At this time, I would like to welcome everyone to the International Flavors & Fragrances Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to introduce Michael DeVeau, Investor Relations Manager. You may begin.

Thank you, operator, and good morning, everyone. With me on the call today is Doug Tough, our Chairman and CEO; Hernan Vaisman, our President of Flavors; Nicolas Mirzayantz, our President of Fragrances; and Kevin Berryman, our Executive Vice President and CFO. Please note that today's call is recorded and will be available for playback on the website. Please keep in mind that during this call, we will be making forward-looking statements about the company's performance, particularly with respect to the third quarter, second half and full year of 2011. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning factors that could cause actual results to differ materially from forward-looking statements, I ask that you refer to the cautionary statement and risk factors contained in our filings with the SEC. Some of today's prepared remarks will discuss non-GAAP financial information, which excludes those items that affect comparability. These items are laid out in a reconciliation to comparable GAAP measures, which is also available on our website. With that, I'd like to turn the call over to Doug.

Thank you, Michael, and good morning,, and good afternoon, everyone. Now in light of the instability in the financial markets around the world, I felt it was appropriate to reemphasize that IFF is a diversified and competitively advantaged organization. Now whether you analyze our portfolio by geography, where 75% of our sales come from outside the United States and 45% of sales come from the fast-growing emerging markets, or analyze IFF by our products, where 52% of our sales come from Fragrances and 48% from Flavors, the breadth and the diversity of our portfolio is great. And our innovative solutions are key components of consumer staple products that enjoy long-term growth stability. Our business strategy is sound, and we are an established partner with many global and regional consumer products companies around the world, which are themselves committed to growing their business. Our management team, as well as all IFF employees, are capable of executing our strategic initiatives to deliver long-term value for shareholders. As we communicated at our recent Investor Day on March 15, 2011, we believe that by leveraging our geographic reach to capture growth in the emerging markets, by strengthening our innovation platform to achieve better margins and improving our portfolio by making better business decisions based on economic profit, we can deliver our long-term targets of 4% to 6% local currency sales growth, 7% to 9% operating profit growth and 10%-plus earnings per share growth annually. Despite the volatility in the financial markets and the factors impacting our recent share price performance, we continue to believe that these goals are attainable, and we remain confident that we can achieve these results in 2011 and beyond. Now before the rest of the senior team reviews the full details of our quarter 2 performance, I thought I'd provide…

Thank you, Doug, and good morning, and good afternoon, everyone. Marking the 24th consecutive quarter of growth, I'm happy to report that local currency sales in the second quarter grew 8%, led by double-digit increase in Savory and high single-digit increases in Beverage and Confectionery. North America, our health and wellness portfolio continue to provide strong growth opportunities, driven by our sodium-reduction initiatives. Our considerable capabilities in helping our customers create healthier products that are aligned with the consumers' needs are paying dividends, as we continue to see a number of business wins utilizing our sodium-modulation solutions. Comparing to a 18% increase last year, our strong result in EAME can be attributed to double-digit growth in eastern Europe, Africa and the Middle East. Western Europe results were solid against strong year-over-year comparables, as the team continued to capitalize on our innovative naturals portfolio to win new business across both global and regional customers. Latin America, our consumer-preferred Flavors drove solid growth, as Confectionery and Savory each grew a double-digit rate. Finally, in Greater Asia, growth remains strong as double-digit trends in Beverage and Confectionery continued. As I mentioned on our Q1 conference call, we have begun to exit some low-profit business, which was approximately $1 million in the second quarter in Greater Asia, a similar level to what we saw in the first quarter. Looking at the geographical -- geographic breakdown, our sales in the emerging markets continue to grow double digits as countries such as Brazil, Russia, India and China, combined, grew in excess of 20%. Turning now to profits. Second quarter operating profit increased 10% or $6 million to $71 million at accelerated sales, including volume growth on pricing, plus continued cost disciplines drove results. Operating profit margin declined 60 basis points versus the prior year periods to…

