SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 27, 2005
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INTERNATIONAL FLAVORS & FRAGRANCES INC.
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(Exact Name of Registrant as Specified in Charter)
New York 1-4858 13-1432060
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
521 West 57th Street, New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
Attached and being furnished hereby as Exhibit 99.1 is a copy of a press
release of International Flavors & Fragrances Inc. ("IFF" or "the Company")
dated April 27, 2005 reporting IFF's financial results for the first quarter of
2005.
The discussion of the Company's historical results and its commentary regarding
expected future results include and, where indicated, exclude the impact of
sales and operating results attributable to certain non-core businesses disposed
of in 2004, the impact of certain restructuring and other charges recorded in
2004, as well as the effects of exchange rate fluctuations. Such information is
supplemental to information presented in accordance with generally accepted
accounting principles (GAAP) and is not intended to represent a presentation in
accordance with GAAP. In discussing its historical and expected future results
and financial condition, the Company believes it is meaningful for investors to
be made aware of and to be assisted in a better understanding of, on a
period-to-period comparative basis, the impact of sales and operating results
attributable to the businesses disposed of, the relative impact of the
restructuring and other charges, as well as ongoing exchange rate fluctuations
on the Company's operating results and financial condition. The Company believes
that this additional non-GAAP information provides investors with an overall
perspective of the period-to-period performance of the Company's core business.
In addition, management internally reviews each of these non-GAAP financial
measures to evaluate performance on a comparative period-to-period basis in
terms of absolute performance, trends and expected future performance with
respect to its core continuing business.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release of International Flavors & Fragrances Inc.,
dated April 27, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: April 27, 2005
By: /s/ Douglas J. Wetmore
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Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
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99.1 Press Release of International Flavors & Fragrances Inc.,
dated April 27, 2005.
FOR IMMEDIATE RELEASE
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IFF REPORTS FIRST QUARTER RESULTS
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UPDATES 2005 GUIDANCE
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New York, N.Y., April 27, 2005... International Flavors & Fragrances Inc. (NYSE:
IFF) ("IFF" or "the Company") reported earnings per share for the first quarter
2005 of $.55 compared to $.59 for the prior year quarter. The 2004 first quarter
results included the sales and operating results of the European fruit
preparations business disposed of in 2004; excluding such results, 2004 first
quarter earnings per share would have been $.57.
First Quarter 2005
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First quarter 2005 sales totaled $523 million, declining 2% in comparison to the
prior year quarter. Reported sales for the 2005 quarter benefited from the
strengthening of various currencies in relation to the U.S. dollar; had exchange
rates remained constant, sales for the quarter would have decreased 4% in
comparison to the prior year quarter. Fragrance sales increased 4% while flavor
sales decreased 9%; on a local currency basis, fragrance sales grew 1% while
flavor sales declined 11%.
Flavor sales in the 2005 quarter were impacted by the disposition, in the second
half of 2004, of the Company's European fruit preparations business. On an
as-adjusted basis, excluding sales attributable to the European fruit business
from the 2004 quarterly results, 2005 flavor sales would have increased 1% in
dollars and declined 1% in local currency. On the same as - adjusted basis,
consolidated sales would have increased 2% in reported dollars and been flat in
local currency. Flavor sales, most notably in North America and Europe, were
also unfavorably impacted by lower selling prices for naturals, mainly vanilla.
"During the quarter, we achieved a number of new wins and continued to see
strong sales trends in many of the markets we have targeted for growth. However
we, like others in our industry, continue to face challenges brought on by
increased raw material costs and resistance to price increases. By remaining
focused on innovation, superior service, and operating discipline, I am
confident that we can continue to differentiate ourselves from our competitors
and drive market share gains to create value for our shareholders," said Richard
A. Goldstein, Chairman and Chief Executive Officer of IFF.
Fragrance sales were led by fine fragrance which increased 12% in dollars and 9%
in local currency; the fine fragrance performance reflected the benefit of a
number of new product wins. Chemical sales increased 3% in dollars and 1% in
local currency while sales of functional fragrance products declined 1% in
dollars and 3% in local currency.
