SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 3, 2007
INTERNATIONAL FLAVORS & FRAGRANCES INC. | ||||||
(Exact Name of Registrant as Specified in Charter) | ||||||
New York | 1-4858 | 13-1432060 | ||||
(State or Other Jurisdiction
of Incorporation) |
(Commission
File Number) |
(I.R.S. Employer
Identification No.) |
||||
521 West 57th Street, New York, New York | 10019 | |||||
(Address of Principal Executive Offices) | (Zip Code) | |||||
Registrant’s telephone number, including area code (212) 765-5500
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition
Attached and being furnished hereby as Exhibit 99.1 is a copy of a press release of International Flavors & Fragrances Inc. (‘‘IFF’’ or the ‘‘Company’’) dated May 3, 2007 reporting IFF’s financial results for the first quarter ended March 31, 2007. Attached is a copy of the slides to be presented in the earnings conference call on May 3, 2007 and furnished as Exhibit 99.2 to this Form 8-K.
Non-GAAP financial measures: To supplement the Company’s financial results presented in accordance with U.S. Generally Accepted Accounting Principles (‘‘GAAP’’), the Company uses, and has included in the attached press release and slide presentation, certain non-GAAP financial measures. These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP financial measures as disclosed by the Company may also be calculated differently from similar measures disclosed by other companies. To ease the use and understanding of our supplemental non-GAAP financial measures, the Company includes the most directly comparable GAAP financial measure.
The Company uses the non-GAAP financial measures which excludes (i) restructuring charges and (ii) one-time gains on asset dispositions. Management uses these financial measures in preparing financial targets, internal budgets and operating plans, evaluating actual performance against targets and budget, assessing historical performance over reporting periods, assessing management performance and assessing operating performance against other companies. This information also aids management and the Board of Directors in decision-making and allocation of resources. A material limitation of these financial measures is that some or all of such special charges include actual cash outlays and one-time gains include actual cash inflow and such measures do not reflect actual GAAP amounts. Management compensates for such limitations by clarifying that these measures are only one operating metric used for internal financial analysis and planning purposes and should not be considered in isolation, and by providing the corresponding GAAP financial measure.
The Company also uses the non-GAAP financial measure which excludes the effect in 2005 of the American Jobs Creation Act of 2004 (AJCA). Management believes that given the unique nature of this item, including this information without the impact of repatriation in the prior year period is more representative of the Company’s operational performance and effective tax rate and may assist investors in evaluating the Company’s period to period financial results, in a manner consistent with how management has evaluated such performance.
The Company also discloses, and management internally monitors, the sales performance of international operations on a basis that eliminates the positive or negative effects that result from translating foreign currency sales into U.S. dollars. Management uses this constant dollar measure because it believes that it enhances the assessment of the sales performance of its international operations and the comparability between reporting periods.
1
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release of International Flavors & Fragrances Inc., dated May 3, 2007.
99.2 Slides of International Flavors & Fragrances Inc., dated May 3, 2007
.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC. | |||||||||
Dated: May 3, 2007 | By: | /s/ Douglas J. Wetmore | |||||||
Name: | Douglas J. Wetmore | ||||||||
Title: | Senior Vice President and Chief
Financial Officer |
||||||||
3
FOR IMMEDIATE RELEASE
Investor Contact: Douglas J. Wetmore
Senior Vice President and CFO
212-708-7145
Media Contact: Yvette Rudich
Director of Corporate Communications
212-708-7164
IFF REPORTS STRONG FIRST QUARTER 2007 RESULTS
- Double-Digit Growth in Sales, Net Income and Earnings per Share -
New York, May 3, 2007 - International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances, today reported double-digit growth in sales and net income for the first quarter of 2007. Earnings per share were $.69 in the quarter, representing an increase of 19% from the first quarter of 2006.
"IFF is off to a solid start in 2007 with double-digit increases in sales and net income," said Robert M. Amen, Chairman and Chief Executive Officer of IFF. "We continue to make progress toward the financial goals we outlined for 2007-2009 by strengthening our customer focus and executing on our plans.
"IFF has a strong reputation for creativity and research, as well as consumer insight and brand understanding. These attributes are significant competitive differentiators for IFF and are key to providing our customers with winning solutions. We believe that these capabilities, coupled with the positive trends we are seeing in our markets, will enable us to deliver sustainable growth over time."
Sales rose 11% in the first quarter to $566 million compared to $511 million in the prior year period; flavor and fragrance sales each increased 11%. Sales for the quarter reflect the generally weaker U.S. dollar, mainly against the Euro and Pound Sterling; at comparable exchange rates, sales would have increased 6%.
The increase in total fragrance sales was driven by higher fine fragrance and beauty care, and fragrance ingredient sales of 11% and 17%, respectively. The growth in fine fragrance and beauty care was driven by new product introductions, while ingredient sales growth was mainly volume related. Functional fragrance sales increased 5% on a combination of new wins and improved volumes.
