SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2004
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 (IRS Employer
incorporation or organization) 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 Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve 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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No[ ]
Number of shares outstanding as of November 1, 2004: 94,238,803
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(Unaudited)
9/30/04 12/31/03
Assets ---------- -----------
- ------
Current Assets:
Cash & cash equivalents $ 14,264 $ 12,081
Short-term investments 469 474
Trade receivables 373,324 336,980
Allowance for doubtful accounts (16,626) (16,212)
Inventories: Raw materials 203,290 233,313
Work in process 11,534 15,815
Finished goods 222,290 205,503
----------- ------------
Total Inventories 437,114 454,631
Deferred income taxes 71,592 66,070
Other current assets 67,891 48,648
----------- ------------
Total Current Assets 948,028 902,672
----------- ------------
Property, plant & equipment, at cost 979,653 1,010,397
Accumulated depreciation (506,366) (499,785)
----------- ------------
473,287 510,612
----------- ------------
Goodwill 647,566 647,226
Intangible assets, net 141,352 152,187
Other assets 95,199 94,195
----------- ------------
Total Assets $ 2,305,432 $ 2,306,892
=========== ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Bank borrowings & overdrafts
and current portion of long-term debt $ 38,949 $ 31,371
Commercial paper 25,969 162,933
Accounts payable-trade 93,549 104,028
Accrued payrolls and bonuses 29,706 41,032
Dividends payable 16,537 14,996
Income taxes 39,945 27,826
Other current liabilities 196,056 143,859
----------- -----------
Total Current Liabilities 440,711 526,045
----------- -----------
Other Liabilities:
Long-term debt 663,324 690,231
Deferred gains 71,181 73,439
Retirement liabilities 208,461 210,031
Other liabilities 79,671 64,515
----------- -----------
Total Other Liabilities 1,022,637 1,038,216
----------- -----------
Shareholders' Equity:
Common stock 12 1/2 cent par value; authorized
500,000,000 shares; issued 115,761,840 shares 14,470 14,470
Capital in excess of par value 82,532 95,138
Restricted stock (1,830) (3,952)
Retained earnings 1,603,051 1,496,104
Accumulated other comprehensive income:
Cumulative translation adjustment (55,223) (45,188)
Accumulated losses on derivatives
qualifying as hedges (6,622) (3,678)
Minimum pension liability adjustment (82,815) (82,815)
----------- -----------
1,553,563 1,470,079
Treasury stock, at cost - 21,435,602 shares in '04
and 22,032,132 in '03 (711,479) (727,448)
----------- -----------
Total Shareholders' Equity 842,084 742,631
----------- -----------
Total Liabilities and Shareholders' Equity $ 2,305,432 $ 2,306,892
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
3 Months Ended 9/30
----------------------------
2004 2003
---- ----
Net sales $ 506,229 $ 480,886
---------- ---------
Cost of goods sold 289,052 278,191
Research and development expenses 43,124 39,184
Selling and administrative expenses 83,694 75,638
Amortization 3,709 3,158
Restructuring and other charges 19,950 3,916
Interest expense 6,041 6,532
Other (income) expense, net 324 (446)
--------- ---------
445,894 406,173
--------- ---------
Income before taxes on income 60,335 74,713
Taxes on income 18,030 23,642
--------- ---------
Net income 42,305 51,071
Other comprehensive income:
Foreign currency translation adjustments 12,882 (9,063)
Accumulated gains (losses) on derivatives
qualifying as hedges (net of tax) 2,881 (3,436)
--------- ---------
Comprehensive income $ 58,068 $ 38,572
========== =========
Net income per share - basic $0.45 $0.55
Net income per share - diluted $0.44 $0.54
Average number of shares outstanding - basic 94,172 93,265
Average number of shares outstanding - diluted 95,498 93,793
Dividends declared per share $0.175 $0.16
9 Months Ended 9/30
----------------------------
2004 2003
---- ----
Net sales $1,565,421 $1,429,721
---------- ----------
Cost of goods sold 891,554 823,873
Research and development expenses 132,114 117,043
Selling and administrative expenses 256,604 224,641
Amortization 11,117 9,474
Restructuring and other charges 27,666 31,020
Interest expense 18,612 22,602
Other (income) expense, net 3,054 4,451
---------- ----------
1,340,721 1,233,104
---------- ----------
Income before taxes on income 224,700 196,617
Taxes on income 69,535 62,131
---------- ----------
Net income 155,165 134,486
Other comprehensive income:
Foreign currency translation adjustments (10,035) 39,850
Accumulated losses on derivatives
qualifying as hedges (net of tax) (2,944) (2,777)
---------- -----------
Comprehensive income $ 142,186 $ 171,559
========== ===========
Net income per share - basic $1.65 $1.43
Net income per share - diluted $1.63 $1.42
Average number of shares outstanding - basic 94,114 93,735
Average number of shares outstanding - diluted 95,318 94,418
Dividends declared per share $0.51 $0.47
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
9 Months Ended 9/30
----------------------------------
2004 2003
---------- ----------
Cash flows from operating activities:
- -------------------------------------
Net income $ 155,165 $ 134,486
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 68,388 64,425
Deferred income taxes (5,411) (19,171)
Gain on disposal of assets (17,111) (1,492)
Changes in assets and liabilities:
Current receivables (51,315) (26,988)
Inventories 5,149 14,809
Current payables 38,127 (12,045)
Other, net (2,425) (4,112)
-------- ---------
Net cash provided by operations 190,567 149,912
-------- ---------
Cash flows from investing activities:
- -------------------------------------
Net change in short-term investments - (128)
Additions to property, plant and equipment (41,080) (40,946)
Proceeds from disposal of assets 37,948 97,241
-------- --------
Net cash (used in) provided by investing activities (3,132) 56,167
-------- --------
Cash flows from financing activities:
- -------------------------------------
Cash dividends paid to shareholders (46,677) (43,215)
Net change in bank borrowings & overdrafts (2,877) 20,199
Net change in commercial paper outstanding (136,964) 128,870
Proceeds from long-term debt 109 35,737
Repayments of long-term debt (1,194) (312,642)
Proceeds from issuance of stock under stock option
and employee stock purchase plans 52,775 20,311
Purchase of treasury stock (50,328) (55,447)
-------- --------
Net cash used in financing activities (185,156) (206,187)
-------- --------
Effect of exchange rate changes on cash and cash equivalents (96) 244
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,183 136
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,081 14,858
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,264 $ 14,994
======== ========
Interest Paid $ 19,766 $ 26,593
Income Taxes Paid $ 80,576 $ 99,569
Non-cash investing activity:
Asset write-down charges associated with
the sale of the Company's Fruit business $ 7,730 --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
These interim statements and management's related 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
and financial condition included in International Flavors & Fragrances Inc.'s
("the Company" or "IFF") 2003 Annual Report on Form 10-K. These interim
statements are unaudited. In the opinion of the Company's management, all normal
recurring adjustments necessary for a fair presentation of the results for the
interim periods have been made.
