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<SEC-DOCUMENT>0000950136-04-000700.txt : 20040311
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<ACCEPTANCE-DATETIME>20040311110226
ACCESSION NUMBER: 0000950136-04-000700
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20031231
FILED AS OF DATE: 20040311
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INTERNATIONAL FLAVORS & FRAGRANCES INC
CENTRAL INDEX KEY: 0000051253
STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860]
IRS NUMBER: 131432060
STATE OF INCORPORATION: NY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04858
FILM NUMBER: 04662042
BUSINESS ADDRESS:
STREET 1: 521 W 57TH ST
CITY: NEW YORK
STATE: NY
ZIP: 10019
BUSINESS PHONE: 2127655500
MAIL ADDRESS:
STREET 1: 521 W 57TH ST
CITY: NEW YORK
STATE: NY
ZIP: 10019
FORMER COMPANY:
FORMER CONFORMED NAME: VANAMERIGEN HAEBLER INC
DATE OF NAME CHANGE: 19680426
</SEC-HEADER>
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<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003 Commission File Number 1-4858
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-1432060
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
521 WEST 57TH STREET, NEW YORK, N.Y. 10019
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (212) 765-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, par value New York Stock Exchange
12 1/2(cent) per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [X] No [ ].
For the purpose of reporting the following market value of Registrant's
outstanding common stock, the term "affiliate" refers to persons, entities or
groups which directly or indirectly control, are controlled by, or are under
common control with the Registrant and does not include individual executive
officers or directors or under 10% shareholders. The aggregate market value of
Registrant's common stock not held by affiliates as of June 30, 2003 was
$2,988,954,273.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of February 1, 2004:
93,985,484 shares of Common Stock, par value 12 1/2(cent) per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be sent to shareholders in
connection with the 2004 Annual Meeting (the "IFF 2004 Proxy Statement") are
incorporated by reference in Part III of this Form 10-K.
================================================================================
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business 3
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 10
ITEM 4. Submission of Matters to a Vote of Security Holders 11
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Security Holder Matters 12
ITEM 6. Selected Financial Data 13
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 31
ITEM 8. Financial Statements and Supplementary Data 31
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
ITEM 9A. Controls and Procedures 32
PART III
ITEM 10. Directors and Executive Officers of the Registrant 33
ITEM 11. Executive Compensation 33
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 33
ITEM 13. Certain Relationships and Related Transactions 33
ITEM 14. Principal Accountant Fees and Services 33
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34
SIGNATURES 65
2
<PAGE>
PART I
ITEM 1. BUSINESS.
International Flavors & Fragrances Inc., incorporated in New York in 1909
(the "Registrant" or "Company"), is a leading creator and manufacturer of flavor
and fragrance products used by other manufacturers to impart or improve flavor
or fragrance in a wide variety of consumer products. Fragrance products are sold
principally to manufacturers of perfumes, cosmetics, toiletries, hair care
products, deodorants, soaps, detergents and air care products; flavor products
are sold principally to manufacturers of prepared foods, beverages, dairy foods,
pharmaceuticals and confectionery products.
The present worldwide scope of the Company's business is in part the result
of the 1958 combination of (i) the business conducted prior to the combination
primarily in the United States by the Company under the name van
Ameringen-Haebler, Inc. ("VAH") with (ii) the business conducted prior to the
combination primarily in Europe by N. V. Polak & Schwarz's Essencefabrieken, a
Dutch corporation ("P & S"). The P & S enterprise, founded in Holland in 1889,
was also engaged in the manufacture and sale of flavor and fragrance products,
with operations in a number of countries where VAH was not an important factor.
In October 2000, the Company implemented a global reorganization under the
broad umbrellas of Business Development and Operations, rather than separate
divisions for flavors and fragrances. The responsibilities of Business
Development, whose purpose is to drive top line growth of the Company, include
category strategy, consumer research, product development, global sales and
marketing, research and development coordination and technical application. The
responsibilities of Operations, whose focus is on product delivery, product
planning and increasing productivity, include global supply chain,
manufacturing, customer service, quality control, logistics and distribution.
The Company has a Regional Manager covering each major geographical region of
the world. The Regional Managers work with and are supported by both Business
Development and Operations. The financial information concerning reporting
segments is presented in the accompanying financial statements.
In November 2000, the Company acquired Bush Boake Allen Inc. ("BBA"), an
international flavor, fragrance and aroma chemical company with worldwide annual
sales of $499 million. This acquisition enhanced the Company's position as a
global leader in flavor markets, strengthened the Company's already leading
global fragrance position, expanded the Company's product line and customer
base, particularly in certain emerging markets, and broadened and enhanced the
Company's management pool.
The Company currently has 34 manufacturing facilities with the major
manufacturing facilities located in the United States, France, Great Britain,
Ireland, The Netherlands, Spain, Switzerland, Argentina, Brazil, Mexico, India,
Australia, China, Indonesia, Japan and Singapore. The remaining manufacturing
facilities are located in 9 other countries. The Company maintains its own sales
and distribution facilities in 34 countries and is represented by sales agents
in other countries. The Company's principal executive offices are located at 521
West 57th Street, New York, New York 10019 (212-765-5500). Except as the context
otherwise indicates, the term "the Company" as used in this report refers to the
Registrant and its subsidiaries.
Markets
Fragrance products are used by customers in the manufacture of consumer
products such as soaps, detergents, cosmetic creams, lotions and powders,
lipsticks, after-shave lotions, deodorants, hair preparations, candles, air
fresheners and all-purpose cleaners, as well as in other consumer products
designed solely to appeal to the sense of smell, such as perfumes and colognes.
The cosmetics industry, including perfume and toiletries manufacturers, is one
of the Company's two largest fragrance customer groups. Most of the major United
States companies in this industry are customers of the Company, and five of the
largest United States cosmetics companies are among its principal customers. The
household products industry, including soaps and detergents, is the other
important
3
<PAGE>
fragrance customer group. Four of the largest United States household product
manufacturers are major customers of the Company. In the three years ended
December 31, 2003, sales of fragrance products accounted for approximately 54%,
55% and 55%, respectively, of the Company's total sales on a reported basis.
Flavor products are sold principally to the food and beverage industries
for use in consumer products such as soft drinks, candies, baked goods,
desserts, prepared foods, dietary foods, dairy products, drink powders,
pharmaceuticals, snack foods and alcoholic beverages. Two of the Company's
largest customers for flavor products are major producers of prepared foods and
beverages in the United States. In the three years ended December 31, 2003,
sales of flavor products accounted for approximately 46%, 45% and 45%,
respectively, of the Company's total sales on a reported basis.
Products
The Company's principal fragrance and flavor products consist of compounds
of large numbers of ingredients blended under proprietary formulas created by
its perfumers and flavorists. Most of these compounds contribute the total
fragrance or flavor to the consumer products in which they are used. This
fragrance or flavor characteristic is often a major factor in the public
selection and acceptance of the consumer end product. A smaller number of
compounds is sold to manufacturers who further blend them to achieve the
finished fragrance or flavor in their products. The Company produces thousands
of compounds, and new compounds are constantly being created in order to meet
the many and changing characteristics of its customers' end products. Most of
the fragrance and flavor compounds are created and produced for the exclusive
use of particular customers. The Company's products are sold in solid and liquid
forms and in amounts ranging from a few pounds to many tons, depending upon the
nature of the product.
The ingredients used by the Company in its compounds are both synthetic and
natural. The Company manufactures most of the synthetic ingredients. While the
major part of the Company's production of synthetic ingredients is used by it in
its compounds, a substantial portion is sold to others. The natural ingredients
are derived from flowers, fruits and other botanical products as well as from
animal products. They contain varying numbers of organic chemicals, which are
responsible for the fragrance or flavor of the natural product. The natural
products are purchased for the larger part in processed or semi-processed form.
Some are used in compounds in the state in which they are purchased and others
after further processing. Natural products, together with various chemicals, are
also used as raw materials for the manufacture of synthetic ingredients by
chemical processes. The Company's flavor products also include extracts and
seasonings derived from various fruits, vegetables, nuts, herbs and spices as
well as microbiologically-derived ingredients.
Market Developments
The demand for consumer products utilizing flavors and fragrances has been
stimulated and broadened by changing social habits resulting from various
factors such as increases in personal income, employment of women, teenage
population, leisure time, health concerns and urbanization and by the continued
growth in world population. In the fragrance field, these developments have
expanded the market for hair care, candles and air care products and deodorant
and personal wash products with finer fragrance quality, as well as the market
for colognes, toilet waters, men's toiletries and other products beyond
traditional luxury items such as perfumes. In the flavor field, similar market
characteristics have stimulated the demand for products such as convenience
foods, soft drinks and low-cholesterol and low-fat food products that must
conform to expected tastes. New and improved methods of packaging, application
and dispensing have been developed for many consumer products that utilize some
of the Company's flavor or fragrance products. These developments have called
for the creation by the Company of many new compounds and ingredients compatible
with the newly introduced materials and methods of application used in consumer
end products.
Product Development and Research
The development of new flavor and fragrance products is a complex artistic
and technical process calling upon the combined knowledge and skill of the
Company's creative perfumers and flavorists and
4
<PAGE>
its scientists. With extensive experience, the perfumers and flavorists
continuously advance their skills for creating fragrances or flavors best suited
to the market requirements of the customers' products.
Scientists from various disciplines work in project teams with the
perfumers and flavorists to develop flavor and fragrance products with consumer
preferred performance characteristics. Scientific expertise includes: natural
products research, plant science, organic chemistry, analytical chemistry,
biochemistry, microbiology, process engineering, food science, material science,
and sensory science. Analytical and sensory science is applied to understand the
complex interactions of the many ingredients in a consumer product in order to
optimize the flavor or fragrance performance at all points of use. Material
science technology is applied to create controlled release and delivery systems
to enhance flavor and fragrance performance in consumer products. An important
contribution to the creation of new fragrance and flavor products is the
discovery and development of new ingredients having improved fragrance or flavor
value. The ingredients research program discovers molecules found in natural
substances and creates new molecules that are subsequently tested for their
fragrance or flavor value. The new molecules that meet rigorous requirements for
commercial development are subsequently transferred to manufacturing operations
for production.
Creative and technical product development is conducted in 35 fragrance and
flavor laboratories in 24 countries. The Company maintains a research and
development center at Union Beach, New Jersey. The Company spent $159,286,000 in
2003, $144,027,000 in 2002 and $135,248,000 in 2001 on its research and
development activities. These expenditures are currently expected to increase in
2004 to approximately $179,000,000. Of the amount expended in 2003 on such
activities, 64% was for fragrances and the balance was for flavors. The Company
employed 1,099 persons in 2003 and 1,097 persons in 2002 in such activities.
The business of the Company is not materially dependent upon any patents,
trademarks or licenses.
Distribution
Most of the Company's sales are through its own sales force, operating from
6 sales offices in the United States and 52 sales offices in 33 foreign
countries. Sales in other countries are made through sales agents and
distributors. For the year ended December 31, 2003, 29% of the Company's sales
were to customers in North America, 40% in Europe, 16% in Asia Pacific, 12% in
Latin America and 3% in the India Region. For additional information with
respect to the management of the Company's operations by major geographical
region, see Note 13 of the Notes to the Company's Consolidated Financial
Statements.
During 2003 the Company's 30 largest customers accounted for approximately
53% of its sales, its four largest customers and their affiliates accounted for
about 9%, 8%, 6% and 4%, respectively, of its sales, and no other single
customer accounted for more than 3% of sales.
Governmental Regulation
Manufacture and sale of the Company's products are subject to regulation in
the United States by the Food and Drug Administration, the Agriculture
Department, the Bureau of Alcohol, Tobacco and Firearms, the Environmental
Protection Agency, the Occupational Safety and Health Administration, the Drug
Enforcement Administration and state authorities. Foreign subsidiaries are
subject to similar regulation in a number of countries. 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. The Company expects to spend in 2004 approximately
$5,500,000 in capital projects and $14,000,000 in operating expenses and
governmental charges for the purpose of complying with such requirements. The
Company currently expects that in 2005 capital expenditures, operating expenses
and governmental charges for such purpose will not be materially different from
those expected for 2004.
Raw Material Purchases
More than 5,000 different raw materials are purchased from many sources all
over the world. The principal natural raw material purchases consist of
essential oils, extracts and concentrates derived
5
<PAGE>
from fruits, vegetables, flowers, woods and other botanicals, animal products
and raw fruits. The principal synthetic raw material purchases consist of
organic chemicals. The Company believes that alternate sources of materials are
available to enable it to maintain its competitive position in the event of any
interruption in the supply of raw materials from present sources.
Competition
The Company has more than 50 competitors in the United States and world
markets. While no single factor is responsible, the Company's competitive
position is based principally on the creative skills of its perfumers and
flavorists, the technological advances resulting from its research and
development, the quality of its customer service, the support provided by its
marketing and application groups, and its understanding of consumers. The
Company believes that it is one of the largest companies producing and marketing
on an international basis a wide range of fragrance and flavor products of the
types manufactured for sale to manufacturers of consumer products. In particular
countries and localities, the Company faces competition from numerous companies
specializing in certain product lines, among which are some companies larger
than the Company and some more important in a particular product line or lines.
Most of the Company's customers do not buy all their fragrance or flavor
products from the same supplier, and some customers make their own fragrance or
flavor compounds with ingredients supplied by the Company or others.
Employee Relations
The Company at December 31, 2003 employed 5,454 persons, of whom 1,540 were
employed in the United States. The Company has never experienced a work stoppage
or strike and considers that its employee relations are satisfactory.
EXECUTIVE OFFICERS OF REGISTRANT:
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME
NAME OFFICE AND OTHER BUSINESS EXPERIENCE(2) AGE OFFICER
- --------------------------------- ----------------------------------------------- ----- --------
<S> <C> <C> <C>
Richard A. Goldstein(1) ......... Chairman of the Board and Chief Executive 62 2000
Officer since June 2000; President and Chief
Executive Officer of Unilever United States,
Inc. and Business Group President of Unilever
North American Foods, a home, personal care
and food products company, prior thereto;
Director, Legacy Hotels; Director, Fiduciary
Trust Company International; Director, The
Interpublic Group of Companies, Inc.;
Director, Continuum Health Partners, Inc.
D. Wayne Howard ................. Executive Vice President, Global Operations 48 2000
since September 2000; Vice President, Supply
Chain Strategy of Nordstrom, Inc., a retailer,
from January 2000 to August 2000; Vice
President, Strategic Sourcing, North America
of Unilever North American Foods, prior
thereto.
Clint D. Brooks ................. Senior Vice President, Research and 52 2000
Development since December 2002; Vice
President, Research and Development from
October 2000 to December 2002; Director of
Chemical Sciences, Abbott Laboratories, a
pharmaceutical company, prior thereto.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME
NAME OFFICE AND OTHER BUSINESS EXPERIENCE(2) AGE OFFICER
- ---------------------------- -------------------------------------------------- ----- --------
<S> <C> <C> <C>
James H. Dunsdon ........... Senior Vice President, Global Business 57 2003
Development Flavors and Functional
Fragrances effective March 31, 2004; Vice
President North America Region since
January 2003; Regional Vice President, North
America from January 2001 to January 2003;
Executive Vice President BBA, prior thereto.
Steven J. Heaslip .......... Senior Vice President, Human Resources since 46 2001
December 2002; Vice President, Human
Resources from September 2001 to December
2002; Senior Vice President, Human
Resources, Elizabeth Arden, a manufacturer
of prestige beauty products, prior thereto.
Dennis M. Meany ............ Senior Vice President, General Counsel and 56 2004
Secretary since January 2004; Associate
General Counsel from November 2000 to
December 2003; Vice President, General
Counsel and Secretary of BBA prior thereto.
Douglas J. Wetmore ......... Senior Vice President and Chief Financial 46 1992
Officer since September 2000; Vice President
and Chief Financial Officer from April 1998 to
September 2000; Controller prior thereto.
Gail S. Belmuth ............ Vice President, Corporate Communications since 40 2001
June 2001; President and COO of Banner
McBride North America, a change
management consulting firm, from May 2000
to May 2001; Managing Director,
Burson-Marsteller, a public relations firm,
prior thereto.
Arun Bewoor ................ Vice President, India Region since January 2003; 59 2003
Managing Director of IFF India Ltd and
Regional Vice President, India Region from
June 2002 to January 2003; Managing
Director, Bush Boake Allen India Ltd., prior
thereto.
Robert Burns ............... Vice President, Asia Pacific Region since 46 2003
January 2003; Regional Vice President, Asia
Pacific from January 2001 to January 2003;
Managing Director, IFF Australia from
January 1999 to December 2000; Managing
Director/ Vice President Flavors, IFF
Indonesia, prior thereto.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR
FIRST
BECAME
NAME OFFICE AND OTHER BUSINESS EXPERIENCE(2) AGE OFFICER
- ---------------------------- ----------------------------------------------- ----- --------
<S> <C> <C> <C>
Rob J. M. Edelman .......... Vice President, Europe Region since January 42 2003
2003; Regional Vice President, Europe from
January 2001 to January 2003; Vice President
and Director of Marketing and Sales, Aroma
Chemicals from July 1999 to December 2000;
Managing Director, PFW Aroma Chemicals
B.V., an aroma chemicals manufacturing
company, prior thereto.
Graciela M. Ferro .......... Vice President, Latin America Region since 49 2003
January 2003; Regional Vice President, Latin
America from October 2000 to January 2003;
Vice President, Latin America, LATAM Area
Manager, Fragrance Division and IFF
Argentina affiliate Manager from October
1999 to October 2000; Vice President, Latin
America, IFF Argentina Affiliate Manager
from August 1998 to October 1999; Regional
Account Manager for the Unilever, Latin
America Account, prior thereto.
Neil Humphreys(3) .......... Vice President, Global Business Development, 57 2002
Flavors and Functional Fragrances since
December 2002; Vice President, Global
Business Development, Flavors from January,
2001 to December 2002; Vice President,
Regional Manager, Asia Pacific, Flavors from
July 1998 to January 2001; Senior Vice
President, Asia Pacific, Givaudan-Roure, a
flavor, fragrance and aroma chemical
manufacturing company, prior thereto.
Nicolas Mirzayantz ......... Vice President, Global Business Development, 41 2002
Fine Fragrance and Toiletries since December
2002; Vice President, Global Business
Development, Fine Fragrances and Toiletries
since January 2001; Fragrances General
Manager, IFF France from January 1999 to
January 2001; Vice President, Commercial and
Creative Director, IFF France, prior thereto.
</TABLE>
(1) Member of Executive Committee of the Board of Directors.
(2) Employed by the Company or an affiliated company for the last five years,
except as otherwise indicated.
(3) Retiring effective March 31, 2004.
Available Information
The Company makes available free of charge on or through its website,
www.iff.com, all materials that it files electronically with the SEC, including
its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after electronically filing such materials with, or
furnishing them to, the SEC. During the period covered by this Form 10-K, the
Company made all such materials available through its website as soon as
reasonably practicable after filing such materials with the SEC.
8
<PAGE>
You may also read and copy any materials filed by the Company with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC
20549, and you may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet website, www.sec.gov, that contains reports, proxy and information
statements and other information that the Company files electronically with the
SEC.
A copy of the Company's Corporate Governance Guidelines, its Code of
Business Conduct and Ethics, and the charters of the Executive Committee, Audit
Committee, Compensation Committee, and Nominating and Governance Committee of
the Board of Directors are posted on the Company's website, www.iff.com and are
available in print to any shareholder who requests copies by contacting Dennis
M. Meany, Senior Vice President, General Counsel and Secretary, at the Company's
principal executive office set forth above.
ITEM 2. PROPERTIES.
The principal manufacturing and research properties of the Company are as
follows:
<TABLE>
<CAPTION>
LOCATION OPERATION
- -------- ---------
<S> <C>
UNITED STATES
Augusta, GA .................... Production of fragrance chemical ingredients.
Carrollton, TX(1) .............. Production of flavor compound.
Hazlet, NJ (1) ................. Production of fragrance compounds; fragrance laboratories.
Jacksonville, FL ............... Production of fragrance chemical ingredients.
New York, NY(1) ................ Fragrance laboratories.
South Brunswick, NJ(1) ......... Production of flavor compounds and ingredients;
flavor laboratories.
Union Beach, NJ ................ Research and development center.
FRANCE
Bois-Colombes .................. Fragrance laboratories.
Dijon .......................... Production of fragrance compounds and ingredients, flavor compounds
and ingredients and fruit preparations; flavor laboratories.
Grasse ......................... Production of flavor and fragrance ingredients; fragrance laboratories.
GREAT BRITAIN
Haverhill ...................... Production of flavor compounds and ingredients, and fragrance chemical
ingredients; flavor laboratories.
IRELAND
Drogheda ....................... Production of fragrance compounds.
NETHERLANDS
Hilversum ...................... Flavor and fragrance laboratories.
Tilburg ........................ Production of flavor compounds and ingredients and fragrance
compounds.
SPAIN
Benicarlo ...................... Production of fragrance chemical ingredients.
SWITZERLAND
Reinach-Aargau ................. Production of fruit preparations.
ARGENTINA
Garin .......................... Production of flavor compounds and ingredients and fragrance
compounds; flavor laboratories.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
LOCATION OPERATION
- -------- ---------
<S> <C>
BRAZIL
Rio de Janeiro ........... Production of fragrance compounds.
Sao Paulo ................ Fragrance laboratories.
Taubate .................. Production of flavor compounds and ingredients; flavor laboratories.
MEXICO
Tlalnepantla ............. Production of flavor and fragrance compounds; flavor and fragrance
laboratories.
INDIA
Chennai(2) ............... Production of flavor compounds and ingredients and fragrance
compounds; flavor laboratories.
AUSTRALIA
Melbourne ................ Production of flavor compounds and flavor ingredients.
CHINA
Guangzhou(1) ............. Production of flavor and fragrance compounds; flavor laboratories.
Shanghai(1) .............. Flavor and fragrance laboratories.
Xin'anjiang .............. Production of fragrance chemical ingredients.
INDONESIA
Jakarta(3) ............... Production of flavor compounds and ingredients and fragrance
compounds and ingredients; flavor and fragrance laboratories.
JAPAN
Gotemba .................. Production of flavor compounds.
Tokyo .................... Flavor and fragrance laboratories.
SINGAPORE
Jurong(3) ................ Production of flavor and fragrance compounds.
Science Park (1) ......... Flavor and fragrance laboratories.
</TABLE>
- ----------
(1) Leased.
(2) The Company has approximately a 93.1% interest in the subsidiary company
that owns this facility.
(3) Land is leased and building is partially leased and partially owned.
The principal executive offices of the Company and its New York laboratory
facilities are located at 521 West 57th Street, New York City.
ITEM 3. LEGAL PROCEEDINGS.
On September 7, 2001, the Company was named as a defendant in a purported
class action brought against it in the Circuit Court of Jasper County, Missouri,
on behalf of employees of a plant owned and operated by Gilster-Mary Lee Corp.
in Jasper, Missouri. The plaintiffs are alleging that they sustained respiratory
injuries in the workplace due to the use by Gilster-Mary Lee of a BBA and IFF
flavor. All BBA and IFF flavors meet the requirements of the U. S. Food and Drug
Administration and are safe for handling and use by workers in food
manufacturing plants when used according to specified safety procedures. Based
on the preliminary report issued by the National Institute for Occupational
Safety and Health (NIOSH), it appears any injuries the plaintiffs may have
suffered are related to inadequate workplace conditions.
On January 15, 2004, the court denied class action status through an order
requiring each plaintiff case to be heard separately. Trial proceedings in the
initial case commenced in March 2004. While the outcome of any litigation cannot
be predicted with certainty, in light of the merits of its defense and
10
<PAGE>
the availability of insurance, the Company does not expect this litigation to
have a material adverse effect on the Company's financial condition, results of
operations or liquidity.
On March 31, 2003, the Company and another flavor supplier were named
defendants in a lawsuit by a number of workers at a popcorn factory in Marion,
Ohio, alleging respiratory illness due to the use of butter flavors supplied by
the Company and the other flavor manufacturer. The action was brought in the
Court of Common Pleas, Cuyahoga County, Ohio, and subsequently transferred to
the Court of Common Pleas of Hamilton County, Ohio.
This case is currently in the preliminary stages of discovery. While the
outcome of any litigation cannot be predicted with certainty, in light of the
merits of its defenses and the availability of insurance, the Company does not
expect this litigation to have a material adverse effect on the Company's
financial condition, results of operation or liquidity.
Over the past 20 years, various Federal and State authorities and private
parties have claimed that the Company is a potentially responsible party as a
generator of waste materials for alleged pollution at a number of waste sites
operated by third parties located principally in New Jersey and seek to recover
costs incurred and to be incurred to clean up the sites.
