essence
-------
IFF International Flavors & Fragrances Inc. Annual Report
2002
What is the essence of IFF?
It's not just capturing an emotion, a memory.
Pinpointing the indispensable nature of a sensory experience.
It's not just a purely visceral, personal reaction.
It's sustaining that ideal moment,
just for a moment, time and again.
It's also business and science.
Proprietary molecules and practical applications.
It's people, relationships.
The perfect combination of creativity and precision.
It's finding a better way.
It's the pursuit of excellence.
[GRAPHICS OMITTED]
> Table of contents
CHAIRMAN'S MESSAGE > 9
FINANCIAL REVIEW > 24
BOARD OF DIRECTORS
AND OFFICERS > 53
LOCATIONS > Back Flap
> I like working at IFF
because this is where
creativity residers." >
> "The biggest improvement
I have seen lately at IFF is the
way our processes are being
harmonized and standardized
and communicated to the
teams in the different areas." >
> "IFF is unique because what
we create becomes part of
everyone's life." >
> "IFF is unique because it beings
together unique personalities,
which together create the
magic of IFF." >
> "The biggest improvement
I have been see lately at IFF
is how succesfullt it has
reinvented itself." >
> "IFF is unique because like
every snowflake, no two days
at work are ever the same." >
> "I like working at IFF because
each day is different and
challenging, with never-ending
learning due to the dynamics
of our industry." >
> "I like working at IFF
because I do it with freedom
and creativity." >
> "When people ask me what
IFF does, I tell them we create
the tastes and smells of
our lives." >
The essence of innovation
-------------------------
1
2:12
AUGUSTA, GEORGIA
My mom says I'll never be able to finish this, but she doesn't know me as well
as she thinks. She still treats me like a little kid, which gets me really mad.
My secret sauce has ketchup, mustard, relish and mayonnaise in it. You have to
mix everything together before you put it on the bun.
2
10:22
PARIS, FRANCE
Est-elle plus belle que moi? Est-ce que c'est important? Est-ce qu'on ne peut
pas etre belles toutes les deux? Pourquoi ont-ils pris la photo alors que
j'avais la bouche pleine? Je parie que ma mere n'a jamais mis de vernis a ongle
rouge. Et je sais qu'elle n'a jamais garde ses gants pour manger.
3
7:32
RIO DE JANEIRO, BRAZIL
A Sensacao do sol nascente em meus cabelos...o sabor de um novo dia...um soho,
um momento especial...somente para mim. Adoro minhas sardas.
4
11:19
CALCUTTA, INDIA
[FOREIGN LANGUAGE]
5
Where does the essence of flavor and fragrance come from?
Not complex calculations, or scientific formulas.
It's not buried deep in computer code,
or planted in a greenhouse.
It comes from ice cream, and mowing the lawn.
A first date, a first dance.
Summer vacations and a winter's night.
It comes from the imagination,
triggering your memory.
It takes you here and me there.
It's your personality.
How do we know?
We've dedicated ourselves
to understanding every facet of sensory experience.
Understanding our customers,
and their customers.
We understand you.
Our perfumers and flavorists live and breathe
scents and tastes.
Call it a sixth sense,
or a green thumb.
It's our passion.
6
[GRAPHICS OMITTED]
7
The essence of people
--------------------- > >
8
TO OUR SHAREHOLDERS
I will look back on 2002 as a year in which IFF delivered on its promises
to customers and shareholders alike, despite unprecedented and often unforeseen
challenges around the globe. Chief among our accomplishments were successfully
completing the integration of Bush Boake Allen (BBA), quickly realizing the
aggressive savings targets we had set for ourselves, reorganizing globally into
One IFF and improving all aspects of customer service.
2002 HIGHLIGHTS - THE FOUNDATION IS IN PLACE
Before the end of 2002, we disbanded our last integration team. By every
key measure, the integration and reorganization were successful. Many in the
financial community doubted we could achieve so much in so short a time, but
even the skeptics seem to have come around. Our stock price at the end of 2002
was virtually double what it had been when we announced the acquisition, and we
outperformed the S&P 500 by about 33%. Fortune placed us squarely on its "Most
Admired" list, BusinessWeek named us one of their "Nifty Fifty" for our solid
stock market performance and Forbes counted us on its "Platinum List of Best
Companies in America."
While the task of turning our Company around is far from over, we are
firmly on the path to sustainable, long-term growth. Our win rate continues to
improve across categories and geographies, the best indicator of customer
satisfaction. Even in a sector such as Fine Fragrance that has been broadly
impacted by the global economic slowdown, IFF continues to grow in comparison
with its competitors.
CONTINUING OUR REINVENTION -
THE PURSUIT OF EXCELLENCE
What IFF has accomplished in the last two years convinces me that we have
the ability to reclaim undisputed industry leadership. Our commitment to
continuous improvement has only intensified. Through a range of "Business
Excellence" initiatives, we are ensuring a more disciplined, forward-looking and
globally consistent approach to sales and operations planning. Everyone in our
organization -- whether they be in business development, operations or our staff
functions -- is aligned and coordinated in their efforts to deliver to our
customers what they want...when, where and how they want it.
It is clear that neither IFF nor any other company can cost cut its way to
growth. So, at the same time as we are diligently working to become more
efficient and effective, we are also focusing on avenues for sustainable
top-line growth. To that end, we have been increasing our investment in Research
and Development, with a particular emphasis on what I call capital "R" Research
- -- the kind that gives us proprietary molecules and technology. The kind that
made IFF the industry standard in the first place.
9
Through our Natural Products group, including the Laboratoire Monique Remy
in Grasse, France, we have an excellent pipeline of new, high quality natural
flavor and fragrance ingredients. Our Sensory and Consumer Science group helps
strengthen our consumer insight through industry-leading programs in fragrance
profiling, sensory perception, the genetics of flavor and fragrance preference
and the emotional effects of aromas on mood, performance, health and well-being.
We link these sensory methodologies with the best from our Analytical Science
group for an understanding of flavor and fragrance preference that is
second-to-none. And with key breakthroughs in material science technology, we
ensure that our research discoveries have practical applications in the
marketplace.
IFF's reinvention, reawakening and re-establishment will continue. Everyone
at our Company should take great pride in our success to date.
OLD ECONOMY COMPANY - OLD WORLD VALUES
IFF is prepared for continued tough times throughout 2003. Given the
extreme tension in the Middle East and parts of Asia, I do not anticipate a
swift economic recovery. If anything, the global economic and political picture
could worsen this year, escalating the deflationary cycle we are already
experiencing. In times such as these, our various stakeholders benefit from the
fact that 85% of our activity is in recession-resistant businesses. After the
meteoric boom and even more meteoric bust of the dot-com era, I am pleased that
IFF is often referred to as an "old economy company." IFF makes real products
that enhance real people's lives every day...in good times and not so good
times. And we do it "the old fashioned way" - with integrity, honesty,
creativity and hard work as our cornerstones.
The basic business foundation on which IFF first achieved preeminence
remains rock solid. Similarly, the basic values set forth by our founding
Chairmen are the same ones that continue to guide us today. Throughout this
Report, you will see the faces and words of IFF co-workers around the world. I
can think of no better way to exemplify IFF in Pursuit of Excellence than
through snapshots of our people at work. Throughout 2003 and beyond, all of us
at IFF renew the following commitments:
> To our customers: to bring you outstanding service, innovation and insight;
> To our shareholders: to pursue top-line growth and bottom-line improvement
in profits and earnings per share;
> To our co-workers: to work together in order to win as a team and benefit
as individuals.
Finally, no summary of 2002 would be complete without mention of a great
loss in the IFF family. In December 2002, Dr. Braja D. Mookherjee -- IFF's
Director of Natural Products Research -- passed away. Many of you had the good
fortune to meet or work with Braja during his 38 years with our Company. Braja's
hand touched nearly everything at IFF, from the major impact chemicals we use to
key technologies such as Living Flavor(R), Living Flower(R), Aura of Aroma(TM)
and hydroponics.
More than perhaps anyone I know, Braja embodied the idea of finding the
place where art and science meet and using it to create magic for our customers
and consumers. My colleagues tell me that they feel Braja's presence in our
greenhouse, and I am sure they are right. His spirit will live on at IFF.
Sincerely,
/s/ Richard A. Goldstein
Richard A. Goldstein
Chairman of the Board and Chief Executive Officer
10
[GRAPHICS OMITTED]
11
How will we respond to today's market demands,
and anticipate trends on the horizon?
Market insight?
Scientific expertise?
Yes, and an influx of new molecules that broaden our palettes.
It's customer service and technological superiority.
Built on a solid foundation of integrity, honesty and hard work.
It's finding the perfect mix.
The exchange of information is vital to our success.
Leveraging our varied expertise.
We are in active pursuit.
Defining tomorrow's market, today.
Going anywhere that flavors and fragrances play a role,
or could in the future.
This is visionary.
This is how leaders think.
12
[GRAPHICS OMITTED]
13
> Through ConsumerEdge, IFF's
team of qualitative research
experts brings unique insights
about fragrance, concept and
brand development to our
customers. >
[GRAPHICS OMITTED]
> A powerful moral and ethical
core runs through our Company.
Our values...our Code of
Conduct...our environmental
and philanthropic efforts...
our understanding that nothing
is so important that it
cannot be done safely. >
> IFF's Perfumery School
recognizes that what we
do is both art and science.
In Grasse, Hilversum and
New York, the next generation
of leading perfumers learns
the tools of the trade. >
[GRAPHICS OMITTED]
> Making IFF a great place to
work means continual learning,
practical training, management
development, Rewarding
Results, opportunities for
growth. Understanding the
Company's vision and one's
role in achieving it. The
encour- agement to take
prudent risks. >
> 70% of IFF's business comes
from outside the United
States. The emerging market
areas of China, India and
Latin America are key to our
strategy moving forward. >
[GRAPHICS OMITTED]
> iPlot(TM). Living Flower(R).
Living Fruits(R).
Generessence(R). Ultra
Natural(TM). Hydroponics.
Dried, chilled, coated,
encapsulated, water soluble,
liquid and granu- lated
delivery platforms. The
Consumer Fragrance Thesaurus.
Pheromones. CoolTek(TM). If it
differentiates our customers'
products, we've got it. >
14
The essence of excellence
------------------------- > >
15
MEXICO CITY, MEXICO
2002 was a year of unprecedented economic, social and political turmoil for
Latin America. The challenges confronting our region will continue in 2003. The
only way for IFF Latin America to achieve our goals and satisfy our customers
moving forward is by working together as a dedicated, focused and passionate
team...always looking for the better way...always striving to drive top-line
growth. Our team is committed to this.
Graciela Ferro, VP and Regional Manager, Latin America
------------------------------------------------------
SEOUL, SOUTH KOREA
For IFF Asia Pacific, the customer is the first and last word. We are
focused on providing product and service excellence to our cus-tomers and
thereby adding value to their businesses. It is through close partnership with
our customers that we will gain their confidence. And it is through close
partnership with our customers that IFF can, in turn, achieve sustainable
growth. 2003 will be a key measuring stick in terms of our ability to deliver.
Robert Burns, VP and Regional Manager, Asia Pacific
---------------------------------------------------
SOUTH BRUNSWICK , NEW JERSEY
In North America, IFF knows what it needs to do...and we're doing it. In
2002, we met all of our integration targets at the same time as we provided
seamless and even improved service to our customers. We completed the
divestiture of all non-core businesses and our entire team is now involved in
increasing our efficiency and effectiveness through Business Excellence. Through
it all, we maintain our commitment - internally and externally - to open
communication, transparency and corporate social responsibility.
Jim Dunsdon, VP and Regional Manager, North America
---------------------------------------------------
16
[GRAPHICS OMITTED]
17
[GRAPHICS OMITTED]
18
< HILVERSUM, THE NETHERLANDS
In 2002, with the successful integration of BBA into IFF, we have
strengthened the foundation on which to accelerate our business performance. IFF
is well positioned to grow in the region, despite predictions of a weak
European economy overall. Our business development and operations teams are
seamlessly aligned and uniformly focused on bringing first-class, cutting edge
creations and services to consumers today...and for years to come.
Rob J. M. Edelman, VP and Regional Manager, Europe
--------------------------------------------------
BOCA RATON, FLORIDA
In 2002, IFF made great strides in terms of aligning and unifying business
development and operations in the best interest of our customers. Key 2002
accomplishments include completing the closure or consolidation of 26 facilities
as part of our integration, the rationalization and simplification of our
ingredients catalogue, improvements in aroma chemicals customer service, the
successful implementation of SAP in several of our manufacturing facilities,
and progress on our e-business initiative. Through a coordinated and disciplined
approach to Business Excellence and sales and operations planning, we are making
significant progress in our reinvention.
D. Wayne Howard, Executive Vice President, Global Operations
------------------------------------------------------------
19
CHENNAI, INDIA
A year after the integration of Bush Boake Allen India Ltd., the new IFF
India is now a more comprehensive and cohesive organization... better able to
understand our customers' needs and deliver on them. Our 2002 results in terms
of both sales and profits reflect our enhanced effectiveness. Improved
technology in most disciplines and continued knowledge and skills training
enabled us to grow faster than the market. IFF India is the leader in both
flavors and fragrances.
Arun Bewoor, VP and Regional Manager, India Region
--------------------------------------------------
20
The essence of growth
---------------------
21
What makes us the industry leader?
Is it outstanding customer service,
or our undying pursuit of excellence?
Our motivation?
Innovation.
Leading our field on every continent,
and in space.
We have the resources to serve you anywhere in the world.
We are a partner, an intellectual resource.
We understand you.
We're in the business of harnessing the intangible,
transforming the properties of nature into product.
We live in the moment where art meets science.
We love what we do.
In essence >
22
[GRAPHICS OMITTED]
23
FINANCIAL HIGHLIGHTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
- ------------------------------------------------------------- --------- -----------------------
Net sales - as reported $1,809.2 $ 1,843.8 $ 1,462.8
Net sales - pro-forma(a) $1,799.8 $ 1,760.0 $ 1,777.3
Net income(b) $ 175.9 $ 116.0 $ 123.0
Income excluding nonrecurring charges(b) $ 183.7 $ 135.1 $ 149.8
Diluted net income per share(b) $ 1.84 $ 1.20 $ 1.22
Diluted per share results excluding nonrecurring charges(b) $ 1.92 $ 1.40 $ 1.48
Research and development expense $ 144.0 $ 135.2 $ 112.7
Research and development expense as a % of sales 8.0% 7.3% 7.7%
Net cash provided by operating activities $ 243.3 $ 181.5 $ 269.1
Working capital $ 507.3 $ 336.1 $ (160.1)
Current ratio 2.4 1.6 0.9
Debt(c) $ 993.2 $ 1,159.0 $ 1,270.4
Return on average shareholders' equity 32.0% 20.1% 16.5%
Closing stock price $ 35.10 $ 29.71 $ 20.30
--------- -----------------------
NET SALES
(IN BILLIONS)
00 01 02
$1.46 NSAS $1.84 NSAS $1.81 NSAS
$1.78 NSPF $1.76 NSPF $1.80 NSPF
NSAS = NET SALES - AS REPORTED
NSAP = NET SALES - PRO-FORMA
DILUTED NET INCOME PER SHARE
00 01 02
$1.22 AS $1.20 AS $1.84 AS
$1.48 ENC $1.40 ENC $1.92 ENC
AS = DILUTED NET INCOME PER SHARE AS REPORTED
ENC = DILUTED NET INCOME PER SHARE EXCLUDING NONRECURRING CHARGES
RETURN ON AVERAGE SHAREHOLDERS' EQUITY (PERCENT)
00 01 02
16.5% 20.1% 32.0%
DEBT(C) (IN MILLIONS)
00 01 02
$1,270.4 $1,159.0 $ 993.2
(a) Prepared as though the Company and BBA were combined as of January 1, 2000
and excluding sales associated with non-core businesses disposed of in 2001
and 2002.