NOTE 1. STOCK OPTION AND EQUITY PLANS:
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its stock plans. No compensation
expense for stock options is reflected in net earnings, as all options granted
under such plans have an exercise price not less than the market value of the
common stock on the date of grant. The following table illustrates the effect on
net income and net income per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123
for the period presented:
Three Months Ended September 30, Nine Months Ended September 30,
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts) 2004 2003 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net income, as reported $42,305 $51,071 $155,165 $134,486
- ----------------------------------------------------------------------------------------------------------------------------
Deduct: Total stock-based employee compensation expense
determined under fair value method for all stock option
awards, net of related tax effects 3,139 4,071 10,612 10,710
- ----------------------------------------------------------------------------------------------------------------------------
Pro-forma net income $39,166 $47,000 $144,553 $123,776
- ----------------------------------------------------------------------------------------------------------------------------
Net income per share:
- ----------------------------------------------------------------------------------------------------------------------------
Basic - as reported $0.45 $0.55 $1.65 $1.43
- ----------------------------------------------------------------------------------------------------------------------------
Basic - pro-forma $0.42 $0.50 $1.54 $1.32
- ----------------------------------------------------------------------------------------------------------------------------
Diluted - as reported $0.44 $0.54 $1.63 $1.42
- ----------------------------------------------------------------------------------------------------------------------------
Diluted - pro-forma $0.41 $0.50 $1.52 $1.31
- ----------------------------------------------------------------------------------------------------------------------------
These pro-forma amounts may not be representative of future disclosures because
the estimated fair value of stock options is expensed over the vesting period,
and a different number of options may be granted in future years.
The Company granted restricted stock units ("RSU's") in May 2004 as an element
of its incentive compensation plans for all eligible U.S. - based employees and
a majority of eligible overseas employees. Vesting of the RSU's for the
Company's senior management is both performance and time based, and for the
remainder of eligible employees, vesting is time based; the vesting period will
be three years from date of grant.
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 is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------
(Shares in thousands) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Basic 94,172 93,265 94,114 93,735
- ------------------------------------------------------------------------------------------------------------------------------
Assumed conversion under stock plans 1,326 528 1,204 683
- ------------------------------------------------------------------------------------------------------------------------------
Diluted 95,498 93,793 95,318 94,418
- ------------------------------------------------------------------------------------------------------------------------------
Stock options to purchase 711,500 and 828,833 shares were outstanding for the
third quarter and the first nine months of 2004, respectively, and 5,340,215 and
5,099,579 shares for the third quarter and first nine months of 2003,
respectively, but were not included in the computation of diluted net income per
share for the respective periods because the options' exercise prices were
greater than the average market price of the common shares in the respective
periods.
NOTE 3. SEGMENT INFORMATION:
The Company evaluates the performance of its geographic regions based on segment
profit, excluding interest expense, other income and expense and the effects of
restructuring and other charges, accounting changes, and income tax expense. The
Company's reportable segment information, based on geographic region, follows:
Three Months Ended September 30, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 165,548 $ 193,578 $ 11,845 $ 55,516 $ 79,742 $ -- $ 506,229
Transfers between regions 20,096 44,549 60 324 8,890 (73,919) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total sales $ 185,644 $ 238,127 $ 11,905 $ 55,840 $ 88,632 $(73,919) $ 506,229
===================================================================================================================================
Segment profit $ 20,809 $ 54,137 $ 2,880 $ 7,342 $ 15,386 $ (1,958) $ 98,596
=====================================================================================================================
Corporate and other unallocated
expenses (11,946)
Restructuring and other charges (19,950)
Interest expense (6,041)
Other income (expense), net (324)
--------------
Income before taxes on income $ 60,335
===================================================================================================================================
Three Months Ended September 30, 2003
- ---------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 144,769 $ 198,958 $ 11,074 $ 52,892 $ 73,193 $ -- $ 480,886
Transfers between regions 19,267 35,519 596 61 5,956 (61,399) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total sales $ 164,036 $ 234,477 $ 11,670 $ 52,953 $ 79,149 $(61,399) $ 480,886
===================================================================================================================================
Segment profit $ 17,736 $ 53,497 $ 2,703 $ 7,525 $ 13,443 $ 463 $ 95,367
=====================================================================================================================
Corporate and other unallocated
expenses (10,652)
Restructuring and other charges (3,916)
Interest expense (6,532)
Other income (expense), net 446
------------
Income before taxes on income $ 74,713
===================================================================================================================================
Nine Months Ended September 30, 2004
- ---------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 491,151 $ 629,772 $ 39,449 $ 165,014 $ 240,035 $ -- $1,565,421
Transfers between regions 60,200 141,259 1,430 734 22,566 (226,189) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total sales $ 551,351 $ 771,031 $ 40,879 $ 165,748 $ 262,601 $(226,189) $1,565,421
==================================================================================================================================
Segment profit $ 63,917 $ 179,029 $ 10,027 $ 20,696 $ 43,575 $ (2,082) $ 315,162
=====================================================================================================================
Corporate and other unallocated
expenses (41,130)
Restructuring and other charges (27,666)
Interest expense (18,612)
Other income (expense), net (3,054)
------------
Income before taxes on income $ 224,700
=================================================================================================================================
Nine Months Ended September 30, 2003
- ---------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 437,381 $ 593,290 $ 33,094 $ 155,093 $ 210,863 $ -- $1,429,721
Transfers between regions 58,798 116,027 902 606 16,016 (192,349) --
- --------------------------------------------------------------------------------------------------------------------------------
Total sales $ 496,179 $ 709,317 $ 33,996 $ 155,699 $ 226,879 $ (192,349) $1,429,721
================================================================================================================================
Segment profit $ 54,196 $ 162,273 $ 8,348 $ 25,349 $ 37,503 $ (414) $ 287,255
====================================================================================================================
Corporate and other unallocated
expenses (32,565)
Restructuring and other charges (31,020)
Interest expense (22,602)
Other income (expense), net (4,451)
------------
Income before taxes on income $ 196,617
- -================================================================================================================================
NOTE 4. RESTRUCTURING AND OTHER CHARGES:
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 2003 Annual Report on Form 10-K, in October 2000, the
Company announced a significant reorganization, including management changes,
consolidation of production facilities and related actions.
