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EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL FLAVORS & FRAGRANCES INCFinancial_Report.xls
EX-31.2 - EXHIBIT 31.2 - INTERNATIONAL FLAVORS & FRAGRANCES INCiff93014exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - INTERNATIONAL FLAVORS & FRAGRANCES INCiff93014exhibit311.htm
EX-10.1 - EXHIBIT 10.1 - INTERNATIONAL FLAVORS & FRAGRANCES INCiff93014exhibit101.htm
EX-32 - EXHIBIT 32 - INTERNATIONAL FLAVORS & FRAGRANCES INCiff93014exhibit32.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
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
incorporation or organization)
 
(I.R.S. Employer
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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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  þ    No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
þ
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨ No  þ
Number of shares outstanding as of October 24, 2014: 80,971,601


 
1
 



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(Unaudited)
 
 
September 30, 2014
 
December 31, 2013
ASSETS
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
404,836

 
$
405,505

Trade receivables (net of allowances of $9,906 and $10,493, respectively)
 
562,617

 
524,493

Inventories: Raw materials
 
264,531

 
252,457

Work in process
 
17,250

 
6,658

Finished goods
 
274,521

 
274,691

Total Inventories
 
556,302

 
533,806

Deferred income taxes
 
23,315

 
40,189

Prepaid expenses and other current assets
 
165,539

 
148,910

Total Current Assets
 
1,712,609

 
1,652,903

Property, plant and equipment, at cost
 
1,796,021

 
1,757,983

Accumulated depreciation
 
(1,095,073
)
 
(1,070,768
)
 
 
700,948

 
687,215

Goodwill
 
675,484

 
665,582

Other intangible assets, net
 
78,397

 
30,615

Deferred income taxes
 
160,490

 
154,437

Other assets
 
148,581

 
140,979

Total Assets
 
$
3,476,509

 
$
3,331,731

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current Liabilities:
 
 
 
 
Bank borrowings and overdrafts and current portion of long-term debt
 
$
9,528

 
$
149

Accounts payable
 
207,227

 
226,733

Accrued payroll and bonus
 
66,371

 
105,816

Dividends payable
 
37,931

 
31,740

Restructuring and other charges
 
1,503

 
2,116

Other current liabilities
 
194,294

 
193,812

Total Current Liabilities
 
516,854

 
560,366

Long-term debt
 
933,625

 
932,665

Deferred gains
 
47,359

 
41,339

Retirement liabilities
 
218,312

 
238,225

Other liabilities
 
116,705

 
92,085

Total Other Liabilities
 
1,316,001

 
1,304,314

Commitments and Contingencies (Note 12)
 

 

Shareholders’ Equity:
 
 
 
 
Common stock 12 1/2¢ par value; authorized 500,000,000 shares; issued 115,761,900 and 115,761,840 shares as of September 30, 2014 and December 31, 2013; and outstanding 81,113,493 and 81,384,246 shares as of September 30, 2014 and December 31, 2013
 
14,470

 
14,470

Capital in excess of par value
 
136,341

 
131,461

Retained earnings
 
3,298,761

 
3,075,657

Accumulated other comprehensive loss
 
(399,061
)
 
(392,711
)
Treasury stock, at cost - 34,648,407 shares as of September 30, 2014 and 34,377,594 shares as of December 31, 2013
 
(1,410,992
)
 
(1,365,805
)
Total Shareholders’ Equity
 
1,639,519

 
1,463,072

Noncontrolling interest
 
4,135

 
3,979

Total Shareholders’ Equity including noncontrolling interest
 
1,643,654

 
1,467,051

Total Liabilities and Shareholders’ Equity
 
$
3,476,509

 
$
3,331,731


See Notes to Consolidated Financial Statements

 
2
 



INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(AMOUNT IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
773,813

 
$
742,256

 
$
2,332,451

 
$
2,227,727

Cost of goods sold
 
433,702

 
416,852

 
1,298,281

 
1,256,977

Research and development expenses
 
63,701

 
65,654

 
191,635

 
189,428

Selling and administrative expenses
 
123,212

 
118,221

 
379,864

 
357,687

Restructuring and other charges, net
 
608

 

 
912

 
2,105

Interest expense
 
10,968

 
11,625

 
34,048

 
35,637

Other income, net
 
(563
)
 
(4,080
)
 
(3,761
)
 
(16,359
)
Income before taxes
 
142,185

 
133,984

 
431,472

 
402,252

Taxes on income
 
34,770

 
34,938

 
107,064

 
110,187

Net income
 
107,415

 
99,046

 
324,408

 
292,065

Other comprehensive income (loss), after tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(25,046
)
 
5,707

 
(26,872
)
 
(11,118
)
Gains (losses) on derivatives qualifying as hedges
 
5,748

 
(1,859
)
 
7,806

 
(4,161
)
Pension and postretirement net liability
 
3,951

 
5,126

 
12,716

 
15,346

Other comprehensive income (loss)
 
(15,347
)
 
8,974

 
(6,350
)
 
67

Total comprehensive income
 
$
92,068

 
$
108,020

 
$
318,058

 
$
292,132

Net income per share - basic
 
$
1.32

 
$
1.21

 
$
3.98

 
$
3.57

Net income per share - diluted
 
$
1.31

 
$
1.20

 
$
3.95

 
$
3.54

Average number of shares outstanding - basic
 
80,942

 
81,437

 
80,981

 
81,349

Average number of shares outstanding - diluted
 
81,508

 
82,043

 
81,556

 
81,959

Dividends declared per share
 
$
0.47

 
$
0.39

 
$
1.25

 
$
1.07

See Notes to Consolidated Financial Statements

 
3
 



INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
324,408

 
$
292,065

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
68,678

 
61,084

Deferred income taxes
 
7,496

 
(5,167
)
Gain on disposal of assets
 
(2,351
)
 
(18,859
)
Stock-based compensation
 
19,627

 
18,919

Changes in assets and liabilities, net of Aromor acquisition:
 
 
 
 
Trade receivables
 
(47,929
)
 
(72,051
)
Inventories
 
(21,609
)
 
10,679

Accounts payable
 
(7,590
)
 
(11,581
)
Accruals for incentive compensation
 
(45,482
)
 
(1,298
)
Other current payables and accrued expenses
 
4,154

 
27,416

Other assets
 
(5,508
)
 
(23,805
)
Other liabilities
 
23,609

 
(20,086
)
Net cash provided by operating activities
 
317,503

 
257,316

Cash flows from investing activities:
 
 
 
 
Cash paid for acquisition, net of cash received (including $15 million of contingent consideration)
 
(102,500
)
 

Additions to property, plant and equipment
 
(97,820
)
 
(86,448
)
Proceeds from life insurance contracts
 
17,750

 
793

Maturity of net investment hedges
 
(472
)
 
626

Proceeds from disposal of assets
 
2,506

 
16,782

Net cash used in investing activities
 
(180,536
)
 
(68,247
)
Cash flows from financing activities:
 
 
 
 
Cash dividends paid to shareholders
 
(95,113
)
 
(55,525
)
Net change in revolving credit facility borrowings and overdrafts
 
8,926

 
(282,915
)
Deferred financing costs
 
(1,023
)
 
(2,800
)
Repayments of long-term debt
 

 
(100,000
)
Proceeds from long-term debt
 
4,100

 
297,786

Proceeds from issuance of stock under stock plans
 
1,361

 
3,613

Excess tax benefits on stock-based payments
 
6,080

 
5,583

Purchase of treasury stock
 
(52,453
)
 
(31,923
)
Net cash used in financing activities
 
(128,122
)
 
(166,181
)
Effect of exchange rate changes on cash and cash equivalents
 
(9,514
)
 
(4,161
)
Net change in cash and cash equivalents
 
(669
)
 