(b) FAS 142 adopted January 1, 2002, eliminating amortization of goodwill and
indefinite-lived intangibles. Reported results reflect amortization expense
of $33.0 million or $0.34 per share in 2001, and $5.0 million or $0.05 per
share in 2000 that would have been eliminated had FAS 142 been applied for
all periods presented.
(c) Excludes deferred gains on interest rate swaps of $63.5 million, $8.3
million, and $0, in 2002, 2001 and 2000, respectively.
FINANCIALS
25 Management's Discussion and Analysis of Results of Operations and Financial
Condition
33 Report of Management
33 Report of Independent Accountants
34 Consolidated Statement of Income
35 Consolidated Balance Sheet
36 Consolidated Statement of Cash Flows
37 Consolidated Statement of Shareholders' Equity
38 Notes to Consolidated Financial Statements
51 Quarterly Financial Data
51 Stock Prices
52 Five-Year Summary
24
INTERNATIONAL FLAVORS & FRAGRANCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
OPERATIONS
The Company acquired Bush Boake Allen ("BBA") effective November 3,
2000; BBA operating results are included in the Company's consolidated results
from that date.
Net sales for 2002, 2001 and 2000 were as follows:
PERCENT PERCENT
NET SALES 2002 CHANGE 2001 CHANGE 2000
- ------------------------------------------ ---------------------------------
Flavors $ 809.0 (3%) $ 835.7 40% $ 597.7
Fragrances 1,000.2 (1%) 1,008.1 17% 865.1
------------------- ---------------------------------
Total net sales $1,809.2 (2%) $1,843.8 26% $1,462.8
=================== =================================
In 2002, net sales declined 2% in comparison to 2001. Sales were favorably
affected by the weakening of the U.S. dollar, most notably against the Euro, the
Japanese Yen and the Australian dollar; had exchange rates remained the same
during 2002 and 2001, sales would have decreased 3%.
In 2001, net sales increased 26% in comparison to 2000, with the increase
being primarily due to the inclusion of sales attributable to the BBA business.
Sales were unfavorably impacted by the stronger U.S. dollar, most notably
against the Euro and the Japanese Yen; had exchange rates remained the same
during 2001 and 2000, sales would have increased 28%.
In conjunction with the integration of IFF and BBA, and as part of a
restructuring of the Company's operations, certain non-core businesses
(hereinafter referred to as the "non-core businesses") were disposed of during
2001 and 2002. These non-core businesses included the Company's fruit
preparations businesses in North and Latin America, its North American
concentrates business and a portion of the aroma chemicals business acquired in
the BBA transaction. The non-core businesses had combined net sales of $103.3 in
2000; in 2001 and 2002, the non-core businesses had sales of $83.8 and $9.4,
respectively, in the periods they were owned by the Company. The non-core
businesses were disposed of in a series of separately negotiated transactions
with third parties; disposal of these businesses did not materially impact the
Company's operating results.
Pro-forma sales, prepared as though the Company and BBA had been combined
as of January 1, 2000 and excluding all sales associated with the non-core
businesses, would have been as follows:
PRO-FORMA PERCENT PRO-FORMA PERCENT PRO-FORMA
NET SALES 2002 CHANGE 2001 CHANGE 2000
- ------------------------------------------ -----------------------------------
Flavors $ 799.6 1% $ 788.7 -- $ 788.1
Fragrances 1,000.2 3% 971.3 (2%) 989.2
---------------- -----------------------------------
Total net sales $1,799.8 2% $1,760.0 (1%) $1,777.3
================ ===================================
Approximately 70% of the Company's sales are outside the United States.
The following table summarizes sales on a geographic basis:
PERCENT PERCENT
SALES BY DESTINATION 2002 CHANGE 2001 CHANGE 2000
- -------------------------------------------- -----------------------------------
North America $ 570.9 (4%) $ 597.1 31% $ 455.4
Europe 671.4 2% 658.1 23% 536.4
Asia Pacific 290.9 2% 286.2 30% 220.7
Latin America 227.5 (11%) 256.5 9% 234.9
India Region 48.5 6% 45.9 198% 15.4
------------------- -----------------------------------
Total net sales $1,809.2 (2%) $1,843.8 26% $1,462.8
=================== ===================================
25
Pro-forma sales on a geographic basis, prepared as though the Company
and BBA had been combined as of January 1, 2000 and excluding all sales
associated with the non-core businesses, would have been as follows:
PRO-FORMA PERCENT PRO-FORMA PERCENT PRO-FORMA
SALES BY DESTINATION 2002 CHANGE 2001 CHANGE 2000
- -------------------------------------------------- ------------------------------------
North America $ 561.7 1% $ 554.9 2% $ 542.4
Europe 671.4 7% 627.8 (4%) 650.7
Asia Pacific 290.8 3% 283.7 (3%) 293.3
Latin America 227.4 (9%) 249.4 -- 249.1
India Region 48.5 10% 44.2 6% 41.8
---------------------- ------------------------------------
Total net sales $1,799.8 2% $1,760.0 (1%) $1,777.3
====================== ====================================
In 2002, pro-forma sales increased 2% in comparison to the comparable 2001
sales; had exchange rates remained the same during 2002 and 2001, such
pro-forma sales would have increased 1%. Regional sales performance for 2002 was
as follows:
> Sales in North America increased by 1% led by a 4% increase in flavor
sales; North American fragrance sales were flat for the year.
> Local currency sales in Europe increased 3%, resulting in a dollar increase
of 7% due to the stronger Euro. Local currency fragrance sales in Europe
increased 7%, resulting in an increase of 12% in dollars. Flavor sales in
Europe declined 3% in local currency although this resulted in a 1%
increase in dollar sales.
> Asia Pacific flavor sales increased 4% in both local currency and dollars
while fragrance sales were flat in local currency with an increase of 1% in
dollars. Asia Pacific results in both flavors and fragrances were
influenced by ongoing weakness in the Japanese economy as well as the
Philippines and Indonesia. Overall, sales in the region increased 2% in
local currency and 3% in dollars.
> Latin America sales declined 9% for the year, mainly due to persistent
economic weakness throughout much of the region. Latin America fragrance
sales declined 6% while flavor sales declined 16%.
> India sales increased 9% in local currency, resulting in a 10% increase in
dollars. The performance was led by an 11% local currency increase in
fragrance sales; local currency flavor sales grew 7%.
In 2001, pro-forma sales decreased 1% in comparison to the comparable 2000
sales; had exchange rates remained the same during 2001 and 2000, such
pro-forma sales would have been flat. Regional sales performance for 2001 was as
follows:
> Sales in North America increased 2% in comparison to the prior year
comparable sales. Flavor sales increased 7% over 2000 levels while
fragrance sales declined 3%.
> Local currency sales in Europe decreased 1%, resulting in a dollar decrease
of 4% due to the stronger U.S. dollar. Local currency fragrance sales in
Europe decreased 3%, resulting in a dollar decrease of 5%. Flavor sales in
Europe were flat in local currency although this resulted in a 3% decrease
in dollar sales.
> Sales in Asia Pacific increased 2% in local currency; however, on
translation, dollar sales declined 3%. Asia Pacific flavor sales increased
3% in local currency although this resulted in a dollar decline of 3%.
Fragrance sales were flat in local currency with a 5% decrease in dollars.
> Latin America sales were flat for the year, mainly due to economic
weakness in Brazil and Argentina. In the region, fragrance sales increased
2% although this growth was offset by a decline of 6% in flavor sales.
> India sales increased 6% in both local currency and dollars. Fragrance
sales increased 14% in local currency and 12% in dollars while flavor sales
were flat in both local currency and dollars.
Although the Company's reported sales and earnings are affected by the
weakening or strengthening of the U.S. dollar, this has not had a long-term
effect on the underlying strength of the Company's business.
The percentage relationship of cost of goods sold and other operating
expenses to reported sales is detailed in the following table.
2002 2001 2000
- -----------------------------------------------------------------
Cost of goods sold 57.3% 57.7% 56.9%
Research and development
expenses 8.0% 7.3% 7.7%
Selling and administrative
expenses 16.9% 17.0% 17.7%
==== ===================
26
Cost of goods sold, which includes cost of materials and internal
manufacturing expenses, declined slightly in 2002 from 2001 levels. This decline
is a result of improvement in product mix, mainly due to the disposal of the
non-core businesses, partially offset by increased manufacturing expenses
related to the Company's implementation of SAP and related initiatives, and the
impact of the economic and currency disruption in Latin America which impacted
profitability in that region. Total SAP-related costs included in manufacturing
expenses approximated $1.7 in 2002; there were no similar expenses in 2001 or
2000. The increase in cost of sales in 2001 compared to 2000 is primarily
attributable to the acquisition of BBA and unfavorable absorption of
manufacturing costs in North America due to poor sales performance in that
region.
Research and development expenses are for the development of new and
improved products, technical product support, compliance with governmental
regulations, and help in maintaining relationships with customers who are often
dependent on technical advances. These activities contribute in a significant
way to the Company's business. Research and development expenses increased as a
percentage of sales in 2002, consistent with the Company's plans to increase its
investment in new research initiatives; the Company anticipates these expenses
will approximate 8% of sales for the next several years. Research and
development expenses declined slightly as a percentage of sales in 2001 as a
result of the integration of the IFF and BBA research efforts and facilities.
Selling and administrative expenses are necessary to support the Company's
sales and operating levels. Selling and administrative expenses as a percentage
of sales declined compared to both 2001 and 2000 levels. The decline is a result
of the savings attributable to the integration of the Company's sales and
administrative functions with those of BBA. In 2002, selling and
administrative expenses includes approximately $2.9 related to the Company's
implementation of SAP and related initiatives; there were no such expenses in
2001 or 2000.
SAP costs included in manufacturing and selling and administrative
expenses are expected to continue at approximately the same level in 2003-2004
as the Company completes its implementation. These costs relate primarily to
training and data conversion and are expensed as incurred.
The percentage relationship of pro-forma cost of goods sold and other
operating expenses to pro-forma sales is detailed in the following table. The
pro-forma information is prepared as though the Company and BBA had been
combined as of January 1, 2000 and reflects the elimination of sales and
operating results of the non-core businesses.
PRO-FORMA PRO-FORMA PRO-FORMA
2002 2001 2000
- --------------------------------------------------------------------
Cost of goods sold 57.1% 56.1% 56.4%
Research and development
expenses 8.0% 7.6% 7.6%
Selling and administrative
expenses 16.9% 17.6% 18.6%
==== ====================
Pro-forma cost of sales as a percentage of pro-forma sales increased in
2002 in comparison to 2001 as a result of a combination of product mix, the
aforementioned SAP implementation costs and the impact of the economic and
currency disruption in Latin America. Pro-forma cost of sales decreased as a
percentage of pro-forma sales in 2001 primarily as a result of savings on
integration and closure of certain BBA manufacturing facilities.
Pro-forma research and development expenses as a percentage of pro-forma
sales increased in 2002 in relation to both 2001 and 2000 as a result of the
Company's announced plans to increase its investment in research initiatives.
Pro-forma selling and administrative expenses declined as a percentage of
pro-forma sales in each of the years due to savings attributable to the
integration of IFF and BBA selling and administrative functions.
Segment profit, excluding corporate and other unallocated expenses,
amortization of goodwill, and the effect of nonrecurring charges, was $355.1 in
2002, $367.4 in 2001 and $289.7 in 2000. BBA operations contributed $9.3 to
segment profit, before amortization of goodwill and other intangibles, for the
period from November 3, 2000 through year-end. Pro-forma segment profit for IFF
and BBA combined in 2000 was $348.9. The Company recorded nonrecurring charges
of $11.7, $30.1, and $41.3 in 2002, 2001 and 2000, respectively. Operating
profit totaled $299.9, $255.6 and $211.5 in 2002, 2001 and 2000, respectively.
Interest expense totaled $37.0, $70.4 and $25.1 in 2002, 2001 and 2000,
respectively. Pro-forma interest expense for 2000 was $81.2. Interest expense
declined in 2002 as a result of lower effective interest rates and reduced
borrowing levels. Interest expense in 2001 increased over 2000 and is directly
related to the debt incurred for the BBA acquisition. In 2000, interest expense
incurred in connection with the acquisition of BBA was $10.6.
27
Other (income) expense, net was $3.6 income in 2002, $2.6 income in 2001
and $2.3 expense in 2000. The increases in other income in 2002 compared to
2001, and 2001 compared to 2000 were principally due to favorable exchange
results; exchange gains were $2.3 and $1.9 in 2002 and 2001, respectively,
compared to exchange losses of $1.9 in 2000.
The worldwide effective tax rate for 2002 was 34.0%, com-pared to 38.2% for
2001 and 33.2% for 2000. The lower effective tax rate in 2002 principally
results from the discontinuance of goodwill amortization, which was not
deductible for purposes of determination of the Company's taxable income. The
higher effective tax rate in 2001 compared to 2000 primarily results from the
non-deductibility of the goodwill amortization for purposes of determining the
Company's taxable income. The Company anticipates that its effective tax rate in
2003 will be in the range of 32.0%-32.5%.
On November 3, 2000, the Company acquired BBA; total consideration paid,
including transaction costs, was $970.0.
The acquisition was accounted for as a purchase business combination; the
purchase price has been allocated to assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the estimated value of tangible and identified intangible
assets acquired was recorded as goodwill. The Company completed final
determination of the purchase price during 2001 when it established accruals
relating to employee separation costs, facility closure costs and other actions
relating to the integration of BBA into IFF. Such costs are a component of the
purchase accounting and do not directly impact current earnings. The increase in
goodwill and other intangible assets between 2000 and 2001 resulted from further
quantification of certain liabilities assumed in connection with the merger,
primarily those associated with the integration of the BBA operations into the
Company; such costs were not accounted for at December 31, 2000. More details on
the BBA acquisition are contained in Note 3 of the Notes to the Consolidated
Financial Statements.
At December 31, 2002 and 2001, goodwill and other intangible assets, net
of accumulated amortization, totaled $782.7 and $795.9, respectively.