Thank you, Hernan, and good morning, and good afternoon, everyone. In the face of one of our most challenging year-over-year comparisons in company history, 23% growth, local currency sales declined 2% as new business wins were more than offset by volume declines. In the Fine and Beauty Care category, local currency sales were down 4% year-over-year against a company record 37% growth in Q2 2010. Our EAME and Latin American regions were pressured the most, as we cycled a 55% growth rate in EAME, and a 30% growth rate in Latin America. North America was quite resilient at 1%, despite a 24% year-over-year comparison as new business wins offset volume pressures. Functional Fragrances grew slightly, up 1%, supported by new business performance across all categories and solid results in the Home Care category. From a geographic perspective, the strong trend in Greater Asia continued as Fabric Care grew double digits. And in North America, our Home Care business achieved double-digit growth. Lastly, comparing to a 24% growth rate in the year-ago period, which happened to be our strongest quarterly performance of 2010, Fragrance Ingredients declined 5% year-over-year, as strong pricing initiatives were offset by lower volumes. From a geographic perspective, continued emerging market growth helped mitigate softness seen in the developed markets. In our EAME region, strong growth was experienced in eastern and central Europe. And in Greater Asia, highlights include double-digit performances in Indonesia and Thailand, as well as high single-digit growth in China. From a profitability standpoint, adjusted operating profit declined by $5 million, as strong double-digit increases in raw material costs and lower sales impacted results. Adjusted operating profit margin fell 180 basis point to 16.8% versus the year-ago period, but it is common to see deterioration gross margin due to inflation as pricing actions like raw…

Thank you, Nicolas, and good morning, and good afternoon, everyone. Second quarter 2011 sales totaled $716 million, an increase of 7% from the prior year period as the impact of foreign exchange contributed positively to our top line growth. Excluding the impact of currency, sales grew by 3%, reflecting continued new business success and the realization of price increases that are being implemented to reduce the impact of higher input costs. The emerging markets continued to perform well, up 6%. These markets represented 45% of our total sales. Adjusted operating profit grew 11% or $12 million, as lower incentive compensation accruals, foreign exchange benefits, and continued cost discipline drove results. Despite a 310-basis-point contraction and gross margin, relative to the significant increases in raw material costs, adjusted operating profit margin increased 50 basis points to 17% versus 16.5% in the year-ago period, as we continued to exhibit strong cost control, achieved the restructuring savings, and benefit from lower incentive compensation accruals. With interest expense essentially flat year-over-year and a more favorable tax rate offsetting approximately $1 million of other expense related to foreign exchange losses on outstanding working capital exposures, we were able to gain additional leverage in our P&L to deliver 14% adjusted earnings per share growth versus the year-ago period. Analyzing the P&L in more detail. I would like to further review input costs, RSA costs, or research, selling and administrative costs, and currency. As expected, we continue to see input costs escalate in the second quarter as raw material prices rose 12% versus the year-ago period. While both businesses experienced significant pressure, it was greatest in Fragrance as prices were up double digits, driven by strong increases in naturals, petrochemicals and feedstock ingredients such as turpentine. Flavors, which were up high single digits, continued to be impacted…

Thank you, Kevin. Looking towards the balance of the year, we believe that the operating environment in the second half will likely be similar to what we have seen through the first 2 quarters of 2011. While we continue to see Fragrance softness in the third quarter due to the challenging 15% year-over-year comparable, we expect that sales will improve over the balance of the year, and the strong momentum in Flavors is expected to continue throughout the second half. As such, we expect that our local currency sales growth in the second half of the year to be in line with our long-term targets of 4% to 6%, with our strongest performance coming in Q4. We anticipate pricing benefits will build in the third quarter, and expect to have discussions with customers regarding additional pricing actions in situation where those material costs have increased since last conversations. We expect to see year-over-year gross margin percentage pressure in the third quarter, although it will be to a lesser extent than what we experienced in Q2. As a large portion of our results are denominated in euros, the year-over-year strength in euro versus the U.S. dollar will represent a tailwind during the second half of 2011 if exchange rates remain where they currently are. In addition, from an RSA standpoint, we will continue to focus on controlling our costs and drive operational performance, in line with our 7% to 9% operating profit targets, which, again, should translate into 10%-plus EPS growth in the second half. The net result is that by leveraging our geographic reach, strengthening our innovation platform and maximizing our portfolio, we should be able to achieve our long-term targets of 4% to 6% local currency sales growth, 7% to 9% operating profit growth and 10%-plus EPS growth for…

