Fragrance sales were led by an 18% increase in fine fragrance sales driven by both new product introductions and continued success of existing creations. Sales of functional fragrances and fragrance ingredients increased 9% and 11%, respectively, with the increases coming from both increased volume and new product introductions.
Flavor sales increased 7%, based on a combination of new wins and volume growth. Flavor compound sales increased in each region in both local currency and dollars.
Sales performance by region and product category compared to the prior year quarter follows:
Net income for the 2006 fourth quarter, including $1 million in after tax restructuring charges, totaled $44 million, a 192% increase compared with the prior year quarter. The 2005 fourth quarter result of $15 million included restructuring charges of $16 million after tax.
Gross profit, as a percentage of sales, improved one half percentage point compared to the prior year quarter, mainly due to higher sales.
Research and Development expenses totaled 9% of sales compared to 10% in the prior year quarter.
Selling, General and Administrative expenses, as a percentage of sales, were 17.6% in the current quarter compared to 18.6% in 2005. The 2005 quarter included approximately $3 million of expense relating to a product contamination issue.
Other income (expense), net in the 2006 fourth quarter increased $4 million over the prior year quarter, mainly due to the gain on sale of land, partially offset by higher exchange losses.
The effective tax rate was 28.8% compared to 29.4% in the prior year quarter.
Full Year 2006
Sales performance by region and product category compared to the prior year follows:
| | | | | | | |
| | Full Year 2006 vs. 2005 |
| | % Change in Sales by Region of Destination |
| | Fine | Func'l. | Ingr. | Total Frag. | Flavors | Total |
North America | Reported | 20% | 2% | 10% | 10% | 3% | 7% |
Europe | Reported | 7% | 5% | -4% | 4% | 1% | 3% |
| Local Currency | 8% | 5% | -3% | 4% | 1% | 3% |
Latin America | Reported | 25% | 2% | 6% | 8% | 11% | 9% |
Asia Pacific | Reported | 9% | 3% | 2% | 4% | 4% | 4% |
| Local Currency | 8% | 2% | 4% | 4% | 5% | 4% |
India | Reported | 2% | -4% | 29% | 3% | 10% | 7% |
| Local Currency | 2% | -4% | 31% | 3% | 10% | 7% |
Total | Reported | 13% | 3% | 3% | 6% | 4% | 5% |
| Local Currency | 13% | 3% | 3% | 6% | 4% | 5% |
Net income for 2006, including $2 million in after tax restructuring charges, totaled $223 million, a 15% increase compared with the prior year. Full year 2005 results of $193 million included restructuring charges totaling $16 million after tax, as well as a tax benefit of $25 million relating to repatriation of funds from overseas affiliates.
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Gross profit, as a percentage of sales, improved one percentage point compared to the prior year, mainly from higher sales, improved manufacturing expense absorption and favorable product mix.
▪
Research and Development expenses totaled 8.9% of sales compared to 9.0% in the prior year.
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Selling, General and Administrative expenses, as a percentage of sales, were 16.8% compared to 17.0% in 2005. The 2005 figures included approximately $8 million of expense relating to a product contamination issue; 2006 results include the benefit of a $3 million insurance recovery related to this matter.
▪
Other income (expense), net in 2006 increased $7 million over the prior year, mainly due to gains on sale of assets, partially offset by higher exchange losses.
▪
The effective tax rate was 28.8% compared to a rate of 21.6% in the prior year. The 2005 rate reflected the one-time $25 million tax benefit; excluding this benefit, the 2005 effective rate would have been 31.6%.
About IFF
IFF is a leading creator and manufacturer of flavors and fragrances used in a wide variety of consumer products—from fine fragrances and toiletries, to soaps, detergents and other household products, to beverages and food products. IFF is dedicated to The Pursuit of Excellence in every area of its business, using knowledge, creativity, innovation and technology to continually provide customers with the highest quality products and service and
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superior consumer understanding. IFF has sales, manufacturing and creative facilities in 30 countries worldwide. For more information, please visit our Web site at www.iff.com.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
Statements in this report, which are not historical facts or information, are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Certain of such forward-looking information may be identified by such terms as “expect”, “believe”, “may”, "outlook", "guidance" and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including economic, population health and political uncertainties; interest rates; the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation in the Company's principal foreign markets and the success of the Company's hedging and risk management strategies; the outcome of uncertainties related to litigation; uncertainties related to any potential claims and rights of indemnification or other recovery for customer and consumer reaction to its earlier contamination issue; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.
Webcast and Conference call
In conjunction with the release, the Company will host a real-time webcast and teleconference to discuss its 2006 fourth quarter results. The teleconference and the webcast are scheduled for 9:00 a.m. Eastern Time on Tuesday, January 30, 2007.
You may use the following dial-in numbers to access the teleconference (please dial in 5 to 10 minutes prior to the scheduled start time):
United States:
1-800-361-0912
International:
1-913-981-5559
Reservation Number:
3837469
You may access the webcast, together with the supplemental financial information presented as slides at the webcast and discussed in the teleconference, via the Company’s internet website located at http://www.iff.com by clicking on “Investor Relations” and selecting the current link under “Webcasts”.
