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, 2007
-----------------------------------------
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
(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 April 27, 2007: 89,253,457
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(Unaudited)
ASSETS 3/31/07 12/31/06
---------------------------------------------------------------------------------------- ------------- -------------
Current Assets:
Cash and cash equivalents $ 83,205 $ 114,508
Short-term investments 527 604
Trade receivables 413,101 369,870
Allowance for doubtful accounts (12,922) (12,715)
Inventories: Raw materials 214,871 213,675
Work in process 14,893 12,686
Finished goods 215,440 220,245
------------- -------------
Total Inventories 445,204 446,606
Deferred income taxes 75,566 89,448
Other current assets 115,631 71,482
------------- -------------
Total Current Assets 1,120,312 1,079,803
------------- -------------
Property, Plant and Equipment, at cost 1,086,678 1,074,772
Accumulated depreciation (599,643) (579,648)
------------- -------------
487,035 495,124
------------- -------------
Goodwill 665,582 665,582
Intangible Assets, net 76,578 80,134
Other Assets 147,886 158,261
------------- -------------
Total Assets $ 2,497,393 $ 2,478,904
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY 3/31/07 12/31/06
---------------------------------------------------------------------------------------- ------------- -------------
Current Liabilities:
Bank borrowings and overdrafts $ 12,717 $ 15,897
Accounts payable 117,286 111,661
Accrued payrolls and bonuses 29,193 71,976
Dividends payable 18,732 18,764
Income taxes - 45,251
Restructuring and other charges 11,106 15,288
Other current liabilities 155,030 167,934
------------- -------------
Total Current Liabilities 344,064 446,771
------------- -------------
Other Liabilities:
Long-term debt 799,735 791,443
Deferred gains 63,929 64,686
Retirement liabilities 169,232 170,719
Other liabilities 180,849 100,117
------------- -------------
Total Other Liabilities 1,213,745 1,126,965
------------- -------------
Commitments and Contingencies (Note 12)
Shareholders' Equity:
Common stock 12 1/2 cents par value; authorized 500,000,000 shares;
issued 115,761,840 shares 14,470 14,470
Capital in excess of par value 99,109 96,635
Retained earnings 1,952,231 1,909,599
Accumulated other comprehensive income:
Cumulative translation adjustment (32,511) (31,854)
Accumulated losses on derivatives qualifying as hedges (net of tax) (1,022) (2,465)
Pension and postemployment liability adjustment (net of tax) (158,767) (162,553)
------------- -------------
1,873,510 1,823,832
Treasury stock, at cost - 26,547,285 shares in 2007 and 26,344,638 shares in 2006 (933,926) (918,664)
------------- -------------
Total Shareholders' Equity 939,584 905,168
------------- -------------
Total Liabilities and Shareholders' Equity $ 2,497,393 $ 2,478,904
============= =============
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
---------------------------------
2007 2006
---------------- ----------------
Net sales $ 566,101 $ 511,432
---------------- ----------------
Cost of goods sold 329,382 294,818
Research and development expenses 46,632 45,602
Selling and administrative expenses 91,271 85,588
Amortization of intangibles 3,556 3,710
Restructuring and other charges - 661
Interest expense 8,314 5,373
Other (income) expense, net (167) 439
---------------- ----------------
478,988 436,191
---------------- ----------------
Income before taxes on income 87,113 75,241
Taxes on income 24,424 21,551
---------------- ----------------
Net income 62,689 53,690
Other comprehensive income:
Foreign currency translation adjustments (657) 4,837
Accumulated gains on derivatives qualifying as hedges (net of tax) 1,443 806
Pension and postemployment liability adjustment (net of tax) 3,786 -
---------------- ----------------
Comprehensive income $ 67,261 $ 59,333
================ ================
Net Income per share - basic $0.70 $0.59
Net Income per share - diluted $0.69 $0.58
Average number of shares outstanding - basic 89,378 91,535
Average number of shares outstanding - diluted 90,658 92,207
Dividends declared per share $0.210 $0.185
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
3 Months Ended March 31,
--------------------------------
2007 2006
-------------- ---------------
Cash flows from operating activities:
Net income $ 62,689 $ 53,690
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 21,139 22,261
Deferred income taxes 11,695 9,953
Gain on disposal of assets (815) (1,644)
Equity based compensation 4,277 2,862
Changes in assets and liabilities:
Current receivables (38,454) (45,164)
Inventories 1,648 (1,694)
Current payables (62,771) (1,110)
Changes in other assets 6,971 (2,134)
Changes in other liabilities 1,147 4,092
-------------- ---------------
Net cash provided by operations 7,526 41,112
-------------- ---------------
Cash flows from investing activities:
Net change in short-term investments (277) 25
Additions to property, plant and equipment (8,590) (9,033)
Proceeds from disposal of assets 452 4,670
-------------- ---------------
Net cash used in investing activities (8,415) (4,338)
-------------- ---------------
Cash flows from financing activities:
Cash dividends paid to shareholders (18,764) (17,189)
Net change in bank borrowings and overdrafts 1,903 (19,404)
Proceeds from issuance of stock under stock-based
compensation plans 15,764 6,636
Excess tax benefits on stock options exercised 1,732 83
Purchase of treasury stock (31,480) (75,561)
-------------- ---------------
Net cash used in financing activities (30,845) (105,435)
-------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 431 1,367
-------------- ---------------
Net change in cash and cash equivalents (31,303) (67,294)
Cash and cash equivalents at beginning of year 114,508 272,545
-------------- ---------------
Cash and cash equivalents at end of period $ 83,205 $ 205,251
============== ===============
Interest paid $ 14,690 $ 1,622
Income taxes paid $ 9,647 $ 8,056
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 2006 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. New Accounting Pronouncements:
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements"
("FAS 157"). This standard defines fair value, establishes a framework for
measuring fair value and expands disclosures regarding fair value measurements.