18,727

Cash and cash equivalents at beginning of year
 
405,505

 
324,422

Cash and cash equivalents at end of period
 
$
404,836

 
$
343,149

Interest paid, net of amounts capitalized
 
$
26,407

 
$
47,754

Income taxes paid
 
$
63,007

 
$
105,636

See Notes to Consolidated Financial Statements

 
4
 



Notes to Consolidated Financial Statements
Note 1. Consolidated Financial Statements:
Basis of Presentation
These interim statements and related management’s 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, liquidity and capital resources included in our 2013 Annual Report on Form 10-K (“2013 Form 10-K”). These interim statements are unaudited. The year-end balance sheet data included in this Form 10-Q filing was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America. We have historically operated and continue to operate on a 52/53 week fiscal year ending on the Friday closest to the last day of the quarter. For ease of presentation, September 30 and December 31 are used consistently throughout this Form 10-Q and these interim financial statements and related notes to represent the period-end dates. For the 2014 and 2013 quarters, the actual closing dates were September 26 and September 27, respectively. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. When used herein, the terms “IFF,” the “Company,” “we,” “us” and “our” mean International Flavors & Fragrances Inc. and its consolidated subsidiaries.
Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance clarifying the accounting for the release of cumulative translation adjustments into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance was effective prospectively for reporting periods beginning after December 15, 2013. The adoption of this statement did not have a significant impact on our financial position, results of operations or cash flows.
In July 2013, the FASB issued authoritative guidance related to the financial statement presentation of unrecognized tax benefits. This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. In such situations, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance was effective prospectively for reporting periods beginning after December 15, 2013. The adoption of this statement did not have a significant impact on our financial position, results of operations or cash flows.
In May 2014, the FASB issued authoritative guidance to clarify the principles to be used to recognize revenue. The guidance is applicable to all entities. The guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact that this new standard will have on its consolidated financial statements.

Note 2. 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 September 30,
 
Nine Months Ended September 30,
(SHARES IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Basic
80,942

 
81,437

 
80,981

 
81,349

Assumed dilution under stock plans
566

 
606

 
575

 
610

Diluted
81,508

 
82,043

 
81,556

 
81,959

There were no stock options and stock settled appreciation rights (“SSARs”) excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2014 and 2013.
The Company has issued shares of purchased restricted common stock (“PRS”) which contain rights to nonforfeitable dividends while these shares are outstanding and thus are considered participating securities which are required to be included in the computation of basic and diluted earnings per share pursuant to the two-class method. The Company did not present the

 
5
 



two-class method since the difference between basic and diluted net income per share for both unrestricted common shareholders and PRS shareholders was less than $0.01 per share for each period presented and the number of PRS outstanding as of September 30, 2014 and 2013 was immaterial (approximately 0.6% and 0.7% of the total number of common shares outstanding as of September 30, 2014 and 2013, respectively). Net income allocated to such PRS was $0.6 million during each of the three months ended September 30, 2014 and 2013, and $1.9 million during each of the nine months ended September 30, 2014 and 2013, respectively.
Note 3. Restructuring and Other Charges, Net:
Fragrance Ingredients Rationalization
During the third quarter of 2014, the Company closed its fragrance ingredients manufacturing facility in Augusta, Georgia and consolidated production into other Company facilities. In connection with this closure, the Company expects to incur charges of $14 - $15 million, consisting primarily of approximately $10 million in accelerated depreciation of fixed assets, approximately $3 million in personnel-related costs and $1 - $2 million in plant shutdown and other related costs. The Company recorded total charges of $7.4 million during 2013, consisting of $2.2 million of pre-tax charges related to severance included in Restructuring and other charges, net and $5.2 million of non-cash charges related to accelerated depreciation included in Cost of goods sold. During the nine months ended September 30, 2014, the Company recorded an additional $0.1 million of severance costs and $0.8 million of plant shutdown and other related costs included in Restructuring and other charges, net as well as an additional $5.1 million of non-cash charges related to accelerated depreciation included in Cost of goods sold. The majority of the plant shutdown and other related costs are expected to be recognized over the balance of the year. As a result of this closure, 43 positions have been or will be eliminated. The Company estimates that approximately $4 - $5 million of the costs will be or have been cash expenditures.
Changes in employee-related restructuring liabilities during the nine months ended September 30, 2014 related to the Fragrance Ingredients Rationalization were as follows:
 
(DOLLARS IN THOUSANDS)
Employee-Related Costs
 
Accelerated Depreciation
 
Other
 
Total
December 31, 2013
$
2,116

 
$

 
$

 
$
2,116

Additional charges, net
(46
)
 
5,100

 
958

 
6,012

Non-cash charges

 
(5,100
)
 

 
(5,100
)
Payments and other costs
(567
)
 

 
(958
)
 
(1,525
)
September 30, 2014
$
1,503

 
$

 
$

 
$
1,503

Note 4. Other Intangible Assets, Net:
Other intangible assets, net consist of the following amounts: 
 
September 30,
 
December 31,
(DOLLARS IN THOUSANDS)
2014
 
2013
Gross carrying value (1)
$
218,676

 
$
165,406

Accumulated amortization
(140,279
)
 
(134,791
)
Total
$
78,397

 
$
30,615

 
(1) 
Includes patents, trademarks, technological know-how and other intellectual property, valued at acquisition.
Aromor
On January 15, 2014, the Company completed the acquisition of 100% of the equity of Aromor Flavors and Fragrances Ltd. ("Aromor"), a privately held manufacturer and marketer of complex specialty ingredients that are used in fragrances and flavors. The acquisition was accounted for under the purchase method. The Company paid $102.6 million (including $0.1 million of cash acquired) for this acquisition, which was funded out of existing cash resources. Aromor is part of the IFF Fragrances Ingredients business and was acquired in order to strengthen this business and provide cost-effective quality materials for use in our formula creations. The purchase price exceeded the carrying value of existing net assets by approximately $56 million. The excess was allocated principally to identifiable intangible assets (approximately $53 million), goodwill (approximately $10 million) and approximately $9 million to deferred tax liabilities. Separately identifiable intangible assets are principally related to technological know-how. The intangible assets are amortized using lives ranging from 13-19 years. Additionally, the consideration included $15 million related to post-combination contingent consideration, held in escrow. This escrowed amount will be expensed by the Company as it is earned by the selling shareholders over three years

 
6
 



based upon the continued participation in the acquired business of certain key personnel. The purchase price allocation was completed during the second quarter. No pro forma financial information for 2013 is presented as the impact of the acquisition is immaterial.
Amortization
Amortization expense was $1.9 million and $1.5 million for the three months ended September 30, 2014 and 2013, respectively and $5.9 million and $4.6 million for the nine months ended September 30, 2014 and 2013, respectively. Annual amortization is expected to be $7.8 million for the year 2014, $7.5 million for the years 2015 through 2017, $7.3 million for the year 2018 and $6.7 million for the year 2019.
Note 5. Borrowings:
Debt consists of the following:
(DOLLARS IN THOUSANDS)
Rate
 
Maturities
 
September 30, 2014
 
December 31, 2013
Senior notes - 2007
6.40
%
 
2017-27
 
$
500,000

 
$
500,000

Senior notes - 2006
6.14
%
 
2016
 
125,000

 
125,000

Senior notes - 2013
3.20
%
 
2023
 
299,776

 
299,736

Bank overdrafts and other
 
 
 
 
12,697

 
984

Deferred realized gains on interest rate swaps
 
 
 
 
5,680

 
7,094

 
 
 
 
 
943,153

 
932,814

Less: Current portion of long-term debt
 
 
 
 
(9,528
)
 
(149
)
 
 
 
 
 
$
933,625

 
$
932,665

On April 4, 2014, the Company and certain of its subsidiaries amended and restated the Company’s existing credit agreement with Citibank, N.A., as administrative agent, to, among other things (i) modify the available tranches of the revolving loan facility provided under the credit agreement (as amended, the “Credit Facility”), (ii) reduce the applicable margin on the interest rate on advances under the Credit Facility to a range of 0.0% to 0.750% for base rate advances and 0.750% to 1.750% for Eurocurrency rate advances, depending on the Company’s public debt rating and (iii) extend the maturity date of the Credit Facility until April 4, 2019. Tranche A of the Credit Facility is available to borrowers in U.S. dollars, euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an equivalent of approximately $456 million, with a sublimit of $25 million for swing line borrowings. Tranche B of the Credit Facility is available to borrowers in euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an equivalent of approximately $494 million.
Note 6. Income Taxes:
At September 30, 2014, the Company had $24.2 million of unrecognized tax benefits recorded in Other liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.
At September 30, 2014, the Company had accrued interest and penalties of $2.4 million classified in Other liabilities.
The Company regularly repatriates a portion of current year earnings from select non–U.S. subsidiaries. No provision is made for additional taxes on undistributed earnings of subsidiary companies that are intended and planned to be indefinitely invested in such subsidiaries. We intend to, and have plans to, reinvest these earnings indefinitely in our foreign subsidiaries to fund local operations and/or capital projects.
The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review, of which the most significant items are discussed below. In addition, the Company has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, capital tax, sales and use taxes and property taxes, which are discussed in Note 12.
As of September 30, 2014, the Company had one outstanding income tax case in Spain relating to fiscal year 2002. The Company has fully reserved the assessment originally asserted by the Spanish Tax Authority. The Company is awaiting a decision on its appeal, and in order to proceed with the appeal, the Company was required to post a bank guaranty, which as of September 30, 2014, was in the amount of Euro 1.9 million ($2.4 million).
In addition to the above, the Company has also been a party to four cases related to dividend withholding tax controversies in Spain. Three of these cases have been decided. The fourth case (with a value of Euro 3.3 million or $4.2 million) which was under appeal, was heard by the Spanish National High Court in October, 2014. We received a favorable