Flavor sales increased 11%, due to new wins and volume growth. In addition, flavor sales increased in each region, both in local currency and in dollars.
First Quarter 2007 Performance Highlights
§
Earnings per share for the 2007 first quarter were $0.69, an increase of 19% from the first quarter of 2006.
§
Net income for the 2007 first quarter totaled $63 million, a 17% increase compared with the prior year quarter.
§
Gross profit, as a percentage of sales, declined from the prior year quarter, mainly as a result of the shift in product mix, notably higher sales of fragrance ingredients and flavor compounds; gross margin was also impacted by the new fragrance ingredient facility in China, which continues to ramp up as planned.
§
Research and Development (R&D) expenses totaled 8% of sales compared to 9% in the prior year quarter; R&D expenses rose at a slower rate than sales.
§
Selling and Administrative (S&A) expenses, as a percentage of sales, were 16% in the current quarter compared to 17% in the prior year quarter; the decline was mainly due to reductions in headcount in 2006, most of which occurred after the first quarter.
§
Interest expense increased by $3 million mainly due to higher average interest rates on borrowings; the average interest rate for 2007 was 4.1% compared to 2.3% for the 2006 quarter.
§
Effective tax rate for the quarter was 28.0% versus 28.6% in the prior year quarter. The current quarters effective tax rate benefited from the reversal of prior accruals.
About International Flavors & Fragrances Inc.
IFF is a leading creator of flavors and fragrances used in a wide variety of consumer products and packaged goods. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, confectionary and food products. The Company leverages its competitive advantages of brand understanding and consumer insight combined with its focus on R&D and innovation, to provide customers with differentiated product offerings. A member of the S&P 500 Index, IFF has sales, manufacturing and creative facilities in 30 countries worldwide. For more information, please visit our Web site at www.iff.com.
2
Audio Web Cast
An audio Web cast, to discuss the Companys first quarter 2007 financial results and outlook, will be held today at 10:00 a.m. EDT. Interested parties can access the Web cast and accompanying slide presentation on the Companys Web site at www.iff.com, under the Investor Relations section. For those unable to listen to the live broadcast, a replay will be available on the Companys Web site approximately one hour after the event and will remain available on the IFF Web site until 11:59 p.m. on May 17, 2007.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
Statements in this report, which are not historical facts or information, are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current assumptions, estimates and expectations. Certain of such forward-looking information may be identified by such terms as expect, believe, may, "outlook", "guidance" and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including economic, population health and political uncertainties; interest rates; the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation in the Company's principal foreign markets and the success of the Company's hedging and risk management strategies; the outcome of uncertainties related to litigation; uncertainties related to any potential claims and rights of indemnification or other recovery for customer and consumer reaction to its earlier contamination issue; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
Any public statements or disclosures by IFF following this release that modify or impact any of the outlook or other forward-looking statements contained in or accompanying this release or as part of the webcast will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this release or the webcast.
###
3
International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
|
Quarter Ended March 31, |
||
|
2006 |
2007 |
% Change |
Net Sales |
$511,432 |
$566,101 |
11% |
Cost of goods sold |
294,818 |
329,382 |
12% |
Gross margin on sales |
216,614 |
236,719 |
9% |
Research & development |
45,602 |
46,632 |
2% |
Selling and administrative |
85,588 |
91,271 |
7% |
Amortization |
3,710 |
3,556 |
|
Restructuring and other charges |
661 |
- |
|
Interest expense |
5,373 |
8,314 |
55% |
Other expense (income), net |
439 |
(167) |
|
Pretax income |
75,241 |