[Operator Instructions] Your first question comes from the line of Mark Astrachan of Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: I guess first question is given what's happened of late in the market and just the economy overall and then commentary from Procter & Gamble talking about a deceleration in anticipated volume growth for the fiscal 2012, how do you all think about the view to volume versus pricing on a go-forward basis and just the overall expected demand, from a consumer standpoint, sort of developing market versus developed market, with the idea that developing market, I guess, is still a bit stronger than developed markets? And then second question unrelated to that, curious what the differential is between your view on input costs and your larger competitor who's anticipating mid-teens year-on-year growth?

Okay. Thanks, Mark. It's -- I'll tackle the first part of your question and ask Kevin to deal with the second one. I mean, I think you've raised the overall question about the global economic environment and uncertainty, and none of us have a great crystal ball. But within IFF, we certainly focus on what we can control, and the variables that we can't control, we leave to others to figure those out. And I say that because it's given us a focus on really what are our strategic initiatives, a challenge, are they still relevant, are our business plans still relevant, and we think they are. The comments and the confidence we have in the overall results for this year, and we think the operating environment in H2 will be comparable to what it is in H1, barring entirely unforeseen issues. So we're focusing on the basics. You're right that there's probably likely to be a little more economic softness, and perhaps some demand challenges in the developed markets relative to the emerging. But where some customers are citing perhaps a slowdown, others are robust and particularly in some of those emerging markets where we're particularly well placed. So initiatives in R&D, investments in our strategic plan in advantaged categories, give us a pretty high level of confidence about Q2, at least without an entire world meltdown. And I guess, with that, I'll ask Kevin to address your second question.

Mark, as it relates to the question on input costs, we really can't comment as it relates to the specificities associated with other indications of input costs increases, but I can give you just a couple of thoughts. There certainly are a variety of reasons why there might be differences between the numbers that we're thinking we have versus what someone else might be thinking about. Certainly, mix can play a role, the timing of purchases and how they will hit the P&L can play a role, inventory levels on items that are facing pricing pressures, all of those can play a role as it relates to differences. What I can say is relative to IFF is that we believe we have a very strong monitoring process, and we continue to have a high confidence level in our projections. As a result of that, we continue to believe that we will be up high single digits in our input costs versus year ago, and I would say that we're feeling good about that. Could it ultimately approach a number of 10%? Perhaps. But we still believe the numbers are in the ranges that we are discussing, and certainly not mid single digits or other numbers that I have heard. These are the levels of which we are approaching and discussing our pricing actions with our customers, and we feel confident, as it relates to our perspective on what IFF cost pressures are going to look like.

Your next question comes from the line of Lauren Lieberman of Barclays Capital.

So first thing is I want to check on is and you said that by the fourth quarter -- I believe you said by the fourth quarter, you will be fully caught up on pricing versus cost inflation on an annualized basis. But if I think about it sort of not with the run rate will be but more holistically for 2011, what percentage of cost inflation do you think you're going to recover? Is it greater than half?

Lauren, this is Kevin. Yes, significantly higher than half.

Okay, great. And then when I think also -- I guess there was once or twice, towards the end of your guys' prepared commentary, where you talked about incremental investments and commercial opportunities in R&D, is that any different than what you've been thinking terms of incremental investment levels a couple of months ago? Because as I'm looking at it, I know you're going to -- the key for you guys is delivering in line with the long-term goals. But I am actually sort of thinking through this as being it could be -- your EBIT growth in the second half could be better than your long-term goals as pricing starts to come through. And I just wanted to know if I should be thinking about more proactive reinvestment as the pricing comes in?