Sales performance by region for the 2005 quarter compared to the prior year
quarter follows:
- North America flavor and fragrance sales declined 7% and 3%, respectively;
in total, regional sales declined 5%. Aroma chemical sales increased 8%,
while fine and functional fragrance sales declined 5% and 7%, respectively.
Flavor sales had a difficult comparative with the first quarter of 2004
when sales grew 18%.
- European fragrance sales increased 8% while flavor sales declined 22%; in
total, regional sales declined 5%. Reported sales benefited from the
strength of the Euro and Pound Sterling; local currency sales declined 10%.
Local currency fragrance sales increased 3%; fine fragrance sales increased
17%, driven mainly by new wins, offset by respective decreases of 6% and 4%
in functional fragrances and aroma chemicals. Local currency flavor sales
declined 26%, mainly as a result of the disposition of the Company's
European fruit preparations business. On an as-adjusted basis, excluding
sales attributable to the European fruit business from the 2004 results,
2005 flavor sales would have increased 4% in dollars and been flat in local
currency.
- Local currency sales in Asia Pacific increased 2% in both flavors and
fragrances, resulting in a 4% increase in reported dollar sales. Local
currency fragrance sales increased 2% led by a 4% increase in fine
fragrances and a 12% increase in aroma chemicals; functional fragrance
sales declined 3%. Local currency flavor sales increased 2%, resulting in a
5% increase in reported dollars. For the region, the Philippines, Vietnam
and Indonesia were strongest, with respective local currency flavor sales
increases of 9%, 32% and 27%. This strong growth was partially offset by
weakness in Japan, South Korea and Australia which declined 5%, 22% and
9%, respectively.
- Latin American sales increased 5% with fragrance and flavor sales
increasing 5% and 6%, respectively. For the region, sales growth was
strongest in Argentina, Brazil and Mexico which grew 14%, 7% and 6%,
respectively. Fragrance sales were strongest in Argentina, Brazil and
Central America, with respective increases of 16%, 7% and 18%. Fragrance
sales growth was led by a 12% increase in fine fragrance sales and a 4%
increase in functional fragrances; aroma chemical sales declined 7%. Flavor
sales were led by 36%, 11% and 8% increases in Mexico, Argentina and
Brazil, respectively.
- India sales increased 13% in local currency and 14% in reported dollars.
Local currency fragrance sales increased 10% resulting in a 12% increase in
dollars. Flavor sales increased 17% in both local currency and dollars. In
both flavors and fragrances, the sales performance reflected the benefit of
new product introductions.
Net income for the quarter decreased 7% in comparison to the prior year quarter.
The decline in net income was partially due to the disposition of the European
fruit business; 2004 results included income approximating $2.2 million
attributable to this business. Proceeds from the disposition were used to reduce
debt but profits related to the Fruit business were not replaced by interest
expense savings. Gross profit, as a percentage of sales, was 41.0% compared to
42.7% in the prior year quarter. The gross margin performance was mainly
attributable to increased raw material costs and customer resitance to price
increases, as well as declining selling prices for naturals, most notably
vanilla. Gross margin was also impacted by lower expense absorbtion attributable
to the facility closure in Dijon and the transfer of related production to other
manufacturing locations; production at the Dijon facility ceased in March.
Research and Development ("R&D") expenses totaled 8.6% of sales compared to 8.3%
in the prior year quarter, consistent with the Company's intended level of R&D
spending. Selling, General and Administrative ("SG&A") expenses, as a percentage
of sales, decreased to 16.2% from 16.8%. SG&A expenses include $2.5 million of
equity compensation expense for which there was no comparable expense included
in the 2004 first quarter results. However, this added expense was offset mainly
by lower accruals under the Company's various incentive plans than in the prior
year quarter. Interest expense declined 14% from the prior year quarter due to
lower average borrowings in the 2005 quarter compared to the prior year quarter;
the average rate on borrowings for the 2005 quarter was 3.2% compared to 3.0%
for the 2004 quarter. The effective tax rate for the quarter was 31.2%, compared
to 31.5% in the 2004 quarter.