 
7
 



ruling during the fourth quarter of 2014. However, the ultimate outcome remains uncertain given the fact that the Spanish Tax Authority has the right to appeal. The aggregate value associated with these four cases is Euro 7.9 million ($10.1 million), which was fully reserved for as of September 30, 2014. Of this amount Euro 4.6 million ($5.9 million) was reflected in income taxes payable. As of September 30, 2014, the Company had posted bank guarantees of Euro 7.9 million ($10.1 million) associated with the appeals of these matters.
In addition to the Spanish tax controversy, the Company has several other tax audits in process and has open tax years with various taxing jurisdictions that range primarily from 2004 to 2013. Based on currently available information, we do not believe the ultimate outcome of any of these tax audits and other tax positions related to open tax years, when finalized, will have a material impact on our financial position.
As of September 30, 2014, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was $26.6 million, which includes $2.2 million associated with the tax positions taken by our Spanish subsidiaries for the 2002 fiscal year, $3.9 million associated with our Spanish dividend withholding tax controversies and the remainder associated with various other tax positions asserted in foreign jurisdictions, none of which is individually material.
The effective tax rate for the three months ended September 30, 2014 was 24.5% compared with 26.1% for the three months ended September 30, 2013. The quarter-over-quarter decrease is largely due to higher earnings from lower tax jurisdictions, favorable provision to return adjustments and lower loss provisions, which were partially offset by higher repatriation costs and the absence of the R&D tax credit in the current quarter. The effective tax rate for the nine months ended September 30, 2014 was 24.8% compared with 27.4% for the nine months ended September 30, 2013. The year-over-year decrease is primarily due to a benefit from a litigation ruling during the second quarter of 2014, favorable mix of earnings, favorable provision to return adjustments and lower loss provisions, and a $6.2 million after-tax Spanish tax charge that was recorded in the first quarter of 2013, which were only partially offset by higher repatriation costs and the absence of the U.S. R&D tax credit in 2014.

Note 7. Stock Compensation Plans:
The Company has various plans under which its officers, senior management, other key employees and directors may be granted equity-based awards. Equity awards outstanding under the plans include PRS, restricted stock units (“RSUs”), stock options, SSARs and Long-Term Incentive Plan awards; liability-based awards outstanding under the plans are cash-settled RSUs.
Stock-based compensation expense and related tax benefits were as follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Equity-based awards
$
5,593

 
$
4,869

 
$
19,627

 
$
18,919

Liability-based awards
452

 
995

 
3,216

 
3,077

Total stock-based compensation expense
6,045

 
5,864

 
22,843

 
21,996

Less: tax benefit
(1,899
)
 
(1,735
)
 
(6,970
)
 
(6,756
)
Total stock-based compensation expense, after tax
$
4,146

 
$
4,129

 
$
15,873

 
$
15,240

Note 8. Segment Information:
The Company is organized into two operating segments: Flavors and Fragrances. These segments align with the internal structure of the Company used to manage these businesses. Performance of these operating segments is evaluated based on segment profit which is defined as operating profit before Restructuring, global expenses (as discussed below) and certain non-recurring items, Interest expense, Other income, net and Taxes on income.
The Global expenses caption below represents corporate and headquarters-related expenses which include legal, finance, human resources, certain incentive compensation expenses and other R&D and administrative expenses that are not allocated to individual operating segments.

 
8
 



Reportable segment information is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Net sales:
 
 
 
 
 
 
 
Flavors
$
358,708

 
$
349,385

 
$
1,100,726

 
$
1,079,786

Fragrances
415,105

 
392,871

 
1,231,725

 
1,147,941

Consolidated
$
773,813

 
$
742,256

 
$
2,332,451

 
$
2,227,727

Segment profit:
 
 
 
 
 
 
 
Flavors
$
79,747

 
$
81,101

 
$
258,614

 
$
254,055

Fragrances
86,615

 
81,309

 
259,253

 
221,577

Global expenses
(12,882
)
 
(18,313
)
 
(49,182
)
 
(47,236
)
Restructuring and other charges, net
(608
)
 

 
(912
)
 
(2,105
)
Operational improvement initiative costs (1)
(282
)
 
(2,568
)
 
(6,014
)
 
(4,761
)
Operating profit
152,590

 
141,529

 
461,759

 
421,530

Interest expense
(10,968
)
 
(11,625
)
 
(34,048
)
 
(35,637
)
Other income, net
563

 
4,080

 
3,761

 
16,359

Income before taxes
$
142,185

 
$
133,984

 
$
431,472

 
$
402,252

 
(1)
Operational improvement initiative costs relate to the closing of a smaller facility in Europe and certain manufacturing activities in Asia, while transferring production to larger facilities in each respective region.
Net sales are attributed to individual regions based upon the destination of product delivery. Net sales related to the U.S. for the three months ended September 30, 2014 and 2013 were $162 million and $171 million, respectively, and for the nine months ended September 30, 2014 and 2013 were $495 million and $504 million, respectively. Net sales attributed to all foreign countries in total for the three months ended September 30, 2014 and 2013 were $612 million and $571 million, respectively, and for the nine months ended September 30, 2014 and 2013 were $1,837 million and $1,724 million, respectively. No non-U.S. country had net sales in any period presented greater than 8.0% of total consolidated net sales.


 
9
 



Note 9. Employee Benefits:
Pension and other defined contribution retirement plan expenses included the following components:
U.S. Plans
Three Months Ended September 30,
 
Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Service cost for benefits earned
$
530

 
$
881

 
$
2,299

 
$
2,643

Interest cost on projected benefit obligation
6,349

 
5,740

 
18,812

 
17,222

Expected return on plan assets
(6,906
)
 
(6,557
)
 
(20,732
)
 
(19,671
)
Net amortization and deferrals
4,720

 
5,868

 
13,229

 
17,606

Net periodic benefit cost
4,693

 
5,932

 
13,608

 
17,800

Defined contribution and other retirement plans
1,964

 
1,585

 
5,866

 
5,531

Total expense
$
6,657

 
$
7,517

 
$
19,474

 
$
23,331

 
 
 
 
 
 
 
 
Non-U.S. Plans
Three Months Ended September 30,
 
Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Service cost for benefits earned
$
2,772

 
$
4,086

 
$
10,722

 
$
12,256

Interest cost on projected benefit obligation
8,298

 
7,718

 
25,250

 
23,204

Expected return on plan assets
(12,576
)
 
(11,859
)
 
(37,731
)
 
(35,653
)
Net amortization and deferrals
2,058

 
2,315

 
8,012

 
6,967

Loss due to settlements and special terminations
32

 
35

 
32

 
110

Net periodic benefit cost
584

 
2,295

 
6,285

 
6,884

Defined contribution and other retirement plans
1,886

 
1,548

 
4,508

 
2,838

Total expense
$
2,470

 
$
3,843

 
$
10,793

 
$
9,722

The Company expects to contribute approximately $21 million to its non-U.S. pension plans during 2014. During the three and nine months ended September 30, 2014, $20 million of contributions were made to the qualified U.S. pension plans. In the three and nine months ended September 30, 2014, $4.7 million and $14.5 million of contributions were made to the non-U.S. plans, respectively. In the three and nine months ended September 30, 2014, $1.0 million and $3.1 million of benefit payments were made with respect to the Company’s non-qualified U.S. pension plan, respectively.
Expense recognized for postretirement benefits other than pensions included the following components: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
 
2014
 
2013
Service cost for benefits earned
$
326

 
$
362

 
$
971

 
$
1,086

Interest cost on projected benefit obligation
1,197

 
1,168

 
3,672

 
3,504

Net amortization and deferrals
(1,124
)
 
(663
)
 
(3,082
)
 
(1,989
)
Total postretirement benefit expense
$
399

 
$
867

 
$
1,561

 
$
2,601

The Company expects to contribute approximately $5 million to its postretirement benefits other than pension plans during 2014. In the three and nine months ended September 30, 2014, $1.2 million and $4.5 million of contributions were made, respectively.