Well, let me talk about with the -- about really the investments, Lauren. And yes, there will be some incremental investments versus that, which we had talked about, and by the same token as we have done the strategic plan and got into a greater degree of specificity. Some ideas have emerged to be stronger, and we've invested more and will be investing more. And others under analysis didn't necessarily bear the full fruit that we thought, so we've either halted or curtailed or slowed down some of those investments. But in this environment, we think there's an opportunity for the, hopefully, the strong to get stronger. The company's basis for competing is competitive differentiation, particularly through R&D. So since certainly the investor meetings and conference -- on our first quarter conference call, we have drilled down further into some of the initiatives, both commercial and R&D, and are investing behind them.

Your next question comes from the line of Ed Aaron of RBC Capital Markets.

I just want to start by asking about any behavioral changes that you may or may not be sensing from your customers, and I'm particularly interested in getting your thoughts on their willingness to invest more in innovation, just with the macro picture maybe darkening a bit. And whether, along those lines, you see any -- no differences evolving between Flavors and Fragrances?

It's Nicolas Mirzayantz. As far as pattern, we don't see any change in terms of commitment from our customers to innovation. It is definitely one of the key driver differentiation, leading indicator of -- or driving consumer's preference. So the commitment innovation is stronger than ever, and to echo what Doug was saying, that our commitment to innovation and to our new programs that were identified during this budget [ph] review are more important than ever. So no change in that respect.

Yes. And regarding Flavors, I have the same comment as Nicolas. I mean, for the time being, I mean, the pipeline is very strong. Innovation-related customers are looking for that. And having say that, as Doug mentioned, I mean, we know it has decreased our goal. I don't know if, I mean, this kind of economic condition might change, but for the time being, no change in the pipeline and in the composition.

And then just a follow-up, if I could, on the pricing side. I was kind of under the impression that substantially all the necessary pricing would be -- would have been implemented kind of at the start of Q3. It sounds like there's still some more work to do on the Fragrance side. Should I conclude from that, that some of the pricing that you had hoped or planned to put through didn't get through as quickly as you had intended?

Ed, this is Kevin. As I mentioned in the commentary, we continue to believe that we're in this level of high single digits. And depending upon the timing of discussions with customers, in some instances, certainly there has been increases versus when we last spoke with a certain set of customers. So there is those instances where the Fragrance team, specifically, is going to be having those ongoing dialogues as it relates to ensuring that the final pricing that we need -- necessary to take us to where we cover our full expectations on input costs, they will happen and will occur, and we would expect that, that will happen over the course of, certainly, the third quarter.

The next question comes from the line of Jeff Zekauskas of JPMorgan. Silke Kueck-Valdes - JP Morgan Chase & Co: This is Silke Kueck for Jeff. One question and a follow-up. Can you talk about the current trends in July and August on the Fragrance side? And given that the comparisons are still difficult but easing a little bit, would you expect local currency growth in Fragrances still to be negative in the third quarter, or should it not? And my follow-up question is I was interested to know what lower compensation expenses -- what the benefit was in the quarter, either on a sequential or year-over-year basis?

Silke, this is Kevin. I'll make the comment on incentive comp and some preliminary comments as it relates to the Fragrance question you have, and I'll turn it over to Nicolas to see if he has any additional commentary or color on the issue. As it relate to incentive comp, if you look at our global expenses, you can see that there's a reduction in our global expenses. And certainly, the biggest driver to that is what's happening in terms of incentive comp. I would, however, note that incentive comp is part of our business. And ultimately, as we overperform, it will be larger, and when perhaps it's -- we're performing at a level that is less than our expectations, it'll be less. I would say to you, in Q2, the incentive comp versus what we would consider more normalized is not a big number. I would call it $3 million to $4 million as it relates to the difference. So I think that that's the way to think about it in terms of the performance in Q2, and that it's not a materially different number versus what would be a normalized level. The other point relative to Fragrance, we have talked about their being -- and Nicolas highlighted the fact, that Q3, the -- that there is some softness as we started the quarter continuing, but we've also said that our expectation is over the balance of the year, given the momentum in our new win portfolio, that we will continue to see that improving sequentially versus kind of where we were in Q2. Nicolas?