FAS 157 is effective for years beginning after November 15, 2007. The Company is
currently evaluating the potential impact of this standard.
In February 2007, the FASB issued SFAS 159 "The Fair Value Option for
Financial Assets and Liabilities - Including an amendment of FASB No. 115" ("FAS
159"). This standard allows companies to elect, at specific election dates, to
measure eligible financial assets and liabilities at fair value that are not
otherwise required to be measured at fair value. If a company elects the fair
value option, subsequent changes in that item's fair value must be recognized in
current earnings. FAS 159 is effective for years beginning after November 15,
2007. The Company is currently evaluating the potential impact of this standard.
Note 2. Reclassifications:
Certain reclassifications have been made to the prior period's financial
statements to conform to 2007 classifications.
Note 3. 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) 2007 2006
-------------------------------------- -------------------- --------------------
Basic 89,378 91,535
Assumed conversion under stock plans 1,280 672
-------------------- --------------------
Diluted 90,658 92,207
-------------------------------------- -------------------- --------------------
Stock options to purchase 120,000 and 1,875,375 shares were outstanding for
the first quarter of 2007 and 2006, 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 4. Restructuring and Other Charges:
As described in Note 2 to the Consolidated Financial Statements in the
Company's 2006 Annual Report, the Company has undertaken a significant
reorganization, including management changes, consolidation of production
facilities and related actions.
Movements in restructuring liabilities, included in Restructuring and other
charges in the accompanying balance sheet, were (in millions):
Asset-
Employee- Related
Related and Other Total
------------ --------------- -------------
Balance December 31, 2006 $ 12.9 $ 2.4 $ 15.3
Cash and other costs (4.2) - (4.2)
----------- ------------- --------------
Balance March 31, 2007 $ 8.7 $ 2.4 $ 11.1
=========== ============= ==============
The balance of the employee-related liabilities are expected to be utilized
by 2008 as obligations are satisfied; the asset-related charges are expected to
be utilized in 2007 on final decommissioning and disposal of the affected
equipment.
Note 5. Goodwill and Other Intangible Assets, Net:
Goodwill by operating segment at March 31, 2007 and December 31, 2006 is as
follows:
(DOLLARS IN THOUSANDS) Amount
---------------------------------------- --------------
Flavors $ 319,479
Fragrances 346,103
--------------
Total $ 665,582
==============
Trademark and other intangible assets consist of the following amounts:
March 31, December 31,
(DOLLARS IN THOUSANDS) 2007 2006
------------------------------------------------------ --------------- ----------------
Gross carrying value $ 165,406 $ 165,406
Accumulated amortization 88,828 85,272
--------------- ----------------
Total $ 76,578 $ 80,134
=============== ================
Amortization expense for the quarter ended March 31, 2007 was $3.6 million
compared to $3.7 million in the 2006 quarter; estimated annual amortization is
$13 million in 2007, $6 million in 2008 through 2012 and $37 million thereafter.
Note 6. Comprehensive Income:
Changes in the Accumulated other comprehensive income component of
shareholders' equity were as follows:
Accumulated (losses) Pension and
gains on derivatives postemployment
Translation qualifying as hedges, liability adjustment,
(DOLLARS IN THOUSANDS) adjustments net of tax net of tax Total
--------------------------- -------------------- --------------------------- ---------------------- --------------------
Balance December 31, 2006 $ (31,854) $ (2,465) $ (162,553) $ (196,872)
Change (657) 1,443 3,786 4,572
----------------- --------------------------- ---------------------- --------------------
Balance March 31, 2007 $ (32,511) $ (1,022) $ (158,767) $ (192,300)
================= =========================== ====================== ====================
Accumulated (losses) Minimum
gains on derivatives pension
Translation qualifying as hedges, obligation,
(DOLLARS IN THOUSANDS) adjustments 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)
================= =========================== ====================== ====================
Note 7. Borrowings:
Debt consists of the following:
(DOLLARS IN THOUSANDS) Rate Maturities March 31, 2007 December 31, 2006
------------------------------------------------------- ------------- ----------- ------------------- -------------------
Bank borrowings and overdrafts $ 12,717 $ 15,897
---------------- ---------------
Total current debt 12,717 15,897
---------------- ---------------
Senior notes 5.94% 2009-16 375,000 375,000
Bank borrowings 3.87% Various 295,430 287,904
Japanese Yen notes 2.45% 2008-11 128,443 127,684
Other 2011 31 38
Deferred realized gains on interest rate swaps 831 817
---------------- ---------------
Total long-term debt 799,735 791,443
---------------- ---------------
Total debt $ 812,452 $ 807,340
================ ===============
Note 8. Income Taxes:
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), Accounting
for Uncertainty in Income Taxes, which clarifies the application of FAS 109 by
prescribing the minimum threshold a tax position must meet before being
recognized in the financial statements. Under FIN 48, the financial statement
effect of a tax position is initially recognized when it is more likely than not
the position will be sustained upon examination. A tax position that meets the
"more likely than not" recognition threshold is initially and subsequently
measured as the largest amount of benefit, determined on a cumulative
probability basis, that is more likely than not to be realized upon ultimate
settlement with the taxing authority.