Note 10. Financial Instruments:
Fair Value
Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1–Quoted prices for identical instruments in active markets.

 
10
 



Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. We determine the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the LIBOR swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. We do not have any instruments classified as Level 1 or Level 3, other than those included in pension asset trusts as discussed in Note 13 of our 2013 Form 10-K.
These valuations take into consideration our credit risk and our counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in our own credit risk (or instrument-specific credit risk) was immaterial as of September 30, 2014.

The amounts recorded in the balance sheet (carrying amount) and the estimated fair values of financial instruments at September 30, 2014 and December 31, 2013 consisted of the following: 
 
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
(DOLLARS IN THOUSANDS)
 
 
 
 
 
 
 
Cash and cash equivalents (1)
$
404,836

 
$
404,836

 
$
405,505

 
$
405,505

Credit facilities and bank overdrafts (2)
12,697

 
12,697

 
984

 
984

Long-term debt: (3)
 
 
 
 
 
 
 
Senior notes - 2007
500,000

 
596,116

 
500,000

 
590,024

Senior notes - 2006
125,000

 
136,148

 
125,000

 
139,146

Senior notes - 2013
299,776

 
292,629

 
299,736

 
278,770

 
(1)
The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those instruments.
(2)
The carrying amount of our credit facilities and bank overdrafts approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.
(3)
The fair value of our long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on our own credit risk.
Derivatives
We periodically enter into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with our intercompany loans, foreign currency receivables and payables, and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.
In 2003, we executed a 10-year Yen - U.S. dollar currency swap related to the monthly sale and purchase of products between the U.S. and Japan which had been designated as a cash flow hedge. This swap matured in January 2013.

During the nine months ended September 30, 2014 and the year ended December 31, 2013, we entered into forward currency contracts which qualified as net investment hedges, in order to mitigate a portion of our net European investments from foreign currency risk. The effective portions of net investment hedges are recorded in Other comprehensive income (“OCI”) as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Comprehensive Income. Realized gains (losses) are deferred in accumulated other comprehensive income ("AOCI") where they will remain until the net investments in our European subsidiaries are divested. Three of these forward currency contracts matured during the nine months ended September 30, 2014. The outstanding forward currency contracts have remaining maturities of approximately one year.


 
11
 



During the nine months ended September 30, 2014 and the year ended December 31, 2013, we entered into several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar (USD) denominated raw material purchases made by Euro (EUR) functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in OCI as a component of Gains/(losses) on derivatives qualifying as hedges in the accompanying Consolidated Statement of Comprehensive Income. Realized gains/(losses) in AOCI related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statement of Comprehensive Income in the same period as the related costs are recognized.
During the nine months ended September 30, 2014 and 2013, we entered into interest rate swap agreements that effectively converted the fixed rate on a portion of our long-term borrowings to a variable short-term rate based on the LIBOR plus an interest markup. These swaps are designated as fair value hedges. Amounts recognized in Interest expense were immaterial for the three and nine months ended September 30, 2014.
During Q1 2013, we entered into three interest rate swaps to hedge the anticipated issuance of fixed-rate debt, which are designated as cash flow hedges. The effective portions of cash flow hedges are recorded in OCI as a component of Losses on derivatives qualifying as hedges in the accompanying Consolidated Statement of Comprehensive Income. During the second quarter of 2013, we terminated these swaps and incurred a loss of $2.7 million, which we will amortize as Interest expense over the life of the Senior Notes - 2013 (discussed in Note 8 of our 2013 Form 10-K).
The following table shows the notional amount of the Company’s derivative instruments outstanding as of September 30, 2014 and December 31, 2013: 
(DOLLARS IN THOUSANDS)
September 30, 2014
 
December 31, 2013
Foreign currency contracts
$
243,000

 
$
255,500

Interest rate swaps
$
425,000

 
$
375,000


The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013: 
 
September 30, 2014
(DOLLARS IN THOUSANDS)
Fair Value of
Derivatives
Designated as
Hedging
Instruments
 
Fair Value of
Derivatives Not
Designated as
Hedging
Instruments
 
Total Fair
Value
Derivative assets (a)
 
 
 
 
 
Foreign currency contracts
$
12,822

 
$
13,101

 
$
25,923

Derivative liabilities (b)
 
 
 
 
 
Foreign currency contracts
$
36

 
$
1,107

 
$
1,143

Interest rate swaps
798

 

 
798

 
$
834

 
$
1,107

 
$
1,941

 
December 31, 2013
(DOLLARS IN THOUSANDS)
Fair Value of
Derivatives
Designated as
Hedging
Instruments
 
Fair Value of
Derivatives Not
Designated as
Hedging
Instruments
 
Total Fair
Value
Derivative assets (a)
 
 
 
 
 
Foreign currency contracts
$
580

 
$
8,896

 
$
9,476

Interest rate swaps
670

 

 
670

 
$
1,250

 
$
8,896

 
$
10,146

Derivative liabilities (b)
 
 
 
 
 
Foreign currency contracts
$
6,024

 
$
2,909

 
$
8,933

 
(a)
Derivative assets are recorded to Prepaid expenses and other current assets in the Consolidated Balance Sheet.
(b)
Derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.


 
12
 



The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments in the Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013 (in thousands): 

Derivatives Not Designated as Hedging Instruments
Amount of Gain (Loss)
Recognized in Income on
Derivative
 
Location of Gain (Loss)
Recognized in Income
on Derivative
 
Three Months Ended September 30,
 
 
 
2014
 
2013
 
 
Foreign currency contracts
$
17,517

 
$
(4,821
)
 
Other income, net
Derivatives Not Designated as Hedging Instruments
Amount of Gain (Loss)
Recognized in Income on
Derivative
 
Location of Gain (Loss)
Recognized in Income
on Derivative
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
 
Foreign currency contracts
$
18,942

 
$
7,686

 
Other income, net
Most of these net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.


 
13
 



The following table shows the effect of the Company’s derivative instruments designated as cash flow and net investment hedging instruments in the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013 (in thousands): 
 
Amount of (Loss) Gain
Recognized in OCI on
Derivative (Effective
Portion)
 
Location of (Loss) Gain
Reclassified from AOCI into
Income (Effective Portion)
 
Amount of (Loss) Gain
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 
Three Months Ended September 30,
 
 
 
Three Months Ended September 30,
 
2014
 
2013
 
 
 
2014
 
2013
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
 
 
 
Cross currency swap (1)


 
$

 
Other income, net
 


 
$

Foreign currency contracts
5,680

 
(1,926
)
 
Cost of goods sold
 
(1,221
)
 
(1,172
)
Interest rate swaps (2)
69

 
69

 
Interest expense
 
(69
)
 
(69
)
Derivatives in Net Investment Hedging Relationships:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
5,097

 
(2,295
)
 
N/A
 

 

Total
$
10,846

 
$
(4,152
)
 
 
 
$
(1,290
)
 
$
(1,241
)
 
 
 
 
 
 
 
 
 
 
 
Amount of (Loss) Gain
Recognized in OCI on
Derivative (Effective
Portion)
 
Location of (Loss) Gain
Reclassified from AOCI into
Income (Effective Portion)
 
Amount of (Loss) Gain
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
 
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
2014
 
2013
 
 
 
2014
 
2013
Derivatives in Cash Flow Hedging Relationships:
 
 
 
 
 
 
 
 
 
Cross currency swap (1)
$

 
$

 
Other income, net
 
$

 
$
(333
)
Foreign currency contracts
7,601

 
(1,606
)
 
Cost of goods sold
 
(2,699
)
 
390

Interest rate swaps (2)
207

 
(2,598
)
 
Interest expense
 
(207
)
 
$
(137
)
Derivatives in Net Investment Hedging Relationships:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
5,395

 
(653
)
 
N/A
 

 

Total
$
13,203

 
$
(4,857
)
 
 
 
$
(2,906
)
 
$
(80
)
 
(1)
Ten year swap executed in 2003.
(2)
Interest rate swaps were entered into as pre-issuance hedges for the $300 million bond offering.