The waste site claims and suits usually involve million dollar amounts, and
most of them are asserted against many potentially responsible parties. Remedial
activities typically consist of several phases carried out over a period of
years. Most site remedies begin with investigation and feasibility studies,
followed by physical removal, destruction, treatment or containment of
contaminated soil and debris, and sometimes by groundwater monitoring and
treatment. To date, the Company's financial responsibility for some sites has
been settled through agreements granting the Company, in exchange for one or
more cash payments made or to be made, either complete release of liability or,
for certain sites, release from further liability for early and/or later
remediation phases, subject to certain "re-opener" clauses for later-discovered
conditions. Settlements in respect of some sites involve, in part, payment by
the Company, and other parties, of a percentage of the site's future remediation
costs over a period of years.
The Company believes that the amounts it has paid and anticipates paying in
the future for clean-up costs and damages at all sites are not and will not be
material to the Company's financial condition, results of operations or
liquidity, because of the involvement of other large potentially responsible
parties at most sites, because payment will be made over an extended time period
and because, pursuant to an agreement reached in July 1994 with three of the
Company's liability insurers, defense costs and indemnity amounts payable by the
Company in respect of the sites will be shared by the insurers up to an agreed
amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information.
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:
2003 2002
--------------------------- -------------------------
QUARTER HIGH LOW HIGH LOW
- ---------------- ------------ ------------ ----------- -----------
First .......... $ 36.61 $ 29.39 $ 35.95 $ 27.33
Second ......... 33.60 30.37 37.45 30.61
Third .......... 33.45 29.18 32.90 26.05
Fourth ......... 35.75 31.01 35.90 32.08
(b) Approximate Number of Equity Security Holders.
(B)
(A) NUMBER OF RECORD HOLDERS AS
TITLE OF CLASS OF DECEMBER 31, 2003
-------------- --------------------
Common stock, par value 12 1/2(cent)per share 3,655
(c) Dividends.
Cash dividends declared per share for each quarter since January 2002 were
as follows:
2004 2003 2002
--------- --------- ---------
First ................................... $ .16 $ .15 $ .15
Second .................................. .16 .15
Third ................................... .16 .15
Fourth .................................. .16 .15
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET INCOME PER SHARE(b)
----------------------------------------
NET SALES GROSS PROFIT NET INCOME(a) BASIC(b) DILUTED(b)
------------------------ -------------------- ------------------ -------------------- -------------------
QUARTER 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
- ------- ---------- ---------- -------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First .......... $ 466,224 $ 445,844 $195,777 $185,980 $ 32,017 $ 41,947 $0.34 $0.44 $0.34 $0.44
Second ......... 482,611 476,336 207,376 203,724 51,398 45,401 0.55 0.48 0.54 0.47
Third .......... 480,886 462,777 202,695 201,702 51,071 49,599 0.55 0.52 0.54 0.52
Fourth ......... 471,799 424,292 203,216 182,008 38,111 38,997 0.41 0.41 0.40 0.41
---------- ---------- -------- -------- -------- -------- ----- ----- ----- -----
$1,901,520 $1,809,249 $809,064 $773,414 $172,597 $175,944 $1.84 $1.86 $1.83 $1.84
========== ========== ======== ======== ======== ======== ===== ===== ===== =====
</TABLE>
- ----------
(a) Net income for the 2003 first, second, third and fourth quarters includes
the after-tax effects of certain charges of $13,477, $4,433, $2,397 and
$7,207, respectively. Net income for the 2002 second and third quarters
includes the after-tax effects of certain charges of $6,091 and $1,654,
respectively. See Note 2 of the Notes to Consolidated Financial Statements
for further discussion.
(b) The sum of the 2003 quarters' basic and diluted net income per share and
the 2002 quarters' basic net income per share does not equal the earnings
per share for the full year 2003 and 2002, respectively, due to changes in
average shares outstanding.
13
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
FIVE-YEAR SUMMARY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2003 2002 2001 2000 1999
--------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
Net sales ..................................... $ 1,901,520 $1,809,249 $1,843,766 $ 1,462,795 $1,439,499
----------- ---------- ---------- ----------- ----------
Cost of goods sold ............................ 1,092,456 1,035,835 1,063,433 831,653 806,382
Research and development expenses ............. 159,286 144,027 135,248 112,671 103,794
Selling and administrative expenses ........... 308,951 305,156 313,335 258,653 248,047
Amortization of goodwill and other
intangibles .................................. 12,632 12,632 46,089 7,032 -
Restructuring and other
charges(a)(b)(c)(d)(e) ....................... 42,421 11,737 30,069 41,273 32,948
Interest expense .............................. 28,477 37,036 70,424 25,072 5,154
Other (income) expense, net ................... 5,437 (3,591) (2,609) 2,314 (291)
----------- ---------- ---------- ----------- ----------
1,649,660 1,542,832 1,655,989 1,278,668 1,196,034
----------- ---------- ---------- ----------- ----------
Income before taxes on income ................. 251,860 266,417 187,777 184,127 243,465
Taxes on income ............................... 79,263 90,473 71,775 61,122 81,465
----------- ---------- ---------- ----------- ----------
Net income .................................... $ 172,597 $ 175,944 $ 116,002 $ 123,005 $ 162,000
----------- ---------- ---------- ----------- ----------
Percentage of net sales ...................... 9.1 9.7 6.3 8.4 11.3
Percentage of average shareholders'
equity ..................................... 26.2 32.0 20.1 16.5 18.0
Net income per share -- basic ................. $1.84 $1.86 $1.21 $1.22 $1.53
Net income per share -- diluted ............... $1.83 $1.84 $1.20 $1.22 $1.53
----------- ---------- ---------- ----------- ----------
Average number of shares (thousands) .......... 93,718 94,511 95,770 101,073 105,748
----------- ---------- ---------- ----------- ----------
CONSOLIDATED BALANCE SHEET DATA
Cash and short-term investments ............... $ 12,555 $ 15,165 $ 48,905 $ 129,238 $ 62,971
Receivables, net .............................. 339,725 338,607 340,358 364,314 303,418
Inventories ................................... 454,631 421,603 415,984 435,312 415,269
Property, plant and equipment, net ............ 510,612 520,499 532,473 679,874 523,916
Intangible assets, net ........................ 799,413 794,079 795,920 755,923 -
Total assets .................................. 2,306,892 2,232,694 2,268,051 2,489,033 1,401,495
Bank loans and commercial paper ............... 194,304 49,663 227,945 852,985 92,474
Long-term debt ................................ 690,231 1,007,085 939,404 417,402 3,832
Shareholders' equity .......................... 742,631 574,678 524,170 631,259 858,497
----------- ---------- ---------- ----------- ----------
OTHER DATA
Current ratio ................................. 1.7 2.4 1.6 0.9 2.3
Gross additions to property, plant and
equipment .................................... $ 65,955 $ 81,815 $ 52,016 $ 60,696 $ 103,835
Depreciation and amortization expense ......... 86,721 84,458 123,493 69,344 56,369
Cash dividends declared ....................... 59,032 56,749 57,219 130,234 160,830
Per share .................................... $0.63 $0.60 $0.60 $1.29 $1.52
Number of shareholders of record at
year-end ..................................... 3,655 3,875 3,394 3,741 4,209
Number of employees at year-end ............... 5,454 5,728 5,929 6,614 4,682
=========== ========== ========== =========== ==========
</TABLE>
- ----------
(a) Restructuring and other charges ($27,514 after tax) in 2003 resulted from
the Company's reorganization program.
(b) Restructuring and other charges ($7,745 after tax) in 2002 resulted from
the Company's reorganization program.
(c) Restructuring and other charges ($19,101 after tax) in 2001 resulted from
the Company's reorganization program.
(d) Restructuring and other charges ($26,765 after tax) in 2000 resulted from
the Company's reorganization program.
(e) Restructuring and other charges ($21,910 after tax) in 1999 resulted from
the Company's program to streamline its operations worldwide.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
ORGANIZATION OF INFORMATION
Management's Discussion and Analysis provides a narrative on the Company's
operating performance, financial condition and liquidity and should be read in
conjunction with the accompanying financial statements. It includes the
following sections:
o EXECUTIVE OVERVIEW
o SALES COMMENTARY
o OPERATING RESULTS
o ACQUISITIONS AND DIVESTITURES
o RESTRUCTURING AND OTHER CHARGES
o FINANCIAL CONDITION
o MARKET RISK
o CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
o NEW ACCOUNTING STANDARDS
o NON-GAAP FINANCIAL MEASURES
o CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
EXECUTIVE OVERVIEW
The Company is a leading creator and manufacturer of flavor and fragrance
compounds used to impart or improve the flavor or fragrance in a wide variety of
consumer products. The precise size of the global market for flavors and
fragrances is difficult to determine because the industry is highly fragmented,
both geographically and along product lines; there are few publicly traded
companies in the industry, limiting publicly available data; certain customers
maintain in-house capabilities fulfilling at least a portion of their flavor or
fragrance needs; and the quality and depth of market information in developing
regions of the world is limited. However, analysts generally estimate the flavor
and fragrance market to be $11-$12 billion of which IFF represents 16%; the
Company's nearest sized competitor is of similar size. The five largest
companies in the industry represent 60 - 65% of the global market.
Fragrance compounds are used in perfumes, cosmetics, toiletries, hair care
products, deodorants, soaps, detergents and softeners as well as air care
products. Major fragrance customers include the cosmetics industry, including
perfume and toiletries manufacturers, and the household products industry,
including manufacturers of soaps, detergents, household cleaners and air
fresheners. Flavor products are sold to the food and beverage industries for use
in consumer products such as prepared foods, beverages, dairy food and
confectionery products. The Company is also a leading manufacturer of synthetic
ingredients used in making fragrances. Approximately 50% of the Company's
ingredient production is consumed internally; the balance of production is sold
to third party customers.
Changing social habits resulting from such factors as increases in personal
income and dual-earner households, leisure time, health concerns, urbanization
and population growth stimulate demand for consumer products utilizing flavors
and fragrances. These developments expand the market for products with finer
fragrance quality, as well as the market for colognes and toiletries. Such
developments also stimulate demand for convenience foods, soft drinks and
low-cholesterol and low-fat food products that must conform to expected tastes.
These developments necessitate the creation and development of flavors and
fragrances and ingredients that are compatible with newly introduced materials
and methods of application used in consumer products.
15
<PAGE>
Flavors and fragrances are generally:
o created for the exclusive use of a specific customer;
o sold in solid or liquid form, in amounts ranging from a few kilograms
to many tons depending on the nature of the end product in which they
are used;
o a small percentage of the volume and cost of the end product sold to
the consumer; and
o a major factor in consumer selection and acceptance of the product.
Flavors and fragrances have similar economic and operational
characteristics, including research and development, the nature of the creative
and production processes, the manner in which products are distributed and the
type of customer; many customers purchase both flavors and fragrances from the
Company.
A breakdown of sales by principal product category is depicted in the
following graph.
2003 Sales by Category
[GRAPH OMITTED]
Ingredients 13%
Fruit 5%
Flavor compounds 40%
Fine fragrance and toiletries 15%
Functional fragrances 27%
The Company's five largest customers comprise 29% of consolidated sales and
its top thirty customers 53% of sales; these sales percentages have been fairly
constant for several years. A key factor for success is inclusion on major
customers' core supplier lists opening opportunities to win new business. The
Company is currently on the majority of core supplier lists of its major
customers.
The flavor and fragrance industry is impacted by macroeconomic factors in
all product categories and geographic regions. In addition, pricing pressure
placed on the Company's customers by large and powerful retailers and
distributors is inevitably passed along to the Company, and its competitors.
Success and growth in the industry is dependent upon creativity and innovation
in meeting the many and varied needs of the customers' products in a
cost-efficient and effective manner, and a consistently high level of timely
service and delivery. Leadership in innovation and creativity serves to mitigate
the impact of pricing pressure.
The Company produces more than 35,000 unique compounds annually of which
60% are flavors and 40% fragrances. In addition, the Company continually creates
new compounds to meet the many and varied characteristics and needs of its
customers' end products. No individual compound represents more than 1.5% of net
sales. The development of fragrances and flavors is a complex artistic and
technical process calling upon the combined knowledge and talents of creative
perfumers and flavorists and application and research chemists. An important
contribution to the creation of new fragrances and flavors is the development of
new ingredients. The Company bears essentially all costs incurred in connection
with the creation and development of new flavors and fragrances and such
formulae are protected under trade secrecy. The Company is not materially
dependent on any patents, trademarks or licenses.
16
<PAGE>
The Company's strategic focus in the three year period 2001 - 2003 has
been:
o To integrate Bush Boake Allen Inc. (BBA), acquired in November 2000,
and the Company, and to reorganize the integrated organization under
two global umbrellas of business development and operations. Business
Development encompasses consumer and market research, product category
strategy, product development, global sales and marketing and technical
application. Operations are responsible for the customer supply chain.
Reorganization was necessary to streamline the Company's operations,
eliminating costs and improving asset utilization, in view of
persistent price pressure from many of the Company's customers.
o To improve customer service, in terms of both on-time deliveries and
responsiveness to new product development initiatives, and to improve
the win rate for new business with the Company's customers.
o To critically evaluate the profitability and growth potential of the
Company's product portfolio.
o To revitalize and redirect research and development initiatives to
those areas considered to be most likely, in the long-term, to yield
the greatest value to the Company's customers and shareholders.
In the three year period ended December 2003, considerable progress against
these strategic initiatives has been made. The BBA integration was completed
quickly and associated savings exceeded the $70 million anticipated at the time
the acquisition was announced. Customer service levels have improved to the
point where on time deliveries exceed the 95% level, with further improvement
targeted; as a result, the Company has been placed back on a number of core
supplier lists it had not been on. The Company exited certain non-core
businesses, contributing to improved returns on sales and invested capital. The
quality and depth of the Company's research and development efforts has improved
significantly. In 2003, the Company patented fifteen new, commercially-viable
ingredients for use in flavors and fragrances; these ingredients will begin to
be commercialized in flavor and fragrance compounds in 2004.
Moving forward, the Company remains committed to:
o Continuous improvement in operations and customer service supported by
the global implementation of an enterprise requirements planning
software package (SAP), and related initiatives.
o Research and development efforts in those aspects of flavors and
fragrances and associated delivery mechanisms which the Company has
identified as most likely to drive profitable future growth. The
Company anticipates that much of this research will be conducted
internally, but such efforts may be augmented by joint research
undertakings and through acquisition of technology.
The next stage in setting strategic initiatives will require establishing
priorities and making choices in order to provide the best opportunity for
continuous improvement in shareholder value.
SALES COMMENTARY
Net sales for 2003, 2002 and 2001 were as follows:
<TABLE>
<CAPTION>
PERCENT PERCENT
NET SALES 2003 CHANGE 2002 CHANGE 2001
- ---------------------------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Flavors .................... $ 866.5 7% $ 809.0 (3%) $ 835.7
Fragrances ................. 1,035.0 3% 1,000.2 (1%) 1,008.1
--------- --------- ---------
Total net sales ......... $ 1,901.5 5% $ 1,809.2 (2%) $ 1,843.8
========= ========= =========
</TABLE>
In 2003, sales were favorably affected by the weakening of the U.S.
dollar, most notably in comparison to the Euro, the Pound Sterling, the
Australian dollar and the Japanese Yen; had
17
<PAGE>
exchange rates remained the same during 2003 and 2002, net sales would have
declined 2%. In 2002, 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, net sales
would have declined 3%.
The Company manages its operations by major geographical region;
management considers destination sales to be a key measure of performance.
Approximately 70% of the Company's sales are outside the United States.
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.
2003 Sales by Destination
[GRAPH OMITTED]
North America 29%
Europe 40%
Asia Pacific 16%
Latin America 12%
India 3%
The following table summarizes reported sales on a geographic basis:
<TABLE>
<CAPTION>
PERCENT PERCENT
SALES BY DESTINATION 2003 CHANGE 2002 CHANGE 2001
- ---------------------------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
North America .............. $ 550.1 (4%) $ 570.9 (4%) $ 597.1
Europe ..................... 761.7 13% 671.4 2% 658.1
Asia Pacific ............... 311.9 7% 290.9 2% 286.2
Latin America .............. 223.6 (2%) 227.5 (11%) 256.5
India ...................... 54.2 12% 48.5 6% 45.9
--------- --------- ---------
Total net sales ......... $ 1,901.5 5% $ 1,809.2 (2%) $ 1,843.8
========= ========= =========
</TABLE>
The Company acquired BBA effective November 3, 2000. BBA sales and
operating results have been included in the Company's consolidated results from
that date. 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
2002 and 2001. These non-core businesses included the Company's fruit
preparations business 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 $9.4 and
$83.8 in 2002 and 2001, 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.
18
<PAGE>
Pro-forma sales, excluding all sales associated with the non-core
businesses from 2002 and 2001, and the basis on which the Company measures its
performance, would have been:
<TABLE>
<CAPTION>
PERCENT PRO-FORMA PERCENT PRO-FORMA
NET SALES 2003 CHANGE 2002 CHANGE 2001
- ---------------------------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Flavors .................... $ 866.5 8% $ 799.6 1% $ 788.7
Fragrances ................. 1,035.0 3% 1,000.2 3% 971.3
--------- --------- ---------
Total net sales ......... $ 1,901.5 6% $ 1,799.8 2% $ 1,760.0
========= ========= =========
</TABLE>
These pro-forma sales on a geographic basis would have been:
<TABLE>
<CAPTION>
PERCENT PRO-FORMA PERCENT PRO-FORMA
SALES BY DESTINATION 2003 CHANGE 2002 CHANGE 2001
- ---------------------------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
North America .............. $ 550.1 (2%) $ 561.7 1% $ 554.9
Europe ..................... 761.7 13% 671.4 7% 627.8
Asia Pacific ............... 311.9 7% 290.8 3% 283.7
Latin America .............. 223.6 (2%) 227.4 (9%) 249.4
India ...................... 54.2 12% 48.5 10% 44.2
--------- --------- ---------
Total net sales ......... $ 1,901.5 6% $ 1,799.8 2% $ 1,760.0
========= ========= =========
</TABLE>
2003 in Comparison to 2002
In 2003, net sales increased 6% in comparison to 2002 pro-forma sales; had
exchange rates remained the same during both years, 2003 sales would have
declined 2%. Regional sales performance in 2003 was as follows:
o North America flavor and fragrance sales declined 1% and 6%,
respectively; in total the region declined 4%. Sales were impacted by
weak economic conditions for much of the year, weak demand for fine
fragrance, and the effect of ongoing customer efforts to reduce
inventory levels. Fine fragrance, functional fragrance and chemical
sales declined 8%, 4% and 8%, respectively. Excluding $9.4 of sales
attributable to non-core businesses disposed of from the 2002
comparative, flavor sales increased 3%. The flavor performance resulted
from several new product introductions.
o Local currency sales in Europe decreased 3%. The dollar increase
benefited from the stronger Euro and Pound Sterling on translation of
local currency results into the U.S. dollar. The local currency sales
performance reflected persistent economic weakness throughout the
European region. Local currency fragrance sales in Europe declined 5%,
resulting in an increase of 12% in dollars; fragrance sales were
weakest in aroma chemicals and functional fragrances, which declined
12% and 4%, respectively. Local currency sales in fine fragrance
increased 3%, benefiting from several new product introductions. Flavor
sales declined 1% in local currency, although this resulted in a 15%
increase in dollar sales.
o Asia Pacific sales increased 1% in local currency; the dollar increase
benefited from the stronger Japanese Yen and, to a lesser extent, the
Australian dollar on translation of local currency results into the
U.S. dollar. Flavor sales declined 2% in local currency while
increasing 4% in dollars. Fragrance sales increased 7% in local
currency and 12% in dollars; the fragrance growth was driven by a
number of new product introductions throughout the region, most notably
in Thailand, Greater China and Indonesia. Sales were strongest in
Thailand, Vietnam, Indonesia and Greater China, with local currency
increases of 25%, 14%, 9% and 6%, respectively. These strong
performances were partially offset by persistent weakness in Japan and
the Philippines where local currency sales declined 7% and 18%,
respectively.
o Latin America flavor sales increased 9%. The flavor sales performance
was driven by increases of 80%, 31% and 19% in Central America,
Argentina and Brazil, respectively, reflecting the benefit of new
product introductions and, in Argentina, an improved economic
environment.
19
<PAGE>
Fragrance sales declined 5% with Central America, Mexico and Brazil
declining 15%, 6% and 8%, respectively; Argentina fragrance sales
increased 22%, benefiting from improved economic conditions.
o India sales increased 9% in local currency. The performance was led by
an 11% local currency increase in flavor sales; local currency
fragrance sales grew 7%. India sales performance benefited from many
new product introductions as well as the continued strength of the
Indian and neighboring economies.
2002 in Comparison to 2001
In 2002, pro-forma sales increased 2% in comparison to 2001 pro-forma
sales; had exchange rates remained the same during both years, 2002 pro-forma
sales would have increased 1%. Regional sales performance in 2002 was as
follows:
o North America flavor and fragrance sales declined 7% and 1%,
respectively. The flavor sales decline resulted primarily from the sale
of non-core businesses in both 2002 and 2001. Excluding sales of $9.4
and $42.2 attributable to these businesses in 2002 and 2001,
respectively, pro-forma flavor sales increased 4% and fragrance sales
were flat for the year, resulting in a 1% increase for the region. The
pro-forma flavor sales growth was driven by new product introductions.
Fragrance sales were flat in all product categories.
o Local currency sales in Europe decreased 2%. The reported dollar
increase benefited from the stronger Euro on translation of local
currency results into the U.S. dollar. Local currency sales were
unfavorably affected by the loss of sales attributable to non-core
businesses disposed of in 2001. Excluding $30.3 of sales attributable
to these non-core businesses from the 2001 comparative, local currency
fragrance sales increased 7% and sales for the region increased 3%. On
a pro-forma basis, local currency fragrance sales were strongest in
aroma chemicals and fine fragrances, which increased 20% and 6%,
respectively; functional fragrance sales were flat. Local currency
flavor sales declined 3% although this resulted in a 1% increase in
dollar sales.
o Asia Pacific sales increased 2% in local currency. Excluding $2.5 of
sales attributable to non-core businesses from the 2001 comparative,
sales increased 3%. Flavor sales increased 4% in both local currency
and dollars; fragrance sales were flat in local currency and increased
1% in dollars. Sales performance was strongest in Vietnam, Thailand,
South Korea and Greater China, with respective local currency increases
of 49%, 14%, 10% and 6%. These strong performances were substantially
offset by persistent weakness in Japan and Indonesia, where local
currency sales declined 6% and 7%, respectively.
o Latin America sales performance was affected by the loss of sales
attributable to non-core businesses disposed of in 2001, although the
primary cause of the decline was the economic weakness that persisted
throughout much of the region; excluding $7.1 of sales attributable to
non-core businesses from the 2001 comparative, sales declined 9%.
Flavor sales decreased 16% while fragrances declined 6%. Modest growth
in Mexico and Central America was more than offset by declines of 46%
and 7% in Argentina and Brazil, respectively.
o India sales increased 5% in local currency. Excluding $1.7 of sales
attributable to non-core businesses from the 2001 comparative, sales
increased 10%. The performance was led by an 11% local currency
increase in fragrance sales; local currency flavors sales grew 7%.
India flavor and fragrance sales benefited from many new product
introductions.
20
<PAGE>
OPERATING RESULTS
The percentage relationship of cost of goods sold and other operating
expenses to reported sales is detailed in the following table.
<TABLE>
<CAPTION>
2003 2002 2001
---------- ---------- ----------
<S> <C> <C> <C>
Cost of goods sold ........................... 57.5% 57.3% 57.7%
Research and development expenses ............ 8.4% 8.0% 7.3%
Selling and administrative expenses .......... 16.2% 16.9% 17.0%
==== ==== ====
</TABLE>
Cost of goods sold includes the cost of materials and manufacturing
expenses; 65% - 70% is the cost of raw materials. Research 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 technological advances; such activities
contribute significantly to the Company's business. Selling and administrative
expenses support the Company's sales and operating levels.
Segment profit, which excludes certain unallocated expenses, amortization
of goodwill, and the effect of restructuring and other charges, was $370.3 in
2003, $355.1 in 2002 and $367.4 in 2001. The Company recorded restructuring and
other charges of $42.4, $11.7 and $30.1 in 2003, 2002 and 2001, respectively.
Operating profit totaled $285.8, $299.9 and $255.6 in 2003, 2002 and 2001,
respectively.
2003 in Comparison to 2002
In 2003, cost of goods sold as a percentage of sales remained comparable
with 2002 levels. Product mix, mainly due to weakness in sales of higher margin
fine fragrances, had a negative impact on margins. However, the impact of
unfavorable sales mix was substantially offset by reduced manufacturing
expenses. The reduction in these expenses resulted from realizing the full year
benefit derived from the closure of various plants in the prior year; such
closures were directly related to the integration of BBA into IFF. In addition,
the Company undertook certain restructuring activities in 2003, eliminating 171
manufacturing positions; these actions saved approximately $3.5 in 2003,
contributing 10 basis points to margin improvement.
