----------------
Japanese Yen notes 2.45% 2008-11 128,563 128,945
Other 2011 36 40
Deferred realized gains on interest rate swaps 1,556 2,296
----------------- ----------------
Total long-term debt 130,155 131,281
----------------- ----------------
Total debt $ 935,860 $ 950,673
================= ================
The 6.45% Notes mature May 15, 2006 and are accordingly classified as current at
March 31, 2006.
Note 6. Equity Compensation Plans:
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R)
"Share-Based Payment" ("SFAS No. 123 (R)") using the modified prospective
method, which requires measurement of compensation cost of all stock-based
awards at fair value on the date of grant and recognition of compensation over
the service periods for awards expected to vest. Under this transition method,
compensation cost in 2006 includes the portion vesting in the period for (1) all
share-based payments granted prior to, but not vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), and (2) all share-based payments granted subsequent to January
1, 2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). The Company will recognize the cost of all
employee stock options on a straight-line attribution basis over their
respective vesting periods, net of estimated forfeitures. Results for prior
periods have not been restated.
The Company previously applied the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25") and provided the pro forma disclosures required by SFAS
No. 123. No compensation expense for employee stock options was previously
reflected in net earnings, as all stock options granted under those plans had an
exercise price not less than the market value of the common stock on the date of
the grant.
The Company changed its valuation model used for estimating the fair value of
options granted after January 1, 2006, from a Black-Scholes option-pricing model
to a Binomial lattice-pricing model. This change was made in order to provide a
better estimate of fair value since the Binomial model is a more flexible method
for valuing employee stock options than the Black-Scholes model. The flexibility
of the simulated Binomial model stems from the ability to incorporate inputs
that change over time, such as volatility and interest rates, and to allow for
actual exercise behavior of option holders. The Company plans to use an average
of implied and historical volatility and the expected term assumption was
determined based on historical patterns.
The Company has various equity plans under which the Company's officers, senior
management, directors and other key employees may be granted options to purchase
the Company's common stock at 100% of the market price on the day the option is
granted or may receive other forms of equity-based awards. Prior to 2004, stock
options were the primary form of equity compensation. Beginning in 2004, the
Company granted Restricted Stock Unit's ("RSU's") as an element of its incentive
compensation plan for all eligible U.S. - based employees and a majority of
eligible overseas employees. Vesting of the RSU's for the Company's officers and
senior management is performance and time based, and for the remainder of
eligible employees, vesting is time based; the vesting period is primarily three
years from date of grant, however vesting can be adjusted within certain
parameters. For a small group of primarily overseas employees, the Company
continues to issue stock options.
Stock Options
-------------
Stock options to purchase common stock are granted at an exercise price of not
less than fair value of the underlying stock on the date of the grant. Stock
options granted generally become exercisable on the first anniversary of the
grant date and have a maximum term of ten years. There were no stock options
awarded in the first quarter of 2006. Compensation cost and the related tax
benefit for unvested stock option awards issued prior to adoption totaled $1.3
million and $0.5 million, respectively for the three months ended March 31,
2006. Using the Black-Scholes option valuation model, the estimated fair values
of options granted during 2005 were $10.57 per share.
The following table illustrates the effect on net earnings and earning per share
("EPS") if the Company had applied the fair value recognition provisions of SFAS
No. 123 to measure stock-based compensation expense for outstanding stock-based
option awards for the quarter ended March 31, 2005.
(Dollars in thousands except per share amounts) 2005
--------------------------------------------------------------------------- -----------
Net income, as reported $ 52,543
Deduct: Total stock-based employee compensation expense
determined under fair value method for all stock option
awards, net of related tax effects 1,884
----------
Pro-forma net income $ 50,659
==========
Net income per share:
Basic - as reported $0.56
Basic - pro-forma $0.54
Diluted - as reported $0.55
Diluted - pro-forma $0.53
Principal assumptions used in applying the Black-Scholes model were:
2005
---------
Risk-free interest rate 4.2%
Expected life, in years 5
Expected volatility 26.9%
Expected dividend yield 1.7%
The Company anticipates using historical information to estimate expected life
and forfeitures within the valuation model. The expected term of an option is
based on historical employee exercise behavior, vesting terms and a contractual
life of ten years. The risk-free rate for periods within the expected life of
the award is based on the U.S. Treasury yield curve in effect at the time of
grant. Expected volatility is based on an average of implied and historical
volatility of the price of our common shares over the calculated expected life.