No, I would echo Kevin's comments, Silke. We are -- we're still entering a strong comp for the Q3, because we grew 15%. So same factor that in Q2, the momentum in terms of new win is still very strong. The pipeline of new projects, which we have access, is very strong. So we continue to build the fundamentals and to build upon the progress we're making with our key customers.

Your next question comes from the line of Carlos LaBoy of Crédit Suisse. Carlos LaBoy - Crédit Suisse AG: Two questions. One is do you feel you're leading this new discourse, this new round of discussions on pricing here with your key clients? Are you running through competitors already having those discussions? And the second one is, when you think back at 2008, are there any signs of customer destocking, like 2008? And what is your sense about why things might be different this time, if at all?

Let me start with, well, I'll try to take both of them. As it relates to the second question though, we haven't seen any of that destocking mentality. It's been a growth and a rebound mentality. And the things could change, but we certainly see more fundamental focus on growth and innovation than probably ever before, which we think helps us. Really, as it relates to the other question, I think there's -- all companies or all of the large fragrance and flavor houses are facing significant cost pressures. Some companies are pulling slightly higher numbers than others, but we're all facing those. And I don't think -- we could probably argue we are earlier than some, but I don't think that matters right now. What has caught -- seems to have caught everyone by surprise a little bit, certainly coming out of their commentary, has been the fact that the costs have risen more sharply than first envisioned, which has necessitated a second round of discussions at minimum and, perhaps, some ongoing things if costs continue to accelerate. But we don't necessarily think we're -- we thought we were first. We think we are first, but we can't be sure of that. What we know was we've certainly got some pricing benefit in Q2, and that will accelerate into Q3 and Q4 as the others have already commented on.

Your next question comes from the line of John Roberts of Buckingham Research.

I wanted to understand a little bit more of the really strong Flavors volume growth in -- or revenue growth in U.S. and in local currency in Europe. Could you provide a little bit more color in the health and wellness product mix that you're serving? Or is it you having more fermented products that allow your customers to have natural labeling, or what's going on there? And then secondly, on Europe, it was -- it sounded like it really pulled up by non-western Europe. So could you maybe give us the split -- it sounds like non-western Europe is a much bigger percent, maybe a bigger European business than I was thinking.

Okay. And regarding your first question, I mean, definitely, I mean, the key driver in North America was this health and wellness trends that we have in place. Customers are looking really to reduce, in this case, as I mentioned before, sodium but also sugar, in order to really provide consumer with better, I mean, a healthier way of eating. And we are contributing with solutions that they could then to reduce these, I mean, salt, sugar without affecting the taste. So this is a, I could say, the key drivers of our success in North America. Regarding your second question to Europe, usually we don't know split, make a breakdown of the sales. Having said that, I mean, we have a very strong performance in Africa and Middle East. These performance are coming, basically for, I mean, big wins that we have, I mean, got lately, and we believe that this is a trend, in term of a western Europe is also growing in a solid way. And as I mentioned before, we said it basically help us the new European regulation that we have really I mean, asked -- following your question about labeling. I mean to declare when the products are natural naturals. We have a strong front portfolio, and which is also helping us in the western part of Europe to grow in a solid and consistent way.

The other thing, John, to remember is that as you look at the comparable versus year ago, Flavors in EAME was quite strong, plus 18%. So put the context of the numbers that you're hearing within that framework.

The next question comes from the line of Summit Roshan of KeyBanc.

Most of my questions have been answered, but just some clarification. I think you mentioned pricing contributed about 2 points to growth. And I was wondering if you'd break that out by the segments?