Amortization expense was $12.6 and $46.1 in 2002 and 2001, respectively.
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets. FAS 142
eliminates the amortization of goodwill and indefinite-lived intangibles and
requires an evaluation of potential impairment upon adoption, and at least
annually thereafter. FAS 142 also prescribes that other indefinite-lived
intangibles be included with goodwill. In 2002, certain intangibles were
reclassified as indefinite-lived intangibles in accordance with the provisions
of FAS 142. Adoption of FAS 142 eliminated annual goodwill amortization expense
of $33.0. The Company completed its assessments during 2002 and concluded it has
no impairment of goodwill or other intangible assets on adoption or at December
31, 2002. Additional details are contained in Note 7 of the Notes to the
Consolidated Financial Statements.
Movements in acquisition accounting accruals were as follows:
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
- -------------------------------------------------------------------------
Balance January 1, 2001 $4.1 $6.2 $10.3
Additional charges 41.0 25.0 66.0
Cash and other costs (31.3) (21.3) (52.6)
-----------------------------------
Balance December 31, 2001 13.8 9.9 23.7
Cash and other costs (7.8) (8.8) (16.6)
-----------------------------------
Balance December 31, 2002 $6.0 $1.1 $7.1
===================================
The BBA acquisition was initially financed through the issuance of
commercial paper. During 2001, the Company put in place permanent debt
financing. In 2002, the Company modified portions of its debt structure.
Additional details on borrowing are contained in Note 9 of the Notes to the
Consolidated Financial Statements.
In October 2000, the Company announced a reorganization, including
management changes, consolidation of production facilities and related actions.
The pretax cost of actions taken in connection with the reorganization,
including $11.7, $30.1 and $41.3 in 2002, 2001 and 2000, respectively, is
expected to approximate $90.0 to $100.0 through the end of 2003. On completion,
the reorganization is expected to yield annual savings approximating $25.0 to
$30.0. A portion of the savings is expected to be reinvested in the business,
although a substantial portion is expected to contribute to improved earnings.
In June 1999, the Company undertook to close certain manufacturing,
distribution and sales facilities in all geographic regions in which the Company
operates. In connection with these actions, the Company initiated two separate
voluntary retirement incentive programs for United States-based employees
meeting certain eligibility requirements. Those eligible employees who elected
to take the incentive received additional credit, for pension purposes, in terms
of age and service, as well as other benefits. During 2000, approximately 150
employees accepted enhanced retirement benefits under these two programs,
resulting in nonrecurring pretax charges of $23.8. In addition, during 2000, the
Company recognized additional nonrecurring charges of $17.5, essentially all of
which related to employee separation costs and other reorganization activities.
28
Nonrecurring charges by region were as follows:
2002 2001
- ---------------------------------------------
North America $5.6 $14.7
Europe 5.8 4.2
Asia Pacific .3 8.6
Latin America -- 2.6
India Region -- --
----- -------
$11.7 $30.1
===== =======
Nonrecurring charges recorded in 2000 were $41.3, essentially all of which
related to United States-based operations. There were no significant non-cash
related elements in the 2002, 2001 or 2000 charges. Approximately 700 employees
have been affected by the programs.
Movements in accruals related to nonrecurring charges were as follows:
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
- -----------------------------------------------------------------------
Balance January 1, 2000 $9.6 $1.6 $11.2
Additional charges 37.1 4.2 41.3
Cash and other costs (22.3) (3.8) (26.1)
------------------------------------
Balance December 31, 2000 24.4 2.0 26.4
Additional charges 10.1 20.0 30.1
Cash and other costs (27.5) (21.3) (48.8)
------------------------------------
Balance December 31, 2001 7.0 .7 7.7
Additional charges 4.3 7.4 11.7
Cash and other costs (7.9) (7.7) (15.6)
------------------------------------
Balance December 31, 2002 $3.4 $.4 $3.8
====================================
The balance of the accruals relating to acquisition accounting and the
nonrecurring charges is expected to be utilized in 2003 in connection with the
final decommissioning and disposal of affected equipment and as severance
obligations to affected employees are satisfied.
In October 2001, the Company sold its formulated fruit and vegetable
preparation businesses in the United States and Brazil. Sales for the business
up to the date of disposition were approximately $23.0 with operating profit of
approximately $2.2. In connection with this transaction the Company recorded a
non-recurring charge of $7.4 related to employee separation and other disposal
costs. Proceeds from the sale, which were not material, were used to reduce
current borrowings.
In October 2001, the Company announced its intention to explore strategic
alternatives for its fruit and vegetable preparation business in Europe. This
business manufactures processed fruit and other natural preparations used in a
wide variety of foods, including baked goods and dairy products. Annual sales
and operating profit approximate $70.0 and $7.0, respectively. No final
decision has been made as to which strategic alternative to pursue.
In December 2001, the Company sold its aroma chemicals business located in
Widnes, the United Kingdom. This business was acquired as part of the BBA
purchase. Sales for the business up to the date of disposition were $36.7 with
operating profit of approximately $1.5. Proceeds from the sale, which were not
material, were used to reduce current borrowings. No gain or loss was
recognized as a result of this transaction.
The Company sold its concentrate business based in Oregon in June 2002.
Sales for the business up to the date of disposition were $9.4; operating profit
was not significant. In connection with this transaction, the Company recorded a
nonrecurring charge of $4.3 related to employee separation and other disposal
costs. Proceeds from the sale, which were not material, were used to reduce
current borrowings.
NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments
and Hedging Activities. FAS 133 establishes accounting and reporting standards
for derivative instruments, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The effect of adopting this Standard was not material.
Statement of Financial Accounting Standards No. 144 (FAS 144), Accounting
for the Impairment or Disposal of Long-lived Assets was issued in August 2001.
FAS 144 establishes accounting and reporting standards for impairment of
long-lived assets. FAS 144 is effective for fiscal years beginning after
December 15, 2001 and in 2002, the Company adopted this standard without
material impact to reported results.
Statement of Financial Accounting Standards No. 146 (FAS 146), Accounting
for Costs Associated with Exit or Disposal Activities was issued in June 2002.
FAS 146 establishes accounting and reporting standards for exit or disposal
activities initiated after December 31, 2002, and requires such costs to be
recognized when the liability is incurred and not at project initiation. The
Company will comply with the provisions of FAS 146.
Statement of Financial Accounting Standards No. 148 (FAS 148), Accounting
for Stock-Based Compensation - Transition and Disclosure was issued in December
2002. FAS 148 provides alternate methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. The Company has elected to continue to use the intrinsic method
of accounting for stock-based awards to employees.
29
No compensation expense has been recognized other than for restricted stock
awards.
The Financial Accounting Standards Board issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, and No. 46,
Consolidation of Variable Interest Entities. The Company has evaluated these
interpretations and does not believe they apply to the Company.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $15.2 at December
31, 2002 compared to $48.9 and $129.2 at December 31, 2001 and 2000,
respectively. Short-term investments are high-quality, readily marketable
instruments. Working capital totaled $507.3 at year-end 2002, compared to $336.1
and $409.9 at December 31, 2001 and 2000, respectively; the 2000 amount excludes
commercial paper borrowings used to finance the BBA acquisition to the extent
they were later refinanced with long-term debt. Gross additions to property,
plant and equipment were $81.8, $52.0 and $60.7 in 2002, 2001 and 2000,
respectively, and are expected to approximate $85.0 in 2003.
Long-term debt was $1,007.1 and $939.4 at December 31, 2002 and December
31, 2001, respectively. Long-term debt includes $63.5 and $8.3 of deferred
interest rate swap gains at December 31, 2002 and 2001, respectively. In July
2002, the Company entered into a five-year Euro 350.0 (approximately $350.0 at
December 31, 2002) multi-currency revolving credit agreement. The Company
cancelled and repaid all borrowings under an existing Euro 140.0 facility. Also
in July 2002, the Company exercised an option under its $500.0 U.S. dollar
revolving credit facility and cancelled the $200.0 364 day portion of that
agreement. The remaining portion of the facility, which serves as backstop for
the Company's commercial paper program, continues until September 2006. There
have been no borrowings under this facility. The Company compensates the banks
participating in this credit facility in the form of fees, the amounts of which
are not significant. At December 31, 2002, the Company's outstanding commercial
paper totaled $38.0 at an average interest rate of 1.6% compared to $204.2 at
December 31, 2001 at an average interest rate of 2.9%. Commercial paper
maturities did not extend beyond January 21, 2003.
During 2002, the Company entered into agreements for the sale and leaseback
of its Hazlet and South Brunswick, New Jersey facilities. Under the terms of the
sale, the Company sold the land, building and associated improvements at these
facilities to an unrelated third party for $48.0 in cash. The net book value of
these assets approximated $20.3. The gain realized on the sale, approximating
$26.7, has been deferred and will be credited to income over the 22-year lease
term. At December 31, 2002, the unamortized portions of the deferred gain of
$24.8 and $1.2 are included in the balance sheet captions Retirement and other
liabilities and Other current liabilities, respectively. The lease agreements
provide for renewal options of up to 30 years. Payments under the leases
approximate $4.2 annually and commenced in July 2002. Total lease payments for
2002 were $2.1 and for 2003 to 2007 are $4.2 annually; the aggregate lease
obligation is $92.4. The leases are classified as operating leases.
In April 2000, the Company announced a plan to repurchase up to 7.5 million
shares of its common stock. In September 2000, the Company announced a plan to
increase its share repurchase program by $100.0. The Company completed the April
2000 program during 2001 and the September 2000 program during 2002. On October
22, 2002, the Company's Board of Directors authorized a new share repurchase
program of $100.0, which is expected to be completed over the next two years.
Under these plans, the Company purchased $72.3, $71.2 and $201.0 of treasury
stock in 2002, 2001 and 2000, respectively. Repurchases were made from time to
time on the open market or through private transactions. The repurchased shares
are available for use in connection with the Company's employee benefit plans
and for other general corporate purposes.
The Company anticipates that all financing requirements will be funded from
operations and credit facilities currently in place. Cash flows from operations
are sufficient to fund the Company's anticipated capital spending, dividends and
other requirements including debt reduction; the Company anticipates reducing
debt by approximately $100.0 in 2003. The Company may dispose of additional
non-core assets; any related proceeds will be used primarily to reduce debt.
The dividend per share in 2002, 2001 and 2000 was, respectively, $.60,
$.60 and $1.29. In September 2000, the Board of Directors reduced the Company's
quarterly dividend by 60%, to $.15 per share, beginning with the fourth quarter
2000 dividend. The dividend per share has not changed since that date. The
Company paid dividends totaling $56.8, $57.6 and $155.5 in 2002, 2001 and 2000,
respectively.
The cumulative translation adjustment component of Accumulated other
comprehensive income was ($138.2) at December 31, 2002, compared to ($156.3) at
December 31, 2001. The change results principally from the weakening of the U.S.
dollar
30
against the Euro. The Minimum pension liability adjustment component of
Accumulated other comprehensive income was ($75.0) at December 31, 2002 compared
to ($20.0) at December 31, 2001. This change reflects lower pension asset values
coupled with a reduction in the discount rate assumptions used to calculate
pension liabilities. The Accumulated gain on derivatives qualifying as hedges
was $0.7 at December 31, 2002 compared to an Accumulated loss of ($2.3) at
December 31, 2001.
Compliance with existing governmental requirements regulating the
discharge of materials into the environment has not materially affected the
Company's operations, earnings or competitive position. In 2002, the Company
spent approximately $2.7 on capital projects and about $13.4 in operating
expenses and governmental charges for the purpose of complying with such
regulations. Expenditures for these purposes will continue for the foreseeable
future. In addition, the Company is party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation and Liability Act
or similar state statutes. It is expected that the impact of any judgments in or
voluntary settlements of such proceedings will not be material to the Company's
financial condition, results of operations or liquidity.
MARKET RISK
The Company is exposed to market risk from foreign currency exchange rates,
interest rates and commodity price fluctuations. The Company evaluates and
manages volatility relating to these exposures on a global basis to take
advantage of netting opportunities that may exist. Identified net exposures are
managed employing a number of techniques including but not limited to borrowings
in local currencies and the use of certain derivative instruments.
The Company operates on a global basis and, accordingly, is exposed to
currency fluctuation related to the manufacture and sale of its products in
currencies other than the U.S. dollar. The major foreign currencies involve the
markets in the European Union, Mexico, Brazil, China, Indonesia and Japan,
although all regions in the world are subject to foreign currency fluctuations
versus the U.S. dollar and other cross-currency rates. The Company actively
monitors its foreign currency exposures in all major markets in which it
operates, and employs a variety of techniques to mitigate the impact of
exchange rate fluctuations, including foreign currency hedging activities. The
Company enters into foreign currency forward contracts with the objective of
reducing exposure to cash flow volatility associated with foreign currency
receivables and payables, and with anticipated purchases of certain raw
materials used in operations. The notional amount and maturity dates of such
contracts match those of the underlying transactions. At December 31, 2002 and
2001, the Company had outstanding foreign currency forward contracts with
notional amounts approximating $131.4 and $97.3, respectively. The Company has
designated these contracts as qualified fair value and cash flow hedges as
appropriate. Accordingly, the effective portion of any gain or loss on a
derivative instrument reported as a cash flow hedge is reported as a component
of Accumulated Other Comprehensive Income and recognized in earnings in the same
period or periods during which the hedged transaction affects earnings. The
Company had no ineffective foreign currency forward contracts at December 31,
2002 or 2001.
The Company employs various interest rate swaps and debt issuances with the
objective of managing and optimizing its interest rate exposure. The Company
has entered into a series of swaps for a $700.0 notional amount which
effectively converts the fixed 6.45% coupon interest rate to a variable
short-term rate based upon the London InterBank Offered Rate (LIBOR) plus an
interest markup. During 2001 and 2002, the Company periodically amended the
swaps, which changed the short-term LIBOR basis and the related spread. As a
result of market conditions and changes in the value of the swaps, the
counterparty paid the Company $56.5, including accrued interest of $6.5 in 2002,
and $19.9, including accrued interest of $3.3 in 2001. The swap gains are
deferred, classified as a separate element of long-term debt and amortized to
income as a reduction in interest expense over the remaining term of the debt.
As a result of these transactions, at December 31, 2002, the effective interest
rate on the 6.45% Notes approximated 3.4% compared to 3.7% at December 31, 2001.
In 2002, the Company entered into a series of swaps to convert its long-term
Japanese Yen borrowings from fixed-rate to short-term Japanese Yen LIBOR rates.
There was no cash settlement for these swaps, which effectively convert the
1.74% and 2.45% long-term Yen notes to a blended effective rate of 1.7%. All
interest rate swaps are designated as qualified fair value hedges; there were no
ineffective interest rate swaps at December 31, 2002 or December 31, 2001.