The Company anticipates paying cash dividends in the future and therefore uses
an expected dividend yield in the valuation model using current cash dividends
of $.185 per share each quarter for options granted during 2006. The adoption of
FAS 123R did not change the way that the Company has accounted for stock options
in prior periods.
The Company stock option activity was as follows for the three months ended
March 31, 2006:
Weighted Average Aggregate
Shares Average Remaining Intrinsic
Subject to Exercise Contractual Value (in
Option Price Term millions)
----------------- -------------- ------------- --------------
Balance at January 1, 2006 6,698,428 $32.52
Options granted - $ -
Options exercised 187,535 $29.80
Options cancelled 54,126 $30.55
Balance at March 31, 2006 6,456,767 $32.61 5.7 $210.5
Exercisable at March 31, 2006 6,144,512 $32.34 5.6 $198.7
The total intrinsic value of options exercised during the three months ended
March 31, 2006 was $0.9 million.
The Company stock option activity for non-vested shares for the three months
ended March 31, 2006 was as follows:
Weighted
Average
Shares Exercise Price
-------------------- -----------------
Non-vested at January 1, 2006 1,074,140 $33.05
Options granted -
Options vested 701,056
Options cancelled 60,829
-------------------
Non-vested at March 31, 2006 312,255 $37.88
===================
As of March 31, 2006, there was $3.1 million of total unrecognized compensation
cost related to non-vested stock option awards granted under the stock option
plans relating to future periods. The cost is expected to be recognized over a
weighted average period of 1.6 years.
Restricted Stock Units
----------------------
The Company may grant restricted shares and RSU's to eligible employees, giving
them in most instances all of the rights of stockholders, except that they may
not sell, assign, pledge or otherwise encumber such shares. Such shares and
RSU's are subject to forfeiture if certain employment conditions are not met.
RSU's generally vest 100% at the end of three years, however, RSU's granted to
all officers and senior management have a performance restriction which if not
attained terminates the RSU's prior to vesting.
The fair value of the RSU's is equal to the market price of the Company's stock
at date of grant and is amortized to expense ratably over the vesting period.
The Company recorded compensation expense related to RSU's of $1.5 million and
$2.5 million for the three months ended March 31, 2006 and 2005, respectively.
The Company restricted stock activity for the three months ended March 31, 2006
was as follows:
Average Grant
Number of Date Fair Value
Shares Per Share
----------------- -----------------
Balance at January 1, 2006 909,385 $38.84
Granted -
Vested 45,281
Forfeited 98,398
---------------
Balance at March 31, 2006 765,706 $38.49
===============
The total intrinsic value of RSU's which vested during the three months ended
March 31, 2006 was $1.6 million.
The adoption of SFAS No. 123(R) resulted in a cumulative effect gain of $0.5
million which reflects the net cumulative impact of estimating future
forfeitures in the determination of periodic expense for unvested RSU awards,
rather than recording forfeitures only when they occur. The cumulative effect
was recorded in operating expenses and not as a cumulative effect of a change in
accounting principle because the amount was not material.
Note 7. Segment Information:
The Company manages its operations by major geographical region. Flavors and
fragrances have similar economic and operational characteristics including
research and development, the nature of the creative and production processes,
the type of customers, and the methods by which products are distributed.
Accounting policies used for segment reporting are identical to those described
in Note 1 of the Notes to the Consolidated Financial Statements included in the
Company's 2005 Annual Report.
The Company evaluates the performance of its geographic regions based on segment
profit which is income before taxes on income, excluding interest expense, other
income and expense and the effects of restructuring and other charges and
accounting changes. The Company is divided into five geographic regions for
management purposes: North America, Europe, India, Latin America and Asia
Pacific. The Global Expenses caption represents corporate and
headquarters-related expenses which include legal, finance, human resource and
other administrative expenses that are not allocable to individual regions.