I'm sorry, could you repeat the question?

I think you had mentioned the pricing had contributed 2% on consolidated basis to the top line. And I was wondering within Fragrances and Flavors, in each of the segments, how much pricing it contributed?

We don't disclose the specifics, but I would suggest to you that Fragrances is a little higher and Flavors is a little lower.

Okay, great. And in respect to your pipeline going to the back half of the year, could you give us a little bit more color in terms of -- looking at Latin America in particular, you saw double-digit declines in Fine Fragrances and Fragrance Ingredients. I was wondering if you can give us a little bit more color on the dynamics there, and what you're expecting going to the back half?

It's Nicolas here. I think that we have to put the performance of Latin America in the context of last year. And if you remember, that was really one of the strongest contributor for the performance of the business unit was the performance of Fine & Beauty Care in that time. Last year, we grew 31% in Latin America for Fine & Beauty Care. We knew that it was well above the market trend, and so it's a -- it only make sense now to come back to more regular levels. So we will see some adjustments. What I can tell you is that our new wins momentum is still very strong. We have been Latin America for a very long time. We have a very strong market share there, and we continue to have a very strong win rate, and strong momentum in terms of new projects. So our access to new business and/or, I believe, into securing new win is still there.

Just an additional commentary on top of what Nicolas has already said. He talked in his prepared remarks as it relates to the Ingredient efforts on pricing, in that there was strong levels of activity in pricing, especially on the Ingredient front. And within the context of the very strong actions that we took, relative to pricing in Ingredients, we knew in certain instances that there could potentially be some loss in volume. But we felt that it was appropriate and necessary to take those pricing actions to ensure that we have the kind of margin profile that's appropriate for our shareholders longer term, in support of this business. So while that's not necessarily a specific issue per se in Latin America, and Latin America is a small piece of our Ingredient business, but that is a general comment that I think is appropriate to make relative to what you're seeing in the Ingredients base.

Your next question comes from the line of Alec Patterson of RCM.

Just curious, you mentioned in the release the currency benefit flowing to the operating profit line, and I am presuming a bit chunk of that is sort of transactional effect. Is there a basis point or percentage impact you have for currency to the operating profit line?

In terms of margin impact for the quarter, there was really very de minimus impact. So if you look at the 50-basis-point improvement in operating profit margin, there really is no impact as it relates to currencies. However, we did see a $0.04 earnings per share increase due to FX, just because of the fact that we're translating a lot of non-U.S. dollar currencies back into our reporting currency. And so there was a benefit of $0.04 for the quarter relative to FX.

Right. So there's a translational impact, but you're saying there's very little net of hedging transactional impact. There's no leverage developed in the P&L because of currency necessarily.

That's correct.

Okay. And secondly, I was just curious, regarding -- you talked about the BRIC markets being up 20%, I believe, in Flavors and just overall healthy tone to emerging markets. Are you not seeing any signs of consumer slowdown to the degree you can read through your customer base, some of what has been tremendous category growth in those regions? But of late, there's been a lot of signs that these BRIC markets are slowing down or unable to deal with the inflation, so there's a pullback by consumers. Are there any signs you're seeing through your customer base of category growth slowdown?

Oh, I mean, it's Hernan here. As the base of our knowledge and as today, no, we haven't seen any kind of signal of slowing down.

Your next question comes from the line of Lauren Lieberman of Barclays Capital.

Sorry to the quick clarification. Kevin, you've mentioned that the difference in incentive comp year-over-year was only $3 million or $4 million, but still, the dollars of SG&A or the non-R&D selling and admin was down much more significantly than that. If there was about $5 million from the European restructuring, if it -- I don't even know if it all fell through SG&A, but there's still something kind of missing, if you will, in the math. So can you just help me out there? Because the $120 million in last year's second quarter was a huge number and far off of the kind of typical quarterly run rate.