87,113 |
16% |
Income taxes |
21,551 |
24,424 |
|
Net income |
$53,690 |
$62,689 |
17% |
|
|
|
|
Earnings per share - basic |
$0.59 |
$0.70 |
19% |
Earnings per share - diluted |
$0.58 |
$0.69 |
19% |
|
|
|
|
Average shares outstanding (in thousands): |
|
|
|
Basic |
91,535 |
89,378 |
|
Diluted |
92,207 |
90,658 |
|
4
International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
(Unaudited)
|
December 31, 2006 |
March 31, 2007 |
Cash & cash equivalents |
$ 114,508 |
$ 83,205 |
Short term investments |
604 |
527 |
Receivables |
405,302 |
483,863 |
Inventories |
446,606 |
445,204 |
Other current assets |
112,783 |
107,513 |
Total current assets |
1,079,803 |
1,120,312 |
|
|
|
Property, plant and equipment, net |
495,124 |
487,035 |
Goodwill and other intangibles, net |
745,716 |
742,160 |
Other assets |
158,261 |
147,886 |
Total assets |
$ 2,478,904 |
$ 2,497,393 |
|
|
|
Bank borrowings and overdrafts |
$ 15,897 |
$ 12,717 |
Other current liabilities |
430,874 |
331,347 |
Total current liabilities |
446,771 |
344,064 |
|
|
|
Long-term debt |
791,443 |
799,735 |
Non-current liabilities |
335,522 |
414,010 |
|
|
|
Shareholders' equity |
905,168 |
939,584 |
Total liabilities and shareholders' equity |
$ 2,478,904 |
$ 2,497,393 |
5
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
|
March 31, 2006 |
March 31, 2007 |
Cash flows from operating activities: |
|
|
Net income |
$53,690 |
$62,689 |
Adjustments to reconcile to net cash provided by operations: |
|
|
Depreciation and amortization |
22,261 |
21,139 |
Deferred income taxes |
9,953 |
11,695 |
Gain on disposal of assets |
(1,644) |
(815) |
Equity based compensation |
2,862 |
4,277 |
Changes in assets and liabilities |
|
|
Current receivables |
(45,164) |
(38,454) |
Inventories |
(1,694) |
1,648 |
Current payables |
(1,110) |
(62,771) |
Changes in other assets |
(2,134) |
6,971 |
Changes in other liabilities |
4,092 |
1,147 |
Net cash provided by operations |
41,112 |
7,526 |
|
|
|
Cash flows from investing activities: |
|
|
Net change in short-term investments |
25 |
(277) |
Additions to property, plant and equipment |
(9,033) |
(8,590) |
Proceeds from disposal of assets |
4,670 |
452 |
Net cash used in investing activities |
(4,338) |
(8,415) |
|
|
|
Cash flows from financing activities: |
|
|
Cash dividends paid to shareholders |
(17,189) |
(18,764) |
Net change in bank borrowings and overdrafts |
(19,404) |
1,903 |
Proceeds from issuance of stock under stock-based compensation plans |
6,636 |
15,764 |
Excess tax benefits on stock options exercised |
83 |
1,732 |
Purchase of treasury stock |
(75,561) |
(31,480) |
Net cash used in financing activities |
(105,435) |
(30,845) |
|
|
|
Effect of exchange rates changes on cash and cash equivalents |
1,367 |
431 |
|
|
|
Net change in cash and cash equivalents |
(67,294) |
(31,303) |
|
|
|
Cash and cash equivalents at beginning of year |
272,545 |
114,508 |
|
|
|
Cash and cash equivalents at end of period |
$205,251 |
$83,205 |
6
First Quarter 2007<br/>Investors’ Webcast<br/>May 3, 2007
Robert M. Amen
Robert M. Amen
Chairman and CEO
Douglas J. Wetmore
Notices
Forward Looking Statement:
Forward Looking Statement:
These slides contain forward looking information, which may be identified by terms such as “expect”, “may”, “anticipated”, “guidance”, “outlook” and similar terms and involve significant risks and uncertainties. Actual results may differ materially. Risks and uncertainties include general economic and business conditions; interest rates; the price, quality and availability of raw materials; our ability to achieve our business strategy and anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation; uncertainties related to litigation; the impact of possible pension funding obligations and increased pension expense; and the effect of legal and regulatory proceedings and restrictions. We do not undertake to update or revise such forward-looking statements. These and other factors that could cause actual results to differ materially from such forward-looking statements are discussed in greater detail in our accompanying quarterly earnings release and in our SEC filings.
Any public statements or disclosures by IFF following this release that modify or impact any of the outlook or other forward-looking statements contained in or accompanying this release or as part of the webcast will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this release or the webcast.
