Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 6—Shareholders’ Equity (Continued) The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the three fiscal years ended September 27, 2008 (in millions):
## Table 0 ##
The tax effect related to the changes in fair value of derivatives was $(5) million, $1 million, and $(8) million for 2008, 2007, and 2006, respectively.
The tax effect related to derivative gains/losses reclassified from other comprehensive income to net income was $(9) million, $2 million, and $8 million for 2008, 2007, and 2006, respectively.
Employee Benefit Plans 2003 Employee Stock Plan The 2003 Employee Stock Plan (the “2003 Plan”) is a shareholder approved plan that provides for broad-based grants to employees, including executive officers.
Based on the terms of individual option grants, options granted under the 2003 Plan generally expire 7 to 10 years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual or quarterly vesting.
The 2003 Plan permits the granting of incentive stock options, nonstatutory stock options, RSUs, stock appreciation rights, stock purchase rights and performance-based awards.
As of September 27, 2008, approximately 50.3 million shares were reserved for future issuance under the 2003 Plan.1997 Employee Stock Option Plan In August 1997, the Company’s Board of Directors approved the 1997 Employee Stock Option Plan (the “1997 Plan”), a non-shareholder approved plan for grants of stock options to employees who are not officers of the Company.
Based on the terms of individual option grants, options granted under the 1997 Plan generally expire 7 to 10 years after the grant date and generally become exercisable over a period of four years, based on continued employment, with either annual or quarterly vesting.
In October 2003, the Company terminated the 1997 Plan and no new options can be granted from this plan.1997 Director Stock Option Plan In August 1997, the Company’s Board of Directors adopted a Director Stock Option Plan (the “Director Plan”) for non-employee directors of the Company, which was approved by shareholders in 1998.
Pursuant to the Director Plan, the Company’s non-employee directors are granted an option to acquire 30,000 shares of common stock upon their initial election to the Board (“Initial Options ” ).
The Initial Options vest and become exercisable in three equal annual installments on each of the first through third anniversaries of the grant date.
On the fourth anniversary of a non-employee director’s initial election to the Board and on each subsequent anniversary thereafter, the director will be entitled to receive an option to acquire 10,000 shares of common stock (“Annual Options”).
Annual Options are fully vested and immediately exercisable on their date of grant.
Options granted under the Director Plan expire 10 years after the grant date.
As of September 27, 2008, approximately 290,000 shares were reserved for future issuance under the Director Plan.
Rule 10b5-1 Trading Plans The following executive officers, Timothy D.  Cook, Peter Oppenheimer, Philip W.  Schiller, and Bertrand Serlet, have entered into trading plans pursuant to Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of November 1, 2008.
A trading plan is a written document that
Results of Operations
## Table 1 ##
Cost of goods sold includes the cost of materials and manufacturing expenses; raw materials generally constitute 70.0% of the total.
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 principally associated with staff groups that support our overall operating activities.2012 IN COMPARISON TO 2011 Sales Sales for 2012 totaled $2.8 billion, an increase of 1% from the prior year.
Excluding currency impacts, LC sales grew by 4% (or 5% on a like-for-like basis, excluding the effects of the exit of low margin sales activities in Flavors), driven principally by new wins and the realization of price increases.
LC sales growth was largely driven by new customer wins, with price offset by volume reductions on existing business, primarily in Fragrance Ingredients.
Flavors Business Unit On a reported basis, Flavors sales increased 2%; excluding the impact of foreign currency, LC sales for the Flavors business increased 5% versus the prior year period.
Excluding the impact of a 3% decline in sales associated with the strategic decision to exit certain lower margin sales activities, LC sales increased 8% on a like-for-like basis.
The increase was driven by new wins and the realization of price increases.
LC growth was led by double-digit gains in Beverages and single-digit gains in Dairy and Savory, all of which benefited from new wins, supported by our innovative technology, and price increases that have compensated for volume
NOTE 8.
BORROWINGS Debt consists of the following at December 31:
## Table 2 ##
Commercial paper issued by the Company generally has terms of 30 days or less.
There were no outstanding commercial paper borrowings at December 31, 2012 or 2011.
In 2005, IFF, including certain subsidiaries, entered into a revolving credit agreement (the “Facility”) with certain banks.
The Facility provided for a five-year U. S.  $350 million (“Tranche A”) and Euro 400 million (“Tranche B”) multi-currency revolving credit facility.
As permitted by the Facility, in 2007, the termination dates were extended until November 23, 2012.
As the Facility was a multi-year revolving credit agreement, we classified the portion we expected to have outstanding longer than 12 months as long-term debt.
On November 9, 2011, IFF, including certain subsidiaries, entered into a revolving credit agreement with Citibank, N. A. , as administrative agent and the other lenders, agents, arrangers and bookrunners to replace the Facility.
The Credit Agreement which was amended and restated on March 9, 2012 provides for a revolving loan facility in an aggregate amount up to an equivalent of $942 million (the “New Facility”).
There are three tranches under the New Facility.
The Tranche A facility is available to all of the borrowers other than IFF Spain in U. S.  dollars, euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an equivalent of $458 million and contains sublimits of $50 million for swing line borrowings.