No, the incentive comp number that I quoted of $3 million to $4 million is versus a more normalized level. That's not the year-over-year change. In fact, what I had hope to have said is if you look at our global expense line, which is outlined in our press release and the attached financials, that the reduction in our global expenses is driven by the incentive comp change year-over-year. But that is coming from a abnormally high level of year ago. What I wanted to communicate is what's most important is relative to our results in the second quarter versus a more normalized level, and it's $3 million to $4 million versus that level.

The next question comes from the line of John Roberts of Buckingham Research.

It feels like the innovation, or the mix improvement, is greater in the Flavor side than the Fragrance side, and I'm hoping maybe you can refute that a little bit. Maybe you can give us an update on what's going with some of the new products like the new Redken shampoo, and whether we might have sustained Fragrance, moved to other brands within that category or an update on the laundry care products that had that technology?

This is Kevin. I'll take a stab at a preliminary comment, and then turn it to Nicolas if he has anything to add. I don't think the premise that you're suggesting is apparently there is the case. If there's gross margin pressure, I would say it's more about the timing of our pricing actions versus the accelerated level of input cost increases. And as we said in our -- previously, over the course of this call, that we see higher levels of input costs pressures in our Fragrance business versus Flavor. So I think that that's the dynamic that we're working through on a short-term basis here in 2011, and not an innovation issue. Nicolas?

You're absolutely right, Kevin. I think it's very much related to input cost pressure, which you saw was higher in Fragrances. But if you look at the performance for the first 6 months, I think we grew 4% in Fine and Beauty over a very strong performance last year of 32%, and we grew 2% on Functional over '11. So in terms of mix, there is another pressure point there.

You'd call in -- you call innovation comparable in both side of the business?

Different. I mean, I think that we're very successful in pioneer the launch of microencapsulation into Fabric Care into the markets. And now as we're expanding into category, still early on to get the benefit. We're seeing our customers rolling out to other category, but it's not yet at the level of certain performance that we're already enjoying in Fabric, because we went to the market with that technology already 4 years ago. So it's not yet at the level to bring additional benefit at this stage.

And, John, the work we did on innovation corporately really was looked at from a category and potential size of the prize business. As you can probably appreciate, both Flavors and fragrances have substantial categories, substantial opportunities, so the net result to where we ended up was a significant opportunities in both. There isn't really a preferred part of the puzzle. And if anything, one of the interesting dynamics was coming up with those innovation opportunities, which could be beneficial and applicable in both Fragrances and Flavors. But at the end of the day, the opportunities appear strong in both camps.

Your next question comes from the line of Ed Aaron of RBC Capital Markets.

Kevin, you dropped the language in your press release about operating margins expected to approach 18%. I was just wondering if you could kind of give us the rationale behind that change, and whether we should read anything into that?

No. I think that what we've talked about when we were discussing our long-time financial targets at our Investor Day is reframing the discussion relative to our long-term strategic financial targets. And I think that that's what our model is. That's what we're driving towards, and that's our expectations. So I guess ultimately, that would suggest that we're going to get to higher levels of margins, but we're refraining from a specific point in time or a target number as it relates to margins. We do know we have abilities to increase over time.

Your final question comes from the line of Jeff Zekauskas (sic) [Silke Kueck] of JPMorgan. Silke Kueck-Valdes - JP Morgan Chase & Co: I also have a short follow-up. The -- Hernan mentioned there was some businesses that were exited in the second quarter of about $1 million. Is that -- how much -- I assume it is probably in Greater Asia. So I was wondering how much of Greater Asia growth was affected by this, and is that number going to grow over time or get smaller?

More or less the impact was around 1% in the quarter. And I -- as I mentioned in my -- in the previous conference call, we are still dealing with customers. We are negotiating with them. In case that we cannot improve the profitability, we will exiting the business we did in Asia.

There are no further questions. Mr. Doug Tough, do you have any closing remarks?

And to thank the audience for their participation today and their interest in IFF. And we look forward to talking again with you in 3 months, as we achieve our long-term goals in 2011. Thank you very much.

Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.