31
CRITICAL ACCOUNTING POLICIES AND
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use judgement and to make
estimates and assumptions that affect reported assets, liabilities, revenues and
expenses; actual results may differ from such estimates. The diversity of the
Company's products, customers, geographic operations, sources of supply and
markets reduces the risk that any one event would have a severe impact on the
Company's operating results. The Company recognizes revenue when products are
shipped and title and risk of loss transfer to the customer. The greatest
complexity of the Company's business is in the area of the research and
development and creation of new products, for which all costs are expensed as
incurred.
Those areas requiring the greatest degree of management judgement or deemed
most critical to the Company's financial reporting involve:
> The periodic assessment of potential impairment of intangible assets
acquired in business combinations;
> Recoverability and realization of assets, most notably in lesser developed
areas of the world where fluctuating currencies and frequently unsettled
economic conditions can create uncertainty;
> The ongoing assessment of the valuation of inventory, given the large
number of natural ingredients employed, the quality of which may be
diminished over time;
> The determination of financial instruments employed as effective hedges of
cash flows or market risk exposures; and
> The evaluation of potential environmental liabilities, where frequently
changing rules and regulations require constant reassessment of related
practices as well as underlying costs.
Management believes that full consideration has been given to all relevant
circumstances that the Company may be currently subject to, and the financial
statements accurately reflect management's best estimate of the results of
operations, financial condition and cash flows of the Company for the years
presented.
CAUTIONARY STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual 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 involve 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 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;
and effect of legal and regulatory proceedings, as well as restrictions imposed
on the Company, its operations or its representatives by foreign governments.
The Company intends its forward-looking statements to speak only as of the
time of such statements and does not undertake to update or revise them as more
information becomes available or to reflect changes in expectations,
assumptions or results.
32
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of International Flavors
& Fragrances Inc. have been prepared by management in conformity with
accounting principles generally accepted in the United States of America and
necessarily include amounts that are based on management's best estimates and
judgement. The audit report on the Company's financial statements by
PricewaterhouseCoopers LLP, independent accountants, is based on the result of
their audits, which were performed in accordance with generally accepted
auditing standards.
The Company maintains an internal control structure and related systems,
policies and procedures designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization so that the accounting records can be relied
upon for the preparation of financial statements. The Company's control system
is enhanced through a formal Code of Conduct that establishes standards for
professional conduct and integrity for employees worldwide. The Company also has
an internal audit function that evaluates and formally reports to management and
the Audit Committee of the Board of Directors on the adequacy and effectiveness
of controls, policies and procedures.
The Audit Committee of the Board of Directors is composed entirely of
non-employee directors. The Committee meets periodically and independently
throughout the year with management, the internal auditors and the independent
accountants to discuss the Company's internal accounting controls, auditing and
financial reporting matters. The internal auditors and independent accountants
have unrestricted access to the Audit Committee.
It is management's opinion that IFF's policies and procedures and the
system of internal controls currently in place provide reasonable assurance
that operations are managed in a responsible and professional manner and with
the highest standard of business conduct.
/s/ Richard A. Goldstein
Richard A. Goldstein
Chairman of the Board and Chief Executive Officer
/s/ Douglas J. Wetmore
Douglas J. Wetmore
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF INTERNATIONAL FLAVORS &
FRAGRANCES INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of income, cash flows and shareholders' equity present
fairly, in all material respects, the financial position of International
Flavors & Fragrances Inc. and its subsidiaries at December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets," effective January 1, 2002 and Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective January 1, 2001.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 27, 2003
33
CONSOLIDATED STATEMENT OF INCOME INTERNATIONAL FLAVORS & FRAGRANCES INC.
YEAR ENDED DECEMBER 31,
------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
- ------------------------------------------------------------- -----------------------------------------
Net sales $1,809,249 $1,843,766 $1,462,795
---------- -----------------------------------------
Cost of goods sold 1,035,835 1,063,433 831,653
Research and development expenses 144,027 135,248 112,671
Selling and administrative expenses 305,156 313,335 258,653
Amortization 12,632 46,089 7,032
Nonrecurring charges 11,737 30,069 41,273
Interest expense 37,036 70,424 25,072
Other (income) expense, net (3,591) (2,609) 2,314
---------- -----------------------------------------
1,542,832 1,655,989 1,278,668
---------- -----------------------------------------
Income before taxes on income 266,417 187,777 184,127
Taxes on income 90,473 71,775 61,122
---------- -----------------------------------------
NET INCOME $ 175,944 $ 116,002 $ 123,005
========== ==========================================
2002 2001 2000
- ------------------------------------------------------------- -----------------------------------------
NET INCOME PER SHARE - BASIC $1.86 $1.21 $1.22
---------- -----------------------------------------
NET INCOME PER SHARE - DILUTED $1.84 $1.20 $1.22
========== ==========================================
See Notes to Consolidated Financial Statements
34
CONSOLIDATED BALANCE SHEET INTERNATIONAL FLAVORS & FRAGRANCES INC.
(DOLLARS IN THOUSANDS) DECEMBER 31,
-------------------------------
ASSETS 2002 2001
- ------------------------------------------------------------------------------------------------------------- --------------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,858 $ 48,521
Short-term investments 307 384
Receivables:
Trade 327,306 328,858
Allowance for doubtful accounts (12,933) (10,835)
Other 24,234 22,335
Inventories 421,603 415,984
Deferred income taxes 67,176 77,449
Prepaid expenses 24,198 13,665
---------- --------------------
Total Current Assets 866,749 896,361
PROPERTY, PLANT AND EQUIPMENT, NET 520,499 532,473
GOODWILL, NET 642,655 648,975
INTANGIBLE ASSETS, NET 140,048 146,945
OTHER ASSETS 62,743 43,297
---------- --------------------
Total Assets $2,232,694 $2,268,051
========== ====================
DECEMBER 31,
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
- ------------------------------------------------------------------------------------------------------------- --------------------
CURRENT LIABILITIES:
Bank loans and current portion of long-term debt $ 11,684 $ 23,716
Commercial paper 37,979 204,229
Accounts payable 104,007 85,659
Accrued payrolls and bonuses 36,250 39,227
Dividends payable 14,138 14,215
Income taxes 38,496 49,841
Other current liabilities 116,943 143,327
---------- --------------------
Total Current Liabilities 359,497 560,214
---------- --------------------
OTHER LIABILITIES:
Long-term debt 1,007,085 939,404
Deferred income taxes -- 44,553
Retirement and other liabilities 291,434 199,710
---------- --------------------
Total Other Liabilities 1,298,519 1,183,667
---------- --------------------
COMMITMENTS AND CONTINGENCIES (NOTE 17)
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 109,735 126,170
Restricted stock (5,723) (1,440)
Retained earnings 1,382,539 1,263,344
Accumulated other comprehensive income:
Cumulative translation adjustment (138,175) (156,266)
Accumulated gains/(losses) on derivatives qualifying as hedges (net of tax) 733 (2,261)
Minimum pension liability adjustment (net of tax) (75,038) (20,009)
---------- --------------------
1,288,541 1,224,008
Treasury stock, at cost - 21,507,668 shares in 2002 and 20,996,954 shares in 2001 (712,876) (698,851)
Note receivable from officer (987) (987)
---------- --------------------
Total Shareholders' Equity 574,678 524,170
---------- --------------------
Total Liabilities and Shareholders' Equity $2,232,694 $2,268,051
========== ====================
See Notes to Consolidated Financial Statements
35
CONSOLIDATED STATEMENT OF CASH FLOWS INTERNATIONAL FLAVORS & FRAGRANCES INC.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2000
- ----------------------------------------------------------------------------------------- -----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $175,944 $116,002 $123,005
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 84,458 123,493 69,344
Deferred income taxes (6,381) (18,113) (30,496)
Changes in assets and liabilities:
Current receivables 15,452 8,925 15,261
Inventories 17,259 (1,207) 64,591
Current payables (27,623) (20,076) 22,017
Other, net (15,765) (27,519) 5,388
-------- -----------------------------------------
Net cash provided by operations 243,344 181,505 269,110
-------- -----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments 257 8,250 1,566
Purchases of investments (176) (19,786) (1,111)
Acquisition of minority interest (11,791) -- --
Investments in acquired businesses, net of cash received -- -- (953,295)
Additions to property, plant and equipment (81,815) (52,016) (60,696)
Proceeds from disposal of assets 64,634 14,900 11,301
-------- -----------------------------------------
Net cash used in investing activities (28,891) (48,652) (1,002,235)
-------- -----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders (56,826) (57,618) (155,502)
Net change in bank loans (14,774) (13,088) 5,164
Net change in commercial paper outstanding (166,250) (605,123) 746,152
Proceeds from long-term debt 282,329 580,545 413,747
Repayments of long-term debt (251,837) (49,705) (1,903)
Proceeds from issuance of stock under stock option and
employee stock purchase plans 29,579 6,842 1,387
Purchase of treasury stock (72,273) (71,234) (200,953)
-------- -----------------------------------------
Net cash provided by (used in) financing activities (250,052) (209,381) 808,092
-------- -----------------------------------------
Effect of exchange rate changes on cash and cash equivalents 1,936 (3,820) (8,233)
-------- -----------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (33,663) (80,348) 66,734
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 48,521 128,869 62,135
-------- -----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,858 $ 48,521 $128,869
======== =========================================
See Notes to Consolidated Financial Statements
36
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY INTERNATIONAL FLAVORS & FRAGRANCES INC.
ACCUMULATED NOTE
CAPITAL IN OTHER TREASURY STOCK RECEIVABLE TOTAL
COMMON EXCESS OF RESTRICTED RETAINED COMPREHENSIVE ----------------------- FROM COMPREHENSIVE
(DOLLARS IN THOUSANDS) STOCK PAR VALUE STOCK EARNINGS INCOME SHARES COST OFFICER INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
JANUARY 1, 2000 $14,470 $134,480 $ -- $1,211,790 $(57,135) (10,939,915) $(445,108) $ --
Net income 123,005 $123,005
Cumulative translation
adjustment (20,443) (20,443)
--------
Total comprehensive
income $102,562
========
Cash dividends declared (130,234)
Stock options (1,439) 79,297 2,826
Reacquired shares (7,475,178) (200,953)
--------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2000 14,470 133,041 -- 1,204,561 (77,578) (18,335,796) (643,235) --
--------------------------------------------------------------------------------------------
Net income 116,002 $116,002
Cumulative translation
adjustment (78,688) (78,688)
Accumulated losses on
derivatives qualifying
as hedges (net of tax) (2,261) (2,261)
Minimum pension
liability adjustment
(net of tax) (20,009) (20,009)
--------
Total comprehensive
income $ 15,044
========
Cash dividends declared (57,219)
Stock options (3,941) 187,056 9,623 (987)
Reacquired shares (3,019,100) (71,234)
Restricted stock award (2,930) (3,065) 170,886 5,995
Amortization 1,625
--------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2001 14,470 126,170 (1,440) 1,263,344 (178,536) (20,996,954) (698,851) (987)
--------------------------------------------------------------------------------------------
Net income 175,944 $175,944
Cumulative translation
adjustment 18,091 18,091
Accumulated gains on
derivatives qualifying
as hedges (net of tax) 2,994 2,994
Minimum pension
liability adjustment
(net of tax) (55,029) (55,029)
--------
Total comprehensive
income $142,000
========
Cash dividends declared (56,749)
Stock options (15,652) 1,582,486 51,581
Reacquired shares (2,293,200) (72,273)
Restricted stock award (783) (5,884) 200,000 6,667
Amortization 1,601
---------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 2002 $14,470 $109,735 $(5,723) $1,382,539 $(212,480) (21,507,668) $(712,876) $(987)
=============================================================================================
See Notes to Consolidated Financial Statements
37
INTERNATIONAL FLAVORS & FRAGRANCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES Preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the Consolidated Financial Statements and accompanying disclosures.
These estimates are based on management's best knowledge of current events and
actions the Company may undertake in the future. Actual results may ultimately
differ from estimates, although management does not believe such changes will
materially affect the financial statements in any individual year.
NATURE OF OPERATIONS The Company is a leading creator and manufacturer
of flavors and fragrances used by others to impart or improve flavor or
fragrance in a wide variety of consumer products. The Company's products are
sold principally to manufacturers of perfumes and cosmetics, hair and other
personal care products, soaps and detergents, cleaning products, dairy, meat and
other processed foods, beverages, snacks and savory foods, confectionery, sweet
and baked goods, and pharmaceutical and oral care products.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the Company and all subsidiaries.
REVENUE RECOGNITION Revenue is recognized when products are shipped and
title and risk of loss transfer to the customer.
FOREIGN CURRENCY TRANSLATION The assets and liabilities of non-U.S.
subsidiaries are translated into U.S. dollars at year-end exchange rates. Income
and expense items are translated at average exchange rates during the year.
Cumulative translation adjustments are shown as a separate component of
Shareholders' Equity.
Through December 31, 2000, for certain subsidiaries that operated in
U.S. dollars, or that operated in a highly inflationary environment, inventory
and property, plant and equipment were translated using the exchange rates at
the time of acquisition. All other assets and liabilities were translated at
year-end exchange rates. Except for inventories charged to cost of goods sold
and depreciation, which were remeasured for historical rates of exchange, all
income and expense items were translated at average exchange rates. Gains and
losses as a result of remeasurements were included in income.
RESEARCH AND DEVELOPMENT All costs associated with research and
development are expensed as incurred.
INVENTORIES Inventories are stated at the lower of cost (generally on
an average basis) or market.
CASH EQUIVALENTS Cash equivalents include highly liquid investments
with maturities of three months or less at date of purchase.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are
recorded at cost. Depreciation is calculated on a straight-line basis,
principally over the following estimated useful lives: buildings and
improvements,10 to 40 years; machinery, equipment and software, 3 to 10 years;
and leasehold improvements, the estimated life of the improvements or the
remaining term of the lease, whichever is shorter.
The Company reviews its long-lived assets for impairment when events or
changes in business conditions indicate that their full carrying value may not
be recovered. An estimate of undiscounted future cash flows produced by an
asset or group of assets is compared to the carrying value to determine whether
an impairment exists. If assets are determined to be impaired, the loss is
measured based on an estimate of fair value using various valuation techniques,
including a discounted estimate of future cash flows.
GOODWILL AND OTHER INTANGIBLE ASSETS Identifiable intangible assets
include patents, trademarks and other intellectual property valued at
acquisition through independent appraisals, and are amortized on a straight-line
basis over periods ranging from 7 to 20 years. Through December 31, 2001,
goodwill arising from business acquisitions was amortized on a straight-line
basis over its estimated useful life, which was generally 20 years.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 (FAS 142), Goodwill and Other Intangible Assets.
FAS 142 eliminates the amortization of goodwill and indefinite-lived intangibles
and requires an evaluation of potential impairment upon adoption, and at least
annually thereafter. FAS 142 also prescribes that other indefinite-lived
intangibles be included with goodwill.
Fair values for goodwill and indefinite-lived intangibles are
determined based on discounted cash flows, market multiples or appraised values,
as appropriate.