In May 2004, the Company announced that it had entered into a letter of intent
with Frutarom Industries Ltd. ("Frutarom") for the intended sale of IFF's fruit
preparations businesses in Switzerland and Germany. Concurrently, IFF initiated
required consultations with the Company's French employee works council
regarding the potential sale of the assets of its French fruit preparations
business to Frutarom, and the potential closure of its manufacturing facilities
in Dijon, France.
IFF had previously announced its intention to divest itself of the fruit
preparations business, which manufactures processed fruit and other natural
product preparations used in a wide variety of food products, including baked
goods and dairy products. Sales of fruit preparations in 2003 approximated $90
million. IFF completed the sale of the German and Swiss businesses, comprising
70% of the total fruit business, in August 2004.
The Company completed required consultations with the French employee works
council, is proceeding with the sale of its French fruit preparations assets to
Frutarom, and with the closure of its Dijon manufacturing facility. The sale of
the French fruit assets was completed on October 29; the Dijon facility is
expected to close in the first quarter 2005 following completion of the transfer
of production from Dijon to other Company locations.
Proceeds from the sale of the European fruit preparations business, in total,
were U.S. $40.0 million, including the assumption of certain liabilities. As a
result of these actions, the Company recorded a $20.0 million net charge ($12.7
million after tax) of restructuring and other charges related to the disposition
of the fruit preparations business (gain on sale of assets of $16.2 million),
closure of the Dijon facility and other related reorganization actions ($36.2
million as detailed in the table below) in the third quarter 2004 results.
In June 2004, the Company announced that it would close its Canadian
manufacturing facility by the end of 2004 and transfer production to its South
Brunswick, New Jersey and Carrollton, Texas facilities. In the second quarter,
the Company recorded $7.7 million ($5.0 million after tax) of restructuring and
other charges related to the impairment of certain European fruit preparations
assets, and the closure of the Canadian manufacturing facility.
Movements in the liabilities related to the restructuring charges, which are
included in "Other Current Liabilities" on the consolidated balance sheets,
were (in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
-----------------------------------------
Balance December 31, 2003 $19.6 $ 1.5 $21.1
Additional charges second quarter 2004 2.3 5.4 7.7
Additional charges third quarter 2004 21.8 14.4 36.2
Cash and other costs (13.0) (9.7) (22.7)
----- ----- -----
Balance September 30, 2004 $30.7 $11.6 $42.3
===== ===== =====
The balance of the employee-related liabilities will be utilized by 2006 as
obligations to affected employees are satisfied; the asset-related charges will
be utilized in 2005 on final decommissioning and disposal of the affected
equipment.
The Company previously established accruals relating to the integration of Bush
Boake Allen ("BBA") operations. Costs associated with these integration
activities, relating mainly to employee separation and facility closures, were
recorded as a component of purchase accounting; such costs did not directly
impact current earnings. At December 31, 2003, $2.4 million of employee related
accruals remained; these remaining accruals were utilized in 2004 as all
remaining severance obligations were satisfied.
NOTE 5. ACCUMULATED OTHER COMPREHENSIVE INCOME:
Changes in the accumulated other comprehensive income component of shareholders'
equity were as follows:
-------------------------------------------------------------------------------------------------------------------------
Accumulated losses
Translation on derivatives Minimum Pension
2004 (Dollars in thousands) adjustments qualifying as hedges Obligation Total
-------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2003 $ (45,188) $(3,678) $(82,815) $(131,681)
Change (10,035) (2,701) -- (12,736)
Tax -- (243) -- (243)
------------------ ---------------------- -------------------- -----------------
Balance September 30, 2004 $ (55,223) $(6,622) $(82,815) $(144,660)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Accumulated gains
(losses) on
Translation derivatives Minimum Pension
2003 (Dollars in thousands) adjustments qualifying as hedges Obligation Total
-------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2002 $(138,175) $ 733 $(75,038) $(212,480)
Change 39,850 (3,254) -- 36,596
Tax -- 477 -- 477
------------------ ---------------------- -------------------- -----------------
Balance September 30, 2003 $ (98,325) $(2,044) $(75,038) $(175,407)
-------------------------------------------------------------------------------------------------------------------------
NOTE 6. BORROWINGS:
Debt consists of the following:
(Dollars in thousands) Rate Maturities September 30, December 31,
---- ---------- ------------- ------------
2004 2003
---- ----
Commercial paper (U.S.) $25,969 $162,933
Bank borrowings and overdrafts 27,417 30,610
Current portion of long-term debt 11,532 761
------------- -----------
Total current debt 64,918 194,304
------------- -----------
U.S. dollars 6.45% 2006 498,872 498,675
Japanese Yen notes 2.45% 2008-11 136,895 141,516
Japanese Yen notes 1.74% 2005 - 11,172
Other 2006 94 861
------------- -----------
635,861 652,224
Deferred realized gain on interest rate swaps 28,353 39,685
FAS 133 Adjustment (890) (1,678)
------------- -----------
Total long-term debt 663,324 690,231
------------- -----------
Total debt $728,242 $884,535
============= ============
At September 30, 2004, commercial paper maturities did not extend beyond October
27, 2004; the Company generally issues commercial paper with maturities of no
longer than 60 days. The weighted average interest rate on total borrowings was
2.9% compared to 3.0% at December 31, 2003. At September 30, 2004, the Company
is in compliance with all covenants under existing borrowing agreements.