Outlook for 2005 updated
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Consistent with previous guidance, IFF expects 2005 local currency sales to
increase in the low-single digits in comparison to 2004 sales as reported; based
on current exchange rates, such local currency growth is expected to result in a
low to mid-single digit increase in reported dollars. For purposes of this
comparison, 2004 sales include $58 million of sales attributable to the European
fruit preparations business. Excluding fruit sales from the 2004 comparative,
IFF expects 2005 local currency sales to increase in the low to mid-single
digits in comparison to 2004; based on current exchange rates, this local
currency growth is expected to result in a mid-single digit increase in reported
dollars.
Gross profit as a percentage of sales is expected to remain at approximately the
same levels as reported for the first quarter 2005. Manufacturing expenses are
expected to benefit from the elimination of duplicate costs related to the
shutdown of the Dijon facility. However, margins are expected to remain under
pressure due to anticipated increased supply chain costs as well as expected
delays in fully implementing price increases. Research and development expenses
are expected to approximate 9% of sales, consistent with the Company's intended
level of R&D spending. R&D spending will increase somewhat as a percentage of
sales in comparison to 2004, mainly as a result of the elimination of the fruit
preparations business; relative to other parts of the business, fruit
preparations required less R&D as a percentage of sales. In 2005, SG&A expenses,
as a percentage of sales, are expected to increase somewhat from 2004 levels,
mainly from inclusion of an expected $12.0 - $14.0 million in equity
compensation expense in 2005, compared to $5.0 million of such expense in 2004.
In May 2004, the Company began using Restricted Stock Units ("RSU's"), rather
than stock options, as an element of the Company's incentive compensation plans
for all eligible U.S. - based employees and a majority of eligible overseas
employees. Vesting of the RSU's for the Company's senior management is
performance and time based; for the remainder of eligible employees, vesting is
time based (generally over a three year period). The actual expense will depend
upon the value of the Company's stock and the number of RSU's granted. Interest
expense is expected to decline 10% - 12% from 2004. The Company expects the
effective tax rate in 2005 to approximate 31.2%. This tax rate does not
contemplate the effect, if any, that may arise as a result of repatriation from
overseas subsidiaries as envisioned under the American Jobs Creation Act of
2004; the Company expects to determine the amounts and sources, if any, of
foreign earnings to be repatriated in the second half of 2005.
Primarily as a result of the anticipated supply chain cost increases and
expected timing in implementing price increases, IFF now expects earnings per
share for 2005 to be in the range of $2.20 to $2.35 compared to $2.05 reported
in 2004. Excluding restructuring and other charges representing $.22 per share,
2004 results per share were $2.27.
About IFF
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IFF is a leading creator and manufacturer of flavors and fragrances used in a
wide variety of consumer products-from fine fragrances and toiletries, to soaps,
detergents and other household products, to beverages and food products. IFF is
dedicated to The Pursuit of Excellence in every area of its business, using
knowledge, creativity, innovation and technology to continually provide
customers with the highest quality products and service and superior consumer
understanding.
IFF has sales, manufacturing and creative facilities in 31 countries worldwide.
For more information, please visit our Web site at www.iff.com.
Cautionary Statement Under the Private Securities Litigation Reform Act of 1995
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Statements in this 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. Certain of such
forward-looking information may be identified by such terms as "expect,"
"believe," "may," and similar terms or variations thereof. All information
concerning future revenues, tax rates or benefits, interest savings, and other
future financial results or financial position, constitutes forward-looking
information. 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,
population health and political uncertainties; interest rates; the price,
quality 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 the 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.
Conference call
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There will be a conference call today at 10:00 AM Eastern Time, at which time
the Company will discuss operating results for the 2005 first quarter, and its
current expectations for 2005. The dial in number for U.S.-based participants is
1-800-811-7286; for international participants, the number is 1-913-981-4902.
The pass code for the call is 1304290.
A replay of the conference call will be available from 1:00 PM Eastern Time
beginning on Wednesday April 27, 2005 and ending at Midnight on Wednesday, May
11. The dial in number for the replay for U.S.-based listeners is
1-888-203-1112; for international listeners, the number is 1-719-457-0820. The
replay pass code will be 1304290.