Research and development expenses increased to 8.4% of sales, consistent
with the Company's stated intention to expand its research initiatives. The
Company anticipates that research and development expenses will approximate 8.0
- - 8.5% of sales for the next several years.
Selling and administrative expenses declined to 16.2% of sales. The
Company undertook certain restructuring activities in 2003, eliminating
duplicate layers of management and certain corporate positions affecting 150
selling and administrative positions; these actions saved approximately $6.2,
contributing 40 basis points in 2003.
In 2003, costs of goods sold and selling and administrative expenses
include $1.5 and $4.0, respectively, incurred in connection with the
implementation of SAP; these costs relate to training and data conversion and
are charged to operating expenses as incurred. Such costs are expected to
continue in 2004 at the same level; implementation costs will begin to decline
in 2005 as the project nears completion.
2002 in Comparison to 2001
Cost of goods sold as a percentage of sales declined slightly from 2001
levels. The decline resulted from improvement in product mix, mainly due to the
disposal of the non-core businesses, and the closure of certain manufacturing
facilities in connection with the integration of BBA. In addition, the Company
undertook certain restructuring activities, eliminating 127 manufacturing
positions; these actions saved approximately $3.7 in 2002, contributing 20
basis points to margin improvement in 2002. These savings were 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 reduced the absorption of fixed manufacturing
expenses and thus impacted profitability in that region. Total SAP-related
costs in manufacturing expenses approximated $1.7 in 2002; there were no
similar expenses in 2001.
21
<PAGE>
Research and development expenses increased as a percentage of sales in
2002, consistent with the Company's intention to increase its research
initiatives.
Selling and administrative expenses as a percentage of sales declined in
2002 compared to 2001 levels. The decline is a result of savings attributable
to the integration of the Company's sales and administrative functions with
those of BBA. In addition, the Company undertook certain restructuring
activities, eliminating duplicate layers of management and certain corporate
positions and affecting 21 selling and administrative positions; these actions
saved approximately $0.8 in 2002. In 2002, selling and administrative expenses
include $2.9 related to the implementation of SAP; there were no such expenses
in 2001.
Interest Expense
Interest expense totaled $28.5, $37.0 and $70.4 in 2003, 2002 and 2001,
respectively. Interest expense declined in each year as a result of reduced
borrowing levels, a general decline in interest rates and the Company's
interest rate and debt management initiatives. The average interest rate was
3.0%, 3.4% and 5.4% in 2003, 2002 and 2001, respectively. More information on
debt and interest rate management is contained in Note 9 and Note 15 of the
Notes to the Consolidated Financial Statements.
Other (Income) Expense, Net
Other (income) expense, net was $5.4 expense in 2003, $3.6 income in 2002
and $2.6 income in 2001. In 2003, the Company repurchased $200.7 of long-term
notes otherwise scheduled to mature in May 2006; purchases were made through a
series of open market transactions, funded with commercial paper. The Company
incurred a net loss of $4.2 in connection with the debt repurchase, which is
included in Other (income) expense, net. Further details on the repurchase are
contained in Note 9 of the Notes to the Consolidated Financial Statements.
The increase in other income in 2002 compared to 2001 was principally due
to favorable exchange results; exchange gains were $1.6, $2.3 and $1.9 in 2003,
2002 and 2001, respectively.
Income Taxes
The effective tax rate for 2003 was 31.5%, compared to 34.0% for 2002 and
38.2% for 2001. The lower rate in 2003 is the result of tax planning
initiatives and the benefits of combining various IFF and BBA legal entities
into a single tax structure. In 2003, the tax rate also benefited from
restructuring and other charges, most of which were incurred in higher tax
jurisdictions. The lower rate in 2002 resulted from the discontinuance of
goodwill amortization; such goodwill was not deductible for purposes of
determination of the Company's taxable income. The Company anticipates that its
effective tax rate in 2004 will approximate 31.5%.
ACQUISITIONS AND DIVESTITURES
In 2003, the Company acquired 70% of the outstanding shares of Celessence
International Ltd. (Celessence), a company engaged in the development and
distribution of encapsulation and delivery systems for use in fragrance and
other applications for $6.4. The acquisition was accounted for as a purchase
business combination. The principal Celessence asset is a process technology
patent included in other intangible assets that is being amortized over its
estimated remaining useful life. Celessence results, which are not material,
are included in the consolidated results of the Company from acquisition date.
Final allocation of the purchase price is not complete as of December 31, 2003
pending final valuation of the intangible asset.
In November 2000, the Company acquired BBA; total consideration paid,
including transaction costs, was $970.0. At acquisition date, BBA owned
approximately 73% of its Indian subsidiary, BBA India Limited (BBAIL). During
2002, the Company acquired additional BBAIL shares, raising its ownership to
93%; cost of the acquired shares was $11.8. More details on the BBA acquisition
are contained in Note 3 of the Notes to the Consolidated Financial Statements.
The Company established accruals relating to the integration of BBA
operations. Costs associated with these integration activities, relating mainly
to employee separation and facility closures, were recorded as a component of
purchase accounting; such costs did not directly impact current earnings.
22
<PAGE>
Movements in acquisition accounting accruals were:
<TABLE>
<CAPTION>
ASSET-
EMPLOYEE- RELATED
RELATED AND OTHER TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
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
Cash and other costs .............. (3.6) (1.1) (4.7)
------- ------- -------
Balance December 31, 2003 ......... $ 2.4 $ - $ 2.4
======= ======= =======
</TABLE>
The remaining liability will be utilized in 2004 as severance obligations
are satisfied.
At December 31, 2003 and 2002, goodwill and other intangible assets, net
of accumulated amortization, totaled $799.4 and $794.1, respectively. The
principal changes in goodwill and intangible assets relate to the acquisition
of Celessence. 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. The Company completed its annual assessments in
2003 and 2002, concluding that it has no impairment of goodwill or other
intangible assets. Additional details are contained in Note 7 of the Notes to
the Consolidated Financial Statements.
The Company sold its concentrate business based in Oregon in June 2002 and
recorded a restructuring and other charge of $4.3 related to employee
separation and other disposal costs. Sales for the business up to the date of
disposition were $9.4; operating profit was not significant.
In October 2001, the Company sold its formulated fruit and vegetable
preparation businesses in the United States and Brazil and recorded a
restructuring and other charge of $7.4 related to employee separation and other
disposal costs. Sales for the business up to the date of disposition were
$23.0, with operating profit of approximately $2.2.
In December 2001, the Company sold the U.K.-based aroma chemicals business
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. No gain or
loss was recognized as a result of this transaction.
Proceeds from the sales, which were not material, were used to reduce
borrowings.
RESTRUCTURING AND OTHER CHARGES
Since 1999, the Company has undertaken a series of actions associated with
the closure of Company facilities and elimination of various employee
positions.
The actions undertaken in 1999 were initiated under a cost-cutting program
intended to streamline the Company's operations worldwide. The principal
locations affected were the United States, the United Kingdom, the Netherlands
and France, with lesser impact in various locations in Asia Pacific and Latin
America; as a result the Company recorded pre-tax charges of $40.9. Elements of
the charges relating to accelerated depreciation on assets to be disposed of
were recorded in cost of goods sold ($1.2), selling and administrative expenses
($2.3) and other income and expense ($4.5). The remaining actions related to
employee separation and asset-related costs associated with both write-down and
disposal actions resulted in restructuring and other charges of $32.9. Under
these actions, 222 employees left the Company.
As an element of the cost-cutting program, the Company offered a voluntary
early retirement incentive to certain U.S.-based employees in the fourth
quarter of 1999 with notification of acceptance
23
<PAGE>
in the first quarter of 2000; 71 employees accepted, resulting in a pre-tax
charge of $9.3 in 2000. The early retirement program completed the cost-cutting
program undertaken in 1999 at an overall cost of $50.2.
In mid-2000, senior management changed, after which the Company conducted
a comprehensive analysis of its business development, research and development,
and operating activities and associated staffing levels. In October 2000, the
Company announced a significant reorganization entailing the elimination of
multiple layers of management, closure of certain manufacturing facilities to
improve capacity utilization, and the intended disposal of certain non-core
businesses. On completion, the reorganization was expected to yield annual
savings approximating $25.0 to $30.0, a portion of which was to be reinvested
in the business.
At the time the plan was announced, it was anticipated that such actions
would take place over the ensuing 24 months and incur expected costs of $90.0 -
$100.0. The integration of BBA into IFF, and the reorganization, proceeded
concurrently.
An element of the reorganization was a second voluntary early retirement
program extended to U.S.-based employees, which 85 employees accepted,
resulting in pre-tax charges of $14.5. An additional 41 employees were
terminated by eliminating duplicate management positions at corporate, regional
and affiliate locations, resulting in the Company recording pre-tax charges of
$17.5. In total, 197 employees were severed and the Company recorded pre-tax
charges totaling $41.3, comprised of:
o The first early retirement plan - $9.3;
o The second early retirement plan - $14.5; and
o Other reorganization costs - $17.5.
During 2001, the Company sold its fruit preparation business in the United
States and Brazil to a third party, and closed IFF operations in Hong Kong,
South Africa, Chile, Venezuela, Kenya, Texas and Oregon. As a result, 465
employees were severed and the Company recorded pre-tax charges totaling $30.1;
$10.1 related to employee terminations and $20.0 related to location closures
and asset write-downs.
During 2002, the Company closed IFF operations in Australia, discontinued
fragrance compounding in Japan and sold its fruit concentrate business to a
third party. As a result, 148 employees were severed and the Company recorded
pre-tax charges of $11.7; $4.3 related to employee severance and $7.4 related
to location closures and asset write-downs.
In 2003, the Company completed the reorganization activities. These steps
could only be undertaken upon completion of the integration of IFF and BBA
which was completed in the fourth quarter of 2002. The actions eliminated
duplicate employment functions and processes, including several senior
corporate positions as well as regional and local levels. The Company
eliminated 321 positions and recorded pre-tax charges of $42.4; $38.0 related
to employee terminations and $4.4 related to location closures and asset
write-downs. The 2003 asset-related charges relate principally to final
quantification of costs for previous actions taken.
With respect to all restructuring and other charges:
o Separation costs for the employees relate primarily to severance,
outplacement and other benefit costs;
o Asset write-down charges relate to establishment of the new carrying
value for assets held for sale or disposal; and
o Other costs include lease termination costs and other reorganization
expenses incurred to effect either the employee separation or location
closure.
Since October 2000, the Company recorded pre-tax charges of $116.1 in
comparison to the $90.0-$100.0 forecast at the time the plan was announced.
The increase was due to additional actions taken in the final stages of the
reorganization and the impact the weaker U.S. dollar had on the translation of
the cost of actions undertaken outside the United States.
24
<PAGE>
The charges discussed above exclude all charges associated with the
integration of BBA into IFF where such costs were incurred in connection with
the closure of BBA facilities or the elimination of BBA employees; all such
costs were accounted for in the acquisition accounting as detailed in Note 3 of
the Notes to the Consolidated Financial Statements.
Positions eliminated by region in each of the three years in the period
ended December 31, 2003 were:
<TABLE>
<CAPTION>
2003 2002 2001
------ ------ -----
<S> <C> <C> <C>
North America ................................... 81 91 197
Europe .......................................... 97 42 62
Asia Pacific .................................... 120 15 145
Latin America ................................... 19 - 61
India ........................................... 4 - -
--- --- ---
Total ........................................... 321 148 465
=== === ===
</TABLE>
Charges by region in each of the three years in the period ended December
31, 2003 were:
<TABLE>
<CAPTION>
2003 2002 2001
---------- ---------- ----------
<S> <C> <C> <C>
North America .......................... $ 20.2 $ 5.6 $ 14.7
Europe ................................. 16.9 5.8 4.2
Asia Pacific ........................... 3.6 0.3 8.6
Latin America .......................... 1.3 - 2.6
India .................................. 0.4 - -
------- ------- -------
$ 42.4 $ 11.7 $ 30.1
======= ======= =======
</TABLE>
Movements in related accruals in each of the three years in the period
ended December 31, 2003 were:
<TABLE>
<CAPTION>
ASSET-
EMPLOYEE- RELATED
RELATED AND OTHER TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Balance January 1, 2001 ........... $ 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 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 0.4 3.8
Additional charges ................ 38.0 4.4 42.4
Cash and other costs .............. (21.8) ( 3.3) (25.1)
------- ------- -------
Balance December 31, 2003 ......... $ 19.6 $ 1.5 $ 21.1
======= ======= =======
</TABLE>
The balance of the employee-related liabilities will be utilized by 2006
as obligations to affected employees are satisfied; the asset-related charges
will be utilized in 2004 on final decommissioning and disposal of the affected
equipment.
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments totaled $12.6 at
December 31, 2003 compared to $15.2 and $48.9 at December 31, 2002 and 2001,
respectively. Working capital totaled $376.6 at year-end 2003, compared to
$507.3 and $336.1 at December 31, 2002 and 2001, respectively. Gross additions
to property, plant and equipment were $66.0, $81.8 and $52.0 in 2003, 2002 and
2001, respectively, and are expected to approximate $90.0 in 2004.
25
<PAGE>
At December 31, 2003, the Company had $884.5 of debt outstanding,
including deferred gains and mark-to-market adjustments on interest rate swap
transactions approximating $38.0. Debt includes $499.3 of 6.45% Notes, maturing
in May 2006. At December 2002, the Company had $700.0 of such Notes
outstanding. During 2003, the Company repurchased $200.7 of the Notes. All
repurchases were funded with commercial paper. The repurchases were intended to
take full advantage of the Company's strong cash flows and to enable the
Company to reduce long-term debt prior to the Notes' scheduled maturity in
2006. Interest expense will be reduced as a result of the shift to commercial
paper borrowing. Based on current borrowing rates, the Company expects to save
approximately $4.0 annually in interest expense as a benefit of replacing the
Notes with commercial paper; interest expense savings in 2003 approximated
$2.9. The Company does not anticipate additional repurchases of Notes prior to
their scheduled maturity.
In 2002, the Company entered into a five-year Euro 350.0 (approximately
$440.0 at December 31, 2003) multi-currency revolving credit agreement. Prior
to the third quarter of 2003, the five-year Euro facility was characterized as
long-term debt; the Company employs this facility as a European-wide working
capital facility. At December 31, 2003, the Company had no borrowings under
this facility.
In 2002, the Company exercised an option under its existing $500.0 U.S.
revolving credit facility and cancelled the $200.0 364-day portion of the
agreement. The remaining $300.0 revolving credit facility extends to September
2006. The revolving credit agreement serves as backstop for the Company's
commercial paper program; there have been no borrowings under this agreement.
The Company compensates participating banks in the form of fees, the amounts of
which are not material. At December 31, 2003, outstanding commercial paper
totaled $162.9 at an average interest rate of 1.2% compared to $38.0 at
December 31, 2002 at an average interest rate of 1.6%. Commercial paper
maturities did not extend beyond January 22, 2004.
In 2003, the Company sold its New York corporate headquarters to an
unrelated third party for $91.0 in cash, concurrently, entering into a
long-term lease with respect to the space it occupies (approximately 40% of the
building). The gain realized on the sale, after transaction costs, of $52.7,
has been deferred and is being credited to income over the initial 27.5-year
lease term.
In 2002, the Company entered into agreements for the sale and leaseback of
its Hazlet and South Brunswick, New Jersey facilities to an unrelated third
party for $48.0 in cash. Concurrently, the Company entered into a long-term
lease with respect to the facilities. The gain realized on the sale, after
transaction costs, of $26.7, has been deferred and is being credited to income
over the initial 22-year lease term.
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 increased
its share repurchase program by $100.0. The Company completed the April 2000
program during 2001 and the September 2000 program in 2002. In October 2002,
the Company announced a new share repurchase program of $100.0. Under these
plans, the Company purchased 1.8 million shares, 2.3 million shares, and 3.0
million shares in 2003, 2002 and 2001, respectively, at a total cost of $55.4,
$72.3 and $71.2, respectively. Average per share cost of the shares acquired in
2003, 2002 and 2001 was $31.66, $31.52 and $23.60, respectively. Repurchases
are made on the open market or through private transactions. At December 31,
2003, the Company had $42.0 remaining under its October 2002 repurchase plan,
representing approximately 1.2 million shares based on a stock price of $35 per
share. Repurchased shares are available for use in connection with the
Company's employee benefit plans and for other general corporate purposes.
The dividend paid per share in 2003, 2002 and 2001 was $.62, $.60 and
$.60, respectively. In January and April 2003, the Company paid a quarterly
cash dividend of $.15 per share to shareholders. In May 2003, the Company
increased the annual dividend to $.64 per share, effective with the dividend
paid in July 2003. The Company's intention is to pay dividends approximating
30% to 35% of yearly earnings. The Company paid dividends totaling $58.2, $56.8
and $57.6 in 2003, 2002 and 2001, respectively.
The cumulative translation adjustment component of Accumulated other
comprehensive income was ($45.2) at December 31, 2003, compared to ($138.2) at
December 31, 2002. The change results
26
<PAGE>
principally from the weakening of the U.S. dollar against the Euro. The Minimum
pension liability adjustment component of Accumulated other comprehensive
income was ($82.8) at December 31, 2003, compared to ($75.0) at December 31,
2002. This change reflects lower pension asset values coupled with a reduction
in the discount rate assumptions used to calculate pension liabilities. The
accumulated loss on derivatives qualifying as hedges was ($3.7) at December 31,
2003 compared to a gain of $0.7 at December 31, 2002.
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 2003, the Company
spent approximately $2.9 on capital projects and about $14.7 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.
The following table indicates the amount of payments due within the time
periods specified below under long-term debt, current portion of long-term debt
included in Bank loans and current portion of long-term debt, capital leases,
operating leases and purchase obligations reflected on the Company's December
31, 2003 financial statements:
<TABLE>
<CAPTION>
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------
LESS THAN MORE THAN
CONTRACTUAL OBLIGATIONS(1) TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS 5 YEARS
- --------------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Borrowings (See Note 9) ......... $ 653.6 $ 0.8 $ 511.3 $ 124.5 $ 17.0
Operating leases(2) ............. 276.1 18.2 29.3 20.8 207.8
Purchase obligations(3) ......... 9.7 0.2 9.5 - -
-------- ------- -------- -------- --------
Total ........................ $ 939.4 $ 19.2 $ 550.1 $ 145.3 $ 224.8
======== ======= ======== ======== ========
</TABLE>
- ----------
(1) Pension funding obligations are included in Note 14 Retirement Benefits.
(2) Operating leases include facility and other lease commitments executed in
the normal course of the Company's operations. Additional details
concerning the Company's United States facilities are contained in Note 8
and details concerning the Company's worldwide aggregate lease facilities
are contained in Note 17.
(3) Purchase obligations are those commitments not recorded on the balance
sheet.
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 borrowings by approximately $100.0 in 2004; in comparison,
borrowings were reduced by approximately $145.0 and $165.0 in 2003 and 2002,
respectively. The Company may dispose of additional non-core assets; any
related net proceeds will be used primarily to reduce borrowings.
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, Australia 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
27
<PAGE>
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. 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, 2003 and 2002, the Company had
outstanding foreign currency forward contracts with notional amounts
approximating $178.0 and $131.4, 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,
2003 or 2002.
The Company employs various interest rate swaps and debt issuances with
the objective of managing and optimizing its interest rate exposure.
In 2001, the Company entered into certain interest swap agreements
effectively converting the fixed coupon rate on its 6.45% Notes to a variable
short-term rate based on the London InterBank Offered Rate (LIBOR) plus an
interest markup. In response to changes in market conditions and the value of
the swaps, and in 2003, in connection with the Company's debt repurchase, the
Company periodically amended the swap agreements, changing the related interest
spread. As a result of these amendments, the counterparty paid the Company
$11.6, $56.5 and $19.9 in 2003, 2002 and 2001, respectively, including accrued
interest of $3.7, $6.5 and $3.3, respectively. The net realized gains on the
swaps have been deferred, classified as a separate component of debt, and are
amortized as a reduction in interest expense over the remaining term of the
Notes. At December 31, 2003, the Company had terminated all swap agreements
related to the Notes; as a result, the interest rate on the Notes, including
amortization of the deferred swap gains, was 3.6% at December 31, 2003. The
effective rate on the Notes at December 31, 2002 and 2001 was 3.4% and 3.7%,
respectively.
In 2002, the Company entered into certain interest swap agreements
effectively converting the fixed rate on its long-term Japanese Yen borrowings
to a variable short-term rate based on the Japanese Yen LIBOR rate plus an
interest markup. These swaps are designated as qualified fair value hedges.
During 2003 the Company amended the swaps and the counterparty paid the Company
$3.0, including accrued interest of $0.5. These net gains have been deferred,
and are classified as a separate component of debt and are being amortized over
the remaining term of the debt. 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. The Company had no ineffective interest rate swaps at
December 31, 2003.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use judgment 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 research and development
and creation of new products, for which all costs are expensed as incurred.
Those areas requiring the greatest degree of management judgment or deemed
most critical to the Company's financial reporting involve:
o The periodic assessment of potential impairment of intangible assets
acquired in business combinations;
28
<PAGE>
o The evaluation of potential environmental and legal liabilities, where
frequently changing rules, regulations and circumstances require
constant reassessment of related practices and anticipated costs;
o Determination of the various assumptions employed in the valuation of
pension and retiree health care expense and associated obligations;
o 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;
o 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; and
o The determination of financial instruments employed as effective hedges
of cash flows or market risk exposures.
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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) 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 adopted the provisions of FAS 146 without material impact to
reported results.
SFAS 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. No expense has been recognized for stock-based
compensation 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 no investments in
entities to which these interpretations apply.
SFAS No. 149 (FAS 149), Amendment of Statement 133 on Derivative
Instruments and Hedging Activities was issued in April 2003. FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments under
FAS 133. The Company adopted this standard without material impact to reported
results.
SFAS No. 132 (FAS 132), Employers' Disclosures about Pensions and Other
Postretirement Benefits was revised in December 2003. The revised version is
effective for fiscal years ending after December 15, 2003. FAS 132, as revised,
requires enhanced disclosures about defined benefit pension and other
postretirement benefit plan assets, obligations, cash flows, and net cost. The
Company has complied with the expanded disclosure requirements prescribed by
the revised standard.
NON-GAAP FINANCIAL MEASURES
The discussion of the Company's historical results and its commentary
regarding expected future results include and, where indicated, exclude the
impact of sales attributable to certain non-core businesses disposed of in 2002
and 2001, the impact of certain charges related to the Company's reorganization
activities and 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
29
<PAGE>
historical and expected future results and financial condition, the Company
believes it is meaningful for investors to be made aware of and to assist in a
better understanding of, on a period-to-period basis, the impact of sales
attributable to certain non-core businesses disposed of in 2002 and 2001, the
impact of exchange rate fluctuations and the impact such specifically
identified charges have on operating results and financial condition. In
addition, management considers each of these non-GAAP measures to evaluate
performance on a comparative period-to-period basis.
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. Certain
of such forward-looking information may be identified by such terms as
"expect," "believe," "may," "will," 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 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 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.
30
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In 2001, the Company entered into certain interest swap agreements
effectively converting the fixed coupon rate on its 6.45% Notes to a variable
short-term rate based on the London InterBank Offered Rate (LIBOR) plus an
interest markup. In response to changes in market conditions and the value of
the swaps and, in 2003, in connection with the Company's debt repurchase, the
Company periodically amended the swap agreements, changing the related interest
spread. As a result of these amendments, the counterparty paid the Company
$11.6 million, $56.5 million and $19.9 million in 2003, 2002 and 2001,
respectively, including accrued interest of $3.7 million, $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 amortized as a reduction in
interest expense over the remaining term of the Notes. At December 31, 2003,
the Company had terminated all swap agreements related to the Notes; as a
result, the interest rate on the Notes, including amortization of the deferred
swap gains, was 3.6% at December 31, 2003. The effective rate on the Notes at
December 31, 2002 and 2001 was 3.4% and 3.7%, respectively.
In 2002, the Company entered into certain interest swap agreements
effectively converting the fixed rate on its long-term Japanese Yen borrowings
to a variable short-term rate based on the Japanese Yen LIBOR rate plus an
interest markup. These swaps are designated as qualified fair value hedges.
During 2003, the Company amended the swap and the counterparty paid the Company
$3.0 million, including accrued interest of $0.5 million. These net gains have
been deferred, are classified as a separate component of debt and are being
amortized over the remaining term of the debt. To the extent the Company has
not received cash or otherwise amended or settled any swap agreement, any
applicable mark-to-market adjustment relating to that swap is included as a
separate component of debt. The Company had no ineffective interest rate swaps
at December 31, 2003.
The Company has executed a 10-year Yen U.S. dollar currency swap related
to the purchase and sale of products between the U.S. and Japan. The annual
notional value of this swap is approximately $5.0 million. Gains and losses
related to this swap are recorded currently, and the mark-to-market adjustment
related to the value of the swap is reflected as a component of Accumulated
other comprehensive income.