NOTE 7. INTANGIBLE ASSETS, NET:
The following tables reflect the carrying values for Intangible assets and
Accumulated amortization at September 30, 2004 and December 31, 2003:
(Dollars in thousands) September 30, 2004 September 30, 2004
Gross Carrying Value Accumulated Amortization
-------------------- ------------------------
Goodwill $689,100 $41,534
Other indefinite lived intangibles 19,200 1,184
Trademarks and other 175,210 51,874
-------- -------
Total $883,510 $94,592
======== =======
(Dollars in thousands) December 31, 2003 December 31, 2003
Gross Carrying Value Accumulated Amortization
-------------------- ------------------------
Goodwill $688,760 $41,534
Other indefinite lived intangibles 19,200 1,184
Trademarks and other 174,699 40,528
-------- -------
Total $882,659 $83,246
======== =======
Goodwill by operating segment is as follows:
- --------------------------------------------------------------------------------------------------------
(Dollars in thousands) December 31, 2003 Changes September 30, 2004
- --------------------------------------------------------------------------------------------------------
North America $211,265 -- $211,265
- --------------------------------------------------------------------------------------------------------
Europe 252,122 $ 340 252,462
- --------------------------------------------------------------------------------------------------------
India Region 28,502 -- 28,502
- --------------------------------------------------------------------------------------------------------
Latin America 47,859 -- 47,859
- --------------------------------------------------------------------------------------------------------
Asia Pacific 107,478 -- 107,478
- --------------------------------------------------------------------------------------------------------
Total $647,226 $ 340 $647,566
- --------------------------------------------------------------------------------------------------------
Based on current balances, amortization expense is estimated to be $3.7 million
per quarter for 2004 through the third quarter of 2007, $2.4 million in the
fourth quarter of 2007, and $1.7 million per quarter in 2008 and 2009.
NOTE 8. RETIREMENT BENEFITS:
For the third quarter and nine months ended September 30, 2004 and 2003, pension
expense for the U.S. and non-U.S. plans included the following components:
U.S. Plans Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
- ---------- ---------------------------- ---------------------------
(Dollars in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Service cost for benefits earned $2,391 $2,117 $ 7,173 $6,351
Interest cost on projected benefit obligation 5,070 4,943 15,210 14,829
Expected return on plan assets (5,203) (5,469) (15,609) (16,407)
Net amortization and deferrals 591 177 1,773 531
Special termination benefits -- 325 -- 975
------ ------ ------- ------
Defined benefit plans 2,849 2,093 8,547 6,279
Defined contribution and other retirement plans 720 633 2,259 1,899
------ ------ ------- ------
Total pension expense $3,569 $2,726 $10,806 $8,178
====== ====== ======= ======
Non-U.S. Plans Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
- -------------- ---------------------------- ---------------------------
(Dollars in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Service cost for benefits earned $2,246 $2,057 $6,918 $6,171
Interest cost on projected benefit obligation 6,527 5,891 19,893 17,673
Expected return on plan assets (7,011) (6,105) (21,427) (18,315)
Net amortization and deferrals 913 1,461 4,365 4,383
Special termination benefits - 306 - 918
------ ------ ------- -------
Defined benefit plans 2,675 3,610 9,749 10,830
Defined contribution and other retirement plans 772 804 2,258 2,412
------ ------ ------- -------
Total pension expense $3,447 $4,414 $12,007 $13,242
====== ====== ======= =======
The Company expects to contribute approximately $20.0 million to its U.S.
pension plans in 2004. In the third quarter and nine-month period ended
September 30, 2004, $5.5 million and $9.4 million of contributions were made to
the U.S. pension plans, respectively. The Company expects to contribute
approximately $19.0 million to its non-U.S. pension plans in 2004. Contributions
of $2.8 million and $9.3 million were made in the third quarter and nine-month
period ended September 30, 2004, respectively, to its non-U.S. pension plans.
For the third quarter and nine months ended September 30, 2004 and 2003, expense
recognized for postretirement benefits other than pensions included the
following components:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
(Dollars in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Service cost for benefits earned $ 316 $ 688 $1,606 $2,064
Interest on benefit obligation 785 1,555 3,393 4,665
Net amortization and deferrals (489) 261 (593) 783
----- ------ ------ ------
Total postretirement benefit expense $ 612 $2,504 $4,406 $7,512
===== ====== ====== ======
On December 8, 2003, President Bush signed into law the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. In accordance with the
Financial Accounting Standards Board Staff Position No. 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003," the Company is accounting for the effects of the
Act and recognizing the impact of the Medicare prescription drug subsidy
retrospectively from January 1, 2004 beginning July 1, 2004. The subsidy reduced
the January 1, 2004 accumulated postretirement benefit obligation by $12.4
million and the 2004 annual postretirement expense by $1.8 million.