Transfers between geographic regions are accounted for at prices that
approximate arm's-length market prices. Unallocated assets are principally cash,
short-term investments and other corporate and headquarters-related assets. The
Company's reportable segment information follows:
North Latin Asia Global Elimina- Consolid-
2006 (Dollars in thousands) America Europe India America Pacific Expenses nations ated
------------------------------- -------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 160,704 $ 190,717 $ 17,880 $ 63,646 $ 78,485 $ - $ 511,432
Transfers between areas 15,178 45,150 270 99 11,022 (71,719) -
-------------------------------------------------------------------------------------------------
Total sales $ 175,882 $ 235,867 $ 18,150 $ 63,745 $ 89,507 $ (71,719) $ 511,432
=================================================================================================
Segment profit $ 14,658 $ 58,875 $ 4,528 $ 7,636 $ 11,777 $ (15,706) $ (54) $ 81,714
Restructuring and other charges $ - $ (6) $ (385) $ - $ (270) (661)
-------------------------------------------------------------------------------------------------
Operating profit $ 14,658 $ 58,869 $ 4,143 $ 7,636 $ 11,507 $ (15,706) $ (54) $ 81,053
====================================================================================
Interest expense (5,373)
Other income (expense), net (439)
-------------
Income before taxes on income $ 75,241
=============
North Latin Asia Global Elimina- Consolid-
2005 (Dollars in thousands) America Europe India America Pacific Expenses nations ated
------------------------------- -------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 155,096 $ 211,796 $ 16,176 $ 57,962 $ 82,022 $ - $ 523,052
Transfers between areas 21,303 46,883 1 318 9,933 (78,438) -
-------------------------------------------------------------------------------------------------
Total sales $ 176,399 $ 258,679 $ 16,177 $ 58,280 $ 91,955 $ (78,438) $ 523,052
=================================================================================================
Operating profit $ 14,629 $ 55,374 $ 4,079 $ 5,564 $ 14,265 $ (12,033) $ (488) $ 81,390
====================================================================================
Interest expense (5,576)
Other income (expense), net 556
-------------
Income before taxes on income $ 76,370
=============
Note 8. Retirement Benefits:
As described in Note 14 of the Notes to the Consolidated Financial Statements
included in the Company's 2005 Annual Report, the Company and most of its
subsidiaries have pension and/or other retirement benefit plans covering
substantially all employees.
For the quarters ended March 31, 2006 and 2005, pension expense included the
following components:
U.S. Plans Non-U.S. Plans
------------------------------- ------------------------------
(Dollars in thousands) 2006 2005 2006 2005
-------------------------------------------------- -------------- -------------- ------------- --------------
Service cost for benefits earned $ 2,636 $ 2,390 $ 3,189 $ 2,662
Interest cost on projected benefit obligation 5,465 5,200 7,007 7,431
Expected return on plan assets (5,493) (5,243) (9,459) (8,419)
Net amortization and deferrals 2,015 1,191 2,103 2,190
-------------- -------------- ------------- --------------
Defined benefit plans 4,623 3,538 2,840 3,864
Defined contribution and other retirement plans 814 790 804 817
-------------- -------------- ------------- --------------
Total pension expense $ 5,437 $ 4,328 $ 3,644 $ 4,681
============== ============== ============= ==============
The Company expects to contribute $12.7 million to its U.S. pension plans in
2006. In the quarter ended March 31, 2006, no contributions were made to the
Company's qualified plan and $0.7 million of contributions for benefit payments
were made to a non-qualified plan. The Company expects to contribute $22.1
million to its non-U.S. pension plans in 2006. In the quarter ended March 31,
2006, $4.2 million of contributions were made to these plans. The majority of
these contributions are reported in Other Assets on the Consolidated Balance
Sheet.
For the quarters ended March 31, 2006 and 2005, expense recognized for
postretirement benefits other than pensions included the following components:
(Dollars in thousands) 2006 2005
---------------------------------- ----------- -----------
Service cost for benefits earned $ 856 $ 622
Interest on benefit obligation 1,575 1,226
Net amortization and deferrals 191 (107)
----------- -----------
Total postretirement benefit expense $ 2,622 $ 1,741
=========== ===========
The Company expects to contribute $3.9 million to its postretirement benefit
plans in 2006. In the quarter ended March 31, 2006, $1.0 million of
contributions was made.