As a result of adopting FIN 48, the Company recognized a $1 million
increase in Other liabilities for unrecognized tax benefits and recorded a
corresponding $1 million cumulative effect adjustment to shareholders' equity.
Also as prescribed by FIN 48, certain tax related amounts in the Consolidated
Balance Sheet are classified differently than in prior periods. Amounts
receivable from various tax jurisdictions are now included in Other current
assets and tax reserves previously classified as accrued taxes on income are now
included in Other liabilities.
As of the adoption date, the Company had $73 million of gross unrecognized
tax benefits. If recognized, $72 million, net of federal benefits, would be
recorded as a component of income tax expense and affect the effective tax rate.
The Company has consistently recognized interest and penalties related to
unrecognized tax benefits as a component of income tax expense. At December 31,
2006, the Company had accrued $7 million of interest and penalties. On adoption
of FIN 48, this balance was reclassified to Other liabilities.
The Company conducts business globally and remains open to examination in
several tax jurisdictions for various years from 2000-2006. The Company is under
examination in several significant tax jurisdictions for various years from 2001
to 2006. The Company anticipates that each of these examinations are expected to
be completed during the next twelve months and it is reasonably possible that a
change in certain unrecognized tax benefits may occur. Currently, it is not
reasonably possible to estimate the magnitude of these changes.
Note 9. Equity Compensation Plans:
The Company has various plans under which the Company's officers, senior
management, other key employees and directors may be granted equity-based awards
including restricted stock, restricted stock units ("RSU's"), stock settled
appreciation rights ("SSAR's") or stock options to purchase the Company's common
stock.
In March 2007, the Company's Board of Directors determined to change the
operating methodology of the Company's Long Term Incentive Plan ("LTIP") for
executive officers and other Company executives beginning with the three year
cycle from 2007 - 2009 and thereafter. Under the modified LTIP plan, awards will
be based on meeting certain targeted financial and/or strategic goals
established by the Compensation Committee of the Board of Directors at the start
of each cycle. The targeted payout of the LTIP 2007 - 2009 cycle and thereafter
will be 50% cash and 50% Company stock. The number of shares for the 50% stock
portion will be determined by the closing share price on the first trading day
at the beginning of the cycle. The executive generally must remain employed with
the Company during the cycle to receive the award.
Restricted stock and RSU activity for the quarter ended March 31, 2007 was
as follows:
Weighted
Average Grant
Number Date Fair
(SHARE AMOUNTS IN THOUSANDS) of Shares Value Per Share
---------------------------------------------- -------------- ------------------
Balance at December 31, 2006 1,346 $37.22
Cancelled (16) $38.10
------------- -------------------
Balance at March 31, 2007 1,330 $37.21
============= ===================
Stock option and SSAR activity for the quarter ended March 31, 2007 was as
follows:
Weighted
Shares Subject to Average
(SHARE AMOUNTS IN THOUSANDS) Options/SSAR's Exercise Price
-------------------------------------------------------------------------------------
Balance at December 31, 2006 3,633 $33.56
Exercised (439) $31.72
Cancelled (4) $30.82
-------------- ------------------
Balance at March 31, 2007 3,190 $33.91
============== ==================
Pre-tax expense related to all forms of equity compensation for the quarters
ended March 31, 2007 and 2006 follows:
(DOLLARS IN THOUSANDS) 3/31/2007 3/31/2006
--------------------- --------------- --------------
Restricted stock and RSU's $ 3,470 $ 1,523
Stock options and SSAR's 807 1,339
--------------- --------------
Total equity compensation expense $ 4,277 $ 2,862
=============== ==============
Tax related benefits of $1 million were recognized in both the 2007 and 2006
quarters.
Note 10. Segment Information:
On January 1, 2007, the Company was reorganized into two business segments,
Flavors and Fragrances; these segments align with the internal structure used to
manage these businesses. 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 2006 Annual Report. Prior year
segment information, which had been reported by major geographic region, has
been reclassified to conform to the current presentation.