NOTE 9. LEGAL PROCEEDINGS:
There are various lawsuits and claims pending against the Company. Management
believes that any liability resulting from those actions or claims will not have
a material adverse effect on the Company's financial condition, results of
operations or liquidity.
NOTE 10. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year's financial
statements to conform to fiscal 2004 classifications.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the third quarter of 2004 totaled $506.2 million,
increasing 5% in comparison to the prior year quarter. Reported sales for the
2004 quarter benefited from the strengthening of various currencies in relation
to the U.S. dollar; had exchange rates remained constant, sales for the third
quarter 2004 would have increased 2% in comparison to the prior year quarter.
The sales performance in the quarter was also impacted by the disposition of the
Company's German and Swiss fruit preparations businesses, which were sold to
Frutarom Industries Ltd. ("Frutarom") on August 17, 2004. The disposition of the
fruit preparations businesses negatively impacted the reported results by
approximately 2%.
For the quarter ended September 30, 2004, sales performance by region was as
follows:
o North America flavor sales grew 16% while fragrances grew 14%; in
total, sales grew 15%. The flavor sales performance was driven by new
wins and continued strong order activity. Fine fragrance, functional
fragrance and aroma chemical sales increased 17%, 9% and 19%,
respectively. Fine fragrance benefited from an easy comparison, having
declined 24% in the 2003 third quarter.
o European fragrance sales increased 2%, although this performance was
offset by a 10% decline in flavor sales; in total, regional sales
declined 3%. Reported sales benefited from the strength of the Euro
and Pound Sterling; local currency sales declined 9%. Local currency
fragrance sales declined 5%; fine fragrance sales increased 4%, offset
by decreases in sales of functional fragrances and aroma chemicals of
8% and 9%, respectively. The fine fragrance performance was driven by
a number of new product wins. Local currency flavor sales declined 16%
compared to the prior year; poor summer weather throughout much of
Europe contributed to the performance. Sales performance in the
quarter was also impacted by the disposition of the Company's German
and Swiss fruit preparations businesses sold to Frutarom on August 17,
2004. The majority of the flavor sales decrease is attributed to the
disposition of the fruit preparations businesses.
o Asia Pacific sales increased 8% with fragrances increasing 6% and
flavors 10%; reported sales benefited from the strength of the Yen and
the Australian dollar. Local currency flavor and fragrance sales
increased 6% and 3%, respectively; for the region, local currency
sales increased 5%. The performance reflects improving economic
conditions in the region and the benefit of new wins in both flavors
and fragrances. For the region, local currency sales growth was
strongest in Greater China, Indonesia, Vietnam and Taiwan which
increased 14%, 13%, 29% and 27%, respectively. Japan sales increased
7% in local currency which resulted in a 16% increase in reported
dollars.
o Latin America sales increased 7%; fragrance sales increased 10%
partially offset by a decline in flavors of 4%. For the region, sales
growth was strongest in Mexico, Argentina, Venezuela and Chile which
grew 11%, 9%, 14% and 16%, respectively. Fragrance sales increased in
all product categories with fine fragrances increasing 13%, functional
fragrances 6% and aroma chemicals 31%. Flavor sales had a difficult
comparison with the prior year quarter, when sales grew 31%.
o India sales increased 2% in local currency and 4% in reported dollars.
Local currency fragrance sales decreased 2% and were flat in reported
dollars; flavor sales increased 7% in local currency and reported
dollars. The flavor sales performance reflected the benefit of new
product wins and the continued strength of the Indian economy.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the third quarter 2004 and 2003 are detailed below.
THIRD QUARTER
-------------
2004 2003
---- ----
Cost of Goods Sold 57.1% 57.8%
Research and Development Expenses 8.5% 8.1%
Selling, General and Administrative Expenses 16.5% 15.7%
Cost of goods sold, as a percentage of net sales, decreased from the prior year
period primarily due to improved sales and product mix, and realization of
savings from the 2003 restructuring activities, much of which impacted
manufacturing costs.
Research and development ("R&D") expenses totaled 8.5% of sales compared to 8.1%
in the prior year quarter, consistent with the Company's intended level of R&D
spending. Following the disposition of the European fruit business, R&D spending
as a percentage of sales will likely increase somewhat; relative to other parts
of IFF's business, fruit preparations required less R&D as a percentage of
sales.
Selling, General and Administrative ("SG&A") expenses, as a percentage of sales,
increased to 16.5% from 15.7%. The SG&A increase resulted from recognition in
the quarter of approximately $1.7 million related to the cost of restricted
stock units for which there was no comparable amount in the 2003 results, and
higher expense accruals under the Company's incentive compensation plans, based
on the improved sales performance relative to 2003.
Interest expense declined 8% from the prior year as a result of the Company's
debt reduction initiatives. The weighted average interest rate on total
borrowings during the third quarter 2004 was 3.1% compared to 2.7% in the 2003
third quarter.
The effective tax rate for the third quarter of 2004 was 29.9% compared to 31.6%
for the comparable 2003 quarter. The lower effective tax rate is the result of
tax planning initiatives and the benefits of combining various IFF and BBA legal
entities into a single tax structure. In both years, the tax rate also benefited
from restructuring and other charges, most of which were incurred in higher tax
jurisdictions.
For the nine-month period ended September 30, 2004, sales performance by region
was as follows:
o North America fragrance sales increased 11% while flavor sales
increased 13%. Functional fragrance, fine fragrance and chemical sales
increased 10%, 8% and 20%, respectively. Sales for the region
increased 12%.
o European fragrance sales increased 8% and flavors increased 3%; in
total, sales in the region increased 6%. Reported sales benefited from
the strength of the Euro and Pound Sterling; local currency sales
declined 4%. Local currency fragrance sales declined 2%; fine
fragrance sales increased 5% offset by a decrease in sales of aroma
chemicals of 11% while functional fragrance sales were flat. The fine
fragrance performance was driven by a number of new product wins.