The Tranche B facility is available to all of the borrowers in euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an NOTE 8.
BORROWINGS Debt consists of the following at December 31:
Commercial paper issued by the Company generally has terms of 30 days or less.
There were no outstanding commercial paper borrowings at December 31, 2012 or 2011.
In 2005, IFF, including certain subsidiaries, entered into a revolving credit agreement (the ¡°Facility¡±) with certain banks.
The Facility provided for a five-year U. S.  $350 million (¡°Tranche A¡±) and Euro 400 million (¡°Tranche B¡±) multi-currency revolving credit facility.
As permitted by the Facility, in 2007, the termination dates were extended until November 23, 2012.
As the Facility was a multi-year revolving credit agreement, we classified the portion we expected to have outstanding longer than 12 months as long-term debt.
On November 9, 2011, IFF, including certain subsidiaries, entered into a revolving credit agreement with Citibank, N. A. , as administrative agent and the other lenders, agents, arrangers and bookrunners to replace the Facility.
The Credit Agreement which was amended and restated on March 9, 2012 provides for a revolving loan facility in an aggregate amount up to an equivalent of $942 million (the ¡°New Facility¡±).
There are three tranches under the New Facility.
The Tranche A facility is available to all of the borrowers other than IFF Spain in U. S.  dollars, euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an equivalent of $458 million and contains sublimits of $50 million for swing line borrowings.
The Tranche B facility is available to all of the borrowers in euros, Swiss francs, Japanese yen and British sterling in an aggregate amount up to an equivalent of $354 million and contains sublimits of €50 million for swing line borrowings.
The Tranche C facility is available to all of the borrowers in euros only in an aggregate amount up to €100,505,400.
The New Facility will be available for general corporate purposes of each borrower and its subsidiaries.
The obligations under the New Facility are unsecured and the Company has guaranteed the obligations of each other borrower under the New Facility.
The New Facility will mature on November 9, 2016, but may be extended for up to two additional one-year periods at the Company¡¯s request, subject to the agreement of the lenders having commitments representing more than 50% of the aggregate commitments of all lenders under the New Facility.
Borrowings under the New Facility bear interest at an annual rate of LIBOR plus a margin, currently 125 bps, linked to our credit rating.
We pay a commitment fee on the aggregate unused commitments; such fee is not material.
The New Facility contains various affirmative and negative covenants, including the requirement for us to maintain, at the end of each fiscal quarter, a ratio of net debt for borrowed money to adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) in respect of the previous 12-month period of not more than 3.25 to 1.
As of December 31, 2012, we were in compliance with all covenants under this New Facility.
We had $296.7 million outstanding under New Facility as of December 31, 2012, with $648.2 million still available for additional borrowings.
As the New Facility is a multi-year revolving credit agreement, we classify as long-term debt the portion that we have the intent and ability to maintain outstanding longer than 12 months.
At December 31, 2012, $247 million of revolver borrowings was classified as long-term debt, and the remaining $50 million was classified as current portion of long-term debt.
Credit facility borrowings and bank overdrafts were outstanding in several countries and averaged $143 million in 2012 and $90 million in 2011.
The highest levels were $297 million in 2012, $163 million in 2011, and
The effect of a 1% increase in the medical cost trend rate would increase the accumulated postretirement benefit obligation and the annual postretirement expense by approximately $7.3 million and $0.4 million, respectively; a 1% decrease in the rate would decrease the obligation and expense by approximately $6.9 million and $0.4 million, respectively.
We contributed $18.4 million and $16.8 million to our qualified U. S.  pension plans and non-U.
S.  pension plans in 2012.
We made $3.4 million in benefit payments with respect to our non-qualified U. S.  pension plan.
In addition, $6.5 million of contributions were made with respect to our other postretirement plans.
NOTE 14.
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.
‰ 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 London InterBank Offer Rate (“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 included in Note 13.
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 December 31, 2012.
The amounts recorded in the balance sheet (carrying amount) and the estimated fair values of financial instruments at December 31 consisted of the following:
## Table 3 ##
(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.