Note 9. Commitments and Contingencies:
The Company is party to a number of lawsuits and claims related primarily to
flavoring supplied by the Company to manufacturers of butter flavor popcorn. At
each balance sheet date, or more frequently as conditions warrant, the Company
reviews the status of each pending claim, as well as its insurance coverage for
such claims with due consideration given to potentially applicable deductibles,
retentions and reservation of rights under its insurance policies, and the
advice of its outside legal counsel and a third party expert in modeling
insurance deductible amounts with respect to all these matters. While the
ultimate outcome of any litigation cannot be predicted, management believes that
adequate provision has been made with respect to all known claims. There can be
no assurance that future events will not require the Company to increase the
amount it has accrued for any matter or accrue for a matter that has not been
previously accrued.
The Company recorded its expected liability with respect to these claims in
Other liabilities and expected recoveries from its insurance carrier group in
Other Assets. The Company believes that realization of the insurance receivable
is probable due to the terms of the insurance policies, the financial strength
of the insurance carrier group and the payment experience to date of the carrier
group as it relates to these claims.
Note 10. Reclassifications:
Certain reclassifications have been made to the prior year's financial
statements to conform to 2006 classifications.
Item 2. Management's Discussion and Analysis of Results of Operations and
--------------------------------------------------------------------------
Financial Condition
-------------------
Overview
--------
The Company is a leading creator and manufacturer of flavor and fragrance
compounds used to impart or improve the flavor or fragrance in a wide variety of
consumer products.
Fragrance compounds are used in perfumes, cosmetics, toiletries, hair care
products, deodorants, soaps, detergents and softeners as well as air care
products. Flavor products are sold to the food and beverage industries for use
in consumer products such as prepared foods, beverages, dairy, food and
confectionery products. The Company is also a leading manufacturer of synthetic
ingredients used in making fragrances.
Changing social habits resulting from such factors as increases in personal
income and dual-earner households, leisure time, health concerns, urbanization
and population growth stimulate demand for consumer products utilizing flavors
and fragrances. These developments expand the market for products with finer
fragrance quality, as well as the market for colognes and toiletries. Such
developments also stimulate demand for convenience foods, soft drinks and
low-fat food products that must conform to expected tastes. These developments
necessitate the creation and development of flavors and fragrances and
ingredients that are compatible with newly introduced materials and methods of
application used in consumer products.
Flavors and fragrances are generally:
- created for the exclusive use of a specific customer;
- sold in solid or liquid form, in amounts ranging from a few kilograms
to many tons depending on the nature of the end product in which they
are used;
- a small percentage of the volume and cost of the end product sold to
the consumer; and
- a major factor in consumer selection and acceptance of the product.
Flavors and fragrances have similar economic and operational characteristics,
including research and development, the nature of the creative and production
processes, the manner in which products are distributed and the type of
customer; many of the Company's customers purchase both flavors and fragrances.
The flavor and fragrance industry is impacted by macroeconomic factors in all
product categories and geographic regions. In addition, pricing pressure placed
on the Company's customers by large and powerful retailers and distributors is
inevitably passed along to the Company, and its competitors. Leadership in
innovation and creativity mitigates the impact of pricing pressure. Success and
growth in the industry is dependent upon creativity and innovation in meeting
the many and varied needs of the customers' products in a cost-efficient and
effective manner, and with a consistently high level of timely service and
delivery.
The Company's strategic focus is:
- To improve customer service, in terms of both on-time deliveries and
responsiveness to new product development initiatives, and to improve
the win rate for new business with the Company's customers.
- To critically evaluate the profitability and growth potential of the
Company's product portfolio, and to focus on those categories and
customers considered to be the best opportunities for long-term
profitable growth.
- To align resources of the Company with those of its major
international key customers using the global reach of the Company to
provide and enhance strategic partnerships.