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Playback Information
An archive of the webcast and a replay of the teleconference will be available following completion of the webcast and teleconference. The replay will be available beginning at 1:00 p.m. Eastern Time on Tuesday, January 30th and ending at Midnight on Monday, February 12, 2007. The archive of the webcast can be accessed through the Company’s website as described above. The dial-in numbers and reservation number for the replay are:
United States:
888-203-1112
International:
719-457-0820
Reservation Number:
3837469
Contact
Douglas J. Wetmore
Senior Vice President and
Chief Financial Officer
Phone: 212-708-7145
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International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)
| | | | | | |
| Quarter Ended | Year Ended |
| December 31, | December 31, |
| 2005 | 2006 | % Change | 2005 | 2006 | % Change |
Net Sales | | $461,645 | $514,318 | 11% | $1,993,393 | $2,095,390 | 5% |
Cost of goods sold | 274,818 | 303,403 | 10% | 1,168,992 | 1,211,259 | 4% |
Gross margin on sales | 186,827 | 210,915 | 13% | 824,401 | 884,131 | 7% |
Research & development | 46,028 | 48,031 | 4% | 179,812 | 185,692 | 3% |
Selling and administrative | 85,691 | 90,559 | 6% | 339,323 | 351,923 | 4% |
Amortization | 3,768 | 3,709 | | 15,071 | 14,843 | |
Restructuring and other charges | 23,319 | 2,007 | | 23,319 | 2,680 | |
Interest expense | 5,752 | 7,401 | 29% | 23,956 | 25,549 | 7% |
Other (income) expense, net | 700 | (3,208) | | (3,268) | (9,838) | |
Pretax income | 21,569 | 62,416 | 189% | 246,188 | 313,282 | 27% |
Income taxes | 6,331 | 17,945 | | 53,122 | 90,293 | |
Net income | $15,238 | $44,471 | 192% | $193,066 | $222,989 | 15% |
Earnings per share - basic | $0.16 | $0.50 | 213% | $2.06 | $2.47 | 20% |
Earnings per share - diluted | $0.16 | $0.49 | 206% | $2.04 | $2.44 | 20% |
Average shares outstanding (in thousands): | | | | | | |
Basic | 92,757 | 89,416 | 4% | 93,584 | 90,443 | 3% |
Diluted | 93,404 | 90,602 | 3% | 94,826 | 91,369 | 4% |
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International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
(Unaudited)
| | |
| December 31, 2005 | December 31, 2006 |
Cash & cash equivalents | $ | 272,545 | $ | 114,508 |
Short term investments | 352 | 604 |
Receivables | 368,519 | 405,302 |
Inventories | 430,794 | 446,606 |
Other current assets | 119,064 | 112,783 |
Total current assets | 1,191,274 | 1,079,803 |
Property, plant and equipment, net | 499,145 | 495,124 |
Goodwill and other intangibles, net | 772,651 | 745,716 |
Other assets | 175,126 | 158,261 |
Total assets | $ | 2,638,196 | $ | 2,478,904 |
Bank borrowings, overdrafts and current portion of long-term debt | $ | 819,392 | $ | 15,897 |
Other current liabilities | 383,304 | 434,752 |
Total current liabilities | 1,202,696 | 450,649 |
Long-term debt | 131,281 | 791,443 |
Non-current liabilities | 388,872 | 335,522 |
Shareholders' equity | 915,347 | 901,290 |
Total liabilities and shareholders' equity | $ | 2,638,196 | $ | 2,478,904 |
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International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
| | |
| Year Ended December 31, |
| 2005 | 2006 |
Cash flows from operating activities: | | |
Net income | $193,066 | $222,989 |
Adjustments to reconcile to net cash provided by operations: | | |
Depreciation and amortization | 91,928 | 89,733 |
Deferred income taxes | (32,882) | (12,423) |
Gain on disposal of assets | (2,108) | (22,836) |
Changes in assets and liabilities | | |
Current receivables | (1,897) | (27,153) |
Inventories | (117) | 9,492 |
Current payables | (6,369) | 40,279 |
Other, net | (64,461) | (38,298) |
Net cash provided by operations | 177,160 | 261,783 |
Cash flows from investing activities: | | |
Net change in short-term investments | 35 | (240) |
Additions to property, plant and equipment | (93,433) | (58,282) |
Proceeds from disposal of assets | 2,787 | 27,235 |
Net cash used in investing activities | (90,611) | (31,287) |
Cash flows from financing activities: | | |
Cash dividends paid to shareholders | (67,779) | (67,381) |
Net change in bank loans | 312,094 | (47,596) |
Proceeds from long-term debt | - | 375,000 |
Repayments of long-term debt | (11,653) | (499,300) |
Proceeds from issuance of stock under stock option and employee stock purchase plans | 23,015 | 110,867 |
Excess tax benefits on stock options exercised | - | 4,653 |
Purchase of treasury stock | (98,319) | (270,998) |
Net cash provided by (used in) financing activities | 157,358 | (394,755) |
Effect of exchange rates changes on cash and cash equivalents | (3,958) | 6,222 |
Net change in cash and cash equivalents | 239,949 | (158,037) |
Cash and cash equivalents at beginning of year | 32,596 | 272,545 |
Cash and cash equivalents at end of year | $272,545 | $114,508 |
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