Non-GAAP Financial Measures:
Agenda
Highlights
Highlights
First Quarter Financial Results
Business Priorities
Robert M. Amen
Solid Start to 2007 <br/>($ in millions, except per share data)
Q1 Q1
Q1 Q1
2006 2007 %*
Sales $511 $566 + 11%
Operating Profit $ 81 $ 95 + 18%
Net Income $ 54 $ 63 + 17%
EPS $ .58 $ .69 + 19%
* Percentages may not calculate due to rounding
First Quarter Highlights
Strong sales growth
Strong sales growth
Flavors increased $24 million; up 11%
Fragrances increased $31 million; up 11%
Operating profit expansion
Organized for Growth
New Structure Effective January 2007
New Structure Effective January 2007
Flavors
Hernan Vaisman, Group President
Fragrances and Ingredients
Nicolas Mirzayantz, Group President
Business Rationale
Accelerate growth
Align R&D with each business unit
Leverage global capabilities
Support provided by centralized resource groups
Flavors Business<br/>First Quarter 2007 Highlights
Resurgence in Sales
Resurgence in Sales
Global and regional customer growth
North America improvement
Growth driven by volume and new wins
All regions experienced an increase
Double-digit growth in emerging markets
Gaining momentum
Fragrances Business<br/>First Quarter 2007 Highlights
Fine Fragrances and Beauty Care
Fine Fragrances and Beauty Care
Continued benefit from 2006 wins
Growth and gain in market share
13 consecutive quarters of growth
Growing faster than market
Functional
Double-digit growth in NA
Douglas J. Wetmore
Senior Vice President and
First Quarter 2007 Sales<br/>($ in millions)
2006
2007
Flavors +11%
Flavors +11%
2006
2007
NOAM
NOAM
Flav +4%
Frag +11%
LATAM
LATAM
Flav+14%
Greater Asia
Greater Asia
Flav +18%
Frag + 2%
EAME
EAME
Flav + 11%
Frag + 15%
First Quarter 2007 <br/>Growth by Business Unit in each Region
Flavors Profitability<br/>Q1 2007 vs. Q1 2006 ($ in millions)
2006 2007 %
2006 2007 %
Sales $ 219 $ 243 + 11%
Op. Profit $ 37 $ 45 + 22%
Flavors profitability increased 22% on:
Sales performance
New wins and volume growth of existing business
Improved gross margin
Flavors Sales Growth<br/>2005-2007
Fragrances Profitability<br/>Q1 2007 vs. Q1 2006 ($ in millions)
2006 2007 %
2006 2007 %
Sales $ 292 $ 323 + 11%
Op. Profit $ 52 $ 59 + 13%
Fragrances profitability increased 13% on:
Decline in gross margin mainly due to sales mix
Higher ingredient sales
Fine and Ingredients drove total fragrance sales
First Quarter 2007 vs. 2006<br/>Fragrance Sales Growth
Fragrance Sales Growth<br/>2005-2007
First Quarter Operating Results <br/>($ in millions)
* Percentages may not calculate due to rounding
*
Sales
Sales
Growth
Other
Other
Income/
Interest/
Restructure
Tax
Tax
Rate
2007
2007
EPS
First Quarter 2007 EPS Growth <br/>Components
Share
Share
Count
2006
2006
EPS
Productivity/
Productivity/
Mix
Earnings Per Share Performance (Excludes AJCA, restructuring, & asset gains)
$0.69
Cash Flow Summary <br/>($ in millions)
2007 Share Buyback Data <br/>(Amounts and shares in millions)
Robert M. Amen
European Chemical Regulation - REACH
Legislation passed by the European Parliament in 2006
Intent of REACH is to have all chemicals used in the EU registered and tested for safety
REACH Implementation
First step is pre-registration between June and November 2008
- - Existing substances not pre-registered cannot be used after November 30, 2008
- - New substances can be pre-registered pending registration
Registration is required for substances used in volumes exceeding:
- - 1,000 tons annually by 1 December 2010
- - 100 tons annually by 1 June 2013
- - 1 ton annually by 1 June 2018
Well-positioned to comply with REACH and assist customers with
R&D and Innovation
Aligned with the Business Units
Aligned with the Business Units
Categories of Effort
Traditional R&D for Flavor & Fragrance molecules and taste system
Taste receptor cell research
Naturals and nature-inspired technology
Creative teams
Output
Patented materials
Proprietary molecules
Unique delivery systems
Business Priorities 2007
Execute Business Plan
Execute Business Plan
Customer Focus
Improve Operational Efficiency
Build a Stronger Organization
People Development
Improve Business Model
Financial Goals<br/>2007 – 2009
Grow local currency sales by 4+% per year
Grow local currency sales by 4+% per year
Improve operating margins to 18+% of sales by the end of 2009
Increase EPS on average 10+% per year
Grow dividend in line with EPS growth
Execute stock repurchase plan
Questions
:QV],&MM<;OER
M..*O6N6?MBDY=AJ/#!SCI61>6VXEA]\=/?VJO0G5;E-!^-2;><9J.-NW
M0]_6K&.AI7*L-V>U1LM3D"HF(H3)*DXP#52U3=(>B_*/K5NZ8!2:BMEVPC
M/4\U0%Q,$\<59C]CBJ:MVJRAH&D7(^E3J?2JB$@595N.U2P'$>M-/6G@_P#U
MZ4C]:FY5B';32.:E(^M)CFBX[$87`I`*D-`'%,3(\4N>*<13#U_&@0A.!2V$
M1GOL>E-<9%6]&*1?:+F5E5(^68\`8H1,BYKVHQZ1ICREOF`PJ?WF["O`;F:2
MXNI9I7+R.Y9F/
5,CEQN50K#*\$#\:O2>)M=MXTTR^UZXM;"+7+FQN-9,2>8D:(&C
M#';M!8G&[':@#V"BO'M0\5^)!XRDM;35(HX8);9+..XFCC2\A8+N<@KN