- To focus research and development initiatives on those areas
considered to be most likely, in the long-term, to yield the greatest
value to the Company's customers and shareholders.
The Company has made strides to implement a number of these initiatives. On time
delivery and continuous improvement in operations are supported by the global
implementation of the enterprise requirements planning software package ("SAP"),
and related initiatives, implementation of which was substantially completed at
March 31, 2006. Product and category growth and strategic analysis of these
objectives is a continual focus for management and a number of new ingredients
are employed in flavor and fragrance compounds.
Operations
----------
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.
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%. New wins
of $3.7 million drove the fine fragrance performance. Functional
fragrance price increases and new wins did not offset the volume
decline in existing businesses. The flavor growth was primarily the
result of new wins and to a smaller extent price increases.
- 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%, with new wins exceeding erosion in the
existing business. 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. Fine and functional
fragrance sales benefited from new wins of $4.1 million and volume and
price increases of $1.5 million which combined to offset the decline
due to erosion. Flavor sales growth was also strong throughout the
region led by increases of 20%, 79% and 11% in Brazil, Central America
and Mexico, respectively. Flavor sale increases were primarily the
result of new wins of $2.0 million and volume and price increases
totaling approximately $1.9 million.
- 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. New flavor and fragrance wins of $3.4 million did
not offset the volume and price erosion in existing products.
- 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.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first quarter 2006 and 2005 are detailed below.
First Three Months
-------------------------
2006 2005
----------- -----------
Costs of Goods Sold 57.6% 59.0%
Research and Development Expenses 8.9% 8.6%
Selling and Adminstrative Expenses 16.7% 16.2%
Cost of goods sold, as a percentage of sales, decreased to 57.6% compared to
59.0% in the 2005 quarter. The decrease 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 maintaining the Company's Dijon, France facility and the costs
related to the transfer of production from Dijon to other manufacturing
locations; production at the Dijon facility ceased in March 2005.
Research and development expenses, as a percentage of sales, were in line with
planned spending. These expenses are expected to approximate 9.0% of sales on a
full year basis.
Selling, General and Administrative ("SG&A") expenses, as a percentage of sales,
increased to 16.7% in the 2006 first quarter from 16.2% in the 2005 first
quarter. 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(Revised 2004) "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. See Note 6 of the
Notes to the unaudited Consolidated Financial Statements.
Interest expense declined 4% due to a lower average interest rate on borrowings;
the average interest rate on borrowings for the 2006 first quarter was 2.3%
compared to 3.2% for the 2005 first quarter.
The effective tax rate for the 2006 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.
Restructuring and Other Charges
-------------------------------
As described in Note 2 to the Consolidated Financial Statements in the Company's
2005 Annual Report, the Company has undertaken a significant reorganization,
including management changes, consolidation of production facilities and related
actions.
The Company undertook a plan 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.
Movements in the liabilities related to the restructuring charges, included in
restructuring and other charges or other liabilities as appropriate, were (in
millions):
Asset-
Employee- Related
Related and Other Total
--------------- -------------- --------------
Balance December 31, 2005 $ 29.5 $ 4.9 $ 34.4
Additional charges 0.2 0.5 0.7
Cash and other costs (6.7) (0.2) (6.9)
-------------- -------------- --------------
Balance March 31, 2006 $ 23.0 $ 5.2 $ 28.2
============== ============= ==============
Consistent with the original plan, the balance of the employee-related
liabilities are expected to be utilized by 2008 as obligations are satisfied;
the asset-related charges will be utilized in 2007 on final decommissioning and
disposal of the affected equipment.
Equity Compensation Plans
-------------------------
Effective January 1, 2006, the Company adopted the provisions of FAS No. 123R
using the modified prospective method, which requires measurement of
compensation cost of all stock-based awards at fair value on the date of grant
and recognition of compensation over the service periods for awards expected to
vest. The Company will recognize the cost of all employee stock options on a
straight-line attribution basis over their respective vesting periods, net of
estimated forfeitures. The Company has selected the modified prospective method
of transition; accordingly, prior periods have not been restated.