INCOME TAXES Deferred income taxes reflect the impact of temporary
differences between the amount of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for tax purposes,
based on tax laws as currently enacted. Additional taxes which would result from
distributions by subsidiary companies to the parent are provided to the extent
such dividends are anticipated. No provision is made for additional taxes on
undistributed earnings of subsidiary companies that are intended to be
permanently invested in such subsidiaries. As a result, no income tax is
attributable to the currency translation component of other comprehensive
income.
38
RETIREMENT BENEFITS Current service costs of retirement plans and
postretirement health care and life insurance benefits are accrued currently.
Prior service costs resulting from improvements in these plans are amortized
over periods ranging from 10 to 20 years.
FINANCIAL INSTRUMENTS Effective January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for
Derivative Instruments and Hedging Activities. FAS 133, as amended, requires
that every derivative instrument be recorded in the balance sheet as either an
asset or liability, measured at its fair value. The cumulative effect of
adoption of FAS 133 did not result in a material impact on the Company's
financial position, results of operations or cash flows.
It is the Company's policy to enter into derivative instruments with
terms that match the underlying exposure being hedged. As such, the Company's
derivative instruments are considered highly effective and the net gain or loss
from hedge ineffectiveness was not material.
The Company's derivative instruments that qualify for hedge accounting
are primarily designated as either fair value hedges or cash flow hedges. For
fair value hedges, changes in fair value of the derivative as well as the
offsetting changes in fair value of the hedged item are recognized in earnings
each period. For cash flow hedges, changes in fair value of the derivative are
recorded in other comprehensive income and are recognized in earnings when the
offsetting effect of the hedged item is also recognized in earnings.
RISKS AND UNCERTAINTIES The diversity of the Company's products,
customers and geographic operations significantly reduces the risk that a severe
impact will occur in the near term as a result of changes in its customer base,
competition, sources of supply or markets. It is unlikely that any one event
would have a severe impact on the Company's operating results.
SOFTWARE COSTS The Company capitalizes direct internal and external
development costs associated with internal-use software. Neither preliminary
evaluation costs nor costs associated with the software after implementation are
capitalized.
SHIPPING AND HANDLING COSTS Net sales include shipping and handling
charges billed to customers. Cost of goods sold include all costs incurred in
connection with shipping and handling.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards
No. 144 (FAS 144), Accounting for the Impairment or Disposal of Long-lived
Assets, was issued in August 2001. FAS 144 establishes accounting and reporting
standards for impairment of long-lived assets. FAS 144 is effective for fiscal
years beginning after December 15, 2001. The Company adopted this standard
without material impact to reported results.
Statement of Financial Accounting Standards No. 146 (FAS 146),
Accounting for Costs Associated with Exit or Disposal Activities was issued in
June 2002. FAS 146 establishes accounting and reporting standards for exit or
disposal activities initiated after December 31, 2002, and requires such costs
to be recognized when the liability is incurred and not at project initiation.
The Company will comply with the provisions of FAS 146.
Statement of Financial Accounting Standards No. 148 (FAS 148),
Accounting for Stock-Based Compensation - Transition and Disclosure was issued
in December 2002. FAS 148 provides alternate methods of transition for a
voluntary change to fair value based method of accounting for stock-based
employee compensation. The Company has elected to continue to use the intrinsic
method of accounting for stock-based awards to employees. No compensation
expense has been recognized other than for restricted stock awards
The Financial Accounting Standards Board issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, and No. 46,
Consolidation of Variable Interest Entities. The Company has evaluated these
interpretations and does not believe they apply to the Company.
NET INCOME PER SHARE Net income per share is based on the weighted
average number of shares outstanding. A reconciliation of the number of shares
used in the computations of basic and diluted net income per share is as
follows:
NUMBER OF SHARES
----------------------------------
(SHARES IN THOUSANDS) 2002 2001 2000
- ---------------------------------------------------- -----------------------
Basic 94,511 95,770 101,073
Dilution under stock plans 1,362 1,049 20
------ -----------------------
Diluted 95,873 96,819 101,093
====== =======================
Net income used in the computation of basic and diluted net income per
share is not affected by the assumed issuance of stock under the Company's stock
plans.
Options to purchase 3,505,414, 4,138,020, and 5,430,857 shares were
outstanding in 2002, 2001 and 2000, respectively, but were not included in the
computation of diluted net income per share because the options' exercise prices
were greater than the average market price of the common shares in the
respective years.
STOCK PLANS At December 31, 2002, the Company had stock-based
compensation plans which are described more fully in Note 12. The Company
applies the recognition and measurement principles of Accounting Principles
Board Opinion No. 25,
39
Accounting for Stock Issued to Employees, and related Interpretations
in accounting for these plans. No compensation expense for
employee stock options is reflected in net earnings, as all options
granted under such plans had an exercise price not less than the
market value of the common stock on the date of the grant. Net
income includes compensation expense related to restricted stock.
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 years ended December 31, 2002, 2001 and 2000:
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
- -------------------------------------------------- -----------------------
Net income, as reported $175,944 $116,002 $123,005
Deduct:
Total stock-based employee
compensation expense
determined under fair
value method for all
stock option awards, net
of related tax effects 16,008 14,092 11,957
-------- -----------------------
Pro-forma net income $159,936 $101,910 $111,048
======== =======================
Net income per share:
Basic - as reported $1.86 $1.21 $1.22
Basic - pro-forma $1.69 $1.06 $1.10
Diluted - as reported $1.84 $1.20 $1.22
Diluted - pro-forma $1.67 $1.05 $1.10
----- --------------------
These pro-forma amounts may not be representative of future disclosures
because the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.
RECLASSIFICATIONS Certain reclassifications have been made to
the prior years' financial statements to conform to 2002 classifications.
NOTE 2. NONRECURRING CHARGES
In October 2000, the Company announced a reorganization including
management changes, consolidation of production facilities and related actions.
In June 1999, the Company undertook to close certain manufacturing,
distribution and sales facilities in all geographic regions in which the Company
operates.
In connection with these actions, the Company initiated two separate
voluntary retirement incentive programs for United States-based employees
meeting certain eligibility requirements. During 2000, approximately 150
employees accepted enhanced retirement benefits under these two programs,
resulting in nonrecurring pretax charges of $23.8 million. In addition, during
2000, the Company recognized additional nonrecurring charges of $17.5 million,
essentially all of which related to employee separation costs and other
reorganization activities.
Nonrecurring charges by region were as follows:
(DOLLARS IN THOUSANDS) 2002 2001
- -------------------------------------------------------------- -------
North America $ 5,565 $14,722
Europe 5,814 4,172
Asia Pacific 358 8,542
Latin America -- 2,633
India Region -- --
------- -------
$11,737 $30,069
======= =======
Nonrecurring charges in 2000 were $41.3 million, essentially all of
which related to United States-based operations. There were no significant
non-cash related elements in the 2002, 2001 or 2000 charges.
Movements in accruals related to these charges were as follows:
ASSET-
EMPLOYEE- RELATED
(DOLLARS IN THOUSANDS) RELATED AND OTHER TOTAL
- --------------------------------------------------------------------------------
Balance January 1, 2000 $ 9,622 $ 1,586 $ 11,208
Additional charges 37,095 4,178 41,273
Cash and other costs (22,338) (3,711) (26,049)
---------------------------------------
Balance December 31, 2000 24,379 2,053 26,432
Additional charges 10,083 19,986 30,069
Cash and other costs (27,474) (21,294) (48,768)
---------------------------------------
Balance December 31, 2001 6,988 745 7,733
Additional charges 4,340 7,397 11,737
Cash and other costs (7,899) (7,721) (15,620)
---------------------------------------
Balance December 31, 2002 $ 3,429 $ 421 $ 3,850
=======================================
The balance of the accruals is expected to be utilized in 2003 in
connection with the final decommissioning and disposal of affected equipment and
as severance obligations to affected employees are satisfied. Approximately 700
employees have been affected by the programs.
NOTE 3. ACQUISITIONS AND DIVESTITURES
On November 3, 2000, the Company acquired BBA; total consideration
paid, including transaction costs, approximated $970.0 million. BBA operating
results are included in the Company's consolidated results from November 3,
2000.
The acquisition was accounted for as a purchase business combination;
the purchase price has been allocated to assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the estimated
40
value of tangible and identified intangible assets acquired was recorded as
goodwill. Other intangible assets include patents, trademarks and other
intellectual property owned or developed by BBA. The Company completed final
determination of the purchase price during 2001 when it established accruals
relating to employee separation costs, facility closure costs and other actions
relating to the integration of BBA into IFF. Such costs are a component of the
purchase accounting and do not directly impact current earnings.
As a result of finalizing acquisition accounting during 2001, the
Company increased tangible assets by $5.2 million, goodwill by $105.0 million
and decreased intangible assets by $22.8 million.
The following unaudited pro-forma results of operations give effect to
the BBA acquisition as if it had occurred as of January 1, 2000 and results
reflect the final acquisition accounting adjustments completed in 2001.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000
- --------------------------------------------------------------------------------
Net sales $1,880,612
Net income 80,953
Net income per share - basic $0.80
Net income per share - diluted $0.80
-----------
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
Allocation of purchase price:
Fair value of assets acquired, including goodwill,
net of cash $1,253,044
Cash paid for common stock and transaction costs (970,000)
----------
Liabilities assumed $283,044
==========
Movements in acquisition accounting accruals were as follows:
ASSET-
EMPLOYEE- RELATED
(DOLLARS IN THOUSANDS) RELATED AND OTHER TOTAL
- --------------------------------------------------------------------------------
Balance January 1, 2001 $ 4,103 $ 6,230 $ 10,333
Additional charges 41,012 24,961 65,973
Cash and other costs (31,259) (21,325) (52,584)
---------------------------------------
Balance December 31, 2001 13,856 9,866 23,722
Cash and other costs (7,850) (8,797) (16,647)
---------------------------------------
Balance December 31, 2002 $ 6,006 $ 1,069 $ 7,075
=======================================
The balance of the accruals is expected to be utilized in 2003 in
connection with the disposal of affected equipment and facilities, and as
severance obligations to affected employees are satisfied.
In October 2001, the Company sold its formulated fruit and vegetable
preparation businesses in the United States and Brazil. Sales for the business
up to the date of disposition were approximately $23.0 million with operating
profit of approximately $2.2 million. In connection with this transaction the
Company recorded a nonrecurring charge of $7.4 million related to employee
separation and other disposal costs. Proceeds from the sale, which were not
material, were used to reduce current borrowings.
In December 2001, the Company sold its aroma chemicals business located
in Widnes, the United Kingdom. This business was acquired as part of the BBA
purchase. Sales for the business up to the date of disposition were $36.7
million with operating profit of approximately $1.5 million. Proceeds from the
sale, which were not material, were used to reduce current borrowings. No gain
or loss was recognized as a result of this transaction.
The Company sold its concentrate business based in Oregon in June 2002.
Sales for the business up to the date of disposition were $9.4 million;
operating profit was not significant. In connection with this transaction, the
Company recorded a nonrecurring charge of $4.3 million related to employee
separation and other disposal costs. Proceeds from the sale, which were not
material, were used to reduce current borrowings.
NOTE 4. MARKETABLE SECURITIES
Marketable securities are included in cash equivalents or short-term
investments, as appropriate. At both December 31, 2002 and 2001, marketable
securities totaling $0.1 million were available for sale and recorded at fair
value that approximated cost. Realized gains and losses on the sale of
marketable securities were not material.
NOTE 5. INVENTORIES
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS) 2002 2001
- ------------------------------------------------------------------ ------------
Raw materials $222,161 $212,270
Work in process 12,680 10,853
Finished goods 186,762 192,861
-------- --------
$421,603 $415,984
======== ========
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS) 2002 2001
- ------------------------------------------------------------------ ------------
Land $ 35,249 $ 36,747
Buildings and improvements 221,899 278,603
Machinery, equipment and software 630,252 620,116
Construction in progress 62,814 40,164
-------- --------
950,214 975,630
Accumulated depreciation 429,715 443,157
-------- --------
$520,499 $532,473
======== ========
41
NOTE 7. INTANGIBLE ASSETS, NET
Effective January 1, 2002, the Company adopted FAS 142; adoption
eliminated annual goodwill amortization expense of approximately $33.0 million.
FAS 142 also prescribes that other indefinite-lived intangibles be included with
goodwill. In 2002, certain intangibles were reclassified as indefinite-lived
intangibles in accordance with the provisions of FAS 142. The following tables
reflect the reclassification of other indefinite-lived intangibles from
Trademarks and other to Goodwill on adoption of FAS 142 and the net income per
share effect of this change for the years ended December 31, 2002 and 2001.
Amortization expense for the year ended December 31, 2002 was $12.6 million;
estimated annual amortization from 2003 to 2006 is $12.6 million and $11.3
million in 2007.
During 2002, the Company completed its assessment of the impact of
adopting the impairment provisions of this standard, and concluded it has no
impairment of goodwill at this time.
DECEMBER 31, 2002
------------------------------
GROSS ACCUMULATED
(DOLLARS IN THOUSANDS) CARRYING VALUE AMORTIZATION
- --------------------------------------------------------------------------------
Goodwill $684,189 $41,534
Other indefinite-lived intangibles 19,200 1,184
Trademarks and other 149,786 27,754
------------------------
Total $853,175 $70,472
========================
DECEMBER 31, 2001
------------------------------
GROSS ACCUMULATED
(DOLLARS IN THOUSANDS) CARRYING VALUE AMORTIZATION
- --------------------------------------------------------------------------------
Goodwill $690,509 $41,534
Trademarks and other 163,251 16,306
---------------------------
Total $853,760 $57,840
===========================
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS -----------------------------
EXCEPT PER SHARE AMOUNTS) 2002 2001
- -------------------------------------------------------------- -----------
Reported net income $175,944 $116,002
Add back: Goodwill amortization -- 32,774
-------- --------
Adjusted net income $175,944 $148,776
======== ========
BASIC NET INCOME PER SHARE
Reported net income $1.86 $1.21
Goodwill amortization -- 0.34
----- -----
Adjusted net income $1.86 $1.55
===== =====
DILUTED NET INCOME PER SHARE
Reported net income $1.84 $1.20
Goodwill amortization -- 0.34
----- -----
Adjusted net income $1.84 $1.54
===== =====
NOTE 8. SALE AND LEASEBACK TRANSACTION
During 2002, the Company entered into agreements for the sale and
leaseback of its Hazlet and South Brunswick, New Jersey facilities. Under the
terms of the sale, the Company sold the land, building and associated
improvements at these facilities to an unrelated third party for $48.0 million
in cash. The net book value of these assets approximated $20.3 million. The gain
realized on the sale, approximating $26.7 million, has been deferred and will be
credited to income over the 22-year lease term. At December 31, 2002, the
unamortized portions of the deferred gain of $24.8 million and $1.2 million are
included in the balance sheet captions Retirement and other liabilities and
Other current liabilities, respectively. The lease agreements provide for
renewal options of up to 30 years. Payments under the leases approximate $4.2
million annually and commenced in July 2002. Total lease payments for 2002 were
$2.1 million and for 2003 to 2007 are $4.2 million annually; the aggregate lease
obligation is $92.4 million. The leases are classified as operating leases.