Local currency flavor sales declined 6% compared to the prior year;
poor summer weather throughout much of Europe contributed to the
performance. Sales performance for the period was also impacted by the
disposition of the Company's German and Swiss fruit preparations
businesses. Approximately 2% of the sales decrease is attributed to
the disposition of the fruit preparations businesses.
o Local currency sales in Asia Pacific increased 7% resulting in a 13%
increase in reported dollar sales. Local currency fragrance sales
increased 6% resulting in a 10% increase in reported dollars; flavor
sales increased 9% in local currency and 15% in reported dollars. This
strong performance reflects improving economic conditions in the
region and the benefit of new wins in both fragrances and flavors. For
the region, sales growth was strongest in Greater China, Vietnam,
Indonesia, and Thailand, with respective local currency increases of
19%, 40%, 10% and 10%, respectively.
o Latin America sales increased 9% in comparison to the prior year.
Flavor sales increased 3%, benefiting from increases of 26%, 7% and
55% in Central America, Mexico, and Venezuela, respectively,
reflecting new wins and improved economic conditions. Fragrance sales
increased 11% with Central America, Mexico, Brazil increasing 17%, 10%
and 7%, respectively; Argentina and Venezuela fragrance sales
increased 28% and 41%, respectively.
o India sales increased 15% in local currency and 17% in reported
dollars. This performance was led by a 20% local currency increase in
flavor sales with fragrance sales increasing 10% in comparison to the
prior year period. In both flavors and fragrances, the sales
performance reflected the benefit of both new product wins and
continued strength of the Indian economy.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first nine months 2004 and 2003 are detailed below.
FIRST NINE MONTHS
-----------------
2004 2003
---- ----
Cost of Goods Sold 57.0% 57.6%
Research and Development Expenses 8.4% 8.2%
Selling, General and Administrative Expenses 16.4% 15.7%
Cost of goods sold, as a percentage of net sales, decreased from the prior year
primarily due to improved sales performance, product mix and realization of
savings from the 2003 restructuring activities, much of which impacted
manufacturing costs.
R&D expenses totaled 8.4% of sales compared to 8.2% in the prior year period,
consistent with the Company's intended level of R&D spending.
SG&A expenses, as a percentage of sales, increased to 16.4% from 15.7%. The SG&A
increase in the nine-month period resulted from recognition of $2.9 million
related to the cost of restricted stock units for which there was no comparable
amount in the 2003 results, and higher expense accruals under the Company's
incentive compensation plans, based on the improved sales performance relative
to 2003.
Interest expense declined 18% from the prior year as a result of the Company's
interest rate management and debt reduction initiatives. The weighted average
interest rate on total borrowings during the first nine months of 2004 was 2.9%
compared to 3.1% for the first nine months of 2003.
The effective tax rate for the first nine months of 2004 was 30.9% compared to
31.6% for the comparable 2003 for the first nine months of 2003. The lower
effective tax rate is the result of tax planning initiatives and the benefits of
combining various IFF and BBA legal entities into a single tax structure. In
both years, the tax rate also benefited from restructuring and other charges,
most of which were incurred in higher tax jurisdictions.
On October 22, 2004, President Bush signed into law the American Jobs Creation
Act of 2004 (the "Act") which contains a number of income tax measures which may
impact the tax position of the Company. Specific authoritative guidance relating
to the Act is expected to be issued by the U.S. Treasury Department and the
Internal Revenue Service. Additionally, significant planning may be necessary
for the Company to benefit from certain provisions of the Act including
incentives to reinvest foreign earnings in the U.S. and a deduction relating to
income attributable to U.S. production activities.
RESTRUCTURING AND OTHER CHARGES
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 2003 Annual Report on Form 10-K, in October 2000, the
Company announced a significant reorganization, including management changes,
consolidation of production facilities and related actions.
In May 2004, the Company announced that it had entered into a letter of intent
with Frutarom for the intended sale of IFF's fruit preparations businesses in
Switzerland and Germany. Concurrently, IFF initiated required consultations with
the Company's French employee works council regarding the potential sale of the
assets of its French fruit preparations business to Frutarom, and the potential
closure of its manufacturing facilities in Dijon, France.
IFF had previously announced its intention to divest itself of the fruit
preparations business, which manufactures processed fruit and other natural
product preparations used in a wide variety of food products, including baked
goods and dairy products. Sales of fruit preparations in 2003 approximated $90
million. IFF completed the sale of the German and Swiss businesses, comprising
70% of the total fruit business, in August 2004.
The Company completed required consultations with the French employee works
council, is proceeding with the sale of its French fruit preparations assets to
Frutarom, and with the closure of its Dijon manufacturing facility. The sale of
the French fruit assets was completed on October 29; the Dijon facility is
expected to close in the first quarter 2005 following completion of the transfer
of production from Dijon to other Company locations.
The closure of the Dijon facility is the result of the Company's ongoing review
of its organization and processes for ways to optimize production. By
consolidating its flavor and fragrance operations into its larger, more
specialized sites, IFF expects to be able to increase capacity utilization and
further improve both productivity and customer service.
Proceeds from the sale of the European fruit preparations business, in total,
were U.S. $40.0 million, including the assumption of certain liabilities. As a
result of these actions, the Company recorded a $20.0 million net charge ($12.7
million after tax or $.14 per share) of restructuring and other charges related
to the disposition of the fruit preparations business (gain on sale of assets of
$16.2 million), closure of the Dijon facility and other related reorganization
actions ($36.2 million as detailed in the table below) in the third quarter 2004
results.
In June 2004, the Company announced that it would close its Canadian
manufacturing facility by the end of 2004 and transfer production to its South
Brunswick, New Jersey and Carrollton, Texas facilities. In the second quarter,
the Company recorded $7.7 million ($5.0 million after tax or $.06 per share) of
restructuring and other charges related to the impairment of certain European
fruit preparations assets, and the closure of the Canadian manufacturing
facility.