<table><tr><td></td><td>2008</td><td>2007</td><td>2006</td></tr><tr><td>Changes in fair value of derivatives</td><td>$7</td><td>$-1</td><td>$11</td></tr><tr><td>Adjustment for net gains/(losses) realized and included in net income</td><td>12</td><td>-2</td><td>-12</td></tr><tr><td>Change in unrealized gains on derivative instruments</td><td>$19</td><td>$-3</td><td>$-1</td></tr></table>
<table><tr><td></td><td colspan="3">Year Ended December 31,</td><td colspan="2"> Change</td></tr><tr><td><i>(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)</i></td><td>2012</td><td>2011</td><td>2010</td><td>2012 vs. 2011</td><td> 2011 vs. 2010</td></tr><tr><td>Net sales</td><td>$2,821,446</td><td>$2,788,018</td><td>$2,622,862</td><td>1.2%</td><td>6.3%</td></tr><tr><td>Cost of goods sold</td><td>1,645,912</td><td>1,683,362</td><td>1,530,260</td><td>-2.2%</td><td>10.0%</td></tr><tr><td>Gross profit</td><td>1,175,534</td><td>1,104,656</td><td>1,092,602</td><td></td><td></td></tr><tr><td>Research and development (R&D) expenses</td><td>233,713</td><td>219,781</td><td>218,772</td><td>6.3%</td><td>0.5%</td></tr><tr><td>Selling and administrative (S&A) expenses</td><td>453,535</td><td>443,974</td><td>447,392</td><td>2.2%</td><td>-0.8%</td></tr><tr><td>Restructuring and other charges, net</td><td>1,668</td><td>13,172</td><td>10,077</td><td>-87.3%</td><td>30.7%</td></tr><tr><td>Operating profit</td><td>486,618</td><td>427,729</td><td>416,361</td><td></td><td></td></tr><tr><td>Interest expense</td><td>41,753</td><td>44,639</td><td>48,709</td><td>-6.5%</td><td>-8.4%</td></tr><tr><td>Other expense, net</td><td>1,450</td><td>9,544</td><td>8,059</td><td>-84.8%</td><td>18.4%</td></tr><tr><td>Income before taxes</td><td>443,415</td><td>373,546</td><td>359,593</td><td></td><td></td></tr><tr><td>Taxes on income</td><td>189,281</td><td>106,680</td><td>96,036</td><td>77.4%</td><td>11.1%</td></tr><tr><td>Net income</td><td>$254,134</td><td>$266,866</td><td>$263,557</td><td></td><td></td></tr><tr><td>Net income per share — diluted</td><td>$3.09</td><td>$3.26</td><td>$3.26</td><td>-5.0%</td><td>-0.1%</td></tr><tr><td>Gross margin</td><td>41.7%</td><td>39.6%</td><td>41.7%</td><td>210.0</td><td>-210.0</td></tr><tr><td>R&D as a percentage of sales</td><td>8.3%</td><td>7.9%</td><td>8.3%</td><td>40.0</td><td>-40.0</td></tr><tr><td>S&A as a percentage of sales</td><td>16.1%</td><td>15.9%</td><td>17.1%</td><td>20.0</td><td>-120.0</td></tr><tr><td>Operating margin</td><td>17.2%</td><td>15.3%</td><td>15.9%</td><td>190.0</td><td>-60.0</td></tr><tr><td>Effective tax rate</td><td>42.7%</td><td>28.6%</td><td>26.7%</td><td>1410.0</td><td>190.0</td></tr><tr><td>Segment net sales</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Flavors</td><td>$1,378,377</td><td>$1,347,340</td><td>$1,203,274</td><td>2.3%</td><td>12.0%</td></tr><tr><td>Fragrances</td><td>1,443,069</td><td>1,440,678</td><td>1,419,588</td><td>0.2%</td><td>1.5%</td></tr><tr><td>Consolidated</td><td>$2,821,446</td><td>$2,788,018</td><td>$2,622,862</td><td></td><td></td></tr></table>
<table><tr><td><i>(DOLLARS IN THOUSANDS)</i></td><td> Rate</td><td> Maturities</td><td>2012</td><td>2011</td></tr><tr><td>Senior notes — 2007</td><td>6.40%</td><td>2017-27</td><td>$500,000</td><td>$500,000</td></tr><tr><td>Senior notes — 2006</td><td>6.10%</td><td>2013-16</td><td>225,000</td><td>225,000</td></tr><tr><td>Credit facilities</td><td>1.41%</td><td>2016</td><td>296,748</td><td>157,483</td></tr><tr><td>Bank overdrafts and other</td><td>1.20%</td><td>2012</td><td>399</td><td>1,488</td></tr><tr><td>Deferred realized gains on interest rate swaps</td><td></td><td></td><td>9,028</td><td>10,965</td></tr><tr><td></td><td></td><td></td><td>1,031,175</td><td>894,936</td></tr><tr><td>Less: Current portion of long-term debt</td><td></td><td></td><td>-150,071</td><td>-116,688</td></tr><tr><td></td><td></td><td></td><td>$881,104</td><td>$778,248</td></tr></table>
<table><tr><td></td><td colspan="2"> 2012</td><td colspan="2"> 2011</td></tr><tr><td><i>(DOLLARS IN THOUSANDS)</i></td><td> Carrying Amount</td><td> Fair Value</td><td> Carrying Amount</td><td> Fair   Value</td></tr><tr><td>Cash and cash equivalents<sup>-1</sup></td><td>$324,422</td><td>$324,422</td><td>$88,279</td><td>$88,279</td></tr><tr><td>Credit facilities and bank overdrafts<sup>-2</sup></td><td>297,147</td><td>297,147</td><td>158,971</td><td>158,971</td></tr><tr><td>Long-term debt:<sup>-3</sup></td><td></td><td></td><td></td><td></td></tr><tr><td>Senior notes — 2007</td><td>500,000</td><td>634,000</td><td>500,000</td><td>617,000</td></tr><tr><td>Senior notes — 2006</td><td>225,000</td><td>248,000</td><td>225,000</td><td>250,000</td></tr></table>

Question: In the year with the most Other expense, net, what is the growth rate of Income before taxes?
Answer: 0.18704