NOTE 9. BORROWINGS
Debt consists of the following at December 31:
(DOLLARS IN THOUSANDS) RATE MATURITIES 2002 2001
- ------------------------------------------------------------------ ------------
Commercial paper (U.S.) $ 37,979 $ 204,229
Bank loans 10,979 21,916
Current portion of
long-term debt 705 1,800
----------- -----------
Total current debt 49,663 227,945
----------- -----------
U.S. dollars 6.45% 2006 699,112 698,800
Euro facility 4.79% 2005-06 106,018 101,500
Japanese Yen notes 2.45% 2008-11 126,824 115,300
Japanese Yen notes 1.74% 2005 10,012 9,100
Other 2004-06 1,587 6,404
----------- -----------
943,553 931,104
Deferred realized
gains on interest
rate swaps 57,868 15,571
FAS 133 adjustment 5,664 (7,271)
----------- -----------
Total long-term debt 1,007,085 939,404
----------- -----------
Total debt $ 1,056,748 $ 1,167,349
=========== ===========
The Company utilizes commercial paper to supplement long-term
borrowings. At December 31, 2002, outstanding commercial paper had an effective
interest rate of 1.6% compared to 2.9% at December 31, 2001. Commercial paper
maturities did not extend beyond January 21, 2003.
42
In July 2002, the Company entered into a five-year Euro 350 million
(approximately $350.0 million at December 31, 2002), multi-currency revolving
credit facility agreement. The Company cancelled and repaid all borrowings under
an existing Euro 140 million credit facility.
In May 2001, the Company issued $700.0 million of 6.45% Notes; the
Notes mature May 15, 2006. In November 2001, the Company issued Yen 15.15
billion in seven-year and ten-year notes.
The Company reduced its U.S. revolving credit agreement to $500.0
million at December 31, 2001 from $1,300.0 million at December 31, 2000. This
revolving credit agreement was composed of a $200.0 million 364-day facility
and a $300.0 million five-year facility. On July 31, 2002, the Company exercised
an option under this U.S. revolving credit facility and cancelled the $200.0
million 364-day portion of the agreement; there were no borrowings under this
agreement. The remaining $300.0 million revolving credit facility extends to
September 2006. The revolving credit agreement is used as backstop for the U.S.
commercial paper program; there have been no borrowings under this agreement.
The Company compensates the banks participating in these credit facilities in
the form of fees, the amounts of which are not material.
Short-term bank loans were outstanding in several foreign countries and
averaged $16.7 million in 2002, compared with $36.4 million in 2001. The highest
levels were $52.2 million in 2002, $69.0 million in 2001 and $55.3 million in
2000, respectively. The 2002 weighted average interest rate of these foreign
bank loans, based on balances outstanding at the end of each month, was 5% and
the average rate on loans outstanding at December 31, 2002 was 4%. These rates
compare with 7% and 5%, respectively, in 2001 and 8% and 8% in 2000,
respectively.
Annual maturities on long-term debt outstanding at December 31, 2002
are as follows: 2003, $0.7 million; 2004, $1.0 million; 2005, $45.0 million;
2006, $770.0 million. At December 31, 2002, the estimated fair value of the
$700.0 million 6.45% Notes, including the interest rate swaps, was $761.6
million. The estimated fair value of the remaining long-term debt at December
31, 2002 and 2001, based on borrowing rates currently available to the Company
with similar terms and maturities, approximated the recorded amount.
Cash payments for interest were $61.6 million in 2002, $77.2 million in
2001 and $19.6 million in 2000.
At December 31, 2002, the Company and its subsidiaries had unused lines
of credit approximating $368.0 million in addition to the facility serving as
backstop to the Company's commercial paper program.
NOTE 10. INCOME TAXES
The following tables show the components of consolidated income before
taxes, and current and deferred income tax expense by taxing jurisdiction, both
domestic and foreign:
(DOLLARS IN THOUSANDS) 2002 2001 2000
- ------------------------------------------------- -------------------------
U.S. loss before taxes $ (8,918) $(59,390) $(33,183)
Foreign income before taxes 275,335 247,167 217,310
--------- -------------------------
Total income before taxes $266,417 $187,777 $184,127
========= =========================
(DOLLARS IN THOUSANDS) 2002 2001 2000
- ------------------------------------------------- -------------------------
Current
Federal $ 18,452 $ 7,507 $ (640)
State and local 1,884 3,816 381
Foreign 76,518 78,565 91,877
--------- -------------------------
96,854 89,888 91,618
--------- -------------------------
Deferred
Federal (19,496) (17,836) (20,543)
State and local (2,591) (5,821) (1,484)
Foreign 15,706 5,544 (8,469)
--------- -------------------------
(6,381) (18,113) (30,496)
--------- -------------------------
Total income taxes $ 90,473 $ 71,775 $ 61,122
========= =========================
At December 31, 2002 and 2001, gross deferred tax assets were $146.8
million and $115.7 million, respectively; gross deferred tax liabilities were
$77.2 million and $82.8 million, respectively. No valuation allowance was
required for deferred tax assets. At December 31, 2002, noncurrent deferred tax
assets of $2.5 million were included in Other assets. The principal components
of deferred tax assets (liabilities) were:
(DOLLARS IN THOUSANDS) 2002 2001
- ----------------------------------------------------------------- ------------
Employee and retiree benefits $ 71,700 $ 69,000
Inventory 5,800 2,500
Tax credit carryforwards 13,800 5,200
Property, plant and equipment (8,200) (8,000)
Trademarks and other (41,500) (52,400)
Interest 17,400 6,000
Foreign earnings (19,400) (17,600)
Other, net 30,000 28,200
-------- --------
$ 69,600 $ 32,900
======== ========
Of the Company's tax credit carryforwards, $6.3 million will expire, if
unused, beginning in 2005; the remaining $7.5 million can be carried forward
indefinitely.
43
A reconciliation between the U.S. federal income tax rate and the
effective tax rate is:
2002 2001 2000
- ----------------------------------------------------- ------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Difference in effective tax
rate on foreign earnings
and remittances 0.1 (1.4) (0.3)
State and local taxes (0.2) (0.7) (0.4)
Goodwill -- 6.0 0.9
Other, net (0.9) (0.7) (2.0)
----- --------------------
Effective tax rate 34.0% 38.2% 33.2%
===== =====================
Income taxes paid were $100.3 million in 2002, $88.6 million in
2001 and $81.0 million in 2000.
Undistributed earnings of foreign subsidiaries for which no deferred
taxes have been provided totaled $576.6 million at December 31, 2002. Any
additional U.S. taxes payable on these foreign earnings, if remitted, would be
substantially offset by credits for foreign taxes already paid.
NOTE 11. SHAREHOLDERS' EQUITY
In January 2001, the Company awarded approximately 190,000 IFF Stock
Units ("Units") to eligible employees in exchange for surrender of their "under
water" stock options. The Units vest, in four equal installments, over not more
than a seven-year period, upon the Company's common stock attaining successively
higher market price targets beginning at $22.50 per share, and earn dividend
equivalents as and when cash dividends are paid. Compensation expense is
recognized over the Units' vesting period. In 2001, the first two market price
targets were achieved and 50% of such Units vested; compensation expense of $1.7
million was recognized and included in operating expenses. In 2002, the third
price target of $31.50 was achieved and the Company recognized compensation
expense of $0.8 million which is included in operating expenses. The remaining
unvested Units are reported as Restricted stock on the Company's Consolidated
Balance Sheet.
On August 1, 2002, the Company's Board of Directors granted an award of
200,000 restricted shares of the Company's common stock. Entitlement to all or a
portion of the restricted award is subject to the Company's achieving certain
levels of shareholder return compared to those of a specified group of
companies, over the three, four and five year periods commencing August 1,
2002. Compensation expense relating to the award is recognized over the
restriction period.
On March 9, 2000, the Company adopted a shareholder protection rights
agreement (the "Rights Agreement") and declared a dividend of one right on each
share of common stock outstanding on March 24, 2000 or issued thereafter.
Under the Rights Agreement, as amended, until a person or group
acquires 15% or more of the Company's common stock or commences a tender offer
that would result in such person's or group's owning 15% or more, the rights are
evidenced by the common stock certificates, automatically trade with the common
stock and are not exercisable.
Thereafter, if the Company is involved in a merger or sells more than
50% of its assets or earning power, each right entitles its holder to purchase a
certain number of shares for a specified exercise price. Also, under certain
circumstances, the Company's Board of Directors has the option to redeem or
exchange one share of common stock for each right. Finally, in the event a new
Board of Directors is elected in a successful proxy contest, (i) the rights may
not be redeemed and no business combination with the Company can be effected for
180 days thereafter unless certain procedures are followed to ensure (A) that
steps are taken to maximize shareholder value, or (B) that any decision to
redeem the rights, if challenged, would meet an "entire fairness" test; and (ii)
the Rights Agreement may not be amended during such 180-day period. To establish
"entire fairness" in connection with a redemption, the new Board must be able to
demonstrate that all aspects of the redemption decision were fair, including the
redemption procedure and the financial terms of the redemption. The Rights
Agreement expires in March 2010.
Dividends paid per share were $0.60, $0.60, and $1.29, in 2002, 2001
and 2000, respectively.
The Accumulated other comprehensive income balance includes Cumulative
translation adjustments of ($138.2) million and ($156.3) million, Accumulated
gains or (losses) on derivatives qualifying as hedges of $0.7 million and ($2.3)
million, and Minimum pension liability of ($75.0) million and ($20.0) million,
in 2002 and 2001, respectively. Amounts are shown net of tax, where appropriate.
NOTE 12. STOCK PLANS
The Company has various stock option plans under which the Company's
officers, directors and key employees may be granted options to purchase the
Company's common stock at 100% of the market price on the day the option is
granted.
Options granted prior to May 2001 generally become exercisable no
earlier than two years after the date of grant and expire ten years after the
date of grant, except for options granted to two senior executives in 2000 and
certain other options granted to foreign employees, which may be exercised
immediately. Options granted in November 2000, however, constituting
approximately 17% of options outstanding (as of December 31, 2002), generally
become exercisable in four equal installments as corresponding
44
market price targets for the Company's common stock of $22.50, $27.00, $31.50
and $36.00 are attained, and expire seven years after the date of grant or
sooner if certain price levels (which differ among individuals) are achieved.
Options granted after May 1, 2001 generally become exercisable no
earlier than one year from the date of grant and expire 10 years after grant
date, except for options granted to certain foreign employees, which may be
exercised immediately.
During 2002, options to purchase common stock were granted at exercise
prices ranging from $28.77 to $34.22 per share. At December 31, 2002, the price
range for shares under option was $17.94 to $49.88; options for 4,292,202 shares
were exercisable at that date.
Stock plan transactions were:
SHARES OF COMMON STOCK WEIGHTED
-------------------------- AVERAGE
AVAILABLE UNDER EXERCISE
FOR GRANT OPTION PRICE
- --------------------------------------------------------------------------------
Balance January 1, 2000 1,658,004 4,580,174 $42.69
Granted (5,761,502) 5,761,502 24.13
Exercised -- (75,297) 21.46
Terminated 661,422 (661,422) 43.85
Lapsed (54,500) -- --
Increase under 2000 plans 9,450,000 -- --
--------------------------------------
Balance December 31, 2000 5,953,424 9,604,957 31.55
Granted (2,042,000) 2,042,000 27.06
Exercised -- (288,400) 17.94
Terminated 2,997,188 (2,997,188) 38.00
Lapsed (113,143) -- --
Reserved for Units (83,888) -- --
--------------------------------------
Balance December 31, 2001 6,711,581 8,361,369 28.37
Granted (2,899,950) 2,899,950 32.19
Exercised -- (1,356,964) 18.42
Terminated 154,947 (154,947) 31.40
Lapsed (1,735,856) (87,500) 34.57
Reserved for Units (50,710) -- --
Increase under existing plans 4,500,000 -- --
Restricted Stock award (200,000) -- --
--------------------------------------
Balance December 31, 2002 6,480,012 9,661,908 $30.66
======================================
The following table summarizes information concerning currently
outstanding and exercisable options:
RANGE OF EXERCISE PRICES
-------------------------------
$10-$30 $30-$50
- --------------------------------------------------------------------------------
Number outstanding 4,131,339 5,530,569
Weighted average remaining contractual
life, in years 8.2 7.4
Weighted average exercise price $23.47 $36.04
-------------------------------
Number exercisable 1,868,978 2,423,224
Weighted average exercise price $21.72 $39.65
===============================
Using the Black-Scholes option valuation model, the estimated fair
values of options granted during 2002, 2001 and 2000 were $10.07, $8.09, and
$5.50, respectively. The Black-Scholes model was developed for use in estimating
the fair value of traded options that have no vesting restrictions. In addition,
such models require the use of subjective assumptions, including expected stock
price volatility. In management's opinion, such valuation models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Principal assumptions used in applying the Black-Scholes model were as
follows:
2002 2001 2000
- ----------------------------------------------------- ---------------------
Risk-free interest rate 4.5% 4.6% 6.2%
Expected life, in years 5 5 5
Expected volatility 33.7% 32.2% 26.9%
Expected dividend yield 1.8% 2.2% 3.8%
===== ===================
NOTE 13. SEGMENT INFORMATION
The Company manages its operations by major geographical region.
Flavors and fragrances have similar economic and operational characteristics
including research and development, the nature of the creative and production
processes, the type of customers, and the methods by which products are
distributed. Accounting policies used for segment reporting are identical to
those described in Note 1.
The Company evaluates the performance of its geographic regions based
on operating profit, excluding interest expense, other income and expense,
certain unallocated expenses, amortization of goodwill, the effects of
nonrecurring items and accounting changes, and income tax expense ("segment
profit"). Transfers between geographic areas are accounted for at prices that
approximate arm's length market prices. Unallocated assets are principally
cash, short-term investments and other corporate assets.
The Company is divided into five geographic regions for management
purposes: North America, Latin America, Europe, Asia Pacific and India Region.
The Company's reportable segment information, based on geographic
region, follows. Certain prior year amounts have been reclassified for
comparative purposes to reflect geographic alignment and the adoption of FAS
142.