No ineffectiveness was experienced in the above noted cash flow hedges during the three and nine months ended September 30, 2014 and 2013. The ineffective portion of the net investment hedges was not material during the three and nine months ended September 30, 2014 and 2013.
The Company expects that approximately $0.3 million (net of tax) of derivative gains included in AOCI at September 30, 2014, based on current market rates, will be reclassified into earnings within the next 12 months. The majority of this amount will vary due to fluctuations in foreign currency exchange rates.

 
14
 



Note 11. Accumulated Other Comprehensive Income (Loss):
The following tables present changes in the accumulated balances for each component of other comprehensive income, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income:
 
Foreign
Currency
Translation
Adjustments
 
(Losses) Gains on
Derivatives
Qualifying as
Hedges
 
Pension and
Postretirement
Liability
Adjustment
 
Total
(DOLLARS IN THOUSANDS)
 
 
 
 
 
 
 
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2013
$
(104,278
)
 
$
(4,012
)
 
$
(284,421
)
 
$
(392,711
)
OCI before reclassifications
(26,872
)
 
4,900

 

 
(21,972
)
Amounts reclassified from AOCI

 
2,906

 
12,716

 
15,622

Net current period other comprehensive income (loss)
(26,872
)
 
7,806

 
12,716

 
(6,350
)
Accumulated other comprehensive (loss) income, net of tax, as of September 30, 2014
$
(131,150
)
 
$
3,794

 
$
(271,705
)
 
$
(399,061
)
 
 
Foreign
Currency
Translation
Adjustments
 
(Losses) Gains on
Derivatives
Qualifying as
Hedges
 
Pension and
Postretirement
Liability
Adjustment
 
Total
(DOLLARS IN THOUSANDS)
 
 
 
 
 
 
 
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2012
$
(93,722
)
 
$
(218
)
 
$
(309,685
)
 
$
(403,625
)
OCI before reclassifications
(11,118
)
 
(4,241
)
 

 
(15,359
)
Amounts reclassified from AOCI

 
80

 
15,346

 
15,426

Net current period other comprehensive income (loss)
(11,118
)
 
(4,161
)
 
15,346

 
67

Accumulated other comprehensive (loss) income, net of tax, as of September 30, 2013
$
(104,840
)
 
$
(4,379
)
 
$
(294,339
)
 
$
(403,558
)


 
15
 



The following table provides details about reclassifications out of accumulated other comprehensive income to the Consolidated Statement of Comprehensive Income: 
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
 
Affected Line Item in the
Consolidated Statement
of Comprehensive  Income
(DOLLARS IN THOUSANDS)
 
 
 
 
 
(Losses) gains on derivatives qualifying as hedges
 
 
 
 
 
Cross currency swap
$

 
$
(333
)
 
Other income, net
Foreign currency contracts
(3,723
)
 
538

 
Cost of goods sold
Interest rate swaps
(207
)
 
(137
)
 
Interest expense
 
1,024

 
(148
)
 
Provision for income taxes
 
$
(2,906
)
 
$
(80
)
 
Total, net of income taxes
(Losses) gains on pension and postretirement liability adjustments
 
 
 
 
 
Settlements / Curtailments
$
(32
)
 
$
(110
)
 
(a) 
Prior service cost
3,489

 
3,295

 
(a) 
Actuarial losses
(21,648
)
 
(25,879
)
 
(a) 
 
5,475

 
7,348

 
Provision for income taxes
 
$
(12,716
)
 
$
(15,346
)
 
Total, net of income taxes
 
(a)
The amortization of prior service cost and actuarial loss is included in the computation of net periodic benefit cost. Refer to Note 13 of our 2013 Form 10-K for additional information regarding net periodic benefit cost.

Note 12. Commitments and Contingencies:
Guarantees and Letters of Credit
The Company has various bank guarantees and letters of credit which are available for use regarding governmental requirements associated with pending litigation in various jurisdictions and to support its ongoing business operations.
At September 30, 2014, we had total bank guarantees and standby letters of credit of approximately $42.8 million with various financial institutions. Of this amount, Euro 9.8 million ($12.5 million) in bank guarantees are related to governmental requirements on income tax disputes in Spain, as discussed in further detail in Note 9 of our 2013 Form 10-K. Also included in the above aggregate amount is a total of $21.8 million in bank guarantees which the Company has posted for certain assessments in Brazil for other diverse income tax and indirect tax disputes related to fiscal years 1998-2011. There were no material amounts utilized under the standby letters of credit as of September 30, 2014.
In order to challenge the assessments in these cases in Brazil, the Company has been required to, and has separately pledged assets, principally property, plant and equipment, to cover assessments in the amount of approximately $21.1 million as of September 30, 2014.
Lines of Credit
The Company has various lines of credit which are available to support its ongoing business operations. At September 30, 2014, we had available lines of credit (in addition to the Credit Facility discussed in Note 5) of approximately $82.3 million with various financial institutions. There were no significant amounts drawn down pursuant to these lines of credit as of September 30, 2014.

 
16
 



Litigation
The Company assesses contingencies related to litigation and/or other matters to determine the degree of probability and range of possible loss. A loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly sensitive and requires judgments about future events. On at least a quarterly basis, the Company reviews contingencies related to litigation to determine the adequacy of accruals. The amount of ultimate loss may differ from these estimates and further events may require the Company to increase or decrease the amounts it has accrued on any matter.
Periodically, we assess our insurance coverage for all known claims, where applicable, taking into account aggregate coverage by occurrence, limits of coverage, self-insured retentions and deductibles, historical claims experience and claims experience with our insurance carriers. The liabilities are recorded at management’s best estimate of the probable outcome of the lawsuits and claims, taking into consideration the facts and circumstances of the individual matters as well as past experience on similar matters. At each balance sheet date, the key issues that management assesses are whether it is probable that a loss as to asserted or unasserted claims has been incurred and if so, whether the amount of loss can be reasonably estimated. We record the expected liability with respect to claims in Other liabilities and expected recoveries from our insurance carriers in Other assets. We recognize a receivable when we believe that realization of the insurance receivable is probable under the terms of the insurance policies and our payment experience to date.
Environmental
Over the past 20 years, various federal and state authorities and private parties have claimed that we are a Potentially Responsible Party (“PRP”) 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 have sought to recover costs incurred and to be incurred to clean up the sites.
We have been identified as a PRP at eight facilities operated by third parties at which investigation and/or remediation activities may be ongoing. We analyze our potential liability on at least a quarterly basis. We accrue for environmental liabilities when they are probable and estimable. We estimate our share of the total future cost for these sites to be less than $5 million.

While joint and several liability is authorized under federal and state environmental laws, we believe the amounts we have paid and anticipate paying in the future for clean-up costs and damages at all sites are not material and will not have a material adverse effect on our financial condition, results of operations or liquidity. This assessment is based upon, among other things, the involvement of other PRPs at most of the sites, the status of the proceedings, including various settlement agreements and consent decrees, and the extended time period over which payments will likely be made. There can be no assurance, however, that future events will not require us to materially increase the amounts we anticipate paying for clean-up costs and damages at these sites, and that such increased amounts will not have a material adverse effect on our financial condition, results of operations or cash flows.
Other Contingencies
The Company has contingencies involving third parties (such as labor, contract, technology or product-related claims or litigation) as well as government-related items in various jurisdictions in which we operate pertaining to such items as value-added taxes, other indirect taxes, customs and duties and sales and use taxes. It is possible that cash flows or results of operations, in any period, could be materially affected by the unfavorable resolution of one or more of these contingencies.
The most significant government-related contingencies exist in Brazil. With regard to the Brazilian matters, we believe we have valid defenses for the underlying positions under dispute; however, in order to pursue these defenses, we are required to, and have provided, bank guarantees and pledged assets in the aggregate amount of $42.9 million. The Brazilian matters take an extended period of time to proceed through the judicial process and there are a limited number of rulings to date.
In March 2012, ZoomEssence, Inc. filed a complaint against the Company in the U.S. District Court of New Jersey alleging trade secret misappropriation, breach of contract and unjust enrichment in connection with certain spray dry technology disclosed to the Company. In connection with the claims, ZoomEssence is seeking an injunction and monetary damages. ZoomEssence initially sought a temporary restraining order and preliminary injunction, but the Court denied these applications in an order entered on September 27, 2013, finding that ZoomEssence had not demonstrated a likelihood of success on the merits of its claims. The Court subsequently referred the matter to mediation, however the private mediation session did not result in a resolution of the dispute. The case is currently proceeding through general discovery with a trial on the merits anticipated in mid-2015. The Company denies the allegations and will vigorously defend its position in Court. At this