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 not
exceeding six months. The notional amount and maturity dates of such contracts
match those of the underlying transactions. At December 31, 2003 and 2002, the
Company had outstanding foreign currency forward contracts with notional
amounts of $178.0 million and $131.4 million, respectively. The Company has
designated these contracts as qualified fair value and cash flow hedges, as
appropriate. The Company had no ineffective foreign currency forward contracts
at December 31, 2003 or 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See index to Financial Statements on page 34. See Item 6 for supplemental
data on page 13 and 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
31
<PAGE>
ITEM 9A. CONTROLS AND PROCEDURES.
The Company's Chief Executive Officer and Chief Financial Officer, with
the assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this Annual Report on Form 10-K. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective.
The Company's Chief Executive Officer and Chief Financial Officer have
also concluded that there have not been any changes in the Company's internal
control over financial reporting during the Company's fourth quarter that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
32
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to directors and nominees of the Company is set
forth under the caption "Election of Directors" in the IFF 2004 Proxy Statement
and is incorporated by reference herein. The information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" that appears in the
IFF 2004 Proxy Statement is also incorporated by reference herein. See Part I,
Item 1 of this Form 10-K for information relating to the Company's Executive
Officers.
The Company has adopted a Code of Business Conduct and Ethics (the "Code
of Ethics") that applies to the Company's chief executive officer, principal
financial officer, principal accounting officer, and to all other Company
directors, officers and employees. The Code of Ethics is available on the
Company's website www.iff.com. A waiver from any provision of the Code of
Ethics in favor of a director or executive officer may only be granted by the
Board and any such waiver will be publicly disclosed. The Company will disclose
substantive amendments to, and any waivers from, the Code of Ethics granted to
the Company's chief executive officer, principal financial officer or principal
accounting officer, as well as any other executive officer or director, on the
Company's Internet website: www.iff.com.
The information regarding the Company's Audit Committee and its designated
audit committee financial expert is set forth under the caption "Board and
Committee Meetings" in the IFF 2004 Proxy Statement and such information is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation is set forth under the
captions "Summary Compensation Table", "Option/SAR Grants in 2003", "Aggregated
Option Exercises in 2003 and Option/SAR Values at December 31, 2003",
"Directors' Compensation", "Employment Contracts and Termination of Employment
and Change-in-Control Arrangements", "Compensation Committee Interlocks and
Insider Participation and Other Related Party Matters", "Executive Separation
Policy" and "Pension Plans" in the IFF 2004 Proxy Statement and such
information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to security ownership of management and certain
beneficial owners is set forth under the caption "Security Ownership" in the
IFF 2004 Proxy Statement and such information is incorporated by reference
herein. The information relating to the Company's equity plans is set forth
under the caption "Equity Compensation Plans" in the IFF 2004 Proxy Statement
and such information is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain relationships and related transactions
is set forth under the caption "Compensation Committee Interlocks and Insider
Participation" in the IFF 2004 Proxy Statement and such information is
incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information regarding principal accountant fees and services and the
Company's pre-approval policies and procedures for audit and non-audit services
provided by the Company's independent accountant are set forth under the
captions "Principal Accountant Fees and Services" and "Audit Committee
Pre-Approval Policies and Procedures" in the IFF 2004 Proxy Statement and such
information is incorporated by reference herein.
33
<PAGE>
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS: The following consolidated financial
statements, related notes, management's report and independent auditors report
are included in this report:
<TABLE>
<CAPTION>
<S> <C>
Report of Management ........................................................................... 34
Report of Independent Auditors ................................................................. 35
Consolidated Statement of Income for the three years ended December 31, 2003 ................... 36
Consolidated Balance Sheet--December 31, 2003 and 2002 ......................................... 37
Consolidated Statement of Cash Flows for the three years ended December 31, 2003 ............... 38
Consolidated Statement of Shareholders' Equity for the three years ended December 31, 2003...... 39
Notes to Consolidated Financial Statements ..................................................... 40-59
</TABLE>
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 judgment. The
audit report on the Company's financial statements by PricewaterhouseCoopers
LLP, independent auditors, 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 Business Conduct and Ethics 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
auditors to discuss the Company's internal accounting controls, auditing and
financial reporting matters. The internal auditors and independent auditors 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 /s/ Douglas J. Wetmore
- ------------------------ ----------------------
Richard A. Goldstein Douglas J. Wetmore
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
The Company's Chief Executive Officer will timely provide the NYSE with
the certification required by NYSE Rule 303A(12). The Company's Chief Executive
Officer and Chief Financial Officer have each filed with the Securities
Exchange Commission required certifications regarding the quality of the
Company's public disclosures.
34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF INTERNATIONAL FLAVORS &
FRAGRANCES INC.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements 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,
2003 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003 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.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
New York, New York
January 27, 2004
35
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2003 2002 2001
- ------------------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Net sales ....................................... $ 1,901,520 $1,809,249 $1,843,766
Cost of goods sold .............................. 1,092,456 1,035,835 1,063,433
Research and development expenses ............... 159,286 144,027 135,248
Selling and administrative expenses ............. 308,951 305,156 313,335
Amortization .................................... 12,632 12,632 46,089
Restructuring and other charges ................. 42,421 11,737 30,069
Interest expense ................................ 28,477 37,036 70,424
Other (income) expense, net ..................... 5,437 (3,591) (2,609)
----------- ---------- ----------
1,649,660 1,542,832 1,655,989
----------- ---------- ----------
Income before taxes on income ................... 251,860 266,417 187,777
Taxes on income ................................. 79,263 90,473 71,775
----------- ---------- ----------
Net income ...................................... $ 172,597 $ 175,944 $ 116,002
=========== ========== ==========
2003 2002 2001
----------- ---------- ----------
Net income per share - basic .................... $1.84 $1.86 $1.21
Net income per share - diluted .................. $1.83 $1.84 $1.20
</TABLE>
See Notes to Consolidated Financial Statements
36
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS) -------------------------------
ASSETS 2003 2002
- -------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................ $ 12,081 $ 14,858
Short-term investments ................................................... 474 307
Receivables: .............................................................
Trade ................................................................... 336,980 327,306
Allowance for doubtful accounts ......................................... (16,212) (12,933)
Other ................................................................... 18,957 24,234
Inventories .............................................................. 454,631 421,603
Deferred income taxes .................................................... 66,070 67,176
Prepaid expenses ......................................................... 29,691 24,198
---------- ----------
Total Current Assets .................................................... 902,672 866,749
Property, Plant and Equipment, net ....................................... 510,612 520,499
Goodwill, net ............................................................ 647,226 642,655
Intangible Assets, net ................................................... 152,187 151,424
Other Assets ............................................................. 94,195 51,367
---------- ----------
Total Assets ............................................................. $2,306,892 $2,232,694
========== ==========
DECEMBER 31,
(DOLLARS IN THOUSANDS) -------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002
- -------------------------------------------------------------------------- -------------- --------------
Current Liabilities:
Bank loans and current portion of long-term debt ......................... $ 31,371 $ 11,684
Commercial paper ......................................................... 162,933 37,979
Accounts payable ......................................................... 104,028 104,007
Accrued payrolls and bonuses ............................................. 41,032 36,250
Dividends payable ........................................................ 14,996 14,138
Income taxes ............................................................. 27,826 38,496
Other current liabilities ................................................ 143,859 116,943
---------- ----------
Total Current Liabilities ............................................... 526,045 359,497
---------- ----------
Other Liabilities:
Long-term debt ........................................................... 690,231 1,007,085
Deferred gains ........................................................... 73,439 24,834
Retirement liabilities ................................................... 210,031 197,111
Other liabilities ........................................................ 64,515 69,489
---------- ----------
Total Other Liabilities ................................................. 1,038,216 1,298,519
---------- ----------
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 ........................................... 95,138 109,735
Restricted stock ......................................................... (3,952) (5,723)
Retained earnings ........................................................ 1,496,104 1,382,539
Accumulated other comprehensive income: ..................................
Cumulative translation adjustment ....................................... (45,188) (138,175)
Accumulated (losses) gains on derivatives qualifying as hedges (net of
tax) .................................................................. (3,678) 733
Minimum pension liability adjustment (net of tax) ....................... (82,815) (75,038)
---------- ----------
1,470,079 1,288,541
Treasury stock, at cost - 22,032,132 shares in 2003 and 21,507,668 shares
in 2002 ................................................................. (727,448) (712,876)
Note receivable from officer ............................................. - (987)
---------- ----------
Total Shareholders' Equity .............................................. 742,631 574,678
---------- ----------
Total Liabilities and Shareholders' Equity ............................... $2,306,892 $2,232,694
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
37
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2001
- ----------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 172,597 $ 175,944 $ 116,002
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization .................................. 86,721 84,458 123,493
Deferred income taxes .......................................... (11,565) (6,381) (18,113)
Changes in assets and liabilities: .............................
Current receivables ........................................... 35,956 15,452 8,925
Inventories ................................................... 7,690 17,259 (1,207)
Current payables .............................................. (32,252) (27,623) (20,076)
Other, net .................................................... 10,449 (15,765) (27,519)
---------- ---------- ----------
Net cash provided by operations ................................. 269,596 243,344 181,505
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments ...................................... 33 257 8,250
Purchases of investments ....................................... (161) (176) (19,786)
Acquisitions and purchase of minority interest ................. (6,400) (11,791) -
Additions to property, plant and equipment ..................... (65,955) (81,815) (52,016)
Proceeds from disposal of assets ............................... 97,675 64,634 14,900
---------- ---------- ----------
Net cash provided by (used in) investing activities ............. 25,192 (28,891) (48,652)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders ............................ (58,174) (56,826) (57,618)
Net change in bank loans ....................................... 12,551 (14,774) (13,088)
Net change in commercial paper outstanding ..................... 124,954 (166,250) (605,123)
Proceeds from long-term debt ................................... 35,984 282,329 580,545
Repayments of long-term debt ................................... (386,399) (251,837) (49,705)
Proceeds from issuance of stock under stock option and .........
employee stock purchase plans ................................. 26,278 29,579 6,842
Purchase of treasury stock ..................................... (55,447) (72,273) (71,234)
---------- ---------- ----------
Net cash used in financing activities ........................... (300,253) (250,052) (209,381)
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents..... 2,688 1,936 (3,820)
---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ......................... (2,777) (33,663) (80,348)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 14,858 48,521 128,869
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 12,081 $ 14,858 $ 48,521
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED NOTE TOTAL
CAPITAL IN OTHER TREASURY STOCK RECEIVABLE COMPRE-
COMMON EXCESS OF RESTRICTED RETAINED COMPREHENSIVE --------------------------- FROM HENSIVE
(DOLLARS IN THOUSANDS) STOCK PAR VALUE STOCK EARNINGS INCOME SHARES COST OFFICER INCOME
- ----------------------- ------- ----------- ---------- -------- ------------- ---------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
2001 ................. $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) 187,056 9,623 (987)
Stock options .......... (3,941)
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)
------- -------- ---------- --------- --------- ---------- --------- --------
Net income ............. 172,597 $172,597
Cumulative translation
adjustment ............ 92,987 92,987
Accumulated losses on
derivatives qualifying
as hedges (net of
tax) .................. (4,411) (4,411)
Minimum pension
liability adjustment
(net of tax) .......... (7,777) (7,777)
--------
Total comprehensive
income ................ $253,396
========
Cash dividends
declared .............. (59,032)
Stock options .......... (14,597) 1,226,836 40,875 987
Reacquired shares ...... (1,751,300) (55,447)
Amortization ........... 1,771
------- -------- ---------- ---------- ---------- ----------- ---------- --------
Balance at December 31,
2003................... $14,470 $ 95,138 $(3,952) $1,496,104 $ (131,681) (22,032,132) $(727,448) $ -
======= ======== ========== ========== ========== =========== ========== ========
</TABLE>
See Notes to Consolidated Financial Statements
39
<PAGE>
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 requires
management to make estimates and assumptions that affect the reported amounts
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
flavor and fragrance compounds used 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. All intercompany balances and
transactions have been eliminated. To the extent any subsidiary is not
wholly-owned, any related minority interest is included in Other liabilities and
applicable (income) expense attributable to the minority interest is included in
Other (income) expense, net.
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.
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
primarily 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.
40
<PAGE>
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) 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
anticipated. No provision is made for additional taxes on undistributed earnings
of subsidiary companies that are intended to be permanently invested in such
subsidiaries. No income tax benefit is attributable to the currency translation
component of other comprehensive income.
RETIREMENT BENEFITS Current service costs of retirement plans and
postretirement health care and life insurance benefits are accrued currently.
Prior service costs resulting from plan improvements are amortized over periods
ranging from 10 to 20 years.
FINANCIAL INSTRUMENTS The Company enters into derivative instruments with
terms that match the underlying exposure being hedged. The Company's derivative
instruments are considered highly effective and the net gain or loss from hedge
ineffectiveness is 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 the 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 value of the derivative are recorded in other
comprehensive income and are recognized in earnings when the offsetting effect
of the hedged item is 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 SFAS 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 adopted the
provisions of FAS 146 without material impact to reported results.
SFAS 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. No expense has been recognized for stock-based compensation
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 no investments in
entities to which these interpretations apply.
41
<PAGE>
SFAS No. 149 (FAS 149), Amendment of Statement 133 on Derivative
Instruments and Hedging activities was issued in April 2003. FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments under
FAS 133. The Company adopted this standard without material impact to reported
results.
SFAS No. 132 (FAS 132), Employers' Disclosures about Pensions and Other
Postretirement Benefits was revised in December 2003. The revised version is
effective for fiscal years ending after December 15, 2003. FAS 132, as revised,
requires enhanced disclosures about defined benefit pension and other
postretirement benefit plan assets, obligations, cash flows, and net cost. The
Company has complied with the expanded disclosure requirements prescribed by
the revised standard.
NET INCOME PER SHARE Net income per share is based on the weighted
average number of shares outstanding. A reconciliation of shares used in the
computations of basic and diluted net income per share is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------
(SHARES IN THOUSANDS) 2003 2002 2001
- ------------------------------------ -------- -------- ---------
<S> <C> <C> <C>
Basic .............................. 93,718 94,511 95,770
Dilution under stock plans ......... 701 1,362 1,049
------ ------ ------
Diluted ............................ 94,419 95,873 96,819
====== ====== ======
</TABLE>
Net income used in the computation of net income per share is unaffected
by the assumed issuance of stock under the Company's stock plans.
Options to purchase 4,440,455, 3,505,414 and 4,138,020 shares were
outstanding in 2003, 2002 and 2001, respectively, but not included in the
computation of diluted net income per share because the exercise prices were
greater than the average market price of the common shares in the respective
years.
STOCK PLANS The Company has 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,
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
FAS No. 123 for the years ended December 31, 2003, 2002 and 2001:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 2003 2002 2001
- ---------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Net income, as reported .................................. $ 172,597 $ 175,944 $ 116,002
Deduct:
Total stock-based employee compensation expense
determined under fair value method for all stock option
awards, net of related tax effects .................... 15,404 16,008 14,092
--------- --------- ---------
Pro-forma
net income ............................................ $ 157,193 $ 159,936 $ 101,910
========= ========= =========
Net income per share:
Basic -- as reported .................................... $1.84 $1.86 $1.21
Basic -- pro-forma ...................................... $1.68 $1.69 $1.06
Diluted -- as reported .................................. $1.83 $1.84 $1.20
Diluted -- pro-forma .................................... $1.66 $1.67 $1.05
===== ===== =====
</TABLE>
These pro-forma amounts may not be representative of future results
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.
42
<PAGE>
RECLASSIFICATIONS Certain reclassifications have been made to the prior
years' financial statements to conform to 2003 classifications.
NOTE 2. RESTRUCTURING AND OTHER CHARGES
In October 2000, the Company announced a reorganization including
management changes, consolidation of production facilities and related actions.
Costs incurred include separation-related costs, asset write-downs and other
costs directly related to the restructuring effort.
The actions taken in 2003 completed the reorganization activities as
contemplated under the plan announced in October 2000. The restructuring and
other charges exclude all costs incurred in connection with the integration of
BBA and the Company; such costs were treated as an element of the acquisition
cost.
During 2003, the Company recorded pre-tax charges of $42.4 million; $38.0
million related to employee terminations and $4.4 million related to location
closures and asset write-downs. The Company eliminated 321 positions; positions
by region are as follows: North America, including corporate 81, Europe 97,
Asia Pacific 120, Latin America 19 and India 4. The $4.4 million asset-related
charges primarily relate to updates on costs for previously commenced actions.
During 2002, the Company recorded pre-tax charges of $11.7 million; $4.3
million related to employee terminations and $7.4 million related to location
closures and asset write-downs. The Company eliminated 148 positions; positions
by region are as follows: North America, including corporate 91, Europe 42 and
Asia Pacific 15. The $7.4 million asset-related charges includes $4.0 million
related to a non-cash asset write-off associated with the disposition of the
Company's fruit concentrates business in North America.
During 2001, the Company recorded pre-tax charges of $30.1 million; $10.1
million related to employee terminations and $20.0 million related to location
closures and asset write-downs. The Company eliminated 465 positions; positions
by region are as follows: North America, including corporate 197, Europe 62,
Asia Pacific 145 and Latin America 61. There were no significant non-cash
related elements in the 2001 charges.
Separation costs for the employees relate primarily to severance,
outplacement and other benefit costs. Asset-related and other charges relate to
establishment of the new carrying value for assets held for sale or disposal
and other costs including lease termination costs and other reorganization
expenses incurred to effect the location closure.
Charges by region in each of the three years in the period ended December
31, 2003 were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2003 2002 2001
- ------------------------ ---------- --------- ----------
<S> <C> <C> <C>
North America .......... $20,172 $ 5,565 $14,722
Europe ................. 16,936 5,814 4,172
Asia Pacific ........... 3,576 358 8,542
Latin America .......... 1,296 - 2,633
India .................. 441 - -
------- ------- -------
$42,421 $11,737 $30,069
======= ======= =======
</TABLE>
43
<PAGE>
Movements in related accruals were:
<TABLE>
<CAPTION>
ASSET-
EMPLOYEE- RELATED
(DOLLARS IN THOUSANDS) RELATED AND OTHER TOTAL
- ----------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Balance January 1, 2001 ........... $ 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
Additional charges ................ 37,989 4,432 42,421
Cash and other costs .............. (21,809) (3,334) (25,143)
--------- --------- ---------
Balance December 31, 2003 ......... $ 19,609 $ 1,519 $ 21,128
========= ========= =========
</TABLE>
The balance of the employee-related liabilities will be utilized by 2006
as obligations are satisfied; the asset-related charges will be utilized in
2004 on final decommissioning and disposal of the affected equipment.
NOTE 3. ACQUISITIONS AND DIVESTITURES
In 2003, the Company acquired 70% of the outstanding shares of Celessence
International Ltd. (Celessence), a company engaged in the development and
distribution of encapsulation and delivery systems for use in fragrance and
other applications for $6.4 million. The acquisition was accounted for as a
purchase business combination. The principal Celessence asset is a process
technology patent included in other intangible assets that is being amortized
over its estimated remaining useful life. Celessence results, which are not
material, are included in the consolidated results of the Company from
acquisition date. Final allocation of the purchase price is not complete as of
December 31, 2003 pending final valuation of the intangible asset.
In November 2000, the Company acquired BBA; total consideration paid,
including transaction costs, was $970.0 million. At acquisition date, BBA owned
approximately 73% of its Indian subsidiary, BBA India Limited (BBAIL). During
2002, the Company acquired additional BBAIL shares, raising its ownership
interest to 93%; cost of the acquired shares was $11.8 million.
Minority interests, which in the aggregate, are not material, are included
in Other liabilities.
The BBA acquisition was accounted for as a purchase business combination;
the purchase price was 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 established accruals relating to the integration of BBA
operations. Costs associated with these integration activities, relating mainly
to employee separation and facility closures, were recorded as a component of
purchase accounting; such costs did not directly impact current earnings.
44
<PAGE>
Movements in acquisition accounting accruals were:
<TABLE>
<CAPTION>
ASSET-
EMPLOYEE- RELATED
(DOLLARS IN THOUSANDS) RELATED AND OTHER TOTAL
- ----------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
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
Cash and other costs .............. (3,576) (1,069) (4,645)
--------- --------- ---------
Balance December 31, 2003 ......... $ 2,430 $ - $ 2,430
========= ========= =========
</TABLE>
The remaining liability will be utilized in 2004 as severance obligations
are satisfied.
The Company sold its concentrate business based in Oregon in June 2002 and
recorded a restructuring and other charge of $4.3 million related to employee
separation and other disposal costs. Sales for the business up to the date of
disposition were $9.4 million; operating profit was not significant.
In October 2001, the Company sold its formulated fruit and vegetable
preparation businesses in the United States and Brazil and recorded a
restructuring and other charge of $7.4 million related to employee separation
and other disposal costs. Sales for the business up to the date of disposition
were $23.0 million, with operating profit of approximately $2.2 million.
In December 2001, the Company sold the U.K.-based aroma chemicals business
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. No gain or loss was recognized as a result of this transaction.
Proceeds from the sales, 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 December 31, 2003 and 2002, marketable
securities totaling $0.1 million and $0.1 million, respectively, 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
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(DOLLARS IN THOUSANDS) 2003 2002
- ------------------------- ----------- -----------
<S> <C> <C>
Raw materials ........... $233,313 $222,161
Work in process ......... 15,815 12,680
Finished goods .......... 205,503 186,762
-------- --------
$454,631 $421,603
======== ========
</TABLE>
45
<PAGE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(DOLLARS IN THOUSANDS) 2003 2002
- ------------------------------------------- ------------ ----------
<S> <C> <C>
Land ...................................... $ 38,370 $ 35,249
Buildings and improvements ................ 218,381 221,899
Machinery, equipment and software ......... 699,148 630,252
Construction in progress .................. 54,498 62,814
--------- --------
1,010,397 950,214
Accumulated depreciation .................. 499,785 429,715
--------- --------
$ 510,612 $520,499
========= ========
</TABLE>
NOTE 7. INTANGIBLE ASSETS, NET
Effective January 1, 2002, the Company adopted FAS 142; adoption
eliminated annual goodwill amortization expense of $32.8 million.
During 2003 and 2002, the Company performed its impairment assessment and
concluded there was no impairment.
The principle changes in goodwill and intangible assets in 2003 relate to
the acquisition of Celessence.
<TABLE>
<CAPTION>
DECEMBER 31, 2003
--------------------------
GROSS
CARRYING ACCUMULATED
(DOLLARS IN THOUSANDS) VALUE AMORTIZATION
- -------------------------------------------- ---------- -------------
<S> <C> <C>
Goodwill ................................... $688,760 $41,534
Other indefinite-lived intangibles ......... 19,200 1,184
Trademarks and other ....................... 174,699 40,528
-------- -------
Total ...................................... $882,659 $83,246
======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 2002
--------------------------
GROSS
CARRYING ACCUMULATED
(DOLLARS IN THOUSANDS) VALUE AMORTIZATION
- -------------------------------------------- ---------- -------------
<S> <C> <C>
Goodwill ................................... $684,189 $41,534
Other indefinite-lived intangibles ......... 19,200 1,184
Trademarks and other ....................... 161,162 27,754
-------- -------
Total ...................................... $864,551 $70,472
======== =======
</TABLE>
46
<PAGE>
The following table reflects the net income per share effect of adopting
FAS 142.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(DOLLARS IN THOSANDS
EXCEPT PER SHARE AMOUNTS) 2003 2002 2001
- -------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Reported net income ............ $ 172,597 $ 175,944 $ 116,002
Add back:
Goodwill amortization ......... - - 32,774
--------- --------- ---------
Adjusted net income ............ $ 172,597 $ 175,944 $ 148,776
========= ========= =========
BASIC NET INCOME
PER SHARE
Reported net income ............ $1.84 $1.86 $1.21
Goodwill amortization .......... - - 0.34
--------- --------- ---------
Adjusted net income ............ $1.84 $1.86 $1.55
========= ========= =========
DILUTED NET INCOME
PER SHARE
Reported net income ............ $1.83 $1.84 $1.20
Goodwill amortization .......... - - 0.34
--------- --------- ---------
Adjusted net income ............ $1.83 $1.84 $1.54
========= ========= =========
</TABLE>
Amortization expense for the year ended December 31, 2003 was $12.6
million; estimated annual amortization from 2004 to 2006 is $14.8 million,
$13.4 million in 2007 and $6.7 million in 2008.
NOTE 8. SALE AND LEASEBACK TRANSACTIONS
In 2003, the Company sold its New York corporate headquarters to an
unrelated third party for $91.0 million in cash, concurrently, entering into a
long-term lease with respect to the space it occupies (approximately 40% of the
building). The lease is classified as an operating lease in accordance with
SFAS No. 13 (FAS 13), Accounting for Leases. The gain realized on the sale,
after transaction costs, of $52.7 million, has been deferred and is being
credited to income over the initial 27.5-year lease term.