The Company evaluates the performance of its business segments based on
segment profit which is Income before taxes on income, excluding Interest
expense, Other income (expense), net and the effects of Restructuring and other
charges and accounting changes. The Global Expense caption represents corporate
and headquarters-related expenses which include legal, finance, human resources
and other administrative expenses that are not allocable to individual business
units. Unallocated assets are principally cash, short-term investments and other
corporate and headquarters-related assets.
The Company's reportable segment information follows:
Three Months Ended March 31, 2007
--------------------------------------------------------------------
Global
(DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated
--------------------------------------------------------------------------------------------------------------------
Net sales $ 243,442 $ 322,659 $ - $ 566,101
====================================================================
Operating profit $ 44,814 $ 58,868 $ (8,422) 95,260
================================================
Interest expense (8,314)
Other income (expense), net 167
--------------------
Income before taxes on income $ 87,113
====================
Three Months Ended March 31, 2006
--------------------------------------------------------------------
Global
(DOLLARS IN THOUSANDS) Flavors Fragrances Expenses Consolidated
--------------------------------------------------------------------------------------------------------------------
Net sales $ 219,510 $ 291,922 $ - $ 511,432
====================================================================
Segment profit $ 38,103 $ 51,604 $ (7,993) $ 81,714
Restructuring and other charges (652) 23 (32) (661)
--------------------------------------------------------------------
Operating profit $ 37,451 $ 51,627 $ (8,025) 81,053
================================================
Interest expense (5,373)
Other income (expense), net (439)
--------------------
Income before taxes on income $ 75,241
====================
Segment assets were $973 million for Flavors and $1,245 million for
Fragrances at December 31, 2006. Global segment assets were $261 million at
December 31, 2006. There were no significant changes in segment assets from
December 31, 2006 to March 31, 2007.
Note 11. Retirement Benefits:
For the quarters ended March 31, 2007 and 2006, pension expense included
the following components:
U.S. Plans Non-U.S. Plans
------------------------------- ------------------------------
(DOLLARS IN THOUSANDS) 2007 2006 2007 2006
-------------------------------------------------------- -------------- -------------- ------------- --------------
Service cost for benefits earned $ 2,504 $ 2,636 $ 2,617 $ 3,189
Interest cost on projected benefit obligation 5,687 5,465 8,173 7,007
Expected return on plan assets (5,922) (5,493) (12,124) (9,459)
Net amortization and deferrals 1,551 2,015 1,395 2,103
-------------- -------------- ------------- --------------
Defined benefit plans 3,820 4,623 61 2,840
Defined contribution and other retirement plans 995 814 909 804
-------------- -------------- ------------- --------------
Total pension expense $ 4,815 $ 5,437 $ 970 $ 3,644
============== ============== ============= ==============
In 2007, the Company expects to contribute $3 million and $24 million to
its U.S. pension plans and non-U.S. pension plans, respectively. In the quarter
ended March 31, 2007, no contributions were made to the Company's qualified plan
and $1 million of contributions for benefit payments were made to a
non-qualified plan; $3 million of contributions were made to the non-U.S. plans.
For the quarters ended March 31, 2007 and 2006, expense recognized for
postretirement benefits other than pensions included the following components:
(DOLLARS IN THOUSANDS) 2007 2006
--------------------------------------------- ------------ -------------
Service cost for benefits earned $ 766 $ 856
Interest on benefit obligation 1,542 1,575
Net amortization and deferrals (37) 191
------------ -------------
Total postretirement benefit expense $ 2,271 $2,622
============ =============
In the quarter ended March 31, 2007, $1 million of contributions were made;
the Company expects to contribute $3 million to its postretirement benefit plans
in 2007.
Note 12. 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. Based on
information presently available and in light of the merits of its defenses and
the availability of insurance, the Company does not expect the outcome of the
above cases, singly or in the aggregate, to have a material adverse effect on
the Company's financial condition, results of operation or liquidity. 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 has recognized its expected liability with respect to these
claims in Other current liabilities and expected recoveries from its insurance
carrier group in other receivables recorded in Other current assets in the
accompanying balance sheet. 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.
Item 2. Management's Discussion and Analysis of Results of Operations and
--------------------------------------------------------------------------
Financial Condition
-------------------
Overview
--------
The Company is a leading creator and manufacturer of 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. Approximately 55% of the Company's
ingredient production is consumed internally; the balance is sold to third party
customers.
Changing social habits resulting from such factors as changes in disposable
income, 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
pounds to several 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. Such factors include the impact
of currency on the price of raw materials and operating costs as well as on
translation of reported results. 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 direction is defined by the following:
- Be a global leader in fragrances and flavors; and
- Provide our customers with differentiated solutions.
The Company's plan to achieve this strategy is to:
- Execute on our business unit focus that will align management and
resources with the needs of its strategic customers and provide
greater accountability; this will drive improved results.