 
17
 



preliminary stage of the litigation, based on the information currently available to the Company, management does not believe that this matter represents a material loss contingency.
Based on the information available as of September 30, 2014, we estimate a range of reasonably possible loss related to the matters above, collectively, is $3-$20 million.
Separately, the Spanish tax authorities are alleging claims for a capital tax in a case arising from similar allegations as the income tax cases (discussed in further detail in Note 9 of our 2013 Form 10-K). In connection with the 2002 income tax assessment ruling the Appellate Court rejected one of the two bases upon which we based our capital tax position. However, we believe that we still have a strong basis for our capital tax position and intend to continue to defend these claims. If there is an unfavorable ruling in this case, we estimate a reasonably possible loss of approximately $13 million, which was fully reserved as of September 30, 2014. On January 22, 2014, we filed an appeal and in order to avoid future interest costs in the event our appeal is unsuccessful, we paid $11.2 million (representing the principal amount) during the first quarter of 2014.

 
18
 



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We create, manufacture and supply flavors and fragrances for the food, beverage, personal care and household-products industries either in the form of compounds or individual ingredients. Our flavors and fragrance compounds combine a large number of ingredients that are blended, mixed or reacted together to produce proprietary formulas created by our perfumers and flavorists.
Flavors are the key building blocks that impart taste in processed food and beverage products and, as such, play a significant role in determining consumer preference of the end products in which they are used. While we are a global leader, our flavors business is more regional in nature, with different formulas that reflect local tastes and ingredients. As a leading creator of flavors, we help our customers deliver on the promise of delicious and healthy foods and drinks that appeal to consumers. Our flavors compounds are ultimately used by our customers in four end-use categories: (1) Savory, (2) Beverages, (3) Sweet, pharmaceutical and oral care (“Sweet”), and (4) Dairy.
Our fragrances are a key component in the world’s finest perfumes and best-known consumer brands, including beauty care, fabric care, personal wash and home care products. During the first quarter of 2014, we announced that we realigned our creative and commercial teams within our Fragrance Compounds activities to newly-defined broad market categories, (1) Fine Fragrances and (2) Consumer Fragrances. Consumer Fragrances consists of five end-use categories: Fabric Care, Home Care, Personal Wash, Hair Care and Toiletries. Previously, our Fragrance Compounds were aligned into two broad categories (1) Fine Fragrance and Beauty Care and (2) Functional Fragrances. In addition, Fragrance Ingredients, which are used internally and sold to third parties, including customers and competitors, for use in preparation of compounds, are included in the Fragrances business unit.
The flavors and fragrances market is part of a larger market which supplies a variety of ingredients and components that consumer products companies utilize in their products. The broader market includes large multinational companies or smaller regional and local participants which supply products such as seasonings, texturizers, spices, enzymes, certain food-related commodities, fortified products and cosmetic ingredients. The flavors and fragrances market is estimated to be approximately $18 billion; however the exact size of the global market is not available due to fragmentation of data. We, together with the other top three companies, are estimated to comprise approximately two-thirds of the total estimated sales in the global flavors and fragrances sub-segment of the broader market.
In the second quarter of 2013, we announced our intention to close our fragrance ingredients manufacturing facility in Augusta, Georgia, supporting our objective to ensure operations are cost efficient and competitive. We closed the facility during the third quarter of 2014 and have consolidated production into other facilities, as further discussed in Note 3 to our Consolidated Financial Statements.
Net sales growth during the third quarter of 2014 was 4% on both a reported and local currency (LC) basis (which excludes the effects of changes in currency), with the acquisition of Aromor adding approximately 1% to both reported and local currency basis amounts. The LC growth reflects new win performance (net of losses) in both Flavors and Fragrance Compounds partially offset by more normal levels of volume erosion on existing business. In addition, Fragrance Ingredients volumes were up 16% driven largely by the Aromor acquisition. We continue to expect that full year 2014 LC sales growth will be 4-6%.
Exchange rate fluctuations had minimal impact on net sales for the third quarter. The effect of exchange rates can vary by business and region, depending upon the mix of sales by destination country as well as the relative percentage of local sales priced in U.S. dollars versus local currencies.
Gross margins increased slightly year-over-year. Included in the third quarter of 2014 was $0.3 million of costs associated with operational improvement initiatives, compared to $2.6 million of costs related to restructuring and operational improvement initiatives included in the 2013 period. Excluding these items, gross margin decreased slightly. This slight decrease reflects cost savings and productivity initiatives that were more than offset by weaker operational performance and mix. The overall raw material cost base remains elevated, and was slightly unfavorable during the third quarter, including certain key supplies where prices are still near all-time highs. We continue to believe cost pressures will develop for the remainder of the year. We continue to seek improvements in our margins through operational performance and mix enhancement.
FINANCIAL PERFORMANCE OVERVIEW
Reported and LC sales in the third quarter of 2014 increased approximately 4% (including 1% growth from the acquisition of Aromor). We continue to benefit from our diverse portfolio of end-use product categories and geographies and

 
19
 



had solid growth in three of four regions, while Consumer Fragrances, Fragrance Ingredients and Flavor Compounds all had positive growth. The overall increase was driven by new win performance (net of losses) in both Flavors and Fragrance Compounds partially offset by more normal levels of volume erosion on existing business. In addition, Fragrance Ingredients volumes were up 16% (which includes the benefit of the Aromor acquisition). Flavors realized LC growth of 2% for the third quarter of 2014. Our Fragrance business achieved LC growth of 5%, compared with LC sales in the third quarter of 2013. Fragrances performance reflects new win performance in our Fragrance Compounds end-use categories, led by sales in Fabric Care. Overall, our third quarter 2014 results continued to be driven by our strong emerging market presence that represented 50% of LC sales and experienced 6% LC growth. From a geographic perspective, for the third quarter, the Latin America (LA), Europe, Africa and Middle East (EAME) and Greater Asia (GA) regions all delivered LC growth in 2014, led by LA, with 9% LC growth. The North America (NOAM) region experienced a decline of 3%.
Operating profit increased $11.1 million to $152.6 million (19.7% of sales) in the 2014 third quarter compared to $141.5 million (19.1% of sales) in the comparable 2013 period. The three months ended September 30, 2014 included restructuring and operational improvement initiative costs of $0.9 million compared to $2.6 million in the prior year period. Excluding these charges, adjusted operating profit was $153.5 million (19.8% of sales) for the third quarter of 2014 compared to $144.1 million (19.4% of sales) for the third quarter of 2013. The quarter-over-quarter improvement reflects sales volume growth combined with reduced R&D, selling and administrative expenses as a percentages of sales, all of which were driven largely by favorable year-over-year incentive compensation expenses. The results of Aromor were not significant to the consolidated financial performance of the Company for the third quarter of 2014.
Other income, net decreased $3.5 million to $0.6 million of income in the third quarter of 2014 compared to $4.1 million in the third quarter of 2013. The year-over-year decrease is primarily driven by lower levels of foreign exchange gains and lower favorable mark-to-market adjustments on deferred compensation plan assets during 2014 compared to the 2013 period.
Net income increased by $8.4 million quarter-over-quarter to $107.4 million for the third quarter of 2014.
We continued to execute against our strategic priorities of leveraging our geographic reach, strengthening our innovation platform and maximizing our portfolio during the third quarter of 2014. By maintaining cost discipline and realizing productivity gains across many parts of the business, we believe that we can continue to fund investments in resources and capabilities in emerging markets, R&D and key technologies. In 2014, we believe that capital spending will approach 4-4.5% of sales as we continue to prioritize investments in emerging markets and Flavors.
Cash flows from operations for the nine months ended September 30, 2014 were $317.5 million or 13.6% of sales, compared to cash inflow from operations of $257.3 million or 11.5% of sales for the nine months ended September 30, 2013. The increase in cash flow from operations in 2014 is principally driven by an increase in net income of $48.9 million (excluding gains from the sale of assets), lower amounts of Spanish tax payments and pension contributions in the current year as compared to 2013, as well as higher depreciation and amortization, which were partially offset by higher incentive compensation payments in 2014.