In 2002, the Company entered into agreements for the sale and leaseback of
its Hazlet and South Brunswick, New Jersey facilities to an unrelated third
party for $48.0 million in cash. Concurrently, the Company entered into a
long-term lease with respect to the facilities. The leases are classified as
operating leases in accordance with FAS 13. The gain realized on the sale,
after transaction costs, of $26.7 million, has been deferred and is being
credited to income over the initial 22-year lease term.
The Company has cumulative deferred gains on disposition of real estate
totaling $76.4 million and $26.0 million at December 31, 2003 and 2002,
respectively. At December 31, 2003 and 2002, $73.4 million and $24.8 million,
respectively, are reflected in the accompanying balance sheet under the caption
Deferred gains, with the respective remaining amounts included as a component
of Other current liabilities.
47
<PAGE>
NOTE 9. BORROWINGS
Debt consists of the following at December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) RATE MATURITIES 2003 2002
- --------------------------------------------------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Commercial paper (U.S.) ................................. $162,933 $ 37,979
Bank loans .............................................. 30,610 10,979
Current portion of long-term debt ....................... 761 705
-------- ----------
Total current debt ...................................... 194,304 49,663
-------- ----------
U.S. dollars ............................................ 6.45% 2006 498,675 699,112
Euro facility ........................................... 2.55% - 106,018
Japanese Yen notes ...................................... 2.45% 2008-11 141,516 126,824
Japanese Yen notes ...................................... 1.74% 2005 11,172 10,012
Other ................................................... 2005 861 1,587
-------- ----------
652,224 943,553
Deferred realized gains on interest rate swaps .......... 39,685 57,868
FAS 133 adjustment ...................................... (1,678) 5,664
-------- ----------
Total long-term debt .................................... 690,231 1,007,085
-------- ----------
Total debt .............................................. $884,535 $1,056,748
======== ==========
</TABLE>
At December 31, 2003, outstanding commercial paper had an effective
interest rate of 1.2% compared to 1.6% at December 31, 2002. Commercial paper
maturities did not extend beyond January 22, 2004.
In 2002, the Company entered into a five-year Euro 350.0 million
(approximately $440.0 million at December 31, 2003), multi-currency revolving
credit facility. Prior to July 2002, the Company had a Euro 140.0 million
facility which was cancelled and all borrowings were repaid. Prior to the third
quarter of 2003, the five-year Euro facility was characterized as long-term
debt; the Company currently employs this facility as a European-wide working
capital facility. At December 31, 2003, the Company had no borrowings under
this facility.
In 2001, the Company issued $700.0 million of 6.45% Notes; the Notes
mature May 15, 2006. During 2003, the Company repurchased $200.7 million of
these Notes in a series of open-market transactions. As a result of premiums
paid for the Notes repurchased, the Company incurred pre-tax losses, included
in Other (income) expense, net of $4.2 million.
In 2002, the Company exercised an option under its existing $500.0 million
U.S. revolving credit facility and cancelled the $200.0 million 364-day portion
of the agreement. The remaining $300.0 million revolving credit facility
extends to September 2006. The revolving credit agreement is used as backstop
for the Company's commercial paper program; there have been no borrowings under
this agreement. The Company compensates participating banks in the form of
fees, the amounts of which are not material.
Short-term bank loans, in addition to the five-year Euro facility, were
outstanding in several foreign countries and averaged $22.7 million in 2003,
compared with $16.7 million in 2002. The highest levels were $37.4 million in
2003, $52.2 million in 2002 and $69.0 million in 2001, respectively. The 2003
weighted average interest rate of these foreign bank loans, based on balances
outstanding at the end of each month, was 4% and the average rate on loans
outstanding at December 31, 2003 was 4%. These rates compare with 5% and 4%,
respectively, in 2002 and 7% and 5%, respectively, in 2001.
Annual maturities on long-term debt outstanding at December 31, 2003 are
as follows: 2004, $0.8 million; 2005, $12.0 million; 2006, $499.3 million;
2008, $124.5 million; 2009, $0; and thereafter, $17.0 million. At December 31,
2003, the estimated fair value of the $499.3 million 6.45% Notes, including
deferred gains on interest rate swaps, was $533.7 million. The estimated fair
value of the remaining long-term debt at December 31, 2003 and 2002, based on
borrowing rates currently available to the Company with similar terms and
maturities, approximated the recorded amount.
48
<PAGE>
The Company has various interest rate swaps, the market value of which is
included in the caption FAS 133 adjustment. Interest rate swaps that have been
monetized and will be amortized over the life of the debt are reported as
Deferred realized gains on interest rate swaps.
Cash payments for interest were $44.6 million in 2003, $61.6 million in
2002 and $77.2 million in 2001; such cash payments exclude the benefit of cash
payments the Company received under its various interest rate swap agreements
of $11.6 million, $56.5 million and $19.9 million in 2003, 2002 and 2001,
respectively.
At December 31, 2003 and 2002, the Company and its subsidiaries had unused
lines of credit approximating $532.0 million and $368.0 million, respectively,
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:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2003 2002 2001
- ------------------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
U.S. loss before taxes ............. $ (53,200) $ (8,918) $ (59,390)
Foreign income before
taxes ............................. 305,060 275,335 247,167
--------- -------- ---------
Total income before taxes .......... $ 251,860 $266,417 $ 187,777
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2003 2002 2001
- ---------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal ................... $ 4,762 $ 18,452 $ 7,507
State and local ........... 902 1,884 3,816
Foreign ................... 85,164 76,518 78,565
--------- --------- ---------
90,828 96,854 89,888
--------- --------- ---------
Deferred
Federal ................... (18,497) (19,496) (17,836)
State and local ........... (2,660) (2,591) (5,821)
Foreign ................... 9,592 15,706 5,544
--------- --------- ---------
(11,565) (6,381) (18,113)
--------- --------- ---------
Total income taxes ......... $ 79,263 $ 90,473 $ 71,775
========= ========= =========
</TABLE>
At December 31, 2003 and 2002, gross deferred tax assets were $154.1
million and $146.8 million, respectively; gross deferred tax liabilities were
$77.7 million and $77.2 million, respectively. No valuation allowance was
required for deferred tax assets. At December 31, 2003 and 2002, non-current
deferred tax assets of $10.3 million and $2.5 million, respectively, were
included in Other assets. The principal components of deferred tax assets
(liabilities) were:
49
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2003 2002
- --------------------------------------- ------------ ------------
<S> <C> <C>
Employee and retiree benefits ......... $ 67,700 $ 71,700
Inventory ............................. 5,400 5,800
Tax credit carryforwards .............. 18,700 13,800
Property, plant and equipment ......... 10,900 (8,200)
Trademarks and other .................. (37,600) (41,500)
Interest .............................. 10,000 17,400
Foreign earnings ...................... (25,100) (19,400)
Other, net ............................ 26,400 30,000
--------- ---------
$ 76,400 $ 69,600
========= =========
</TABLE>
Of the tax credit carryforwards, $7.6 million will expire, if unused,
beginning in 2006; the remaining $11.1 million can be carried forward
indefinitely.
A reconciliation between the U.S. federal income tax rate and the
effective tax rate is:
<TABLE>
<CAPTION>
2003 2002 2001
---------- ---------- ----------
<S> <C> <C> <C>
Statutory tax rate ........................................................ 35.0% 35.0% 35.0%
Difference in effective tax rate on foreign earnings and remittances ...... (1.4) 0.1 (1.4)
State and local taxes ..................................................... (0.5) (0.2) (0.7)
Goodwill .................................................................. - - 6.0
Other, net ................................................................ (1.6) (0.9) (0.7)
---- ---- ----
Effective tax rate ........................................................ 31.5% 34.0% 38.2%
==== ==== ====
</TABLE>
Income taxes paid were $96.9 million in 2003, $100.3 million in 2002 and
$88.6 million in 2001.
Undistributed earnings of foreign subsidiaries for which no deferred taxes
have been provided totaled $635.4 million and $576.6 million at December 31,
2003 and 2002, respectively. The portion of these foreign earnings which the
Company intends to permanently reinvest in its foreign operations totaled
$117.3 million and $66.8 million at December 31, 2003 and 2002, respectively.
No federal income or foreign withholding tax has been provided on these
permanently reinvested foreign earnings. Any additional U.S. taxes payable on
the remaining 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 vesting period. In 2001, the first two market price targets
were achieved and compensation expense of $1.7 million was recognized. In 2002,
the third price target of $31.50 was achieved and the Company recognized
compensation expense of $0.8 million. 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 award is subject to the Company 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
50
<PAGE>
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 $0.62, $0.60 and $0.60 in 2003, 2002 and
2001, respectively.
The Accumulated other comprehensive income balance includes Cumulative
translation adjustments of ($45.2) million and ($138.2) million, Accumulated
(losses) gains on derivatives qualifying as hedges of ($3.7) million and $0.7
million, and Minimum pension liability of ($82.8) million and ($75.0) million,
in 2003 and 2002, 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 10 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 8% of
options outstanding (as of December 31, 2003), generally become exercisable in
four equal installments as corresponding 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. The November 2002 options vest six
years and nine months after date of grant, based only on continued employment,
regardless of whether the prescribed price targets have been met.
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 2003, options were granted at exercise prices ranging from $29.86
to $32.39 per share. At December 31, 2003, the price range for shares under
option was $17.94 to $49.88; options for 5,146,449 shares were exercisable at
that date.
The Company has a Global Employee Stock Purchase Plan (GESPP) that was
established in January 2001. Eligible employees may purchase a limited number
of shares of the Company's common stock at a discount of 15% of the market
value on the grant date. The purchase date is one year after grant. Shares
purchased under the GESPP in 2003 and 2002 were 188,862 and 206,541,
respectively.
51
<PAGE>
Stock plan transactions were:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK WEIGHTED
--------------------------------- AVERAGE
AVAILABLE UNDER EXERCISE
FOR GRANT OPTION PRICE
--------------- --------------- -----------
<S> <C> <C> <C>
Balance
January 1, 2001 ...................... 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
Granted ............................... (2,668,600) 2,668,600 30.08
Exercised ............................. - (1,034,528) 20.81
Terminated ............................ 754,658 (754,658) 33.38
Lapsed ................................ (107,883) (117,750) 36.31
Reserved for Units .................... (37,229) - -
---------- ---------- --------
Balance
December 31, 2003 .................... 4,420,958 10,423,572 $ 31.18
========== ========== ========
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
-------------------------------
$10-$30 $30-$50
-------------- --------------
<S> <C> <C>
Number outstanding ............................................ 5,173,089 5,250,483
Weighted average remaining contractual life, in years ......... 8.1 6.8
Weighted average exercise price ............................... $ 26.81 $ 35.49
----------- -----------
Number exercisable ............................................ 1,857,595 3,288,854
Weighted average exercise price ............................... $ 25.70 $ 37.16
=========== ===========
</TABLE>
Using the Black-Scholes option valuation model, the estimated fair values
of options granted during 2003, 2002 and 2001 were $7.84, $10.07 and $8.09,
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.
52
<PAGE>
Principal assumptions used in applying the Black-Scholes model were:
<TABLE>
<CAPTION>
2003 2002 2001
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate .......... 2.6% 4.5% 4.6%
Expected life, in years .......... 5 5 5
Expected volatility .............. 31.7% 33.7% 32.2%
Expected dividend yield .......... 2.0% 1.8% 2.2%
==== ==== ====
</TABLE>
The Company has a share repurchase program. In October 2002, the Board of
Directors authorized the Company to purchase $100.0 million in shares under
that program. At December 31, 2003, the Company had authorization for $42.0
million remaining under this plan. The repurchased shares are used in
connection with the above stock option programs and for general corporate
purposes.
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 restructuring
and other 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.
The Company's reportable segment information, based on geographic region,
follows:
<TABLE>
<CAPTION>
2003 NORTH LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE INDIA AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------ ----------- ----------- ---------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $583,224 $782,680 $42,209 $208,714 $284,693 $ - $1,901,520
Transfers between regions ................ 77,471 155,305 939 683 22,512 (256,910) -
-------- -------- ------- -------- -------- ---------- ----------
Total sales .............................. $660,695 $937,985 $43,148 $209,397 $307,205 $ (256,910) $1,901,520
======== ======== ======= ======== ======== ========== ==========
Segment profit ........................... $ 67,758 $209,073 $10,728 $ 32,907 $ 50,326 $ (490) $ 370,302
======== ======== ======= ======== ======== ==========
Corporate and other unallocated
expenses ................................ (42,107)
Restructuring and other charges .......... (42,421)
Interest expense ......................... (28,477)
Other income (expense), net .............. (5,437)
----------
Income before taxes on income ............ $ 251,860
==========
Segment assets ........................... $785,619 $978,020 $59,512 $156,809 $385,515 $ (101,945) $2,263,530
======== ======== ======= ======== ======== ==========
Unallocated assets ....................... 43,362
----------
Total assets ............................. $2,306,892
==========
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
2002 NORTH LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE INDIA AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------ ----------- ----------- ---------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $592,974 $695,384 $37,626 $216,938 $266,327 $ - $1,809,249
Transfers between regions ................ 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)
Restructuring and other 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
==========
</TABLE>
<TABLE>
<CAPTION>
2001 NORTH LATIN ASIA
(DOLLARS IN THOUSANDS) AMERICA EUROPE INDIA AMERICA PACIFIC ELIMINATIONS CONSOLIDATED
- ------------------------------------------ ----------- ----------- ---------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers .......... $616,806 $682,574 $32,684 $245,517 $266,185 $ - $1,843,766
Transfers between regions ................ 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)
Restructuring and other 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
==========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION
------------------------------------ ------------------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2001 2003 2002 2001
- ---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
North America .............. $21,153 $23,129 $18,531 $43,063 $41,852 $ 33,784
Europe ..................... 21,565 29,688 20,441 29,909 26,418 27,616
India ...................... 2,318 555 491 938 962 533
Latin America .............. 4,919 3,206 1,559 3,368 3,768 4,628
Asia Pacific ............... 11,322 8,445 4,571 7,112 6,842 7,749
Unallocated assets ......... 4,678 16,792 6,423 2,331 4,616 49,183
------- ------- ------- ------- ------- --------
Consolidated ............... $65,955 $81,815 $52,016 $86,721 $84,458 $123,493
======= ======= ======= ======= ======= ========
</TABLE>
Sales of fragrance products were $1,035.0 million, $1,000.2 million and
$1,008.1 million in 2003, 2002 and 2001, respectively. Sales of flavor products
were $866.5 million, $809.0 million and $835.7 million in 2003, 2002 and 2001,
respectively. Sales in the United States, based on the final country of
destination of the Company's products, were $520.3 million, $544.3 million and
$570.5 million in 2003, 2002 and 2001, respectively. No other country of
destination exceeded 8% of consolidated sales. No customer accounted for 10% or
more of sales in 2003, 2002 or 2001. Total long-lived assets consists of net
property, plant and equipment and net intangible assets and amounted to
$1,310.0 million, $1,314.6 million and $1,328.4 million at December 31, 2003,
2002 and 2001, respectively; of the respective
54
<PAGE>
totals, $998.4 million, $1,029.6 million and $1,071.1 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 $1.6 million in 2003, $2.3 million in 2002
and $1.9 million in 2001 are included in Other (income) expense, net.
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.
Contributions to the Company's United States defined contribution plan match
50% of the employee's pre-tax 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:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
-------------------------------------- --------------------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2001 2003 2002 2001
- ------------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned ......... $ 8,466 $ 7,874 $ 7,293 $ 8,226 $ 7,327 $ 9,552
Interest cost on projected benefit
obligation .............................. 19,771 19,091 18,351 23,564 21,339 24,306
Expected return on plan assets ........... (21,875) (23,506) (23,082) (24,418) (23,455) (27,691)
Net amortization and deferrals ........... 709 (306) (1,347) 5,843 2,923 679
Special termination benefits ............. 1,300 - - 1,223 - -
--------- --------- --------- --------- --------- ---------
Defined benefit plans .................... 8,371 3,153 1,215 14,438 8,134 6,846
Defined contribution and other
retirement plans ........................ 2,533 3,121 2,368 3,217 3,227 2,425
--------- --------- --------- --------- --------- ---------
Total pension expense .................... $ 10,904 $ 6,274 $ 3,583 $ 17,655 $ 11,361 $ 9,271
========= ========= ========= ========= ========= =========
Weighted-average actuarial
assumptions used to determine
pension data:
Discount rate ............................ 6.25% 6.75% 7.25% 5.24% 5.48% 5.90%
Expected return on plan assets ........... 8.50% 9.00% 9.00% 7.35% 7.53% 7.50%
Rate of compensation increase ............ 3.75% 4.00% 4.50% 2.52% 2.80% 3.25%
========= ========= ========= ========= ========= =========
</TABLE>
The expected return on plan assets was determined based on an asset
allocation model using the current benchmark allocation, real rates of return by
asset class and an anticipated inflation rate. The benchmark asset allocation
was approximately 5%-10% employed in cash and fixed income investments expected
to yield 1.5%; 20%-25% employed in corporate and government bonds expected to
yield 1.7%-2.2%; and 65%-70% in equity investments with a long-term expected
yield of 8.0% to 8.9%. The inflation rate assumed in the model was 2.2%. The
plan has employed a similar asset allocation strategy for the prior 15 years and
has achieved a compound annual return of approximately 10.1% during this period.
Discount rates used in 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 rate of compensation increase is based on plan
experience.
55
<PAGE>
The Company's pension plan asset allocation for U.S. plans at December 31,
2003 and 2002, and target allocation for 2004 is:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF PLAN OF PLAN
TARGET ASSETS AT ASSETS AT
ALLOCATION DECEMBER 31, DECEMBER 31,
ASSET CATEGORY 2004 2003 2002
- ----------------------------------------------- ------------ -------------- -------------
<S> <C> <C> <C>
Equity investments ............................ 65%-70% 78% 66%
Corporate and government bonds ................ 20%-25% 11% 13%
Other cash and short-term investments ......... 5%-10% 11% 21%
--- ---
Total ......................................... 100% 100%
=== ===
</TABLE>
Equity investments include the Company's common stock in the amounts of
$18.1 million (7.2% of total plan assets) and $18.2 million (8.3% of total plan
assets) at December 31, 2003 and 2002, respectively.
In 2003, the percentage of assets held in equities increased solely from
strong market performance relative to fixed income investments. There has been
no change in the Company's long-term target allocation.
Expense recognized for postretirement benefits other than pensions
included the following components:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 2003 2002 2001
- ----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost for benefits earned .............. $ 2,751 $2,034 $1,722
Interest on benefit obligation ................ 6,220 5,545 5,377
Net amortization and deferrals ................ 1,044 532 508
------- ------ ------
Total postretirement benefit expense .......... $10,015 $8,111 $7,607
======= ====== ======
</TABLE>
Changes in pension and postretirement benefit obligations were:
<TABLE>
<CAPTION>
U.S. PENSION PLANS NON-U.S. PENSION PLANS POSTRETIREMENT BENEFITS
----------------------- ----------------------- -----------------------
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002 2003 2002
- --------------------------------------------- ----------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation at beginning of year ..... $ 287,777 $ 256,647 $ 414,777 $ 351,390 $ 92,283 $ 83,506
Service cost for benefits earned ............ 8,466 7,874 8,226 7,327 2,751 2,034
Interest cost on projected
benefit obligation ......................... 19,771 19,091 23,564 21,339 6,220 5,545
Actuarial loss .............................. 22,196 18,934 21,764 7,921 12,545 6,488
Plan amendments ............................. - 631 - - (24,539) -
Plan participants' contributions ............ - - 1,105 106 220 165
Benefits paid ............................... (16,712) (15,400) (20,110) (18,025) (4,485) (5,455)
Curtailments ................................ - - (1,776) - - -
Special termination benefits ................ 1,300 - 1,223 - - -
Translation adjustments ..................... - - 65,170 44,719 - -
--------- --------- --------- --------- --------- --------
Benefit obligation at end of year ........... $ 322,798 $ 287,777 $ 513,943 $ 414,777 $ 84,995 $ 92,283
========= ========= ========= ========= ========= ========
</TABLE>
56
<PAGE>
Changes in pension plan assets were:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
------------------------- -------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002
- -------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year ......... $ 219,956 $ 256,189 $ 314,165 $ 294,993
Actual return on plan assets ........................... 36,836 (31,143) 37,850 (34,702)
Employer contributions ................................. 10,014 10,310 24,697 35,792
Plan participants' contributions ....................... - - 1,105 106
Benefits paid .......................................... (16,712) (15,400) (20,110) (18,025)
Translation adjustments ................................ - - 53,491 36,001
--------- --------- --------- ---------
Fair value of plan assets at end of year ............... $ 250,094 $ 219,956 $ 411,198 $ 314,165
========= ========= ========= =========
</TABLE>
The funded status of pension and postretirement plans at December 31 was:
<TABLE>
<CAPTION>
U.S. PENSION PLANS NON-U.S. PENSION PLANS POSTRETIREMENT BENEFITS
--------------------------- ----------------------------- ---------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002 2003 2002
- ------------------------------------- ------------- ------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Plan assets (less than) projected
benefit obligation ................. $ (72,704) $ (67,821) $ (102,745) $ (100,612) $ (84,995) $ (92,283)
Remaining balance of unrecognized
net (asset) liability established at
adoption of FAS 87 ................. - (286) 363 676 - -
Unrecognized prior service cost
(benefit) .......................... 8,002 8,867 3,776 3,861 (25,584) (1,700)
Unrecognized net loss ............... 56,563 49,458 147,193 128,115 40,096 29,250
--------- --------- ---------- ---------- --------- ---------
Net asset (liability) ............... $ (8,139) $ (9,782) $ 48,587 $ 32,040 $ (70,483) $ (64,733)
========= ========= ========== ========== ========= =========
</TABLE>
Pension assets and liabilities included in the Consolidated Balance Sheet
at December 31 were:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
--------------------------- ---------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002
- ------------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Prepaid benefit cost ........................... $ - $ - $ 45,052 $ 30,950
Accrued benefit liability ...................... (50,223) (41,289) (84,708) (86,413)
Accumulated other comprehensive income ......... 34,082 23,301 86,440 85,693
Intangible asset ............................... 8,002 8,206 1,803 1,810
--------- --------- --------- ---------
Net amount recognized .......................... $ (8,139) $ (9,782) $ 48,587 $ 32,040
========= ========= ========= =========
</TABLE>
At December 31, 2003, $43.6 million of the Non-U.S. prepaid benefit cost
is included in Other assets with the remaining amount included in prepaid
expenses on the Consolidated Balance Sheet.
At the end of 2003 and 2002, the projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the U.S. pension plans
and pension plans outside the U.S., where the accumulated benefit obligation
exceeds the assets, were:
<TABLE>
<CAPTION>
U.S. PLANS NON-U.S. PLANS
------------------------- -------------------------
(DOLLARS IN THOUSANDS) 2003 2002 2003 2002
- ---------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Projected benefit obligation ........... $322,798 $287,777 $341,144 $294,085
Accumulated benefit obligation ......... 300,317 261,245 322,230 277,013
Fair value of plan assets .............. 250,094 219,956 238,046 191,071
======== ======== ======== ========
</TABLE>
57
<PAGE>
Information about the expected cash flows for the U.S. pension plan
follows:
<TABLE>
<CAPTION>
EMPLOYER CONTRIBUTIONS
(DOLLARS IN THOUSANDS) PENSION BENEFITS
- ---------------------------------- -----------------
<S> <C>
2004 (expected) ................ $3,800
======
</TABLE>
Expected employer contributions include $1.8 million in benefit payments.
Principal actuarial assumptions used to determine the above postretirement
data were:
<TABLE>
<CAPTION>
2003 2002
---------- ----------
<S> <C> <C>
Discount rate ....................................... 6.25% 6.75%
Current medical cost trend rate ..................... 9.00% 10.00%
Ultimate medical cost trend rate .................... 4.75% 5.00%
Medical cost trend rate decreases to ultimate rate in
year ............................................... 2010 2009
==== =====
</TABLE>
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 $15.6 million and $1.9 million,
respectively; a 1% decrease in the rate would decrease the obligation and
expense by approximately $12.3 million and $1.5 million, respectively.
The special termination benefits in 2003 are the result of termination
agreements in the U.S. and Europe providing for enhanced retirement benefits to
eligible employees. The curtailment amount in the non-U.S. plans reflects the
required adjustment for the Netherlands plan.
The Company amended its postretirement medical and life insurance plan in
2003. The plan changes require retirees to increase their contribution amounts
over a three-year period to a rate equal to active employees and for all
retiree prescription co-payments to increase to the amounts currently paid by
active employees.
On December 8, 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. Following the
guidance of the Financial Accounting Standards Board, the Company has elected
to defer recognition of this Act at this time. The accumulated postretirement
benefit obligation and net periodic postretirement benefit cost do not reflect
the effect of the Act on the plan. Specific authoritative guidance on the
accounting for the federal subsidy is pending and guidance, when issued, could
require a change to previously reported information.