During 2004, the Company changed its equity-based management compensation
program moving toward restricted stock units ("RSU's") and away from stock
options. Prior to adopting FAS No. 123R, the Company applied APB Opinion No. 25
in accounting for stock-based compensation plans. All employee stock options
were granted at 100% of the market price on the day the option is granted. In
the first quarter of 2006, the Company expensed $1.3 million with respect to
stock options granted in earlier periods; the Company expects to expense $2.9
million in 2006 and approximately $1.5 million in future periods.
The Company changed its valuation model used for estimating the fair value of
options granted after January 1, 2006, from a Black-Scholes option-pricing model
to a Binomial lattice-pricing model. This change was made as the Company
determined that the Binomial model can provide a better estimate of fair value
of an option due to the flexibility in the model used to compute and value
employee stock options as compared to the Black-Scholes model. The flexibility
of the simulated Binomial model stems from the ability to incorporate inputs
that change over time, such as volatility and interest rates, and to allow for
actual exercise behavior of option holders.
The determination of the fair value of share-based awards on the date of grant
is affected by the Company's share price as well as assumptions regarding a
number of complex and subjective variables. These variables include the price of
the underlying shares, the Company's expected share price volatility over the
expected term of the awards, actual and projected employee stock option exercise
behaviors, risk-free interest rate and the expected annual dividend yield on the
underlying shares.
Developing these assumptions requires significant judgment on the part of the
Company and, generally, may involve analyzing all available historical data,
considering whether historical data is relevant to predicting future behavior,
making appropriate adjustments to historical data for future expectations,
supplementing or replacing Company-specific historical data with data from other
supportable sources and appropriately weighting each of the inputs. These
assumptions are evaluated at each grant date. If factors change and the Company
employs different assumptions for estimating share-based compensation expense in
future periods or if the Company decides to use a different valuation model, the
future periods may differ significantly from what the Company has recorded in
the current period and could materially affect operating income, net income and
net income per share. In addition, existing valuation models, including the
Black-Scholes and Binomial lattice-pricing model, may not provide reliable
measures of the fair values of the Company's share-based compensation.
Consequently, there is a significant risk that the Company's estimates of the
fair values of share-based compensation awards on the grant dates may not
reflect the actual values realized upon the vesting, exercise, expiration, early
termination or forfeiture of those share-based payments in the future. There
currently is no market-based mechanism or other practical application to verify
the reliability and accuracy of the estimates stemming from these valuation
models.
The future impact of the cost of share-based compensation on our results of
operations, including net income and earnings per diluted share, will depend on,
among other factors, the level of our equity awards as well as the market price
of our shares at the time of award as well as various other assumptions used in
valuing such awards.
See Note 6 of the Notes to the unaudited Consolidated Financial Statements for
additional discussion of the impact of the adoption of, and the method of
determining fair values under, FAS 123R.
Financial Condition
-------------------
Cash, cash equivalents and short-term investments totaled $205.6 million at
March 31, 2006. Working capital at March 31, 2005 was ($22.7) million compared
to ($11.4) million at December 31, 2005. Gross additions to property, plant and
equipment during the first quarter were $9.0 million. The Company expects
additions to property, plant and equipment to approximate $60.0 to $65.0 million
for the full year 2006.
At March 31, 2006, the Company had $935.9 million of debt outstanding, including
$3.3 million in deferred gains on interest rate swap transactions. Debt,
excluding the deferred swap gains, includes $499.3 million of 6.45% Notes
maturing in May 2006, $304.7 million in bank borrowings and overdrafts and
$128.6 million in long-term Japanese Yen denominated debt. The Company is
exploring various alternatives with respect to the debt maturity; current cash
balances and credit facilities in place are sufficient to fund the maturities of
these notes.
In January 2006, the Company paid a quarterly cash dividend of $.185 per share
to shareholders, which was an increase from the prior year quarter of $.175 per
share but unchanged from the prior dividend payment.
Under the share repurchase program of $200.0 million authorized in May 2005, the
Company repurchased approximately 2.3 million shares in the first quarter of
2006 at a cost of $75.6 million. Repurchases will be made from time to time on
the open market or through private transactions as market and business
conditions warrant. Repurchased shares will be available for use in connection
with the Company's employee benefit plans and for other general corporate
purposes. At March 31, 2006, the Company had $101.7 million remaining under this
repurchase plan.