- Focus its research and development efforts on those projects
considered most likely to drive future profitable growth. The
Company anticipates much of this research will be conducted
internally, but such efforts may be augmented by joint research
undertakings and through acquisition of technology.
- Provide quality products, safe and suitable for inclusion in its
customers' end products; an essential element is the consistent
quality and safety of raw materials achieved through a
combination of steps including but not limited to vendor
certification and quality assurance testing.
- Continuously improving its operations and customer service
supported by the global enterprise requirements planning software
package ("SAP"), and related initiatives.
- Build a culture that attracts, retains and develops the best
talent in the world. The customers, shareholders and employees
expect the best.
As implementation of our strategy progresses, setting strategic initiatives
requires regular establishment and reassessment of priorities and necessitates
choices in order to provide the best opportunity for continuous improvement in
shareholder value.
Operations
----------
First Quarter 2007
------------------
First quarter 2007 sales totaled $566 million, increasing 11% over the
prior year quarter; fragrance and flavor sales each increased 11%. Reported
sales for the 2007 quarter benefited from the generally weaker U.S. dollar,
mainly against the Euro and Pound Sterling, during the quarter; at comparable
exchange rates, sales would have increased 6% in comparison to the 2006 quarter.
Fragrance sales were led by increases of 11% and 17% in fine fragrances and
fragrance ingredients. Fine fragrance growth was driven primarily by new product
introductions while ingredient growth was mainly volume related. Functional
fragrance sales increased 5% on a combination of new wins and improved volumes.
Flavor sales increased based on both new wins and volume growth.
Sales performance by region and product category in comparison to the prior
year quarter in both reported dollars and local currency, where applicable,
follows:
% Change in Sales-First Quarter 2007 vs First Quarter 2006
-------------------------------------------------------------------------
Fine Func'l. Ingr. Total Frag. Flavors Total
-------------------------------------------------------------------------
North America Reported 15% 12% 3% 11% 4% 8%
Europe Reported 6% 11% 35% 15% 11% 13%
Local Currency -3% 2% 24% 5% 2% 4%
Latin America Reported 21% -10% 14% 1% 14% 4%
Greater Asia Reported 7% 3% -2% 2% 18% 11%
Local Currency 4% 0% -2% 1% 15% 9%
Total Reported 11% 5% 17% 11% 11% 11%
Local Currency 5% 1% 13% 5% 7% 6%
-------------------------------------------------------------------------
- North America growth was strong across both business segments. Fine
fragrance growth was driven mainly by new product introductions of $4
million; functional fragrances and ingredients growth was primarily volume
related with increases of $4 million and $1 million, respectively. Flavors
sales growth resulted mainly from new product introductions of $2 million.
- Europe ingredients sales growth was strong primarily due to volume
increases of $12 million partially offset by price declines of $4 million.
Functional fragrance growth was mainly the result of new product
introductions of $4 million, partially offset by volume declines; the fine
fragrance performance was due to volume declines. Flavors growth was the
result of new product introductions of $2 million.
- Latin America sales growth resulted primarily from new product
introductions of $3 million in fine fragrances. Ingredients and functional
fragrance performance were primarily volume related. Flavors growth was the
result of new product introductions of $3 million.
- Greater Asia sales growth was driven by volume increases of $10 million in
flavors. Fragrance performance in all categories was primarily volume
related.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first quarter are detailed below.
First Quarter
-------------------------
2007 2006
----------- -----------
Costs of Goods Sold 58.2% 57.6%
Research and Development Expenses 8.2% 8.9%
Selling and Adminstrative Expenses 16.1% 16.7%
- Gross profit, as a percentage of sales, declined from the prior quarter
mainly as a result of the shift in product mix, notably higher sales of
fragrance ingredients and flavor compounds; ingredient price declines
contributed to the decline. Gross margin was also impacted by
underabsorption of manufacturing costs at the new fragrance ingredient
facility in China, which continues to scale up production.
- Research and Development ("R&D") expenses as a percent of sales declined
compared to the prior year mainly due to such expenses increasing at a
slower rate than sales during the quarter.
- Selling and Administrative ("S&A") expenses, as a percentage of sales, was
16.1% in the current quarter compared to 16.7% in 2006; the decline
resulted mainly from headcount reductions during 2006, many of whom left
the Company after the 2006 first quarter.
- Interest expense increased by $3 million mainly due to higher average
interest rates on borrowings; the average rate for the 2007 quarter was
4.1% compared to 2.3% for the 2006 quarter.
- The Company's first quarter effective tax rate of 28.0% was favorably
impacted by discrete adjustments related to nonrecurring accrual reversals
which impact the effective tax rate by a total of 3.7%. The effective tax
rate was 28.6% in the prior year quarter.
Income Taxes
------------
In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), Accounting
for Uncertainty in Income Taxes, which clarifies the application of FAS 109 by
prescribing the minimum threshold a tax position must meet before being
recognized in the financial statements. The adoption of FIN 48 did not have
material impact on the Consolidated Financial Statements. See Note 8 for more
information.