The Company recorded an additional minimum pension liability of $93.7
million and $94.2 million at December 31, 2003 and 2002, respectively, as
required by Financial Accounting Standards Board Statement No. 87. The
adjustment is reflected in Retirement liabilities 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, Ireland and Japan.
NOTE 15. FINANCIAL INSTRUMENTS
In 2001, the Company entered into certain interest swap agreements
effectively converting the fixed coupon rate on its 6.45% Notes to a variable
short-term rate based on the London InterBank Offered Rate (LIBOR) plus an
interest markup. In response to changes in market conditions and the value of
the swaps and, in 2003, in connection with the Company's debt repurchase, the
Company periodically amended the swap agreements, changing the related interest
spread. As a result of these amendments, the counterparty paid the Company
$11.6 million, $56.5 million and $19.9 million in 2003, 2002 and 2001,
respectively, including accrued interest of $3.7 million, $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 amortized as a reduction in
interest expense over the remaining term of the Notes. At December 31, 2003,
the Company had terminated all swap agreements related to the
58
<PAGE>
Notes; as a result, the interest rate on the Notes, including amortization of
the deferred swap gains, was 3.6% at December 31, 2003. The effective rate on
the Notes at December 31, 2002 and 2001 was 3.4% and 3.7%, respectively.
In 2002, the Company entered into certain interest swap agreements
effectively converting the fixed rate on its long-term Japanese Yen borrowings
to a variable short-term rate based on the Japanese Yen LIBOR rate plus an
interest markup. These swaps are designated as qualified fair value hedges.
During 2003, the Company amended the swap and the counterparty paid the Company
$3.0 million, including accrued interest of $0.5 million. These net gains have
been deferred, are classified as a separate component of debt and are being
amortized over the remaining term of the debt. To the extent the Company has
not received cash or otherwise amended or settled any swap agreement, any
applicable mark-to-market adjustment relating to that swap is included as a
separate component of debt. The Company had no ineffective interest rate swaps
at December 31, 2003.
The Company has executed a 10-year Yen U.S. dollar currency swap related
to the purchase and sale of products between the U.S. and Japan. The annual
notional value of this swap is approximately $5.0 million. Gains and losses
related to this swap are recorded currently, and the mark-to-market adjustment
related to the value of the swap is reflected as a component of Accumulated
other comprehensive income.
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 not
exceeding six months. The notional amount and maturity dates of such contracts
match those of the underlying transactions. At December 31, 2003 and 2002, the
Company had outstanding foreign currency forward contracts with notional
amounts of $178.0 million and $131.4 million, respectively. The Company has
designated these contracts as qualified fair value and cash flow hedges, as
appropriate. The Company had no ineffective foreign currency forward contracts
at December 31, 2003 or 2002.
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 $15.3 million in 2004, $13.8 million in
2005, $12.0 million in 2006, $10.1 million in 2007, $10.1 million in 2008 and
thereafter thru 2030, the aggregate lease obligations are $209.9 million. The
corresponding rental expense amounted to $20.7 million, $12.1 million and $2.2
million in 2003, 2002 and 2001, respectively.
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, the Company held a note receivable from an executive
officer, resulting from the exercise of a stock option. This note bore
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 was 3.3%. The note
was collateralized by 55,000 shares of common stock. In 2003, the loan was
repaid in full along with related interest, and the 55,000 shares of common
stock securing the loan were released.
59
<PAGE>
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following schedule is included
in Part IV of this Annual Report on Form 10-K:
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts and Reserves for the three years ended
December 31, 2003 ...................................................................... S-1
Report of Independent Auditors on Financial Statement Schedule .......................... 64
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(a)(3) EXHIBITS
NUMBER
- ------
2 Agreement and Plan of Merger dated as of September 25, 2000 among
Registrant, Bush Boake Allen Inc. and B Acquisition Corp.
incorporated by reference to Exhibit 2.1 to Registrant's Report
on Form 8-K dated September 25, 2000.
3(i) Restated Certificate of Incorporation of Registrant, incorporated
by reference to Exhibit 10(g) to Registrant's Report on Form 10-Q
dated August 12, 2002.
3(ii) By-laws of Registrant, as amended through March 9, 2004.
4.1 Shareholders Protection Rights Agreement dated as of March 21,
2000 between Registrant and The Bank of New York, as Rights
Agent, incorporated by reference to Exhibit 4 to Registrant's
Report on Form 8-K dated March 22, 2000.
4.1a First Amendment dated as of September 26, 2000, to Shareholder
Protection Rights Agreement, incorporated by reference to Exhibit
4 to Registrant's Report on Form 8-K dated September 26, 2000.
4.1b Letter Agreement between the Registrant and Wachovia Bank,
National Association ("Wachovia") dated as of October 31, 2002
appointing Wachovia as Successor Rights Agent pursuant to the
Shareholder Protection Rights Agreement dated as of March 21,
2000 and amended as of September 26, 2000, incorporated by
reference to Exhibit 4(a) to Registrant's Report on Form 10-Q
dated November 12, 2002.
4.2 Specimen Certificates of Registrant's Common Stock bearing legend
notifying of Shareholder Protection Rights Agreement,
incorporated by reference to Exhibit 4(b) to Registrant's
Registration Statement on Form S-3 filed on September 29, 2000
(Reg. No. 333-46932).
4.3 Indenture, dated as of May 1, 2001, between International Flavors
& Fragrances Inc. and Bank One Trust Company, N. A., as Trustee,
incorporated by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-4 dated June 26, 2001 (Reg. No.
333-63910).
4.4 First Supplemental Indenture, dated as of May 7, 2001, between
International Flavors & Fragrances Inc. and Bank One Trust &
Company, N. A., as Trustee, incorporated by reference to Exhibit
4.2 to Registrant's Registration Statement on Form S-4 dated June
26, 2001 (Reg. No. 333-63910).
4.5 Form of 6.45% Note due 2006 (included in 4.4), incorporated by
reference to Exhibit 4.2.1 to Registrant's Registration Statement
on Form S-4 dated June 26, 2001 (Reg. No. 333-63910).
60
<PAGE>
NUMBER
- ------
4.6 Registration Rights Agreement, dated May 7, 2001, among
International Flavors & Fragrances Inc. and Salomon Smith Barney
Inc., Banc One Capitals Markets, Inc., First Union Securities, Inc.
and Tokyo-Mitsubishi International plc, as representatives of the
Initial Purchasers, incorporated by reference to Exhibit 4.3 to
Registrant's Registration Statement on Form S-4 dated June 26, 2001
(Reg. No. 333-63910).
*10.1 Memorandum of Understanding between Registrant and Richard A.
Goldstein, Chairman of the Board and Chief Executive Officer of
Registrant, approved by Registrant's Board of Directors on April 13,
2000, incorporated by reference to Exhibit 10(a) to Registrant's
Report on Form 10-Q dated August 14, 2000.
*10.2 Promissory Note dated June 29, 1999 between Registrant and Nicolas
Mirzayantz, Vice President, Global Business Development, Fine
Fragrance and Toiletries.
*10.3 Performance Incentive Award Agreement in respect of a performance
incentive award of 200,000 restricted shares of Company Common Stock
approved by the Company's Board of Directors on August 1, 2002,
granted to Richard A. Goldstein, Chairman of the Board and Chief
Executive Officer of the Company, incorporated by reference to
Exhibit 10(a) to Registrant's Report on Form 10-Q dated November 12,
2002.
*10.4 Retirement Agreement dated as of March 31, 2003, as amended, between
Julian W. Boyden, former Executive Vice President of the Company,
and the Company, incorporated by reference to Exhibit 10 (a) to
Registrant's Report on Form 10-Q dated August 12, 2003 and to
Exhibit 10(a) to Registrant's Report on Form 10-Q dated May 13,
2003.
*10.5 Retirement Agreement dated as of March 31, 2003, between Stephen A.
Block, Senior Vice President, General Counsel and Secretary of the
Company, and the Company, incorporated by reference to Exhibit 10(b)
to Registrant's Report on Form 10-Q dated May 13, 2003.
*10.6 Separation Agreement dated as of March 31, 2003 between Robert J.
Gordon, former Vice President, Global Account Sales of the Company,
and the Company, incorporated by reference to Exhibit 10(b) to
Registrant's Report on Form 10-Q dated August 12, 2003.
*10.7 Supplemental Retirement Plan adopted by Board of Directors on
October 29, 1986, including amendments effective January 1, 2001,
incorporated by reference to Exhibit 10(c) to Registrant's Report on
Form 10-Q dated May 13, 2003.
*10.8 2000 Stock Award and Incentive Plan adopted by the Registrant's
Board of Directors on March 9, 2000, as amended and restated through
March 9, 2004.
*10.9 2000 Supplemental Stock Award Plan adopted by the Registrant's Board
of Directors on November 14, 2000, as amended and restated through
March 9, 2004.
*10.10 Registrant's Executive Death Benefit Plan effective July 1, 1990,
incorporated by reference to Exhibit 10(c) to Registrant's Report on
Form 10-Q dated May 14, 1997.
*10.11 Registrant's "Vision 2001 Compensation Program" adopted by
Registrant's Board of Directors on December 12, 2000, incorporated
by reference to Exhibit 10(k) to Registrant's Report on Form 10-K
for the fiscal year ended December 31, 2000.
*10.12 Registrant's Executive Separation Policy, as amended through
February 13, 2001, incorporated by reference to Exhibit 10(a) to
Registrant's Report on Form 10-Q dated August 12, 2002.
61
<PAGE>
NUMBER
- ------
*10.13 Registrant's Employee Stock Option Plan adopted in 1992,
incorporated by reference to Exhibit 10.11 to Registrant's Report
on Form 10-K for fiscal year ended December 31, 2002.
*10.14 1997 Employee Stock Option Plan as amended by Registrant's Board
of Directors on February 8, 2000, incorporated by reference to
Exhibit 10(ll) to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1999.
*10.15 Registrant's Global Employee Stock Purchase Plan adopted by
Registrant's Board of Directors on November 14, 2000,
incorporated by reference to Exhibit B to Registrant's Proxy
Statement dated March 30, 2001.
*10.16 Deferred Compensation Plan adopted by the Company's Board of
Directors on December 12, 2000, incorporated by reference to
Exhibit 99 to the Company's Registration Statement on Form S-8
dated May 16, 2001 (Reg. No. 333-61072)
10.17 Trust Agreement dated October 4, 2000 among Registrant, First
Union National Bank and Buck Consultants Inc. approved by
Registrant's Board of Directors on September 12, 2000,
incorporated by reference to Exhibit 10(b) to Registrant's Report
on Form 10-Q dated November 14, 2000.
*10.18 Stock Option Plan for Non-Employee Directors, incorporated by
reference to Exhibit 10(h) to Registrant's Report on Form 10-Q
dated May 14, 1997.
*10.19 2000 Stock Option Plan for Non-Employee Directors adopted by
Registrant's Board of Directors on February 8, 2000, incorporated
by reference to Exhibit A to the Registrant's Proxy Statement
dated March 29, 2000.
*10.20 Director Charitable Contribution Program adopted by the Board of
Directors on February 14, 1995, incorporated by reference to
Exhibit 10(j) to Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1994
*10.21 Resolutions approving Non-Employee Directors' Annual Stock Grant
Program adopted by Registrant's Board of Directors on September
12, 2000, incorporated by reference to Exhibit 99(c) to
Registrant's Registration Statement on Form S-3 filed on
September 29, 2000 (Reg. No. 333-46932).
10.22 Five Year Credit Agreement dated as of September 26, 2001 among
the Company, as Borrower, certain Initial Lenders, Citibank N.A.,
as Administrative Agent, and Salomon Smith Barney Inc., as
Arranger, incorporated by reference to Exhibit 10(b) to
Registrant's Report on Form 10-Q dated November 14, 2001.
10.22a Amendment No. 1 dated as of June 10, 2002 to the Five Year Credit
Agreement dated as of September 26, 2001 among the Company, as
Borrower, certain Initial Lenders and Citibank N.A., as
Administration Agent, incorporated by reference to Exhibit 10 (c)
to Registrant's Report on Form 10-Q dated August 12, 2002.
10.23 Multi-currency Revolving Credit Facility Agreement dated July 19,
2002, among International Flavor & Fragrances (Luxembourg)
S.A.R.L., as Borrower, the Company, as Guarantor, certain
Original Lenders, Barclays Bank PLC, as Agent, ABN AMRO Bank NV
and Barclays Capital, as Arrangers, incorporated by references to
Exhibit 10(b) to Registrant's Report on Form 10-Q dated August
12, 2002.
21 List of Principal Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
62
<PAGE>
NUMBER
- ------
31.1 Certification of Richard A. Goldstein, Chairman of the Board and
Chief Executive Officer of the Company, pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer of the Company, pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed
by Richard A. Goldstein, Chairman of the Board and Chief Executive
Officer of the Registrant and Douglas J. Wetmore, Senior Vice
President and Chief Financial Officer of the Registrant.
- ----------
* Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
The Company furnished to the SEC a Current Report on Form 8-K on October
23, 2003 for the purpose of furnishing a press release announcing the Company's
financial results for the third quarter and nine months ended September 30,
2003.
63
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of International Flavors & Fragrances Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 27, 2004 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 15(a)(2)
of this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 27, 2004
64
<PAGE>
Pursuant to the requirements of Section 13 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.
(Registrant)
By /s/ Douglas J. Wetmore
-----------------------------
Douglas J. Wetmore
Senior Vice President and
Chief Financial Officer
Dated: March 11, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
Principal Executive Officer:
/s/ Richard A. Goldstein
-------------------------
Richard A. Goldstein
Chairman of the Board
and
Chief Executive Officer
Principal Financial and Accounting Officer:
/s/ Douglas J. Wetmore
-------------------------
Douglas J. Wetmore
Senior Vice President
and
Chief Financial Officer
Directors:
/s/ Richard A. Goldstein
-------------------------
RICHARD A. GOLDSTEIN
/s/ Margaret Hayes Adame
-------------------------
MARGARET HAYES ADAME
/s/ Gunter Blobel
-------------------------
GUNTER BLOBEL
/s/ J. Michael Cook
-------------------------
J. MICHAEL COOK
/s/ Peter A. Georgescu
-------------------------
PETER A. GEORGESCU
/s/ Alexandra A. Herzan
-------------------------
ALEXANDRA A. HERZAN
/s/ Arthur C. Martinez
-------------------------
ARTHUR C. MARTINEZ
/s/ Burton M. Tansky
-------------------------
BURTON M. TANSKY
/s/ William D. Van Dyke, III
----------------------------
WILLIAM D. VAN DYKE, III
65
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
For the Year Ended
December 31, 2003
-------------------------
Additions
charged Trans-
Balance at to costs Accounts lation Balance
beginning and written adjust- at end of
of period expenses off ments period
---------- --------- -------- ------- ---------
Allowance for doubtful accounts $12,933 $3,146 $1,846 $1,979 $16,212
======= ====== ====== ====== =======
For the Year Ended
December 31, 2002
-------------------------
Additions
charged Trans-
Balance at to costs Accounts lation Balance
beginning and written adjust- at end of
of period expenses off ments period
---------- --------- -------- ------- ---------
Allowance for doubtful accounts $10,835 $4,067 $2,707 $738 $12,933
======= ====== ====== ==== =======
For the Year Ended
December 31, 2001
-------------------------
Additions
charged Trans-
Balance at to costs Accounts lation Balance
beginning and written adjust- at end of
of period expenses off ments period
---------- --------- -------- ------- ---------
Allowance for doubtful accounts $11,074 $2,947 $2,306 $(880) $10,835
======= ====== ====== ====== =======
S-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(II)
<SEQUENCE>3
<FILENAME>file002.txt
<DESCRIPTION>BY-LAWS
<TEXT>
<PAGE>
EXHIBIT 3(ii)
-------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
BY-LAWS
(as adopted March 10, 1964, including all amendments
effective through May 11, 2004)
<PAGE>
BY-LAWS
of
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(a New York corporation)
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held at such place, on such date and at such time as shall be designated from
time to time by the Board of Directors.
SECTION 2. SPECIAL MEETING. Special meetings of the
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Chairman of the Board, the President or the Board of Directors.
SECTION 3. NOTICE OF MEETINGS. (a) Nomination of Directors.
Only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (i) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (ii) by any stockholder of the
Corporation (A) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 3(a) and on the record date for the
determination of stockholders entitled to vote at such meeting and (B) who
complies with the notice procedures set forth in this Section 3(a).
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation. To be
timely, a stockholder's notice to the Secretary must be delivered to or mailed
and received at the principal executive offices of the Corporation (i) in the
case of an annual meeting, not less than sixty (60) days nor more than ninety
(90) days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or after
such anniversary date, notice by the stockholder in order to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (ii) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (i) as to each person whom the stockholder proposes to
nominate for election as a director (A) the name, age, business address and
residence address of the person, (B) the principal occupation or employment of
the person, (C) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (D) any
other information relating to the person that would be required to be disclosed
in a proxy
<PAGE>
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder; and (ii) as to the stockholder giving the
notice (A) the name and record address of such stockholder, (B) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (C) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (D) a representation
that such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (E) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected. The Corporation may require any proposed nominee
to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as
director of the Corporation.
Notwithstanding anything in these By-Laws to the contrary, no person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3(a). If the Chairman
of the meeting determines that a nomination was not made in accordance with the
foregoing procedures, the Chairman shall declare to the meeting that the
nomination was defective and such defective nomination shall be disregarded.
(b) Nature of Business at Meetings of Stockholders. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (ii) otherwise properly brought before
an annual meeting, by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (iii) otherwise properly brought before an
annual meeting by any stockholder of the Corporation (A) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 3(b)
and on the record date for the determination of stockholders entitled to vote at
such meeting and (B) who complies with the notice procedures set forth in this
Section 3(b).
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before an annual meeting, (i) a brief description of the business desired to be
brought before such meeting and the reasons for conducting such business at such
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the meeting to bring such business before such meeting.
Notwithstanding the foregoing provisions of this Section, a stockholder seeking
to have a proposal included in the Corporation's proxy statement shall comply
with the requirements of Section 14 of the Exchange Act, including, but not
limited to, Rule 14a-8 promulgated thereunder or its successor provision. The
Corporation may require any stockholder to furnish such other information as may
reasonably be required by the Corporation to determine if the business shall be
properly brought before an annual meeting of the stockholders.
<PAGE>
Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at an annual meeting of stockholders except business
brought before such meeting in accordance with the procedures set forth in this
Section; provided, however, that, once business has been properly brought before
the meeting in accordance with such procedures, nothing in this Section 3(b)
shall be deemed to preclude discussion by any stockholder of any such business.
If the Chairman of an annual meeting determines that business was not properly
brought before such meeting in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
SECTION 4. QUORUM. At all meetings of the stockholders of the
Corporation, the holders of a majority of the stock of the Corporation entitled
to vote thereat, present in person or by proxy, shall constitute a quorum for
the transaction of any business except as otherwise provided by law.
SECTION 5. ORDER OF BUSINESS. The order of business at all
meetings of the stockholders shall be as determined by the Chairman of the
meeting, but the order of business to be followed at any meeting at which a
quorum is present may be changed by a majority in voting interest of the
stockholders present at the meeting in person or by proxy and entitled to vote
thereat.
SECTION 6. ORGANIZATION; ADJOURNMENT. At each meeting of the
stockholders, the Chairman of the Board of the Corporation, or, if he shall be
absent therefrom, the President of the Corporation, or, if he shall be absent
therefrom, the Executive Vice-President, or, if he shall be absent therefrom,
any other Vice-President of the Corporation, or, if the Chairman of the Board,
the President, the Executive Vice-President and all the other Vice-Presidents
shall be absent from such meeting, then some other officer of the Corporation,
or, if all its officers shall be absent therefrom, a stockholder holding of
record shares of stock of the Corporation having voting powers, or the proxy of
such a stockholder, who is chosen chairman of such meeting, shall act as
chairman thereof and preside thereat; and the Secretary of the Corporation, or,
if he shall be absent from such meeting, or, if he shall be required or chosen
pursuant to the provisions of this Section 6 to act as chairman of such meeting,
the person (who shall be an Assistant Secretary of the Corporation, if any of
them shall be present thereat) whom the chairman of such meeting shall appoint
secretary of such meeting, shall act as secretary of such meeting and keep the
minutes thereof.
If a quorum, determined in accordance with Article I, Section
4 hereof, shall not be present or represented at any meeting of the
stockholders, the Chairman of the meeting, or if so requested by the Chairman,
the stockholders present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. In addition, the
Chairman of any meeting of stockholders shall have the power to adjourn the
meeting at the request of the Board of Directors if the Board of Directors
determines that adjournment is necessary or appropriate to enable stockholders
to consider fully information which the Board of Directors determines has not
been made sufficiently or timely available to stockholders.
SECTION 7. VOTING. When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, except as otherwise expressly provided by the
Certificate of Incorporation or by Law. At each meeting of the stockholders
every stockholder of record of the Corporation entitled to vote at such meeting
shall be entitled to one vote for each share of Common Stock standing in his
name on the books of the Corporation; provided, however, that the Board of
Directors may fix, in advance, a date not more than sixty nor less than ten days
prior to the date of such meeting as the date as of which stockholders entitled
to notice of, and to vote at, such meeting shall be determined, and in case the
Board of Directors shall fix a date, only stockholders of record on such date
shall be entitled to notice of, and to vote at, such meeting. The vote of stock
of the Corporation may be given by the stockholder entitled thereto in person or
by proxy duly appointed by an instrument in writing subscribed by such
stockholder or by his attorney thereunto duly authorized, and delivered to the
Secretary of the meeting. Unless demanded by a stockholder of the Corporation
present in person or by
<PAGE>
proxy at any meeting of the stockholders and entitled to vote thereat or so
directed by the chairman of the meeting, the vote thereat on any question need
not be by ballot. Upon a demand of any such stockholder for a vote by ballot on
any question or at the direction of such chairman that a vote by ballot be taken
on any question, such vote shall be taken by ballot. On a vote by ballot each
ballot shall be signed by the stockholder voting, or in his name by his proxy,
if there be such proxy, and it shall show the number of shares voted by him.
SECTION 8. INSPECTORS OF ELECTION. At any meeting of the
stockholders, an inspector or inspectors of election may be appointed as
provided in the Business Corporation Law and shall have duties as provided in
said Law. An inspector of election need not be a stockholder of the Corporation,
and any officer of the Corporation may be an inspector of election on any
question other than a vote for or against his election to any position with the
Corporation or any other question in which he may be directly interested.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. Except as otherwise provided in
these By-laws or in the Certificate of Incorporation, the property, business and
affairs of the Corporation shall be managed by the Board of Directors.
SECTION 2. NUMBER. The number of directors shall be
eight* but the number thereof may, from time to time, be diminished to not
less than six by amendment of these By-laws. As used in these By-laws, the term
"whole Board of Directors" shall mean the total number of directors which the
Corporation would have at the time if there were no vacancies.
SECTION 3. ELECTION OF DIRECTORS. At each meeting of the
stockholders for the election of directors at which a quorum is present, the
persons receiving a plurality of the votes cast by the holders of stock entitled
to vote thereat shall be the directors. No person shall be eligible to serve as
director of the Corporation after the date of, or stand for the re-election at,
the annual meeting of stockholders which follows the date of his or her 72nd
birthday, except that persons serving as directors on February 8, 2000 who are
re-elected at the annual meeting held on May 18, 2000 (or any adjournment
thereof) may continue to serve as directors until the date of the annual meeting
of stockholders held in 2001.
SECTION 4. ORGANIZATION. The Board of Directors may choose
one of their number as Chairman of the Board. At each meeting of the Board of
Directors, the Chairman of the Board, or, if there shall be no Chairman or if he
shall be absent, the President of the Corporation, or in case of his absence,
the Executive Vice-President, or in case of his absence, a chairman who shall be
any director chosen by a majority of the directors present thereat, shall act as
chairman of such meeting and preside thereat. The Secretary of the Corporation,
or in the case of his absence, any person (who shall be an Assistant Secretary
of the Corporation, if an Assistant Secretary of the Corporation shall be
present at such meeting) whom the chairman shall appoint secretary of such
meeting, shall act as secretary of such meeting and keep the minutes thereof.
SECTION 5. RESIGNATIONS. Any director of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, then it shall take
effect immediately upon its receipt by such Board of Directors, President or
Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 6. VACANCIES. Vacancies occurring in the Board of
Directors for any reason, except the removal of directors without cause by the
stockholders, may be filled by the affirmative vote of at least two-thirds (2/3)
of the whole Board of Directors. A director elected to fill a vacancy shall be
elected to hold office for the unexpired term of his predecessor. Newly-created
directorships resulting from an increase in the number of directors may be
filled by vote of a majority of the directors then in office, although less than
a quorum exists.