Movements in the liabilities related to the restructuring charges, which are
included in "Other Current Liabilities" on the consolidated balance sheets,
were (in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
--------- ------------- ------
Balance December 31, 2003 $19.6 $ 1.5 $21.1
Additional charges second quarter 2004 2.3 5.4 7.7
Additional charges third quarter 2004 21.8 14.4 36.2
Cash and other costs (13.0) (9.7) (22.7)
----- ----- -----
Balance September 30, 2004 $30.7 $11.6 $42.3
===== ===== =====
The balance of the employee-related liabilities will be utilized by 2006 as
obligations to affected employees are satisfied; the asset-related charges will
be utilized in 2005 on final decommissioning and disposal of the affected
equipment.
The Company previously established accruals relating to the integration of BBA
operations. Costs associated with these integration activities, relating mainly
to employee separation and facility closures, were recorded as a component of
purchase accounting; such costs did not directly impact current earnings. At
December 31, 2003, $2.4 million of employee related accruals remained; these
remaining accruals were utilized in 2004 as all remaining severance obligations
were satisfied.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $14.7 million at
September 30, 2004. Working capital, at September 30, 2004 was $507.3 million
compared to $376.6 million at December 31, 2003. The working capital increase is
attributable to improved sales and operating performance in the 2004 nine-month
period and the Company's success in reducing its overall debt levels. Gross
additions to property, plant and equipment during the third quarter and
nine-month period ended September 30, 2004 were $14.4 million and $41.1 million,
respectively. The Company currently expects additions to property, plant and
equipment to approximate $60.0 to $65.0 million for the full year 2004.
At September 30, 2004, the Company's outstanding commercial paper ("CP") had an
average interest rate of 1.4%. CP is generally issued with terms of 60 days or
less; at September 30, 2004, CP maturities did not extend beyond October 27,
2004. Bank borrowings & overdrafts and the current portion of long-term debt is
$38.9 million at September 30, 2004. The Company reduced debt by $107.2 million
in the third quarter and $145.7 million in the first nine months of 2004. A
portion of the debt reduction resulted from the use of the proceeds realized on
the sale of the European fruit businesses; the remainder of the debt reduction
resulted from cash generated by operations. The Company anticipates that debt
reduction will approximate $200.0 million for the full year 2004.
In January and April 2004, the Company paid a quarterly cash dividend of $.16
per share to shareholders. In May 2004, the Board of Directors increased the
dividend to $.175 per share effective with the July dividend payment. This
increase of 9.4% represents a payout of approximately 30-35% of forecast
earnings consistent with the Company's long-term dividend payout plan.
Under the share repurchase programs authorized in October 2002 and July 2004,
the Company repurchased approximately 0.6 million shares and 1.4 million shares
in the three- and nine-month periods, respectively, ended September 30, 2004. At
September 30, 2004, the Company had completed the October 2002 repurchase plan.
In July 2004, the Company's Board of Directors authorized a new share repurchase
program of $100.0 million (approximately 2.6 million shares at the current
market price); this program is expected to be completed over the next eighteen
to twenty-four months. The Company had purchased approximately 0.2 million
shares in the quarter ended September 30, 2004 under the July 2004 plan.
Repurchases will be made from time to time on the open market or through private
transactions as market and business conditions warrant. The repurchased shares
will be available for use in connection with the Company's employee benefit
plans and for other general corporate purposes.
The Company anticipates that its financing requirements will be funded from
internal sources and credit facilities currently in place. Cash flows from
operations are sufficient to fund the Company's anticipated normal capital
spending, dividends and other requirements including debt reduction for at least
the next twelve to eighteen months.
EQUITY COMPENSATION PLANS
The Company granted restricted stock units ("RSU's") in May 2004 as an element
of its incentive compensation plans for all eligible U.S. - based employees and
a majority of eligible overseas employees. Vesting of the RSU's for the
Company's senior management is both performance and time based, and for the
remainder of eligible employees, vesting is time based; the vesting period will
be three years from date of grant. As a result of these awards, the Company
expects to record approximately $4.5 million to $6.0 million in pre-tax
compensation expense during 2004; the actual expense will depend upon the value
of the Company's stock.
NON-GAAP FINANCIAL MEASURES
The discussion of the Company's 2004 third quarter and nine-month results, where
indicated, exclude the impact of certain restructuring and other charges
recorded in 2004 and 2003 related to the Company's sale of its fruit preparation
businesses, the closure of its Dijon manufacturing facility and its
reorganization actions as well as the effects of exchange rate fluctuations.
Such information is supplemental to information presented in accordance with
generally accepted accounting principles (GAAP) and is not intended to represent
a presentation in accordance with GAAP. In discussing its historical and
expected future results and financial condition, the Company believes it is
meaningful for investors to be made aware of and to be assisted in a better
understanding of, on a period-to-period comparative basis, the relative impact
of the 2004 and 2003 restructuring and other charges, the operating results from
the disposed fruit preparations business as well as ongoing exchange rate
fluctuations on the Company's operating results and financial condition. In
addition, management reviews this non-GAAP financial performance measure to
evaluate performance on a comparative period-to-period basis in terms of
absolute performance and trend performance and expected future performance.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this quarterly report, which are not historical facts or
information, are "forward-looking statements" within the meaning of The Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on management's reasonable current assumptions and expectations. Such
forward-looking statements, which may be identified by such words as "expect",
"anticipate", "outlook", "guidance", "may" and similar forward-looking
terminology, involve significant risks, uncertainties and other factors, which
may cause the actual results of the Company to be materially different from any
future results expressed or implied by such forward-looking statements, and
there can be no assurance that actual results will not differ materially from
management's expectations. Such factors include, among others, the following:
general economic and business conditions in the Company's markets, including
economic, population health and political uncertainties; interest rates; the
price and availability of raw materials; the Company's ability to implement its
business strategy, including the achievement of anticipated cost savings,
profitability and growth targets; the impact of currency fluctuation or
devaluation in the Company's principal foreign markets and the success of the
Company's hedging and risk management strategies; the impact of possible pension
funding obligations and increased pension expense on the Company's cash flow and
results of operations; the effect of legal and regulatory proceedings, as well
as restrictions imposed on the Company, its operations or its representatives by
foreign governments; and the fact that the outcome of litigation is highly
uncertain and unpredictable and there can be no assurance that the triers of
fact or law, at either the trial level or at any appellate level, will accept
the factual assertions, factual defenses or legal positions of the Company or
its factual or expert witnesses in any such litigation. The Company intends its
forward-looking statements to speak only as of the time of such statements and
does not undertake to update or revise them as more information becomes
available or to reflect changes in expectations, assumptions or results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes in market risk from the information provided in
the Company's Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective.