The Company anticipates that its financing requirements will be funded from
internal sources and credit facilities currently in place. As disclosed in the
2005 Annual Report, the Company and certain of its subsidiaries entered into a
revolving credit agreement with certain banks which replaced existing credit
facilities to meet short and long term financing requirements. Cash flows from
operations and availability under its existing credit facilities are expected to
be sufficient to fund the Company's anticipated normal capital spending,
dividends and other expected requirements for at least the next twelve to
eighteen months.
Non-GAAP Financial Measures
---------------------------
The discussion of the Company's 2006 first quarter results exclude the effects
of exchange rate fluctuations. In discussing its historical and expected future
results and financial condition, the Company believes it is meaningful for
investors to be made aware of and to be assisted in a better understanding of,
on a period-to-period comparative basis, the relative impact that exchange rate
fluctuations may have on the Company's operating results and financial
condition. In addition, management reviews the non-GAAP financial performance
measure to evaluate performance on a comparative period-to-period basis in terms
of absolute performance and trend performance related to the Company's core
business. This non-GAAP financial measure should not be considered in isolation,
or as a substitute for, or superior to, financial measures calculated in
accordance with GAAP. This non-GAAP financial measure may also be calculated
differently from similar measures disclosed by other companies.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
-------------------------------------------------------------------------------
Statements in this Quarterly 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. Such
forward-looking statements which may be identified by such words as "expect,"
"anticipate," "outlook," "guidance," "may," and similar forward-looking
terminology, involve significant risks, uncertainties and other factors, which
may cause the actual results of the Company to be materially different from any
future results expressed or implied by such forward-looking statements, and
there can be no assurance that actual results will not differ materially from
management's expectations. Such factors include, among others, the following:
general economic and business conditions in the Company's markets, including
economic, population health and political uncertainties; weather, geopolitical
and region specific 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,
growth and market share 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 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; and the fact that the outcome of
litigation is highly uncertain and unpredictable and there can be no assurance
that the triers of fact or law, at either the trial level or at any appellate
level, will accept the factual assertions, factual defenses or legal positions
of the Company or its factual or expert witnesses in any such litigation or
other proceedings. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
------------------------------------------------------------------
There are no material changes in market risk from the information provided in
the Company's 2005 Annual Report on Form 10-K.
Item 4. Controls and Procedures
-------------------------------
The Company's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective.
The Company's Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Company's internal control
over financial reporting during the quarter ended March 31, 2006 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
-----------------
As described in the Company's 2005 Annual Report, the Company is subject to
various claims and legal actions in the ordinary course of its business. There
are no significant updates or developments with regards to these claims and
legal actions in the three months ended March 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
(c) Issuer Purchases of Equity Securities
-------------------------------------
Total Number of Shares Maximum Dollar Value of
Total Number Purchased as Part of Shares that may yet
of Shares Average Price Publicly Announced be purchased under
Purchased (1) Paid per Share Program (1) the Program
---------------------------------------------------------------------------------------------------
January 1 - 31, 2006 91,500 $33.43 91,500 $174,164,427
February 1 - 28, 2006 2,181,100 $33.23 2,181,100 $101,662,087
March 1 - 31, 2006 - - - $101,662,087
(1) An aggregate of 2,272,600 shares of common stock were repurchased during the
first quarter of 2006 under a repurchase program announced in May 2005. Under
the program, the Board of Directors approved the repurchase by the Company of up
to $200.0 million of its common stock.