- --------
* Amended from "nine" to "eight" effective May 11, 2004, by action of the
Board of Directors at its March 9, 2004 meeting. Prior amendments changed the
number of directors from "eight" to "nine" (effective October 14, 2003), "nine"
to "eight" (effective May 14, 2003), "eleven" to "nine" (effective May 7, 2002),
"ten" to "eleven" (effective December 11, 2001) and "twelve" to "ten" (effective
May 16, 2001).
<PAGE>
SECTION 7. ORGANIZATION MEETING. After each annual election
of directors, the Board of Directors may hold a regular meeting for the purpose
of organization and the transaction of other business as soon as practicable on
the same day, at the place where other regular meetings of the Board of
Directors are held. Notice of such meeting need not be given. Such meeting may
be held at any other time or place which shall be specified in a notice given as
hereinafter provided for special meetings of the Board or in a consent and
waiver of notice thereof signed by all the directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board
of Directors shall be held at such other times and at such places within or
without the State of New York or the United States as the Board shall from time
to time by resolution determine. If any day fixed for a regular meeting shall be
a legal holiday at the place where the meeting is to be held, then the meeting
which otherwise would be held on that day shall be held at the same hour on the
next succeeding business day. Notice of regular meetings need not be given.
SECTION 9. SPECIAL MEETINGS; NOTICE. Special meetings of the
Board of Directors shall be held whenever called by the Chairman of the Board,
the President of the Corporation, the Executive Vice-President of the
Corporation, or by any two (2) of the directors at the time in office. A notice
shall be given as hereinafter in this Section provided of each such special
meeting, stating the time and place thereof. Except as otherwise provided by
law, notice of each meeting shall be given by mail, telegraph, cable, wireless,
telephone or personal delivery to each director, at his residence or usual place
of business at least two (2) days before the day on which such meeting is to be
held; provided, however, in the case of any director residing outside the United
States, such notice shall be sent addressed to him at such place by telegraph,
cable or wireless, or be delivered personally or by telephone not later than
five (5) days before the day on which such meeting is to be held. Notice of any
meeting of the Board need not, however, be given to any director, if waived by
him in writing before or after the meeting or if he shall attend the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him.
SECTION 10. QUORUM AND MANNER OF ACTING.
(a) A majority of the whole Board of Directors shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting and, except as otherwise
specifically provided by the Certificate of Incorporation, these By-laws or by
law, the act of a majority of the directors present at any such meeting, at
which quorum is present, shall be the act of the Board. In the absence of a
quorum from any such meeting, a majority of the directors present thereat may
adjourn such meeting from time to time until a quorum shall be present thereat.
Notice of any adjourned meeting need not be given.
(b) Unless otherwise restricted by the Certificate of
Incorporation or these By-laws, any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 11. COMMITTEES. There may be an Executive Committee
consisting of three or more directors as may be designated from time to time by
a majority of the whole Board of Directors. The Chairman of the Board shall be a
member ex officio of the Executive Committee. Such Committee may meet at stated
times or on notice to all by any of their number. During the intervals between
the meetings of the Board of Directors, the Executive Committee shall possess
and may exercise, to the extent provided in the resolution of the Board of
Directors appointing such committee, all the powers of the Board of Directors,
except as otherwise provided in the Business Corporation Law, in the management
and direction of the business and affairs of the Corporation in such manner as
the Executive Committee shall deem for the best interest of the Corporation. The
Executive Committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required, but no approval by the Board of
Directors of the actions taken by the Executive Committee shall be required.
<PAGE>
A majority of the whole Board of Directors may also designate
directors to constitute one or more other committees, which shall in each case
consist of such number of directors and shall have such duties and may exercise
such powers as the Board of Directors may determine.
A majority of the whole Board may designate one or more directors as
alternate members of any such committee, including the Executive Committee,
who may replace any absent member or members at any meeting of such
committee.
Each committee, including the Executive Committee and each
member thereof, shall serve at the pleasure of the Board.
SECTION 12 REMOVAL. Any director may be removed with cause
by the affirmative vote of at least two-thirds of the whole Board of Directors
or with or without cause by vote of the stockholders at a regular or special
meeting, subject to the provisions of the Business Corporation Law.
SECTION 13. COMPENSATION. The directors and the members of any
committee of the Corporation provided for by resolution of the Board of
Directors shall be entitled to be reimbursed for any expenses, including all
travel expenses, incurred by them on account of their attendance at any regular
or special meeting of the Board of Directors or of such committee, and the Board
of Directors may at any time or from time to time by resolution provide that the
Corporation shall pay each such director or member of such committee such
compensation for his services as may be specified in such resolution. Nothing in
this Section shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 14. INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
any person made, or threatened to be made, a party to an action or proceeding,
whether civil or criminal, by reason of the fact that he, or a person of whom he
is the legal representative, is or was a director or officer of the Corporation,
or, while serving as director or officer of the Corporation, is or was serving
in any capacity, at the request of the Corporation, any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorney's fees, incurred by such person as a result of such action or
proceeding, or any appeal therein, unless a judgment or other final adjudication
adverse to such person establishes that his acts, or the acts of the person of
whom he is the legal representative, were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he, or the person of whom he is the legal
representative, personally gained in fact a financial profit or other advantage
to which he, or the other person of whom he is the legal representative, was not
legally entitled. The Corporation shall advance to such person funds to pay for
such expenses, including attorney's fees, incurred by such person in defending
against any such action or proceeding, or any appeal therein, upon receipt of an
undertaking by or on behalf of such person to repay such funds to the
Corporation if a judgment or other final adjudication adverse to such person
establishes that his acts, or the acts of the person of whom he is the legal
representative, were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he, or the person of whom he is the legal representative, personally
gained in fact a financial profit or other advantage to which he, or such
person, was not legally entitled.
(b) RIGHT OF CLAIMANT TO SUE. If a claim under paragraph (a)
is not paid in full by the Corporation within thirty days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expenses of the prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant, or the person of whom he is the legal
representative, has not met the standard of conduct established in paragraph
(a), but the burden of proving such defense shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of
<PAGE>
the claimant is proper because the claimant or such person has met the said
standard of conduct, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that the
claimant or such person has not met such applicable standard of conduct, shall
be a defense to action or create a presumption that the claimant or such person
has not met such standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. Subject to the limitations
contained in paragraph (a), the right to indemnification and the payment of
expenses conferred in this Section shall not be deemed exclusive of any other
right to which any person seeking indemnification or advancement or payment of
expenses may be entitled, whether under any statute, provision of the
Certification of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
<PAGE>
ARTICLE III
OFFICERS
SECTION 1. NUMBER. The principal officers of the Corporation
shall include a President, an Executive Vice-President, one or more other
Vice-Presidents, a Treasurer, a Controller and a Secretary. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
principal officers of the Corporation shall be chosen annually by the Board of
Directors. Each principal officer shall hold office until his successor shall
have been duly chosen and shall qualify, or until his death or until he shall
resign, or shall have been removed in the manner hereinafter provided.
SECTION 3. ADDITIONAL OFFICERS. In addition to the principal
officers mentioned in Section 1 of this Article III, the Board of Directors may
appoint such other officers as the Board may determine, each of which officers
shall hold office for such period, have such authority and perform such duties
as are provided in these By-laws or as the Board of Directors may from time to
time determine.
SECTION 4. REMOVAL. Any officer of the Corporation elected
or appointed by the Board of Directors may be removed by the Board of Directors
with or without cause at any time.
SECTION 5. RESIGNATIONS. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board of
Directors or to the President or Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or, if the time
when it shall become effective shall not be specified therein, then it shall
take effect immediately upon its receipt by such Board of Directors, President
or Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 6. VACANCIES. A vacancy in any office due to death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws for
regular appointments or elections to such office.
SECTION 7. THE PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall have general supervision of the
business of the Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall in the absence of the Chairman
of the Board preside at all meetings of the stockholders and at all meetings of
the Board of Directors. He shall see that all orders and resolutions of the
Board of Directors are carried into effect. He may sign, execute and deliver in
the name of the Corporation all deeds, mortgages, bonds, contract or other
instruments authorized by the Board of Directors except where the signing,
execution or delivery thereof shall be expressly delegated by the Board of
Directors or by these By-laws to some other officer or agent of the Corporation
or where any of them shall be required by law to be otherwise signed, executed
or delivered, and he may affix the seal of the Corporation to any instrument
which shall require it. He shall perform all duties incident to the office of
President and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 8. THE EXECUTIVE VICE-PRESIDENT. The Executive
Vice-President shall have such powers and perform such duties as the Board of
Directors may from time to time prescribe and shall perform such other duties as
may be prescribed by these By-laws. At the request of the President
<PAGE>
or, in the case of his inability to act, he shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 9. THE VICE-PRESIDENTS. Each Vice-President shall
have such powers and perform such duties as the Board of Directors may from time
to time prescribe and shall perform such other duties as may be prescribed by
these By-laws. At the request of the President, or, in case of the inability of
the President and the Executive Vice-President to act, any of the
Vice-Presidents may perform the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President.
SECTION 10. THE TREASURER. The Treasurer shall have the care
and custody of the books of account and of all the funds and securities of the
Corporation, and deposit the funds in the name of the Corporation in such bank
or trust company as the directors may designate. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine. He shall perform all the duties incidental to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President or the Board of Directors.
SECTION 11. THE CONTROLLER. The Controller shall maintain
adequate records of all assets, liabilities and transactions of the Corporation,
and have adequate audits thereof currently and regularly made. In addition, he
shall perform such other duties relating to the finances of the Corporation or
otherwise, as may be prescribed by the Board of Directors, the President or the
Treasurer.
SECTION 12. THE SECRETARY. The Secretary shall attend all
meetings of the Board of Directors and of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose and
shall perform like duties for the standing committees when required. He shall
give, or cause to be given, notice of all meeting of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. He shall keep or cause to be kept a stock-book,
containing the names, alphabetically arranged, of all persons who are
stockholders of the Corporation, showing their places of residence, the number
of shares of stock owned by them respectively, the times when they respectively
became the owners thereof and the amount paid thereon. He shall keep in safe
custody the seal of the Corporation and, when properly authorized, affix the
same to any instrument requiring it and, when so affixed, it shall be attested
by his signature or by the signature of the Treasurer or an Assistant Secretary.
SECTION 13. SALARIES. The salaries of the officers of the
Corporation shall be fixed from time to time by the Board of Directors, and none
of such officers shall be prevented from receiving a salary by reason of the
fact that he is also a member of the Board.
<PAGE>
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. EXECUTION OF CONTRACTS, ETC. Except as otherwise
required by law or by these By-laws, the Board of Directors may authorize any
officer or officers, agent or agents, to execute and deliver any contract or
other instrument in the name of the Corporation and on its behalf.
SECTION 2. CHECKS, DRAFTS, ETC. All checks, drafts and other
orders for the payment of money, bills of lading, warehouse receipts,
obligations, bills of exchange and insurance certificates shall be signed or
endorsed, except endorsements for collection for the account of the Corporation
or for deposit to its credit, by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise as the Board of Directors, or any officer of the
Corporation to whom power in that respect shall have been delegated by the Board
of Directors, shall direct in such banks, trust companies or other depositories
as said Board may select or as may be selected by any officer or officers or
agent or agents of the Corporation to whom power in that respect shall have been
delegated by the Board of Directors. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer or agent of
the Corporation.
SECTION 4. GENERAL AND SPECIAL BANK ACCOUNTS. The Board of
Directors may from time to time authorize the opening and keeping of general and
special bank accounts with such banks, trust companies or other depositaries as
the Board of Directors may select, or as may be selected by any officer or
officers, agent or agents of the Corporation to whom power in that respect shall
have been delegated by the Board of Directors. The Board of Directors may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-laws, as it may deem expedient.
<PAGE>
ARTICLE V
SHARES AND THEIR TRANSFER
SECTION 1 CERTIFICATES FOR STOCK. Every owner of shares of
stock of the Corporation shall be entitled to have a certificate therefor, in
such form as the Board of Directors shall prescribe, certifying the number and
class of shares thereof owned by him. The certificates representing such shares
shall be numbered in the order in which they shall be issued and shall be signed
in the name of the Corporation by the President, the Executive Vice-President or
a Vice-President, and by the Treasurer or the Secretary or an Assistant
Treasurer or Assistant Secretary of the Corporation and its seal shall be
affixed thereto; provided, however, that where such certificate is signed by a
transfer agent or registered by a registrar other than the Corporation itself or
its employee, if the Board of Directors shall by resolution so authorize, the
signatures of such President, Executive Vice-President, Vice-President,
Treasurer, Secretary, Assistant Treasurer or Assistant Secretary and the seal of
the Corporation may be facsimile. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature or signatures
has been placed upon a certificate or certificates shall cease to be such
officer or officers, whether by reason of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as if the person or persons who signed
such certificate or certificates had not ceased to be such officer or officers.
A record shall be kept of the respective names of the persons, firms or
corporations owning the shares represented by certificates for stock of the
Corporation, the number of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled and a new certificate or
certificates shall not be issued in exchange for any existing certificate, until
such existing certificate shall have been so canceled except in cases provided
for in Section 4 of this Article V.
SECTION 2. TRANSFERS OF STOCK. Transfers of shares of the
stock of the Corporation shall be made on the books of the Corporation only by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation or
with a transfer clerk or transfer agent appointed as in Section 3 of this
Article V provided, and on surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes thereon. The person in
whose name shares of stock stand on the books of the Corporation shall be deemed
the owner thereof for all purposes as regards the Corporation.
SECTION 3. REGULATIONS. The Board of Directors may make such
rules and regulations, as it may be deem expedient, not inconsistent with these
By-laws, concerning the issue, transfer and registration of certificates for
shares of the stock of the Corporation. It may appoint, or authorize any
principal officer or officers to appoint, one or more Transfer Clerks or one or
more Transfer Agents or one or more Registrars, and may require all certificates
of stock to bear the signature or signatures of any of them.
SECTION 4. LOST, DESTROYED AND MUTILATED CERTIFICATES. The
holder of any share of stock of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Corporation may issue a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may, in its discretion, require the owner of the lost
or destroyed certificate or his legal representatives to give the Corporation a
bond in such sum, limited or unlimited, and in such form and with such surety or
sureties, as the Board shall in its uncontrolled discretion determine, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or the
issuance of such new certificate. The Board of Directors,
<PAGE>
however, may in its discretion refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of New York in such
case made and provided.
ARTICLE VI
SEAL
The seal of the Corporation shall be in the form of a circle,
and shall bear the full name of the Corporation and the year of its
incorporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end with the thirty-first day of
December in each year.
ARTICLE VIII
AMENDMENTS
The Board of Directors shall have the power to amend, repeal or adopt the
By-laws of the Corporation, and the By-laws may be amended, repealed or
adopted by the stockholders entitled at the time to vote in the election of
directors.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>4
<FILENAME>file003.txt
<DESCRIPTION>2000 STOCK AWARD AND INCENTIVE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.8
------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
- --------------------------------------------------------------------------------
2000 STOCK AWARD AND INCENTIVE PLAN
As Amended and Restated March 9, 2004
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
- --------------------------------------------------------------------------------
2000 STOCK AWARD AND INCENTIVE PLAN
AS AMENDED AND RESTATED MARCH 9, 2004
- --------------------------------------------------------------------------------
Page
----
1. Purpose........................................................ 1
2. Definitions.................................................... 1
3. Administration................................................. 3
4. Stock Subject to Plan.......................................... 4
5. Eligibility; Per-Person Award Limitations ..................... 5
6. Specific Terms of Awards....................................... 6
7. Performance Awards, Including Annual Incentive Awards......... 10
8. Certain Provisions Applicable to Awards........................ 14
9. Change in Control.............................................. 15
10. Additional Award Forfeiture Provisions......................... 18
11. General Provisions............................................. 20
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
2000 STOCK AWARD AND INCENTIVE PLAN
AS AMENDED AND RESTATED MARCH 9, 2004
1. PURPOSE. The purpose of this 2000 Stock Award and Incentive Plan
(the "Plan") is to aid International Flavors & Fragrances Inc., a New York
corporation (the "Company"), in attracting, retaining, motivating and rewarding
employees, non-employee directors, and other persons who provide substantial
services to the Company or its subsidiaries or affiliates, to provide for
equitable and competitive compensation opportunities, to recognize individual
contributions and reward achievement of Company goals, and promote the creation
of long-term value for shareholders by closely aligning the interests of
Participants with those of shareholders. The Plan authorizes stock-based and
cash-based incentives for Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award
granted to a Participant under Section 7(c) representing a conditional
right to receive cash, Stock or other Awards or payments, as determined
by the Committee, based on performance in a performance period of one
fiscal year or a portion thereof.
(b) "Award" means any cash award, Option, SAR, Restricted Stock,
Deferred Stock, Stock granted as a bonus or in lieu of another award,
Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any related right or interest, granted to
a Participant under the Plan.
(c) "Beneficiary" means any family member or members, including
by marriage or adoption, any trust in which the Participant or any
family member or members have more than 50% of the beneficial
interest, and any other entity in which the Participant or any family
member or members own more than 50% of the voting interests, in each
case designated by the Participant in his most recent written
Beneficiary designation filed with the Committee as entitled to
exercise rights or receive benefits in connection with the Award (or
any portion thereof), or if there is no surviving designated
Beneficiary, then the person, persons, trust or trusts entitled by
will or the laws of descent and distribution to exercise rights or
receive benefits in connection with the Award on behalf or in lieu of
such non-surviving designated Beneficiary.
(d) "Board" means the Company's Board of Directors.
(e) "Change in Control" and related terms have the meanings
specified in Section 9.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a
proposed regulation) thereunder shall include any successor provisions
and regulations.
(g) "Committee" means a committee of two or more directors
designated by the Board to administer the Plan; provided, however, that,
directors appointed or serving as members of a Board committee designated
as the Committee shall not be employees of the Company or any subsidiary
or affiliate. In appointing members of the Committee, the Board will
consider whether a member is or will be a Qualified Member, but such
members are not required to be Qualified Members at the time of
appointment
<PAGE>
or during their term of service on the Committee. The full Board may
erform any function of the Committee hereunder, in which case the
erm "Committee" shall refer to the Board.
(h) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 11(j).
(i) "Deferred Stock" means a right, granted to a Participant
under Section 6(e), to receive Stock or other Awards or a combination
thereof at the end of a specified deferral period.
(j) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g), to receive cash, Stock, other Awards
or other property equal in value to all or a specified portion of the
dividends paid with respect to a specified number of shares of Stock.
(k) "Effective Date" means the effective date specified in
Section 11(p).
(l) "Eligible Person" has the meaning specified in Section 5.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule
(including a proposed rule) thereunder shall include any successor
provisions and rules.
(n) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under
procedures established by the Committee. Unless otherwise determined by
the Committee, the Fair Market Value of Stock shall be the closing sale
price reported on the composite tape of the New York Stock Exchange on
the day as of which such value is being determined or, if there is no
sale on that day, then on the last previous day on which a sale was
reported.
(o) "Incentive Stock Option" or "ISO" means any Option
designated as an incentive stock option within the meaning of Code
Section 422 or any successor provision thereto and qualifying
thereunder.
(p) "Option" means a right, granted to a Participant under
Section 6(b), to purchase Stock or other Awards at a specified price
during specified time periods.
(q) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h).
(r) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(s) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments, as determined by the Committee, based upon
performance criteria specified by the Committee.
(t) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(u) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) which is subject to certain restrictions and to a
risk of forfeiture.
(v) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to Participants, promulgated by the Securities
and Exchange Commission under Section 16 of the Exchange Act.
(w) "Stock" means the Company's Common Stock, and any other
equity securities of the Company that may be substituted or
resubstituted for Stock pursuant to Section 11(c).
(x) "Stock Appreciation Rights" or "SAR" means a right granted
to a Participant under Section 6(c).
<PAGE>
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered
by the Committee, which shall have full and final authority, in each
case subject to and consistent with the provisions of the Plan, to
select Eligible Persons to become Participants; to grant Awards; to
determine the type and number of Awards, the dates on which Awards may
be exercised and on which the risk of forfeiture or deferral period
relating to Awards shall lapse or terminate, the acceleration of any
such dates, the expiration date of any Award, whether, to what extent,
and under what circumstances an Award may be settled, or the exercise
price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters
relating to, Awards; to prescribe documents evidencing or setting
terms of Awards (such Award documents need not be identical for each
Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto; to construe and
interpret the Plan and Award documents and correct defects, supply
omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan. Decisions of the
Committee with respect to the administration and interpretation of the
Plan shall be final, conclusive, and binding upon all persons
interested in the Plan, including Participants, Beneficiaries,
transferees under Section 11(b) and other persons claiming rights from
or through a Participant, and shareholders. The foregoing
notwithstanding, the Board shall perform the functions of the
Committee for purposes of granting Awards under the Plan to
non-employee directors (authority with respect to other aspects of
non-employee director awards is not exclusive to the Board, however).
(b) Manner of Exercise of Committee Authority. At any time that
a member of the Committee is not a Qualified Member, (i) any action of
the Committee relating to an Award intended by the Committee to
qualify as "performance-based compensation" within the meaning of Code
Section 162(m) and regulations thereunder may be taken by a
subcommittee, designated by the Committee or the Board, composed
solely of two or more Qualified Members, and (ii) any action relating
to an Award granted or to be granted to a Participant who is then
subject to Section 16 of the Exchange Act in respect of the Company
may be taken either by such a subcommittee or by the Committee but
with each such member who is not a Qualified Member abstaining or
recusing himself or herself from such action, provided that, upon such
abstention or recusal, the Committee remains composed of two or more
Qualified Members. Such action, authorized by such a subcommittee or
by the Committee upon the abstention or recusal of such non-Qualified
Member(s), shall be the action of the Committee for purposes of the
Plan. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as
limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Company or any subsidiary or
affiliate, or committees thereof, the authority, subject to such terms
as the Committee shall determine, to perform such functions, including
administrative functions, as the Committee may determine, to the
extent that such delegation will not result in the loss of an
exemption under Rule 16b-3(d) for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company
and will not cause Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) to fail to so qualify.
(c) Limitation of Liability. The Committee and each member
thereof, and any person acting pursuant to authority delegated by the
Committee, shall be entitled, in good faith, to rely or act upon any
report or other information furnished by any executive officer, other
officer or employee of the Company or a subsidiary or affiliate, the
Company's independent auditors, consultants or any other agents assisting
in the administration of the Plan. Members of the Committee, any person
acting pursuant to authority delegated by the Committee, and any officer
or employee of the Company or a subsidiary or affiliate acting at the
direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good
faith with respect to the Plan, and shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to
any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 11(c), the total number of shares of
Stock reserved and available for delivery in connection with Awards under
the Plan shall be 9,000,000 shares plus the number of shares reserved for
options under the Company's 1997 Employee Stock Option Plan (the "1997
Plan") but which have not been issued and delivered under the
<PAGE>
1997 Plan, including such 1997 Plan shares as may become available in
accordance with Section 4(b) hereof; provided, however, that the total
number of shares with respect to which ISOs may be granted shall not
exceed 9,000,000; and provided further, that the total number of
shares which may be issued and delivered in connection with Awards
other than Options and SARs shall not exceed 2,700,000. Any shares of
Stock delivered under the Plan shall consist of authorized and
unissued shares or treasury shares.
(b) Share Counting Rules. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs
from the number of shares previously counted in connection with an Award;
provided, however, that shares withheld in payment of taxes upon vesting
of Restricted Stock and shares equal to the number of outstanding shares
surrendered in payment of the exercise price or taxes relating to an
Award shall not become available again under the Plan if the withholding
or surrender transaction occurs more than ten years after the date of the
most recent shareholder approval of the Plan, and otherwise shares shall
not become available under this Section 4(b) in an event that would
constitute a "material revision" of the Plan subject to shareholder
approval under then applicable rules of the New York Stock Exchange.