 
20
 



Results of Operations
 
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Net sales
$
773,813

 
$
742,256

 
4
 %
 
$
2,332,451

 
$
2,227,727

 
5
 %
Cost of goods sold
433,702

 
416,852

 
4
 %
 
1,298,281

 
1,256,977

 
3
 %
Gross profit
340,111

 
325,404

 
 
 
1,034,170

 
970,750

 
 
Research and development (R&D) expenses
63,701

 
65,654

 
(3
)%
 
191,635

 
189,428

 
1
 %
Selling and administrative (S&A) expenses
123,212

 
118,221

 
4
 %
 
379,864

 
357,687

 
6
 %
Restructuring and other charges, net
608

 

 
100
 %
 
912

 
2,105

 
(57
)%
Operating profit
152,590

 
141,529

 
 
 
461,759

 
421,530

 
 
Interest expense
10,968

 
11,625

 
(6
)%
 
34,048

 
35,637

 
(4
)%
Other expense (income), net
(563
)
 
(4,080
)
 
(86
)%
 
(3,761
)
 
(16,359
)
 
(77
)%
Income before taxes
142,185

 
133,984

 
 
 
431,472

 
402,252

 
 
Taxes on income
34,770

 
34,938

 
 %
 
107,064

 
110,187

 
(3
)%
Net income
$
107,415

 
$
99,046

 
8
 %
 
$
324,408

 
$
292,065

 
11
 %
Diluted EPS
$
1.31

 
$
1.20

 
9
 %
 
$
3.95

 
$
3.54

 
12
 %
Gross margin
44.0
%
 
43.8
%
 
20

 
44.3
%
 
43.6
%
 
70

R&D as a percentage of sales
8.2
%
 
8.8
%
 
(60
)
 
8.2
%
 
8.5
%
 
(30
)
S&A as a percentage of sales
15.9
%
 
15.9
%
 

 
16.3
%
 
16.1
%
 
20

Operating margin
19.7
%
 
19.1
%
 
60

 
19.8
%
 
18.9
%
 
90

Adjusted operating margin (1)
19.8
%
 
19.4
%
 
40

 
20.1
%
 
19.2
%
 
90

Effective tax rate
24.5
%
 
26.1
%
 
(160
)
 
24.8
%
 
27.4
%
 
(260
)
Segment net sales
 
 
 
 
 
 
 
 
 
 
 
Flavors
$
358,708

 
$
349,385

 
3
 %
 
$
1,100,726

 
$
1,079,786

 
2
 %
Fragrances
415,105

 
392,871

 
6
 %
 
1,231,725

 
1,147,941

 
7
 %
Consolidated
$
773,813

 
$
742,256

 
 
 
$
2,332,451

 
$
2,227,727

 
 
 
(1)
Adjusted operating margin excludes the Restructuring and other charges, net and operational improvement initiative costs of $0.9 million and $6.9 million for the three and nine months ended September 30, 2014, respectively and $2.6 million of operational improvement initiative costs for the three months ended September 30, 2013 and $6.9 million of Restructuring and other charges, net and operational improvement initiative costs for the nine months ended September 30, 2013.
Cost of goods sold includes the cost of materials and manufacturing expenses. R&D expenses relate to the development of new and improved products, technical product support and compliance with governmental regulations. S&A expenses include expenses necessary to support our commercial activities and administrative expenses supporting our overall operating activities.

THIRD QUARTER 2014 IN COMPARISON TO THIRD QUARTER 2013
Sales
Sales for the third quarter of 2014 totaled $773.8 million, an increase of 4% from the prior year quarter for both reported and LC sales (including 1% growth from the acquisition of Aromor), as a result of new win performance (net of losses) in both Flavors and Fragrance Compounds partially offset by more normal levels of volume erosion on existing business. In addition, Fragrance Ingredients volumes were up 16% (which includes the benefit of the Aromor acquisition). Overall LC growth was driven by 6% growth in emerging markets (prior to the impact of Aromor).

 
21
 



Flavors Business Unit
Flavors reported sales growth was 3% and LC sales growth was 2% during the third quarter of 2014 compared to the 2013 period. The overall performance reflects new wins offset by higher erosion on existing business. Overall mid single-digit growth in Beverage and Dairy combined with low single-digit growth in Savory was only partially offset by low single-digit declines in Sweet. The Flavors business delivered LC growth in LA, GA and EAME, led by LA, while sales declined in NOAM. Sales in LA were driven by high double-digit gains in Beverage. Sales in EAME were driven by high single-digit gains in Beverage and sales in GA were led by high single-digit gains in Savory. The declines in NOAM were primarily driven by mid single-digit declines in Savory and Beverage.
Fragrances Business Unit
The Fragrances business experienced a 6% increase in reported sales and a 5% increase in LC sales for the third quarter of 2014 compared to the third quarter of 2013 (including approximately 2% growth from the acquisition of Aromor). The overall increase was primarily driven by double-digit gains in our Fabric Care category as well as increased volumes of Fragrance Ingredients, including the benefit of Aromor. Our Fragrance Compounds and Fragrance Ingredients categories saw LC sales grow 3% and 16%, respectively, over the prior year period. Fragrance Ingredients includes approximately 14% LC growth from Aromor.
Sales Performance by Region and Category
 
 
 
% Change in Sales-Third Quarter 2014 vs. Third Quarter 2013
 
 
Fine Fragrances
 
Consumer Fragrances
 
Ingredients
 
Total Frag.
 
Flavors
 
Total
NOAM
Reported
-15
 %
 
0
%
 
-2
 %
 
-4
 %
 
-2
 %
 
-3
 %
EAME
Reported
4
 %
 
9
%
 
31
 %
 
11
 %
 
5
 %
 
9
 %
 
Local Currency (1)
1
 %
 
7
%
 
28
 %
 
9
 %
 
3
 %
 
6
 %
LA
Reported
7
 %
 
4
%
 
31
 %
 
7
 %
 
11
 %
 
8
 %
 
Local Currency (1)
9
 %
 
5
%
 
31
 %
 
8
 %
 
12
 %
 
9
 %
GA
Reported
11
 %
 
4
%
 
14
 %
 
5
 %
 
2
 %
 
3
 %
 
Local Currency (1)
11
 %
 
4
%
 
15
 %
 
6
 %
 
3
 %
 
4
 %
Total
Reported
0
 %
 
5
%
 
17
 %
 
6
 %
 
3
 %
 
4
 %
 
Local Currency (1)
-1
 %
 
4
%
 
16
 %
 
5
 %
 
2
 %
 
4
 %
(1)
Local currency sales growth is calculated by translating prior year sales at the exchange rates for the corresponding 2014 period.

NOAM Flavors sales decreased 2% as a result of double-digit gains in Dairy that were more than offset by mid single-digit declines in Savory and Beverage, driven by erosion on existing business. NOAM Fragrance sales decreased 4% in the third quarter of 2014, principally due to double-digit declines in Fine Fragrance as well as low single-digit declines in Ingredients.
EAME Flavors LC sales growth of 3% was led by high single-digit growth in Beverage and low single-digit growth in Dairy, which was only partially offset by low single-digit declines in Sweet. EAME Fragrance LC sales increased 9% overall, driven mainly by double-digit growth in Fabric Care and high double-digit growth in Fragrance Ingredients, which were only partially offset by declines in the Hair Care and Toiletries categories.
LA Flavors LC sales were up 12% as new wins drove high double-digit gains in Beverage, which were only partially offset by high single-digit declines in Sweet and mid single-digit declines in Savory. LA Fragrances LC sales increased 8% overall, principally led by double-digit gains in Fabric Care and Fragrance Ingredients as well as high single-digit gains in Fine Fragrance.
GA Flavors had LC sales growth of 3% as high single-digit gains in Savory were only partially offset by low single-digit declines in Beverage and Sweet. GA Fragrances LC sales growth of 6% was driven by double-digit growth in Fabric Care, Fine Fragrance and Fragrance Ingredients, as well as high single-digit growth in Toiletries.