Reportable Business Segments
----------------------------
On January 1, 2007, the Company was reorganized into two business segments
that reflect its Flavor and Fragrance businesses. This reorganization allows the
Company to sharpen its focus on these businesses to drive future profitable
growth. The Company previously reported its segments by major geographical
region. See Note 10 for more information.
Restructuring and Other Charges
-------------------------------
As described in Note 2 to the Consolidated Financial Statements in the
Company's 2006 Annual Report, the Company has undertaken a significant
reorganization, including management changes, consolidation of production
facilities and related actions. There have been no charges in the first quarter
2007.
Movements in restructuring liabilities included in Restructuring and other
charges in the accompanying balance sheet, were (in millions):
Asset-
Employee- Related
Related and Other Total
---------------------------------------------
Balance December 31, 2006 $ 12.9 $ 2.4 $ 15.3
Cash and other costs (4.2) - (4.2)
-------------- ------------- --------------
Balance March 31, 2007 $ 8.7 $ 2.4 $ 11.1
============== ============= ==============
The balance of employee-related liabilities are expected to be utilized by
2008 as obligations are satisfied; the asset-related charges are expected to be
utilized in 2007 on final decommissioning and disposal of the affected
equipment.
Financial Condition
-------------------
Cash, cash equivalents and short-term investments totaled $84 million at
March 31, 2007 compared to $206 million at March 31, 2006. Working capital
totaled $776 million at March 31, 2007 compared to $633 million at December 31,
2006. Additions to property, plant and equipment were $9 million at March 31,
2007. Gross additions to property, plant and equipment are expected to
approximate $70 million in 2007.
Operating cash flows in the first quarter 2007 were $8 million compared to
$41 million in the prior year quarter; the decrease was mainly due to payout of
$45 million of incentive compensation with respect to 2006 operating results; in
the 2006 quarter, payouts totaled $9 million with respect to 2005 results.
Increased interest expense paid in the 2007 quarter compared to the prior year
quarter also impacted cash flows.
At March 31, 2007, the Company had $812 million of debt outstanding.
In January 2007, the Company paid a quarterly cash dividend of $.21 per
share to shareholders, a 14% increase from the prior quarter dividend payment.
On March 6, 2007, the Company announced its quarterly dividend of $.21 per share
payable in April 2007.
Under the share repurchase program of $300 million authorized in October
2006, the Company repurchased approximately 0.7 million shares in the first
quarter of 2007 at a cost of $31 million. At March 31, 2007, the Company had
$175 million remaining under the October 2006 Stock Repurchase Plan,
representing approximately 3.6 million shares based on a stock price of $48.00
per share. Repurchased shares are available for use in connection with the
Company's employee benefit plans and for other general corporate purposes.
The Company anticipates that its financing requirements will be funded from
internal sources and credit facilities currently in place. Cash flows from
operations and availability under its existing credit facilities are expected to
be sufficient to fund the Company's currently anticipated normal capital
spending, dividends and other currently expected cash requirements for at least
the next eighteen months.
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 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 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.
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 2006 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 as of the end of the period covered by this Quarterly Report on Form
10-Q.
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, 2007 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
-----------------
The Company is subject to various claims and legal actions in the ordinary
course of its business. In September 2001, the Company was named as a defendant
in a purported class action brought against it in the Circuit Court of Jasper
County, Missouri, on behalf of employees of a plant owned and operated by
Gilster-Mary Lee Corp. in Jasper, Missouri ("Benavides case"). The plaintiffs
alleged that they sustained respiratory injuries in the workplace due to the use
by Gilster-Mary Lee of a BBA and/or IFF flavor. For purposes of reporting these
actions, BBA and/or IFF are referred to as the "Company".
In January 2004, the Court ruled that class action status was not
warranted. As a result of this decision, each of the 47 plaintiff cases was to
be tried separately. Subsequently, 8 cases were tried to a verdict, 4 verdicts
resulted for the plaintiffs and 4 verdicts resulted for the Company, all of
which were appealed by the losing party. Subsequently all plaintiff cases
related to the Benavides case, including those on appeal, were settled.
Seventeen other actions based on similar claims of alleged respiratory
illness due to workplace exposure to flavor ingredients are currently pending
against the Company and other flavor suppliers and related companies.
Trial has been scheduled in the action brought against the Company and
another flavor supplier by 29 former and current workers at a Marion, Ohio
factory. This case was filed in March 2003 and is pending in the Court of Common
Pleas of Hamilton County, Ohio. The Plaintiffs in this case have been divided
into trial groups, although no trials have occurred to date. The other flavor
company has settled with all plaintiffs and the Company has settled with 17
plaintiffs by confidential agreement. Three other plaintiffs have been
dismissed. The first trial is currently scheduled for August 2007 (Arthur case).