The call can also be monitored via the World Wide Web at www.iff.com. Real
Network's Real Player or Microsoft Media Player is required to access the
webcast. They can be downloaded from www.real.com or
www.microsoft.com/windows/mediaplayer. A replay of the conference call will be
available on the Company's website for twelve months.
Contact
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Douglas J. Wetmore
Senior Vice President and Chief
Financial Officer
Phone: 212-708-7145
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International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
Quarter Ended March 31,
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As reported Adjustments As-adjusted
2004 (A) 2004 2005
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Net sales $535,015 $24,616 $510,399 $523,052
Cost of goods sold 306,786 18,927 287,859 308,397
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Gross margin on sales 228,229 5,689 222,540 214,655
Research & development 44,648 627 44,021 44,753
Selling and administrative 89,726 1,777 87,949 84,744
Amortization 3,699 - 3,699 3,768
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90,156 3,285 86,871 81,390
Interest expense (6,457) - (6,457) (5,576)
Other income (expense), net (1,425) - (1,425) 556
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Pretax income 82,274 3,285 78,989 76,370
Income taxes 25,916 1,035 24,881 23,827
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Net income $ 56,358 $ 2,250 $ 54,108 $ 52,543
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Net income $ 56,358 $ 2,250 $ 54,108 $52,543
Earnings per share - basic $.60 $.02 $.58 $.56
Earnings per share - diluted $.59 $.02 $.57 $.55
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(A) Adjustments reflect elimination of sales and operating results of the
European fruit preparations business for the period presented. Additional
details regarding as-adjusted information are contained in a January 25, 2005
Form 8K filed with the SEC and are also available via the Company's website.
International Flavors & Fragrances Inc.
Consolidated Condensed Balance Sheet
(Amounts in thousands)
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December 31, 2004 March 31, 2005
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Cash & short-term investments $ 32,995 $ 23,175
Receivables 358,361 397,580
Inventories 457,204 441,798
Other current assets 112,810 110,698
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Total current assets 961,370 973,251
Property, plant and equipment, net (1,2) 501,334 491,721
Goodwill and other intangibles, net 789,676 785,908
Other assets 110,914 122,465
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Total assets $2,363,294 $2,373,345
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Commercial paper/bank borrowings and overdrafts $ 15,957 $ 68,754
Other current liabilities 383,565 343,905
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Total current liabilities 399,522 412,659
Long-term debt (3) 668,969 660,862
Non-current liabilities 384,316 397,316
Shareholders' equity 910,487 902,508
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Total liabilities and shareholders' equity $2,363,294 $2,373,345
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Notes:
1. Capital spending - $16 million
2. Depreciation - $19 million
3. At December 31, 2004 and March 31, 2005 long-term debt includes
unamortized gains and FAS 133 mark to market adjustments of $23.8 million
and $20.5 million, respectively, on various interest rate swaps the Company
has entered into; such gains have been deferred and are being amortized
over the remaining term of the underlying debt and the mark to market
adjustment is recorded each quarter.
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Average Shares Outstanding (in thousands) 2004 2005
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Basic 94,033 94,325
Diluted 95,126 96,025
Quarter ended March 31, 2005 As Reported
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% Change in Sales by Area of Destination Fragrances Flavors Total
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North America (3) (7) (5)
Europe - Reported 8 (22) (5)
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Europe - Local Currency 3 (26) (10)
Latin America 5 6 5
Asia Pacific - Reported 3 5 4
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Asia Pacific - Local Currency 2 2 2
India - Reported 12 17 14
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India - Local Currency 10 17 13
Total - Reported 4 (9) (2)
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Total - Local Currency 1 (11) (4)
Quarter ended March 31, 2005 Compared to 2004 As-Adjusted
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Excluding Sales Attributable to European Fruit Preparations Business
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% Change in Sales by Area of Destination Fragrances Flavors Total
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North America (3) (7) (5)
Europe - Reported 8 4 6
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Europe - Local Currency 3 - 1
Latin America 5 6 5
Asia Pacific - Reported 3 5 4
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Asia Pacific - Local Currency 2 2 2
India - Reported 12 17 14
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India - Local Currency 10 17 13
Total - Reported 4 1 2
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Total - Local Currency 1 (1) -