 
22
 



Cost of Goods Sold
Cost of goods sold, as a percentage of sales, decreased 20 bps to 56.0% in the third quarter of 2014 compared to 56.2% in the third quarter of 2013. Included in cost of goods sold was $0.3 million of charges related to operational improvement initiative costs in 2014 and $2.6 million of restructuring and operational improvement initiative costs in 2013. Excluding these items, cost of goods sold increased 20 bps. The increase primarily reflects cost savings initiatives and productivity gains that were more than offset by weaker operational performance and mix.
Research and Development (R&D) Expenses
Overall R&D expenses, as a percentage of sales, decreased to 8.2% in the third quarter of 2014 versus 8.8% in the third quarter of 2013. This decrease is primarily driven by lower incentive compensation expense.
Selling and Administrative (S&A) Expenses
S&A expenses increased $5.0 million to $123.2 million or 15.9%, as a percentage of sales, in the third quarter of 2014 consistent with 15.9% in the third quarter of 2013. The $5.0 million increase reflects the inclusion of Aromor-related expenses, investments to support the growth of the business, and several discrete items in 2014 and 2013, that were largely offset by lower incentive compensation expense.
Operating Results by Business Unit
We evaluate the performance of business units based on segment profit which is defined as operating profit before Restructuring, global expenses (as discussed in Note 8 to our Consolidated Financial Statements) and certain non-recurring items, net, Interest expense, Other income, net and Taxes on income. See Note 8 to our Consolidated Financial Statements for the reconciliation to Income before taxes. 
 
Three Months Ended September 30,
(DOLLARS IN THOUSANDS)
2014
 
2013
Segment profit:
 
 
 
Flavors
$
79,747

 
$
81,101

Fragrances
86,615

 
81,309

Global
(12,882
)
 
(18,313
)
Restructuring and other charges, net
(608
)
 

Operational improvement initiative costs
(282
)
 
(2,568
)
Operating profit
$
152,590

 
$
141,529

Profit margin
 
 
 
Flavors
22.2
%
 
23.2
%
Fragrances
20.9
%
 
20.7
%
Consolidated
19.7
%
 
19.1
%

Flavors Segment Profit
Flavors segment profit declined approximately 2% to $79.7 million in the third quarter of 2014, or 22.2% as a percentage of sales, compared to $81.1 million, or 23.2% as a percentage of sales, in the comparable 2013 period. The decline in segment profit and profit margin was driven primarily by weaker operational performance, including less favorable absorption and new plant costs.
Fragrances Segment Profit
Fragrances segment profit grew approximately 7% to $86.6 million in the third quarter of 2014, or 20.9% as a percentage of sales, compared to $81.3 million, or 20.7% as a percentage of sales, in the comparable 2013 period. The improvement in segment profit and profit margin was primarily due to volume, gross margin expansion (including cost savings and productivity initiatives) and lower compensation expense.
Global Expenses
Global expenses represent corporate and headquarters-related expenses which include legal, finance, human resources and R&D and other administrative expenses that are not allocated to an individual business unit. In the third quarter of 2014,

 
23
 



Global expenses were $12.9 million compared to $18.3 million during the third quarter of 2013. The decrease is principally driven by lower incentive compensation expense.
Restructuring and Other Charges, Net
Restructuring and other charges, net in 2014 consist of separation costs for employees, including severance, outplacement and other benefit costs, relating to the Fragrance Ingredients Rationalization that started in the second quarter of 2013 related to the closing of the fragrance ingredients manufacturing facility in Augusta, Georgia. The facility was closed during the third quarter of 2014. During the third quarter of 2014, the Company recorded $0.6 million of plant shutdown and other related costs included in Restructuring and other charges, net. As a result of this closure, 43 positions have been or will be eliminated. The Company estimates that approximately $4 - $5 million of the costs will be or have been cash expenditures.
Interest Expense
Interest expense decreased $0.6 million to $11.0 million in the third quarter of 2014 compared to the third quarter of 2013, as a result of the refinancing of our debt in 2013. Average cost of debt was 4.7% for both the 2014 three month period and the 2013 three month period.
Other Income, Net
Other income, net decreased by approximately $3.5 million to $0.6 million of income in the third quarter of 2014 versus $4.1 million of income in the comparable 2013 period. The year-over-year decrease is primarily driven by lower levels of foreign exchange gains and lower favorable mark-to-market adjustments on deferred compensation plan assets during 2014 compared to the 2013 period.
Income Taxes
The effective tax rate for the three months ended September 30, 2014 was 24.5% compared with 26.1% for the three months ended September 30, 2013. Excluding the impact of taxes related to restructuring and other charges in the current quarter, and the tax charge related to the sale of a non-operating asset in the prior year quarter, the third quarter 2014 adjusted effective tax rate was 24.5%, or 170 basis points lower than the third quarter 2013 adjusted effective tax rate of 26.2%. The quarter-over-quarter decrease is largely due to higher earnings from lower tax jurisdictions, favorable provision to return adjustments and lower loss provisions, which were partially offset by higher repatriation costs and the absence of the R&D tax credit in the current quarter.
FIRST NINE MONTHS OF 2014 IN COMPARISON TO FIRST NINE MONTHS OF 2013
Sales
Sales for the first nine months of 2014 totaled $2.3 billion, an increase of 5% from the prior year quarter for both reported and LC sales (including 1% growth from the acquisition of Aromor), as a result of new wins in both Flavors and Fragrance Compounds, which were partially offset by more normal levels of volume erosion on existing business, and strong Fragrance Ingredients LC sales. Overall LC growth was driven by 6% growth in emerging markets.

Flavors Business Unit
Flavors sales increased 2% for the first nine months of 2014 compared to the 2013 period. Excluding the impact of foreign currency, LC sales for the Flavors business increased 3% during the first nine month of 2014 compared to the 2013 period. The overall increase was driven by new wins which were partially offset by higher erosion on existing business. On an end-use product category basis, LC growth was led by mid single-digit growth in Beverage and Dairy followed by low single-digit growth in Savory. The Flavors business delivered LC growth in LA, GA and EAME, led by LA. Sales in LA were driven by high double-digit gains in Beverage. Sales in GA were driven by mid single-digit growth in Savory and Dairy and low single-digit growth in Sweet. Sales in EAME were driven by high single-digit gains in Beverage and mid single-digit gains in Dairy. Sales declines in NOAM were primarily driven by high single-digit declines in Beverage due to higher erosion on existing business and low single-digit declines in Sweet and Savory.
Fragrances Business Unit
The Fragrances business experienced a 7% increase for both reported and LC sales for the first nine months of 2014 compared to the 2013 period. Our Fragrance Compounds and Fragrance Ingredients categories saw LC sales grow 4% and 20%, respectively, over the prior year period. Approximately 3% of the Fragrance business unit and 15% of the Ingredients business growth was associated with the acquisition of Aromor. Within Fragrance Compounds, sales were driven by double-digit growth in Fragrance Ingredients, high single-digit growth in Fabric Care and mid single-digit growth in Toiletries.

 
24
 



Sales Performance by Region and Category
 
 
 
% Change in Sales-First Nine Months 2014 vs. First Nine Months 2013
 
 
Fine Fragrances
 
Consumer Fragrances
 
Ingredients
 
Total Frag.
 
Flavors
 
Total
NOAM
Reported
1
 %
 
7
%
 
0
%
 
4
%
 
-4
 %
 
0
%
EAME
Reported
8
 %
 
4
%
 
37
%
 
11
%
 
5
 %
 
9
%
 
Local Currency (1)
4
 %
 
1
%
 
33
%
 
8
%
 
3
 %
 
6
%
LA
Reported
-2
 %
 
1
%
 
7
%
 
1
%
 
13
 %
 
5
%
 
Local Currency (1)
1
 %
 
2
%
 
7
%
 
2
%
 
17
 %
 
7
%
GA
Reported
6
 %
 
8
%
 
36
%
 
11
%
 
0
 %
 
4
%
 
Local Currency (1)
7
 %
 
9
%
 
39
%
 
13
%
 
3