In May 2004, the Company and another flavor supplier were named defendants, and
subsequently a number of third party defendants were added, in a lawsuit by 4
former workers at a Ridgeway, Illinois factory in an action brought in the
Circuit Court for the Second Judicial Circuit, Gallatin County, Illinois (Barker
case) and another concerning 8 other workers at this same plant was filed in
July 2004 and is pending in this same Court against the same defendants
(Batteese case). In an action filed in January 2006, the Company and three other
flavor suppliers were named defendants in a lawsuit by 1 worker at a Sioux City,
Iowa facility which is pending in U.S. District Court for the Northern District
of Iowa. The trial is currently scheduled for November 2007 (Kuiper case). In
June 2004, the Company and 3 other flavor suppliers were named defendants in a
lawsuit by 1 plaintiff brought in the Court of Common Pleas, Hamilton County,
Ohio. Trial is set for November 2007 (Mitchell case). In June 2004, the Company
and 2 other flavor suppliers were named defendants in a lawsuit by 1 former
worker at a Northlake, Illinois facility in an action brought in the Circuit
Court of Cook County, Illinois. Fourteen third party defendants have been added.
Trial is currently scheduled for January 2008 (Lopez case). In August 2004, the
Company and another flavor supplier were named defendants in a lawsuit by 15
former workers at a Marion, Ohio factory in an action brought in the Court of
Common Pleas, Marion County, Ohio. The other flavor supplier settled with all
plaintiffs and the Company has settled with 16 plaintiffs by confidential
agreement. One other plaintiff has been dismissed. The remaining 5 plaintiffs
have been divided into trial groups and the first trial is currently scheduled
to be held in June 2007 (Williams case). In March 2005, the Company and 6 other
companies were named defendants in a lawsuit by 1 former employee of Bell
Flavors and Fragrances, Inc. in an action brought in the Circuit Court of Cook
County, Illinois (Robinson case). In July 2005, the Company and 9 other flavor
and chemical suppliers were named defendants in a lawsuit by 1 former worker of
Brach's Confections, Inc. in an action brought in the Circuit Court of Cook
County, Illinois. Brach's has been added as a third party defendant (Campbell
case). In August 2005, the Company and 8 other companies, including a flavor
trade association and consulting agency, were named defendants in a lawsuit by 3
former employees of the Gilster-Mary Lee facility in McBride, Missouri in the
Missouri Circuit Court, 32nd Judicial Circuit (Fults case). In September 2005,
the Company and 23 other companies were named defendants in a lawsuit by 2
former employees of the Gilster-Mary Lee facility in McBride, Missouri in the
Circuit Court of St. Louis County. This case was settled in March 2007 pursuant
to a confidential agreement (Bowling case). In November 2005, the Company, a
flavor trade association, and a consulting agency were named defendants in a
lawsuit by 1 former employee of the Snappy Popcorn Company in Breda, Iowa
brought in U.S. District Court for the Northern District of Iowa, Western
Division. The trial ready date is July 2007 (Weimer case). In August 2006, the
Company and 3 other flavor and chemical suppliers were named defendants in a
lawsuit by 39 current and former employees and/or a neighbor of the Gilster-Mary
Lee facility in Jasper, Missouri in the Missouri Circuit Court of Jasper County
(Arles case) and 5 other current and former employees in the same Court (Bowan
case). In November 2006, the Company and 15 other flavor and chemical suppliers
were named defendants in a lawsuit filed in the Circuit Court of Cook County,
Illinois by 1 plaintiff allegedly injured by exposure to butter flavor and other
substances at various facilities in which he worked (Solis case). In January
2007, the Company and 3 other flavor suppliers were named defendants in a
lawsuit filed in Hamilton County, Ohio Court of Common Pleas by 4 former
employees of a popcorn packaging plant in Iowa City, Iowa (Blood case). In
January 2007, the Company and another flavor supplier were named defendants in a
lawsuit filed in Hamilton County, Ohio Court of Common Pleas by 133 current and
former employees of two separate Marion, Ohio factories and 103 spouses of such
employees (Aldrich case).
The Company believes that all IFF and BBA flavors at issue in these matters
meet the requirements of the U.S. Food and Drug Administration and are safe for
handling and use by workers in food manufacturing plants when used according to
specified safety procedures. These procedures are detailed in instructions that
IFF and BBA provided to all their customers for the safe handling and use of
their flavors. It is the responsibility of IFF's customers to ensure that these
instructions, which include the use of appropriate engineering controls, such as
adequate ventilation, prior handling procedures and respiratory protection for
workers, are followed in the workplace.
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. Based on
information presently available and in light of the merits of its defenses and
the availability of insurance, the Company does not expect the outcome of the
above cases, singly or in the aggregate, to have a material adverse effect on
the Company's financial condition, results of operation or liquidity. 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. See Note 12 of the Notes to the Consolidated Financial
Statements.
Over the past 20 years, various federal and state authorities and private
parties have claimed that the Company is a potentially responsible party as a
generator of waste materials for alleged pollution at a number of waste sites
operated by third parties located principally in New Jersey and seek to recover
costs incurred and to be incurred to clean up the sites.