45
2002 NORTH INDIA LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE REGION AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 592,974 $ 695,384 $ 37,626 $ 216,938 $ 266,327 $ -- $ 1,809,249
Transfers between areas 86,089 127,830 1,766 1,022 17,126 (233,833) --
-------------------------------------------------------------------------------------------------
Total sales $ 679,063 $ 823,214 $ 39,392 $ 217,960 $ 283,453 $ (233,833) $ 1,809,249
=================================================================================================
Segment profit $ 81,888 $ 161,720 $ 9,311 $ 48,596 $ 52,619 $ 983 $ 355,117
=================================================================================
Corporate and other
unallocated expenses (43,518)
Nonrecurring charges (11,737)
Interest expense (37,036)
Other income (expense), net 3,591
-----------
Income before taxes on income $ 266,417
===========
Segment assets $ 789,642 $ 883,050 $ 55,088 $ 159,425 $ 357,908 $ (67,265) $ 2,177,848
=================================================================================
Unallocated assets 54,846
-----------
Total assets $ 2,232,694
===========
2001 NORTH INDIA LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE REGION AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 616,806 $ 682,574 $ 32,684 $ 245,517 $ 266,185 $ -- $ 1,843,766
Transfers between areas 83,115 134,862 2,698 1,678 16,620 (238,973) --
-------------------------------------------------------------------------------------------------
Total sales $ 699,921 $ 817,436 $ 35,382 $ 247,195 $ 282,805 $ (238,973) $ 1,843,766
=================================================================================================
Segment profit $ 86,928 $ 158,175 $ 7,857 $ 52,907 $ 58,798 $ 2,691 $ 367,356
=================================================================================
Corporate and other
unallocated expenses (48,624)
Amortization of goodwill (33,071)
Nonrecurring charges (30,069)
Interest expense (70,424)
Other income (expense), net 2,609
-----------
Income before taxes on income $ 187,777
===========
Segment assets $ 836,208 $ 803,011 $ 55,572 $ 197,365 $ 340,134 $ (41,916) $ 2,190,374
=================================================================================
Unallocated assets 77,677
-----------
Total assets $ 2,268,051
===========
2000 NORTH INDIA LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE REGION AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 470,953 $ 560,803 $ 4,069 $ 220,287 $ 206,683 $ -- $ 1,462,795
Transfers between areas 55,610 117,528 63 1,936 13,779 (188,916) --
-------------------------------------------------------------------------------------------------
Total sales $ 526,563 $ 678,331 $ 4,132 $ 222,223 $ 220,462 $ (188,916) $ 1,462,795
=================================================================================================
Segment profit $ 47,846 $ 161,126 $ 425 $ 38,914 $ 39,664 $ 1,762 $ 289,737
=================================================================================
Corporate and other
unallocated expenses (31,919)
Amortization of goodwill (5,032)
Nonrecurring charges (41,273)
Interest expense (25,072)
Other income (expense), net (2,314)
-----------
Income before taxes on income $ 184,127
===========
Segment assets $ 845,378 $ 883,614 $ 51,850 $ 231,455 $ 355,287 $ (31,737) $ 2,335,847
=================================================================================
Unallocated assets 153,186
-----------
Total assets $ 2,489,033
===========
46
CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION
---------------------------------------- ----------------------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2000 2002 2001 2000
- ---------------------------------------------------- ------------------------ -------- ------------------------
North America $ 23,129 $ 18,531 $ 30,586 $ 33,782 $ 33,784 $ 26,691
Europe 29,688 20,441 14,628 21,919 27,616 21,247
India Region 555 491 196 534 533 142
Latin America 3,206 1,559 4,806 3,067 4,628 5,154
Asia Pacific 8,445 4,571 7,500 7,447 7,749 5,975
Unallocated assets 16,792 6,423 2,980 5,078 49,183 10,135
-------- ------------------------ -------- ------------------------
Consolidated $ 81,815 $ 52,016 $ 60,696 $ 71,827 $123,493 $ 69,344
======== ======================== ======== ========================
Sales of fragrance products were $1,000.2 million, $1,008.1 million,
and $865.1 million in 2002, 2001 and 2000, respectively. Sales of flavor
products were $809.0 million, $835.7 million, $597.7 million in 2002, 2001 and
2000, respectively. Sales in the United States, based on the final country of
destination of the Company's products, were $544.3 million, $570.5 million,
$435.1 million in 2002, 2001 and 2000, respectively. No other individual country
of destination exceeded 8% of consolidated sales. No customer accounted for 10%
or more of sales in 2002 or 2001; the Company's largest customer accounted for
10% of sales in 2000. Total long-lived assets consists of net property, plant
and equipment and net intangible assets and amounted to $1,303.0 million,
$1,328.4 million, and $1,435.8 million at December 31, 2002, 2001 and 2000,
respectively; of the respective totals, $1,029.6 million, $1,071.1 million,
$1,055.5 million were located in the United States. No other individual country
had long-lived assets that exceeded 10% of total long-lived assets.
Net foreign exchange gains of $2.3 million in 2002 and $1.9 million in
2001, and losses of $1.9 million in 2000 are included in other income.
NOTE 14. RETIREMENT BENEFITS
The Company and most of its subsidiaries have pension and/or other
retirement benefit plans covering substantially all employees. Pension benefits
are generally based on years of service and on compensation during the final
years of employment. Plan assets consist primarily of equity securities and
corporate and government fixed income securities. Substantially all pension
benefit costs are funded as accrued; however, such funding is limited, where
applicable, to amounts deductible for income tax purposes. Certain other
retirement benefits are provided by balance sheet accruals. Contributions to
defined contribution plans are mainly determined as a percentage of profits.
Effective January 1, 2001, contributions to the Company's United States defined
contribution plan match 50% of the employee's pretax contributions, up to plan
limits.
In addition to pension benefits, certain health care and life insurance
benefits are provided to qualifying United States employees upon retirement from
the Company. Such coverage is provided through insurance plans with premiums
based on benefits paid. The Company does not generally provide health care and
life insurance coverage for retired employees of foreign subsidiaries; however,
such benefits are provided in most foreign countries by government-sponsored
plans, and the cost of these programs is not significant to the Company.
Pension expense included the following components:
U.S. PLANS NON-U.S. PLANS
-------------------------------- ---------------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2000 2002 2001 2000
- ----------------------------------------------------------------------- -------------------- -------- ---------------------
Service cost for benefits earned $ 7,874 $ 7,293 $ 5,104 $ 7,327 $ 9,552 $ 6,051
Interest cost on projected benefit obligation 19,091 18,351 14,151 21,339 24,306 9,471
Expected return on plan assets (23,506) (23,082) (16,757) (23,455) (27,691) (10,688)
Net amortization and deferrals (306) (1,347) (1,414) 2,923 679 777
-------- -------------------- -------- --------------------
Defined benefit plans 3,153 1,215 1,084 8,134 6,846 5,611
Defined contribution and other retirement plans 3,121 2,368 2,386 3,227 2,425 3,173
-------- -------------------- -------- --------------------
Total pension expense $ 6,274 $ 3,583 $ 3,470 $ 11,361 $ 9,271 $ 8,784
======== ==================== ======== =====================
47
Expense recognized for postretirement benefits included the following
components:
(DOLLARS IN THOUSANDS) 2002 2001 2000
- ------------------------------------------------------------------------------------------ ---------------------------
Service cost for benefits earned $2,034 $1,722 $1,500
Interest on benefit obligation 5,545 5,377 4,104
Net amortization and deferrals 532 508 13
------ ---------------------------
Total postretirement benefit expense $8,111 $7,607 $5,617
====== ===========================
Changes in pension and postretirement benefit obligations were:
U.S. PENSION PLANS NON-U.S. PENSION PLANS POSTRETIREMENT BENEFITS
---------------------- ---------------------- -----------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001 2002 2001
- ------------------------------------------------------------------ --------- --------- --------- --------- ----------
Benefit obligation at beginning of year $ 256,647 $ 250,354 $ 351,390 $ 333,691 $ 83,506 $ 68,832
Service cost for benefits earned 7,874 7,293 7,327 9,552 2,034 1,722
Interest cost on projected benefit obligation 19,091 18,351 21,339 24,306 5,545 5,377
Actuarial (gain) loss 18,934 (8,027) 7,921 (6,476) 6,488 9,651
Plan amendments 631 -- -- -- -- --
Plan participants' contributions -- -- 106 90 165 105
Benefits paid (15,400) (13,572) (18,025) (13,336) (5,455) (4,083)
Acquisitions -- -- -- 16,496 -- 1,902
Special termination benefits -- 2,248 -- 382 -- --
Translation adjustments -- -- 44,719 (13,315) -- --
--------- --------- --------- --------- --------- ---------
Benefit obligation at end of year $ 287,777 $ 256,647 $ 414,777 $ 351,390 $ 92,283 $ 83,506
========= ========= ========= ========= ========= =========
Changes in pension plan assets were:
U.S. PLANS NON-U.S. PLANS
-------------------------- ---------------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001
- -------------------------------------------------------------------------------- --------- --------- ----------
Fair value of plan assets at beginning of year $ 256,189 $ 287,375 $ 294,993 $ 347,346
Actual return on plan assets (31,143) (19,487) (34,702) (34,497)
Employer contributions 10,310 1,873 35,792 8,729
Plan participants' contributions -- -- 106 90
Benefits paid (15,400) (13,572) (18,025) (13,336)
Translation adjustments -- -- 36,001 (13,339)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 219,956 $ 256,189 $ 314,165 $ 294,993
========= ========= ========= =========
The funded status of pension and postretirement plans at December 31
was:
U.S. PENSION PLANS NON-U.S. PENSION PLANS POSTRETIREMENT BENEFITS
----------------------- ----------------------- -----------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001 2002 2001
- ------------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Plan assets (less than) projected
benefit obligation $ (67,821) $ (458) $(100,612) $ (56,397) $ (92,283) $ (83,506)
Remaining balance of unrecognized net (asset)
liability established at adoption of FAS 87 (286) (928) 676 811 -- --
Unrecognized prior service cost 8,867 9,101 3,861 3,802 (1,700) (1,842)
Unrecognized net (gain) loss 49,458 (24,654) 128,115 53,421 29,250 23,540
--------- --------- --------- --------- --------- ---------
Net asset (liability) $ (9,782) $ (16,939) $ 32,040 $ 1,637 $ (64,733) $ (61,808)
========= ========= ========= ========= ========= =========
48
Pension assets and liabilities included in the Consolidated Balance
Sheet at December 31 were:
U.S. PLANS NON-U.S. PLANS
-------------------- ----------------------
(DOLLARS IN THOUSANDS) 2002 2001 2002 2001
- ---------------------------------------- -------- -------- ---------
Prepaid benefit cost $ -- $ 6,408 $ 30,950 $ 281
Accrued benefit
liability (41,289) (23,650) (86,413) (30,869)
Accumulated other
comprehensive
income 23,301 303 85,693 27,940
Intangible asset 8,206 -- 1,810 4,285
======= ======== ======== ========
Principal weighted average actuarial assumptions used to determine the
above pension data were:
U.S. PLANS NON-U.S. PLANS
-------------------- ----------------------
2002 2001 2002 2001
- ---------------------------------------- -------- -------- ---------
Discount rate 6.7% 7.2% 5.5% 5.9%
Weighted average
rate of
compensation
increase 4.0% 4.5% 2.8% 3.2%
Long-term rate of
return on
plan assets 9.0% 9.0% 7.5% 7.5%
=== === === ===
Discount rates used for determining future pension obligations of
individual plans are based on a review of long-term bonds that receive a high
rating by a recognized rating agency. The weighted average rates of compensation
increase were determined based on actual data for the individual plans. For
purposes of determining the 2003 results for the U.S.-based plans, the long-term
rate of return will be 8.5%; this rate of return is based on an asset allocation
of approximately 35% fixed income, corporate and government bonds expected to
yield 5-7%, and 65% in equity investments that are expected to yield 9-11% in
the long term. The plan has employed a similar asset allocation strategy for the
prior fifteen-year period and has achieved a compound annual return of
approximately 9.4%. Similar assessments were made for all non-U.S. plans.
Principal actuarial assumptions used to determine the above
postretirement data were:
2002 2001
- ---------------------------------------------------------------- -----
Discount rate 6.7% 7.2%
Current medical cost trend rate 10.0% 10.0%
Ultimate medical cost trend rate 5.0% 5.0%
Medical cost trend rate decreases to
ultimate rate in year 2009 2007
==== ====
The effect of a 1% increase in the assumed medical rate of inflation
would increase the accumulated postretirement benefit obligation, and the annual
postretirement expense, by approximately $15.7 million and $1.6 million,
respectively; a 1% decrease in the rate would decrease the obligation and
expense by approximately $12.5 million and $1.3 million, respectively.
As described in Note 2, during 2000, the Company initiated two separate
voluntary retirement incentive programs for United States-based employees
meeting certain eligibility requirements. Those eligible employees who elected
to take the incentive received additional credit, for pension purposes, in terms
of age and service, as well as other benefits. Approximately 150 employees
accepted enhanced retirement benefits under these two programs and costs
relating thereto are reflected as special termination benefits above. The
special termination benefit of $2.2 million recognized during 2001 represents
the liability on account of social security supplemental benefit payments to be
made to those participants who elected to retire under the most recent window
program implemented during 2001.
The Company recorded a minimum pension liability of $94.2 million and
$27.0 million at December 31, 2002 and 2001, respectively, as required by
Financial Accounting Standards Board Statement No. 87. The adjustment is
reflected in Accumulated other comprehensive income and Retirement and other
liabilities, as appropriate, and is prescribed when the accumulated benefit
obligation in the plan exceeds the fair value of the underlying pension plan
assets and accrued pension liabilities. The adjustment relates to plans in the
United States, the United Kingdom, and Japan.
49
NOTE 15. FINANCIAL INSTRUMENTS
The Company has entered into a series of swaps effectively converting
the fixed $700.0 million 6.45% Notes coupon interest rate to a variable
short-term rate based upon the London InterBank Offered Rate (LIBOR) plus an
interest markup. Periodically, the Company has amended the swaps, changing the
short-term LIBOR basis and the related spread. As a result of these amendments
and changes, the counter-party paid the Company $56.5 million in 2002 and $19.9
million in 2001, including accrued swap interest of $6.5 million and $3.3
million, respectively. The net realized gains on the swaps have been deferred,
classified as a separate component of debt, and are being amortized to income
as a reduction in interest expense over the remaining term of the debt. In
addition, in 2002, the Company entered into a series of swaps to convert its
long-term Japanese Yen borrowings from fixed rate to short-term Japanese Yen
LIBOR rates. To the extent the Company has not received cash or otherwise
amended or settled any swap agreements, any applicable mark-to-market adjustment
relating to that swap is included as a separate component of debt and is
amortized over the remaining term of the underlying swap. These swaps are
designated as qualified fair value hedges. The Company had no ineffective
interest rate swaps at December 31, 2002.
The Company enters into foreign currency forward contracts with the
objective of reducing exposure to cash flow volatility associated with foreign
currency receivables and payables, and with anticipated purchases of certain raw
materials used in operations. These contracts, the counterparties to which are
major international financial institutions, generally involve the exchange of
one currency for a second currency at a future date, and have maturities which
do not exceed six months. The notional amount and maturity dates of such
contracts match those of the underlying transactions. At December 31, 2002 and
2001, the Company had outstanding foreign currency forward contracts with
notional amounts approximating $131.4 million and $97.3 million, respectively.