The Company's Chief Executive Officer and Chief Financial Officer have also
concluded that there have been no changes in the Company's internal control over
financial reporting during the quarter ended September 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions in the ordinary
course of its business.
Since September 2001 the Company has been involved in actions where
plaintiffs allege respiratory injuries in the workplace due to the use by their
employers of an International Flavors & Fragrances Inc. ("IFF") and/or Bush
Boake Allen ("BBA") flavor. See the Company's Quarterly Report on Form 10-Q
dated August 6, 2004 under "Legal Proceedings". One previously reported case
brought in the Iowa District Court for Woodbury County has been removed to U.S.
District Court for the Northern District of Iowa at Sioux City and another
defendant has been added. The Company has also received service in the
previously reported case filed in June 2004 by one plaintiff in Hamilton County,
Ohio; this case names the Company, three other flavor suppliers and other
unnamed parties as defendants. In addition, in August 2004, the Company and
another flavor supplier were named defendants in a lawsuit by fourteen former
workers at a Marion, Ohio factory in an action brought in the Court of Common
Pleas, Marion County, Ohio. As regards to the cases pending in the Circuit Court
of Jasper County, Missouri, on June 28, 2004, the trial court found in favor of
the Company in four plaintiff cases heard simultaneously. On November 3, 2004,
the Judge in that case ordered a new trial because a juror failed to disclose
sufficient background information. The Company intends to appeal this order.
The Company believes that all IFF and BBA flavors at issue in these matters
meet the requirements of the U.S. Food and Drug Administration and are safe for
handling and use by workers in food manufacturing plants when used according to
specified safety procedures. These procedures are detailed in instructions that
IFF and BBA provide to all their customers for the safe handling and use of
their flavors. It is the responsibility of the Company's customers to ensure
that these instructions, which include the use of appropriate engineering
controls, such as adequate ventilation, proper handling procedures and
respiratory protection for workers, are followed in the workplace.
At each balance sheet date the Company reviews the status of each of these
claims, as well as its insurance coverage for such claims with due consideration
of potentially applicable deductibles, retentions and reservation of rights
under its insurance policies, and the advice of its outside legal counsel with
respect to all of these matters. Ultimate outcome of any litigation cannot be
predicted with certainty; management believes that adequate provision has been
made with respect to such pending claims. In addition, based on information
presently available and in light of the merits of its defenses and the
availability of insurance, the Company does not expect the outcome of the above
cases, singly or in the aggregate, to have a material adverse effect on the
Company's financial condition, results of operation or liquidity. There can be
no assurance, however, that future events will not require the Company to
increase the amount it has accrued for any matter or accrue for a matter that
had not been previously accrued because it was not considered probable.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
(e) Issuer Purchases of Equity Securities
TOTAL NUMBER OF SHARES MAXIMUM DOLLAR VALUE OF
TOTAL NUMBER OF AVERAGE PRICE PAID PURCHASED AS PART OF PUBLICLY SHARES THAT MAY YET BE
SHARES PURCHASED (1) PER SHARE ANNOUNCED PROGRAMS (2) PURCHASED UNDER THE PROGRAMS (3)
--------------------- ------------------- -------------------------------- --------------------------------
July 1 -31, 2004 150,000 $36.87 150,000 $109,364,731
August 1 -31, 2004 260,000 $36.69 260,000 $ 99,824,301
Sept. 1 -30, 2004 215,000 $37.86 215,000 $ 91,683,608
(1) An aggregate of 625,000 shares of common stock were repurchased during the
third quarter period ended September 30, 2004; 405,224 and 219,776 shares of
common stock were purchased under a repurchase program announced in October 2002
and July 2004, respectively.
(2) Under the program announced in October 2002, the Board of Directors approved
the repurchase by the Company of up to $100.0 million of its common stock. This
program was completed in August of 2004.
(3) On July 27, 2004, the Board of Directors approved the repurchase of an
additional $100.0 million of its common stock.
ITEM 6. EXHIBITS
10.1 Form of International Flavors & Fragrances Inc. 2000 Stock Award
and Incentive Plan Employee Stock Option Agreement.
10.2 Form of International Flavors & Fragrances Inc. Stock Option
Agreement Under 2000 Stock Option Plan for Non-Employee
Directors.
31.1 Certification of Richard A. Goldstein, Chairman of the Board and
Chief Executive Officer of the Company, Pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer of the Company, Pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002, signed
by Richard A. Goldstein, Chairman of the Board and Chief
Executive Officer of the Company, and Douglas J. Wetmore, Senior
Vice President and Chief Financial Officer of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: November 9, 2004 By: /S/ DOUGLAS J. WETMORE
---------------------------------------------
Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer
Dated: November 9, 2004 By: /S/ DENNIS M. MEANY
---------------------------------------------
Dennis M. Meany, Senior Vice President,
General Counsel and Secretary