The waste site claims and suits usually involve million dollar amounts, and
most of them are asserted against many potentially responsible parties. Remedial
activities typically consist of several phases carried out over a period of
years. Most site remedies begin with investigation and feasibility studies,
followed by physical removal, destruction, treatment or containment of
contaminated soil and debris, and sometimes by groundwater monitoring and
treatment. To date, the Company's financial responsibility for some sites has
been settled through agreements granting the Company, in exchange for one or
more cash payments made or to be made, either complete release of liability or,
for certain sites, release from further liability for early and/or later
remediation phases, subject to certain "re-opener" clauses for later-discovered
conditions. Settlements in respect of some sites involve, in part, payment by
the Company and other parties of a percentage of the site's future remediation
costs over a period of years.
The Company believes that the amounts it has paid and anticipates paying in
the future for clean-up costs and damages at all sites are not and will not be
material to the Company's financial condition, results of operations or
liquidity, because of the involvement of other large potentially responsible
parties at most sites, because payment will be made over an extended time period
and because, pursuant to an agreement reached in July 1994 with three of the
Company's liability insurers, defense costs and indemnity amounts payable by the
Company in respect of the sites will be shared by the insurers up to an agreed
amount.
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 of Purchased as Part of Sharesthat may yet be
Shares Purchased Average Price Publicly Announced purchased under
(1) Paid per Share Program (1) the Program
------------------- ------------------ ------------------------------ -------------------------------
January 1 - 31, 2007 - - - $ 206,225,000
February 1 - 28, 2007 70,000 $48.78 70,000 $ 202,811,000
March 1 - 31, 2007 600,000 $46.78 600,000 $ 174,746,000
(1) An aggregate of 670,000 shares of common stock were repurchased during the
first quarter of 2007 under a repurchase program announced in October 2006.
Under the program, the Board of Directors approved the repurchase by the
Company of up to $300 million of its common stock.
Item 6. Exhibits
--------
Number Description
------ ------------
10.1 Performance Criteria for 2007 under the Company's Annual
Incentive Plan, incorporated by reference to Exhibit 10.1
to the Company's Report on Form 8-K filed on January 31,
2007.
10.2 Performance Criteria for the 2007-2009 cycle under the
Company's Long Term Incentive Plan, incorporated by
reference to the Company's Report on Form 8-K filed on
March 12, 2007.
10.3 2007 Compensation Arrangements of Robert M. Amen, Douglas
J. Wetmore, James H. Dunsdon, Nicolas Mirzayantz, Dennis
Meany and Hernan Vaisman incorporated by reference to the
Company's Report on Form 8-K filed on March 12, 2007.
10.4 Non-Employee Director Compensation Arrangements, adopted
by the Company's Board of Directors on March 6, 2007,
incorporated by reference to the Company's Report on Form
8-K filed on March 12, 2007.
10.5 2000 Stock Award and Incentive Plan, as amended and
restated March 6, 2007, incorporated by reference to
Appendix A to the Company's Proxy Statement filed on
March 23, 2007.
31.1 Certification of Robert M. Amen 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 Robert M. Amen 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 3, 2007 By: /s/ DOUGLAS J. WETMORE
-----------------------------------
Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer
Dated: May 3, 2007 By: /s/ DENNIS M. MEANY
--------------------------------------
Dennis M. Meany, Senior Vice President,
General Counsel and Secretary
EXHIBIT INDEX
Number Description
------ ------------
10.1 Performance Criteria for 2007 under the Company's Annual
Incentive Plan, incorporated by reference to Exhibit 10.1
to the Company's Report on Form 8-K filed on January 31,
2007.
10.2 Performance Criteria for the 2007-2009 cycle under the
Company's Long Term Incentive Plan, incorporated by
reference to the Company's Report on Form 8-K filed on
March 12, 2007.
10.3 2007 Compensation Arrangements of Robert M. Amen, Douglas
J. Wetmore, James H. Dunsdon, Nicolas Mirzayantz, Dennis
Meany and Hernan Vaisman incorporated by reference to the
Company's Report on Form 8-K filed on March 12, 2007.
10.4 Non-Employee Director Compensation Arrangements, adopted
by the Company's Board of Directors on March 6, 2007,
incorporated by reference to the Company's Report on Form
8-K filed on March 12, 2007.
10.5 2000 Stock Award and Incentive Plan, as amended and
restated March 6, 2007, incorporated by reference to
Appendix A to the Company's Proxy Statement filed on
March 23, 2007.
31.1 Certification of Robert M. Amen 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 Robert M. Amen 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, Robert M. Amen, 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 3, 2007
By: /s/ Robert M. Amen
-------------------------------
Name: Robert M. Amen
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 3, 2007
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, 2007 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Robert M. Amen, 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/ Robert M. Amen
----------------------------------
Name: Robert M. Amen
Title: Chairman of the Board
and Chief Executive Officer
Dated: May 3, 2007
By: /s/ Douglas J. Wetmore
-------------------------------
Name: Douglas J. Wetmore
Title: Senior Vice President
and Chief Financial Officer
Dated: May 3, 2007