The Company has designated these contracts as qualified fair value and cash flow
hedges as appropriate. Accordingly, the effective portion of any gain or loss on
a derivative instrument reported as a cash flow hedge is reported as a component
of Accumulated other comprehensive income and recognized in earnings in the same
period or periods during which the hedged transaction affects earnings. The
Company had no ineffective foreign currency forward contracts at December 31,
2002 or 2001.
NOTE 16. CONCENTRATIONS OF CREDIT RISK
The Company has no significant concentrations of risk in financial
instruments. Temporary investments are made in a well-diversified portfolio of
high-quality, liquid obligations of government, corporate and financial
institutions. There are also limited concentrations of credit risk with respect
to trade receivables because of the large number of customers spread across many
industries and geographic regions.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under noncancellable operating leases for
office and warehouse facilities are $8.9 million in 2003, $7.9 million in 2004,
$6.5 million in 2005, $5.2 million in 2006, $4.4 million in 2007 and $4.2
million thereafter to 2024; the aggregate lease obligations are $102.3 million.
The corresponding rental expense amounted to $12.1 million and $2.2 million in
2002 and 2001, respectively; rental expense was not significant in 2000.
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 18. RELATED-PARTY TRANSACTIONS
At December 31, 2002 and 2001, the Company held a note receivable from
an executive officer, resulting from the exercise of a stock option. This note
bears interest, determined and payable quarterly, at the higher of a market rate
for such a loan by a third-party lender or the Company's weighted average cost
of borrowed funds. The applicable rate as of December 31, 2002 and 2001 was 3.3%
and 4.1%, respectively. The note is collateralized by 55,000 shares of common
stock and is due in full on the earlier of November 14, 2007, termination of
employment as an executive officer, or when and if the market value of the
collateral is less than 110% of the outstanding principal balance of the loan.
50
QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS NET INCOME PER SHARE(b)
EXCEPT PER ---------------------------------
SHARE AMOUNTS) NET SALES GROSS PROFIT NET INCOME(a) BASIC DILUTED
- -------------------------------------------- ----------------------- ----------------------- ------------- -----------------
Quarter 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001
- ------------------------------- ---------- ---------- ---------- ---------- ---------- ----- ----- ----- ---------
First $ 445,844 $ 483,661 $ 185,980 $ 199,522 $ 41,947 $ 20,272 $0.44 $0.21 $0.44 $ 0.21
Second 476,336 478,216 203,724 208,710 45,401 33,005 0.48 0.34 0.47 0.34
Third 462,777 462,719 201,702 194,088 49,599 33,555 0.52 0.35 0.52 0.35
Fourth 424,292 419,170 182,008 178,013 38,997 29,170 0.41 0.31 0.41 0.30
---------- ---------- ---------- ---------- ---------- ---------- ----- ----- ----- --------
$1,809,249 $1,843,766 $ 773,414 $ 780,333 $ 175,944 $ 116,002 $1.86 $1.21 $1.84 $ 1.20
========== ========== ========== ========== ========== ========== ===== ===== ===== ========
(a) Net income for the 2002 second and third quarters includes the after-tax
effects of certain charges of $6,091 and $1,654, respectively. Net income
for the 2001 first, second and third quarters includes the after-tax
effects of certain charges of $7,762, $5,663 and $5,676, respectively. See
Note 2 of the Notes to Consolidated Financial Statements for further
discussion.
(b) The sum of the 2002 quarters' basic net income per share does not equal the
earnings per share for the full year 2002 due to changes in average shares
outstanding.
STOCK PRICES
The Company's common stock is traded principally on the New York Stock
Exchange. The high and low stock prices for each quarter during the last two
years were:
2002 2001
- ------------------------------------------------------- ------------------------
Quarter High Low High Low
- ------------------------------------------------------- ------------------------
First $35.95 $27.33 $22.76 $19.75
Second 37.45 30.61 28.20 21.25
Third 32.90 26.05 31.60 24.97
Fourth 35.90 32.08 31.69 24.10
========= ========= ========= =========
51
FIVE-YEAR SUMMARY INTERNATIONAL FLAVORS & FRAGRANCES INC.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------ --------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME DATA
Net sales $ 1,809,249 $ 1,843,766 $ 1,462,795 $ 1,439,499 $ 1,407,349
----------- --------------------------------------------------------
Cost of goods sold 1,035,835 1,063,433 831,653 806,382 777,764
Research and development expenses 144,027 135,248 112,671 103,794 98,438
Selling and administrative expenses 305,156 313,335 258,653 248,047 224,393
Amortization of goodwill and other intangibles 12,632 46,089 7,032 -- --
Nonrecurring charges(a)(b)(c)(d) 11,737 30,069 41,273 32,948 --
Interest expense 37,036 70,424 25,072 5,154 2,042
Other (income) expense, net (3,591) (2,609) 2,314 (291) (6,356)
----------- --------------------------------------------------------
1,542,832 1,655,989 1,278,668 1,196,034 1,096,281
----------- --------------------------------------------------------
Income before taxes on income 266,417 187,777 184,127 243,465 311,068
Taxes on income 90,473 71,775 61,122 81,465 107,283
----------- --------------------------------------------------------
Net income $ 175,944 $ 116,002 $ 123,005 $ 162,000 $ 203,785
----------- --------------------------------------------------------
% of net sales 9.7 6.3 8.4 11.3 14.5
% of average shareholders' equity 32.0 20.1 16.5 18.0 20.9
Net income per share - basic $1.86 $1.21 $1.22 $1.53 $1.90
Net income per share - diluted $1.84 $1.20 $1.22 $1.53 $1.90
----------- --------------------------------------------------------
Average number of shares (thousands) 94,511 95,770 101,073 105,748 107,122
----------- --------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term investments $ 15,165 $ 48,905 $ 129,238 $ 62,971 $ 115,999
Receivables, net 338,607 340,358 364,314 303,418 283,480
Inventories 421,603 415,984 435,312 415,269 403,961
Property, plant and equipment, net 520,499 532,473 679,874 523,916 498,784
Intangible assets, net 782,703 795,920 755,923 -- --
Total assets 2,232,694 2,268,051 2,489,033 1,401,495 1,388,064
Bank loans and commercial paper 49,663 227,945 852,985 92,474 29,072
Long-term debt 1,007,085 939,404 417,402 3,832 4,341
Shareholders' equity 574,678 524,170 631,259 858,497 945,051
----------- --------------------------------------------------------
OTHER DATA
CURRENT RATIO 2.4 1.6 0.9 2.3 3.1
Gross additions to property, plant and equipment $ 81,815 $ 52,016 $ 60,696 $ 103,835 $ 91,690
Depreciation and amortization expense 84,458 123,493 69,344 56,369 49,006
Cash dividends declared 56,749 57,219 130,234 160,830 159,513
Per share $0.60 $0.60 $1.29 $1.52 $1.49
Number of shareholders of record at year-end 3,875 3,394 3,741 4,209 4,653
Number of employees at year-end 5,728 5,929 6,614 4,682 4,669
=========== ========================================================
(a) Nonrecurring charges ($7,745 after tax) in 2002 resulted from the Company's
reorganization program.
(b) Nonrecurring charges ($19,101 after tax) in 2001 resulted from the
Company's reorganization program.
(c) Nonrecurring charges ($26,765 after tax) in 2000 resulted from the
Company's reorganization program.
(d) Nonrecurring charges ($21,910 after tax) in 1999 resulted from the
Company's program to streamline its operations worldwide.
52
DIRECTORS
MARGARET HAYES ADAME J. MICHAEL COOK RICHARD A. GOLDSTEIN HENRY P. VAN AMERINGEN
President Chairman and Chairman of the Board and President
Fashion Group International Chief Executive Officer Emeritus Chief Executive Officer van Ameringen Foundation, Inc.
Deloitte & Touche, LLP Chairman,
GUNTER BLOBEL, M.D., PH.D. Chairman, Executive Committee WILLIAM D. VAN DYKE, III
Nobel Prize-winning Audit Committee Senior Vice President
Rockefeller University Professor ARTHUR C. MARTINEZ Salomon Smith Barney Inc.
associated with Howard PETER A. GEORGESCU Chairman and
Hughes Medical Institute Chairman Emeritus Chief Executive Officer Emeritus
Young & Rubicam Inc. Sears, Roebuck and Company
JAMES R. CANTALUPO* Chairman, Chairman, Nominating and
President and Compensation Committee Governance Committee
Vice Chairman Emeritus
McDonald's Corporation
*Retired from the board December 2002
OFFICERS AND SENIOR MANAGEMENT
RICHARD A. GOLDSTEIN CLINT D. BROOKS, PH.D. SOPHIA GROJSMAN NICOLAS MIRZAYANTZ
Chairman of the Board and Senior Vice President Vice President Vice President
Chief Executive Officer Research & Development Global Business Development -
STEVEN J. HEASLIP Fine Fragrances and Toiletries
GAIL S. BELMUTH ROBERT BURNS Senior Vice President
Vice President Vice President and Human Resources JOEL W. SHANE
Corporate Communications Regional Manager Vice President
Asia Pacific D. WAYNE HOWARD Global Business Development -
DEREK J. BENNETT Executive Vice President Aroma Chemicals and
Vice President JAMES H. DUNSDON Global Operations Ingredients
Global Operations - Vice President and
Fragrances Regional Manager STEVE HUANG, PH.D. THOMAS J. SKATRUD, PH.D.
North America Vice President Vice President
ARUN BEWOOR Global Operations - Global Operations -
Vice President and ROB J. M. EDELMAN Aroma Chemicals and Flavors
Regional Manager Vice President and Ingredients
India Region Regional Manager CHARLES D. WELLER
Europe JAMES P. HUETHER Treasurer
STEPHEN A. BLOCK Controller
Senior Vice President GRACIELA M. FERRO DOUGLAS J. WETMORE
General Counsel and Secretary Vice President and NEIL HUMPHREYS Senior Vice President and
Regional Manager Vice President Chief Financial Officer
JULIAN W. BOYDEN Latin America Global Creative & Application
Executive Vice President
New Business Development ROBERTO J. GORDON BRUCE S. LESKANIC
Vice President Vice President
Sales, Global Accounts Supply Chain Strategy
53
INVESTOR INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the offices of the
Company, 521 West 57th Street, New York, New York, on Tuesday, May 14, 2003 at
10:00 a.m., EDT.
A proxy statement and form of proxy will be mailed to each shareholder
on or about March 28, 2003.
FORM 10-K
A copy of the Company's report to the Securities and Exchange
Commission on Form 10-K will be available on or about March 28, 2003.
TRANSFER AGENT AND REGISTRAR
Wachovia Bank, National Association
Shareholder Services Group
1525 West W.T. Harris Boulevard, 3C3
Charlotte, NC 28288-1153
800-829-8432
equityservices@wachovia.com
www.wachovia.com/shareholderservices
LISTED
New York Stock Exchange
[GRAPHIC OMITTED]
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
WEB SITE
www.iff.com
54
[GRAPHICS OMITTED]
In December 2002, after
38 years at IFF, Dr. Braja D.
Mookherjee - one of our best -
passed away. He embodied
everything our Company strives
for and his effect on IFF
reached much farther than the
greenhouse he ran. His spirit
and inspiration live on at IFF,
and can be seen throughout
the pages of this book.
"When people ask me what
IFF is, I tell them that it is
a combination of very different
people with the same
objective: to wake up the
senses, to provoke emotions,
to liberate the inner magic."
"The biggest improvement
I have seen lately at IFF is that
we are getting more organ-
ized and better prepared to
face stiffer competition and
new challenges."
"I like working at IFF because
we work as a team; we are
full of passion, enthusiasm,
excitement, commitment, and
action that we all put into our
everyday tasks."
"When people ask me what IFF
is, I tell them imagine a flavor
or a fragrance and you will
have it in your hand."
"When people ask me what IFF
does, I tell them we influence
people's taste buds."
"IFF is unique because we
create, and creating is the
essence of evolution."
"We might be an international
Company but we're still allowed
to have an Australian style."
"I like working at IFF because
there is always a new chal-
lenge to face. It's learning from
successes and sometimes the
failures in these challenges
that help both the individual
and the Company to continue
to strive for excellence."
55
IFF WORLDWIDE LOCATIONS
SALES MANUFACTURING CREATIVE
OFFICE LABORATORY
- --------------------------------------------------------------------------------
NORTH AMERICA
Canada/Toronto O O O
USA/Augusta, GA O
USA/Carrollton, TX O O O
USA/Chicago, IL O
USA/Hazlet, NJ O O O
USA/Jacksonville, FL O O
USA/Menomonee Falls, WI O
USA/New York, NY* O O
USA/South Brunswick, NJ O O O
USA/Union Beach, NJ O O
LATIN AMERICA
Argentina/Garin O O O
Brazil/Rio de Janeiro O
Brazil/Sao Paulo O O
Brazil/Taubate O O
Colombia/Bogota O O
Mexico/Tlalnepantla (Mexico City) O O O
ASIA PACIFIC
Australia/Melbourne O O O
Australia/Castle Hill (Sydney) O O O
China/Beijing O
China/Guangzhou O O
China/Hong Kong O
China/Shanghai O O
China/Xin'anjiang (Hangzhou) O O
Indonesia/Jakarta O O O
Japan/Gotemba O
Japan/Osaka O
Japan/Tokyo O O
Korea/Seoul O O
New Zealand/Auckland O O O
Philippines/Manila O O O
Singapore O O
Singapore/Jurong O O
Thailand/Bangkok O O O
SALES MANUFACTURING CREATIVE
OFFICE LABORATORY
- --------------------------------------------------------------------------------
INDIA REGION
India/Bangalore O
India/Calcutta O
India/Chennai O O O
India/Chittoor O
India/Delhi O
India/Mumbai O O
EUROPE
Bulgaria/Sofia O
Czech Republic/Prague O
Egypt/Cairo O O O
France/Bois-Colombes (Paris) O O
France/Dijon O O O
France/Grasse O O O
Germany/Emmerich O O O
Germany/Hamburg O
Germany/Oberhausen O O
Ireland/Drogheda O O
Israel/Tel Aviv O
Italy/Milan O O
The Netherlands/Hilversum O O
The Netherlands/Tilburg O
Norway/Oslo O
Poland/Warsaw O O
Slovakia/Bratislava O
South Africa/Johannesburg O O O
Spain/Barcelona O O
Spain/Benicarlo O O
Spain/Madrid O
Sweden/Knislinge O O O
Switzerland/Reinach-Aargau O O O
Turkey/Gebze O O O
Turkey/Istanbul O
United Kingdom/Haverhill O O O
United Kingdom/London O
* Global Headquarters
Names in ( ) indicate nearest large city
IFF INTERNATIONAL FLAVORS & FRAGRANCES INC.
GLOBAL HEADQUARTERS
521 West 57th Street New York, NY 10019
T 212 765 5500 www.iff.com