Item 6. Exhibits
--------
10.1 Separation Agreement dated as of January 13, 2006 between D. Wayne
Howard, former Executive Vice President, Global Operations of the
Company, and the Company (incorporated by reference to Exhibit 10.1 to
the Company's Form 8-K filed with the SEC on January 18, 2006)
10.2 Performance Criteria for 2006 under the Company's Annual Incentive
Plan (incorporated by reference to Exhibit 10.1 to the Company's Form
8-K filed with the SEC on March 10, 2006)
10.3 Performance Criteria for the 2006-2008 Cycle under the Company's
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Company's Form 8-K filed with the SEC on March 10, 2006)
10.4 Long Term Incentive Choice Program Summary (incorporated by reference
to Exhibit 10.3 to the Company's Form 8-K filed with the SEC on March
10, 2006)
10.5 Form of International Flavors & Fragrances Inc. 2000 Stock Award and
Incentive Plan Purchased Restricted Stock Agreement (incorporated by
reference to Exhibit 10.4 to the Company's Form 8-K filed with the SEC
on March 10, 2006)
10.6 Form of International Flavors & Fragrances Inc. 2000 Stock Award and
Incentive Plan Stock Settled Appreciation Rights Agreement
(incorporated by reference to Exhibit 10.5 to the Company's Form 8-K
filed with the SEC on March 10, 2006)
10.7 Form of International Flavors & Fragrances Inc. 2000 Stock Award and
Incentive Plan Restricted Stock Unit Agreement (incorporated by
reference to Exhibit 10.6 to the Company's Form 8-K filed with the SEC
on March 10, 2006)
31.1 Certification of Richard A. Goldstein pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Douglas J. Wetmore pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Richard A. Goldstein and Douglas J. Wetmore pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley
Act of 2002.
SIGNATURES
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 thereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: May 8, 2006 By: /s/ DOUGLAS J. WETMORE
---------------------------------
Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer
Dated: May 8, 2006 By: /s/ DENNIS M. MEANY
----------------------------------
Dennis M. Meany, Senior Vice President,
General Counsel and Secretary
EXHIBIT INDEX
Number Description
------- ------------
10.1 Separation Agreement dated as of January 13, 2006 between D.
Wayne Howard, former Executive Vice President, Global
Operations of the Company, and the Company (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed
with the SEC on January 18, 2006)
10.2 Performance Criteria for 2006 under the Company's Annual
Incentive Plan (incorporated by reference to Exhibit 10.1 to
the Company's Form 8-K filed with the SEC on March 10, 2006)
10.3 Performance Criteria for the 2006-2008 Cycle under the
Company's Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Company's Form 8-K filed with the SEC
on March 10, 2006)
10.4 Long Term Incentive Choice Program Summary (incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K filed
with the SEC on March 10, 2006)
10.5 Form of International Flavors & Fragrances Inc. 2000 Stock
Award and Incentive Plan Purchased Restricted Stock
Agreement (incorporated by reference to Exhibit 10.4 to the
Company's Form 8-K filed with the SEC on March 10, 2006)
10.6 Form of International Flavors & Fragrances Inc. 2000 Stock
Award and Incentive Plan Stock Settled Appreciation Rights
Agreement (incorporated by reference to Exhibit 10.5 to the
Company's Form 8-K filed with the SEC on March 10,2006)
10.7 Form of International Flavors & Fragrances Inc. 2000 Stock
Award and Incentive Plan Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.6 to the Company's
Form 8-K filed with the SEC on March 10, 2006)
31.1 Certification of Richard A. Goldstein pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Douglas J. Wetmore pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32 Certification of Richard A. Goldstein and Douglas J. Wetmore
pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to the Sarbanes-Oxley Act of 2002.
Exhibit 31.1
CERTIFICATION
-------------
I, Richard A. Goldstein, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of International Flavors
& Fragrances Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Dated: May 8, 2006
By: /s/ Richard A. Goldstein
-------------------------------
Name: Richard A. Goldstein
Title: Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Douglas J. Wetmore, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of International Flavors
& Fragrances Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Dated: May 8, 2006
By: /s/ Douglas J. Wetmore
-------------------------------
Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
Exhibit 32
CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of International Flavors &
Fragrances Inc. (the "Company") for the quarterly period ended March 31, 2006
as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Richard A. Goldstein, as Chief Executive Officer of the Company,
and Douglas J. Wetmore, as Chief Financial Officer, each hereby certifies,
pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
By: /s/ Richard A. Goldstein
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Name: Richard A. Goldstein
Title: Chairman of the Board and
Chief Executive Officer
Dated: May 8, 2006
By: /s/ Douglas J. Wetmore
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Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
Dated: May 8, 2006