Shares subject to an Award or a 1997 Plan award that is canceled,
expired, forfeited, settled in cash or otherwise terminated without a
delivery of shares to the Participant will again be available for Awards,
and shares withheld in payment of the exercise price or taxes relating to
an Award or 1997 Plan award and shares equal to the number surrendered in
payment of any exercise price or taxes relating to an Award or 1997 Plan
award shall be deemed to constitute shares not delivered to the
Participant and shall be deemed to again be available for Awards under
the Plan. In addition, in the case of any Award granted in substitution
for an award of a company or business acquired by the Company or a
subsidiary or affiliate, shares issued or issuable in connection with
such substitute Award shall not be counted against the number of shares
reserved under the Plan, but shall be available under the Plan by virtue
of the Company's assumption of the plan or arrangement of the acquired
company or business. This Section 4(b) shall apply to the number of
shares reserved and available for ISOs only to the extent consistent
with applicable regulations relating to ISOs under the Code.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted
under the Plan only to Eligible Persons. For purposes of the Plan, an "Eligible
Person" means an employee of the Company or any subsidiary or affiliate,
including any executive officer, a non-employee director of the Company, a
consultant or other person who provides substantial services to the Company or a
subsidiary or affiliate, and any person who has been offered employment by the
Company or a subsidiary or affiliate, provided that such prospective employee,
non-employee director, consultant or other person may not receive any payment or
exercise any right relating to an Award until such person has commenced
employment with or providing of services to the Company or a subsidiary or
affiliate. An employee on leave of absence may be considered as still in the
employ of the Company or a subsidiary or affiliate for purposes of eligibility
for participation in the Plan. For purposes of the Plan, a joint venture in
which the Company or a subsidiary has a substantial direct or indirect equity
investment shall be deemed an affiliate, if so determined by the Committee. In
each calendar year during any part of which the Plan is in effect, an Eligible
Person may be granted Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) under each of Section 6(b), 6(c), 6(d),
6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual Limit (such Annual
Limit to apply separately to the type of Award authorized under each specified
subsection, except that the limitation applies to Dividend Equivalents under
Section 6(g) only if such Dividend Equivalents are granted separately from and
not as a feature of another Award). A Participant's Annual Limit, in any year
during any part of which the Participant is then eligible under the Plan, shall
equal two million shares plus the amount of the Participant's unused Annual
Limit relating to the same type of Award as of the close of the previous year,
subject to adjustment as provided in Section 11(c). In the case of an Award
which is not valued in a way in which the limitation set forth in the preceding
sentence would operate as an effective limitation satisfying Treasury Regulation
1.162-27(e)(4) (including Performance Awards under Section 7 not related to an
Award specified in Section 6), the maximum amount of an Annual Incentive Award
under Section 7(c) that may be earned by an Eligible Person in any year shall be
50% of the amount of the Annual Incentive Pool specified in Section 7(c)(ii),
and the maximum amount of such an Award other than an Annual Incentive Award
under Section 7(c) that may be earned by an Eligible Person during any calendar
year shall be equal to the Participant's Annual Limit, which for this purpose
shall equal $6 million plus the amount of the Participant's unused cash Annual
Limit for such Awards other than Annual Incentive Awards as of the close of the
previous year. For purposes of this Section 5, (i) the limitation on share-based
awards, the limitation on the earning of Annual Incentive Awards, and the
limitation on
<PAGE>
the earning of non-share-based Awards other than Annual Incentive Awards each is
a separate limitation, which is not decreased by the authorization or payout of
Awards that are subject to the other limitations; (ii) "earning" means
satisfying performance conditions so that an amount becomes payable, without
regard to whether it is to be paid currently or on a deferred basis or continues
to be subject to any service requirement or other non-performance condition; and
(iii) a Participant's Annual Limit is used to the extent an amount or number of
shares may be potentially earned or paid under an Award, regardless of whether
such amount or shares are in fact earned or paid.
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 11(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
determine, including terms requiring forfeiture of Awards in the event
of termination of employment or service by the Participant and terms
permitting a Participant to make elections relating to his or her
Award. The Committee shall retain full power and discretion with
respect to any term or condition of an Award that is not mandatory
under the Plan. The Committee shall require the payment of lawful
consideration for an Award to the extent necessary to satisfy the
requirements of the New York Business Corporation Law, and may
otherwise require payment of consideration for an Award except as
limited by the Plan.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option (including both ISOs and non-qualified
Options) shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value of a
share of Stock on the date of grant of such Option, subject to
Sections 6(f) and 8(a).
(ii) Option Term; Time and Method of Exercise. The
Committee shall determine the term of each Option, provided that
in no event shall the term of any ISO or SAR in tandem therewith
exceed a period of ten years from the date of grant. The
Committee shall determine the time or times at which or the
circumstances under which an Option may be exercised in whole or
in part (including based on achievement of performance goals
and/or future service requirements), the methods by which such
exercise price may be paid or deemed to be paid and the form of
such payment (subject to Section 11(k)), including, without
limitation, cash, Stock, other Awards or awards granted under
other plans of the Company or any subsidiary or affiliate, or
other property (including notes and other contractual obligations
of Participants to make payment on a deferred basis, such as
through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by or forms in which Stock
will be delivered or deemed to be delivered in satisfaction of
Options to Participants (including deferred delivery of shares
representing the Option "profit," at the election of the
Participant or as mandated by the Committee, with such deferred
shares subject to any vesting, forfeiture or other terms as the
Committee may specify).
(iii) ISOs. The terms of any ISO granted under the Plan
shall comply in all respects with the provisions of Code Section
422, including but not limited to the requirement that no ISO
shall be granted more than ten years after the Effective Date.
(c) Stock Appreciation Rights. The Committee is authorized to
grant SAR's to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the
Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise (or, in the case of a
"Limited SAR," the Fair Market Value determined by reference to
the Change in Control Price, as defined under Section 9(d)
hereof) over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine at the date
of grant or thereafter, the time or times at which and the
circumstances under which a SAR may be exercised in whole or in
part
<PAGE>
(including based on achievement of performance goals and/or
future service requirements), the method of exercise, method of
settlement, form of consideration payable in settlement, method
by or forms in which Stock will be delivered or deemed to be
delivered to Participants, and whether or not a SAR shall be
free-standing or in tandem or combination with any other Award.
Limited SARs that may only be exercised in connection with a
Change in Control or other event as specified by the Committee
may be granted on such terms, not inconsistent with this Section
6(c), as the Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and
conditions:
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee may
impose, which restrictions may lapse separately or in combination
at such times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise and under such
other circumstances as the Committee may determine at the date of
grant or thereafter. The foregoing notwithstanding, Restricted
Stock will vest over a minimum period of one year except in the
event of a Participant's death, disability, or retirement, or in
the event of a Change in Control or other special circumstances.
For purposes of this Section 6(d), vesting over a one-year period
will include periodic vesting over such period if the rate of such
vesting is proportional throughout such period. Except to the
extent restricted under the terms of the Plan and any Award
document relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a shareholder,
including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment
or other requirement imposed by the Committee).
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the
applicable restriction period, Restricted Stock that is at that
time subject to restrictions shall be forfeited and reacquired by
the Company; provided that the Committee may provide, by rule or
regulation or in any Award document, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Stock will lapse in whole or in part,
including in the event of terminations resulting from specified
causes.
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may
require that such certificates bear an appropriate legend
referring to the terms, conditions and restrictions applicable to
such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of
an Award of Restricted Stock, the Committee may require that any
dividends paid on a share of Restricted Stock shall be either (A)
paid with respect to such Restricted Stock at the dividend
payment date in cash, in kind, or in a number of shares of
unrestricted Stock having a Fair Market Value equal to the amount
of such dividends, or (B) automatically reinvested in additional
Restricted Stock or held in kind, which shall be subject to the
same terms as applied to the original Restricted Stock to which
it relates, or (C) deferred as to payment, either as a cash
deferral or with the amount or value thereof automatically deemed
reinvested in shares of Deferred Stock, other Awards or other
investment vehicles, subject to such terms as the Committee shall
determine or permit a Participant to elect. Unless otherwise
determined by the Committee, Stock distributed in connection with
a Stock split or Stock dividend, and other property distributed
as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with
respect to which such Stock or other property has been
distributed.
(e) Deferred Stock. The Committee is authorized to grant
Deferred Stock to Participants, which are rights to receive Stock,
other Awards, or a combination thereof at the end of a specified
deferral period, subject to the following terms and conditions:
<PAGE>
(i) Award and Restrictions. Issuance of Stock will occur
upon expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions on transferability,
risk of forfeiture and other restrictions, if any, as the
Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future
service requirements), separately or in combination, in
installments or otherwise, and under such other circumstances as
the Committee may determine at the date of grant or thereafter.
Deferred Stock may be satisfied by delivery of Stock, other
Awards, or a combination thereof (subject to Section 11(k)), as
determined by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award document evidencing the
Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; provided that
the Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock
will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) Dividend Equivalents. Unless otherwise determined by
the Committee, Dividend Equivalents on the specified number of
shares of Stock covered by an Award of Deferred Stock shall be
either (A) paid with respect to such Deferred Stock at the
dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends,
or (B) deferred with respect to such Deferred Stock, either as a
cash deferral or with the amount or value thereof automatically
deemed reinvested in additional Deferred Stock, other Awards or
other investment vehicles having a Fair Market Value equal to the
amount of such dividends, as the Committee shall determine or
permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations of the Company or a subsidiary or affiliate
to pay cash or deliver other property under the Plan or under other plans
or compensatory arrangements, subject to such terms as shall be
determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to
receive cash, Stock, other Awards, or other property equivalent to all or
a portion of the dividends paid with respect to a specified number of
shares of Stock. Dividend Equivalents may be awarded on a free-standing
basis or in connection with another Award. The Committee may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall
be deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to restrictions on transferability,
risks of forfeiture and such other terms as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants
such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related
to, Stock or factors that may influence the value of Stock, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for
Stock, Awards with value and payment contingent upon performance of
the Company or business units thereof or any other factors designated
by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries or affiliates or other business units. The Committee
shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such
forms, including, without limitation, cash, Stock, other Awards,
notes, or other property, as the Committee shall determine. Cash
awards, as an element of or supplement to any other Award under the
Plan, may also be granted pursuant to this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in
cash or in Stock or other Awards, may be granted by the Committee in
accordance with Section 7.
<PAGE>
7. PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.
(a) Performance Awards Generally. The Committee is authorized to
grant Performance Awards on the terms and conditions specified in this
Section 7. Performance Awards may be denominated as a cash amount, number
of shares of Stock, or specified number of other Awards (or a
combination) which may be earned upon achievement or satisfaction of
performance conditions specified by the Committee. In addition, the
Committee may specify that any other Award shall constitute a Performance
Award by conditioning the right of a Participant to exercise the Award or
have it settled, and the timing thereof, upon achievement or satisfaction
of such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions, except
as limited under Sections 7(b) and 7(c) in the case of a Performance
Award intended to qualify as "performance-based compensation" under Code
Section 162(m).
(b) Performance Awards Granted to Covered Employees. If the
Committee determines that a Performance Award to be granted to an
Eligible Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant, exercise and/or settlement of
such Performance Award shall be contingent upon achievement of a
preestablished performance goal and other terms set forth in this Section
7(b).
(i) Performance Goal Generally. The performance goal for
such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee
consistent with this Section 7(b). The performance goal shall be
objective and shall otherwise meet the requirements of Code
Section 162(m) and regulations thereunder (including Regulation
1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by
the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant,
exercise and/or settlement of such Performance Awards. Performance
goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis, and/or
for specified subsidiaries or affiliates or other business units
of the Company shall be used by the Committee in establishing
performance goals for such Performance Awards: (1) net sales; (2)
earnings from operations, earnings before or after taxes, earnings
before or after interest, depreciation, amortization, or
extraordinary or special items; (3) net income or net income per
common share (basic or diluted); (4) return on assets (gross or
net), return on investment, return on capital, or return on
equity; (5) cash flow, free cash flow, cash flow return on
investment (discounted or otherwise), net cash provided by
operations, or cash flow in excess of cost of capital; (6)
economic value created; (7) operating margin or profit margin; (8)
stock price or total shareholder return; (9) dividend payout as a
percentage of net income; and (10) strategic business criteria,
consisting of one or more objectives based on meeting specified
market penetration, geographic business expansion goals, cost
targets, customer satisfaction, employee satisfaction, management
of employment practices and employee benefits, supervision of
litigation and information technology, and goals relating to
acquisitions or divestitures of subsidiaries, affiliates or joint
ventures. The targeted level or levels of performance with respect
to such business criteria may be established at such levels and in
such terms as the Committee may determine, in its discretion,
including in absolute terms, as a goal relative to performance in
prior periods, or as a goal compared to the performance of one or
more comparable companies or an index covering multiple companies.
(iii) Performance Period; Timing for Establishing
Performance Goals; Per-Person Limit. Achievement of performance
goals in respect of such Performance Awards shall be measured over
a performance period of up to one year or more than one year, as
specified by the Committee. A performance goal shall be
established not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such Performance
Award or (B) the time 25% of such performance period has elapsed.
In all cases, the maximum Performance Award of any Participant
shall be subject to the limitation set forth in Section 5.
<PAGE>
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for
purposes of measuring performance of the Company in connection
with Performance Awards. The amount of such Performance Award pool
shall be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section
7(b)(ii) during the given performance period, as specified by the
Committee in accordance with Section 7(b)(iv). The Committee may
specify the amount of the Performance Award pool as a percentage
of any of such business criteria, a percentage thereof in excess
of a threshold amount, or as another amount which need not bear a
strictly mathematical relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms.
Settlement of such Performance Awards shall be in cash, Stock,
other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, increase or
reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered
Employee in respect of a Performance Award subject to this Section
7(b). Any settlement which changes the form of payment from that
originally specified shall be implemented in a manner such that
the Performance Award and other related Awards do not, solely for
that reason, fail to qualify as "performance-based compensation"
for purposes of Code Section 162(m). The Committee shall specify
the circumstances in which such Performance Awards shall be paid
or forfeited in the event of termination of employment by the
Participant or other event (including a Change in Control) prior
to the end of a performance period or settlement of such
Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. The Committee may grant an Annual Incentive Award to an
Eligible Person who is designated by the Committee as likely to be a
Covered Employee. Such Annual Incentive Award will be intended to qualify
as "performance-based compensation" for purposes of Code Section 162(m),
and therefore its grant, exercise and/or settlement shall be contingent
upon achievement of preestablished performance goals and other terms set
forth in this Section 7(c).
(i) Grant of Annual Incentive Awards. Not later than the
earlier of 90 days after the beginning of any performance period
applicable to such Annual Incentive Award or the time 25% of such
performance period has elapsed, the Committee shall determine the
Covered Employees who will potentially receive Annual Incentive
Awards, and the amount(s) potentially payable thereunder, for that
performance period. The amount(s) potentially payable as Annual
Incentive Awards may be earned and become payable under the Plan
only if and to the extent the Annual Incentive Pool, specified in
Section 7(c)(ii), has become hypothetically funded. The portion of
the Annual Incentive Award pool potentially payable to each
Covered Employee shall be preestablished by the Committee. The
foregoing notwithstanding, if any portion of the Annual Incentive
Pool for a given fiscal year is not allocated and paid out for
that year, the Committee, at any time after such fiscal year, may
allocate and pay out from such then-unallocated amounts of
hypothetical funding remaining an Award to any Eligible Person
other than a Covered Employee, but such allocations may not affect
the allocations or payouts to any Covered Employee. In all cases,
the maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5. This Section
7(c) does not preclude the Committee from granting a Performance
Award under Section 7(b) based on performance in a period of one
year or less, in addition to or in lieu of an Annual Incentive
Award under this Section 7(c).
(ii) Creation of Annual Incentive Pool. The Annual
Incentive Pool for each fiscal year of the Company shall equal
10% of the amount by which the "pretax consolidated earnings" (as
hereinafter defined) for such year shall exceed 20% of "net
capital" (as hereinafter defined) for such year; provided,
however, that the Annual Incentive Pool shall not exceed for any
year 10% of the amount of cash dividends paid by the Company in
such year. As soon as practicable after the end of each year the
amount of the Annual Incentive Pool for such year shall be
audited by the Company's independent public accountants and shall
be reported by them to the Committee. The term "pretax
consolidated earnings" for any fiscal year means the sum of (i)
the consolidated net earnings of the Company and its subsidiaries
for such year before (A) extraordinary items determined in
accordance
<PAGE>
with generally accepted accounting principles and (B) the
cumulative effect of accounting changes, as contained in the
financial statements audited by the Company's independent public
accountants and reported by the Company in its annual report to
shareholders for such year, (ii) the provision for all taxes on
income for such year, as contained in the financial statements
audited by the Company's independent public accountants and
reported by the Company in its annual report to shareholders for
such year, and (iii) the amount of the Annual Incentive Pool for
such year, as audited by the Company's independent public
accountants and reported to the Committee as contemplated above.
The term "net capital" for any year shall mean the arithmetic
average of the amounts of the consolidated capital and surplus of
the Company as at the beginning and the end of such year before
(A) and (B) above, as such consolidated capital and surplus as of
each such date is audited by the Company's independent public
accountants and reported by the Company in its annual report to
shareholders for the prior year (with respect to the consolidated
capital and surplus as at the beginning of such year) and for
such year (with respect to the consolidated capital and surplus
as at the end of such year). The Annual Incentive Pool shall be
an unfunded pool established for the purpose of measuring
performance of the Company to determine compensation in
connection with Awards. Unallocated amounts of hypothetical
funding of the Annual Incentive Pool for a given fiscal year will
not be added to the Annual Incentive Pool for a subsequent year.
(iii) Payout of Annual Incentive Awards. After the end of
each performance period, the Committee shall determine the amount,
if any, of the Annual Incentive Award for that performance period
payable to each Participant. The Committee may, in its discretion,
determine that the amount payable to any Participant as a final
Annual Incentive Award shall be reduced from the amount of his or
her potential Annual Incentive Award, including a determination to
make no final Award whatsoever, but may not exercise discretion to
increase any such amount. The Committee shall specify the
circumstances in which an Annual Incentive Award shall be paid or
forfeited in the event of termination of employment by the
Participant or other event (including a Change in Control) prior
to the end of a performance period or settlement of such Annual
Incentive Award.
(d) Written Determinations. Determinations by the Committee as
to the establishment of performance goals, the amount potentially
payable in respect of Performance Awards and Annual Incentive Awards,
the level of actual achievement of the specified performance goals
relating to Performance Awards and Annual Incentive Awards, the level
of hypothetical funding of the Annual Incentive Pool and the amount of
any final Performance Award and Annual Incentive Award shall be
recorded in writing in the case of Performance Awards intended to
qualify under Section 162(m). Specifically, the Committee shall
certify in writing, in a manner conforming to applicable regulations
under Section 162(m), prior to settlement of each such Award granted
to a Covered Employee, that the performance objective relating to the
Performance Award and other material terms of the Award upon which
settlement of the Award was conditioned have been satisfied.
8. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted
under another plan of the Company, any subsidiary or affiliate, or any
business entity to be acquired by the Company or a subsidiary or
affiliate, or any other right of a Participant to receive payment from
the Company or any subsidiary or affiliate. Awards granted in addition
to or in tandem with other Awards or awards may be granted either as
of the same time as or a different time from the grant of such other
Awards or awards. Subject to Section 11(k), the Committee may
determine that, in granting a new Award, the in-the-money value of any
surrendered Award or award may be applied to reduce the exercise price
of any Option, grant price of any SAR, or purchase price of any other
Award.
(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee, subject to the express
limitations set forth in Section 6(b)(ii).
(c) Form and Timing of Payment under Awards; Deferrals. Subject
to the terms of the Plan (including Section 11(k)) and any applicable
Award document, payments to be made by the Company or a
<PAGE>
subsidiary or affiliate upon the exercise of an Option or other Award
or settlement of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The settlement of
any Award may be accelerated, and cash paid in lieu of Stock in
connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (subject to Section
11(k)). Installment or deferred payments may be required by the
Committee (subject to Section 11(e)) or permitted at the election of
the Participant on terms and conditions established by the Committee.
Payments may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other
amounts in respect of installment or deferred payments denominated in
Stock.
(d) Exemptions from Section 16(b) Liability. With respect to a
Participant who is then subject to the reporting requirements of Section
16(a) of the Exchange Act in respect of the Company, the Committee shall
implement transactions under the Plan and administer the Plan in a manner
that will ensure that each transaction with respect to such a Participant
is exempt from liability under Rule 16b-3 or otherwise not subject to
liability under Section 16(b)), except that this provision shall not
limit sales by such a Participant, and such a Participant may engage in
other non-exempt transactions under the Plan. The Committee may authorize
the Company to repurchase any Award or shares of Stock deliverable or
delivered in connection with any Award (subject to Section 11(k)) in
order to avoid a Participant who is subject to Section 16 of the Exchange
Act incurring liability under Section 16(b). Unless otherwise specified
by the Participant, equity securities or derivative securities acquired
under the Plan which are disposed of by a Participant shall be deemed to
be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and
subject at all times to, and only to the extent, if any, permitted under
and in accordance with, laws and regulations and other binding
obligations or provisions applicable to the Company, the Company may
make, guarantee, or arrange for a loan or loans to a Participant with
respect to the exercise of any Option or other payment in connection with
any Award, including the payment by a Participant of any or all federal,
state, or local income or other taxes due in connection with any Award.
Subject to such limitations, the Committee shall have full authority to
decide whether to make a loan or loans hereunder and to determine the
amount, terms, and provisions of any such loan or loans, including the
interest rate, if any, to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse
against the borrower, the terms on which the loan is to be repaid and
conditions, if any, under which the loan or loans may be forgiven.
9. CHANGE IN CONTROL.
(a) Effect of "Change in Control" on Non-Performance Based
Awards. In the event of a "Change in Control," the following
provisions shall apply to non-performance based Awards, including
Awards as to which performance conditions previously have been
satisfied or are deemed satisfied under Section 9(b), unless otherwise
provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture conditions and
other restrictions applicable to Awards granted under the Plan
shall lapse and such Awards shall be fully payable as of the time
of the Change in Control without regard to deferral and vesting
conditions, except to the extent of any waiver by the Participant
or other express election to defer beyond a Change in Control and
subject to applicable restrictions set forth in Section 11(a);
(ii) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable
and vested as of the time of the Change in Control and shall
remain exercisable and vested for the balance of the stated term
of such Award without regard to any termination of employment or
service by the Participant other than a termination for "cause"
(as defined in any employment or severance agreement between the
Company or a subsidiary or affiliate and the Participant then in
effect or, if none, as defined by the Committee and in effect at
the time of the Change in Control), subject only to applicable
restrictions set forth in Section 11(a); and
(iii) The Committee may, in its discretion, determine to
extend to any Participant who holds an Option the right to elect,
during the 60-day period immediately following the Change in
Control, in
<PAGE>
lieu of acquiring the shares of Stock covered by such Option, to
receive in cash the excess of the Change in Control Price over
the exercise price of such Option, multiplied by the number of
shares of Stock covered by such Option, and to extend to any
Participant who holds other types of Awards denominated in shares
the right to elect, during the 60-day period immediately
following the Change in Control, in lieu of receiving the shares
of Stock covered by such Award, to receive in cash the Change in
Control Price multiplied by the number of shares of Stock covered
by such Award.
(b) Effect of "Change in Control" on Performance-Based Awards.
In the event of a "Change in Control," with respect to an outstanding
Award subject to achievement of performance goals and conditions, such
performance goals and conditions shall be deemed to be met or exceeded
if and to the extent so provided by the Committee in the Award
document governing such Award or other agreement with the Participant.
(c) Definition of "Change in Control." A "Change in Control"
shall be deemed to have occurred if, after the Effective Date, there
shall have occurred any of the following:
(i) Any "person," as such term is used in Section 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan
of the Company, or any company owned, directly or indirectly, by
the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), acquires
voting securities of the Company and immediately thereafter is a
"40% Beneficial Owner." For purposes of this provision, a "40%
Beneficial Owner" shall mean a person who is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 40% or
more of the combined voting power of the Company's
then-outstanding voting securities; provided, however, that the
term "40% Beneficial Owner" shall not include any person who was a
beneficial owner of outstanding voting securities of the Company
at February 20, 1990, or any person or persons who was or becomes
a fiduciary of any such person or persons who is, or in the
aggregate, are a "40% Beneficial Owner" (an "Existing
Shareholder"), including any group that may be formed which is
comprised solely of Existing Shareholders, unless and until such
time after February 20, 1990 as any such Existing Shareholder
shall have become the beneficial owner (other than by means of a
stock dividend, stock split, gift, inheritance or receipt or
exercise of, or accrual of any right to exercise, a stock option
granted by the Company or receipt or settlement of any other
stock-related award granted by the Company) by purchase of any
additional voting securities of the Company; and provided further,
that the term "40% Beneficial Owner" shall not include any person
who shall become the beneficial owner of 40% or more of the
combined voting power of the Company's then-outstanding voting
securities solely as a result of an acquisition by the Company of
its voting securities, until such time thereafter as such person
shall become the beneficial owner (other than by means of a stock
dividend or stock split) of any additional voting securities and
becomes a 40% Beneficial Owner in accordance with this Section
9(c)(i);
(ii) Individuals who on September 1, 2000 constitute the Board, and
any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election consent,
including but not limited to a consent solicitation, relating to the
election of directors of the Company) whose election by the Board or
nomination for election by the Company's shareholders was approved by
a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on September 1, 2000 or whose
election or nomination for election was previously so approved or
recommended, cease for any reason to constitute at least a majority
thereof;
(iii) There is consummated a merger, consolidation, recapitalization,
or reorganization of the Company, or a reverse stock split of any
class of voting securities of the Company, if, immediately following
consummation of any of the foregoing, either (A) individuals who,
immediately prior to such consummation, constitute the Board do not
constitute at least a majority of the members of the board of
directors of the Company or the surviving or parent entity, as the
case may be, or (B) the voting securities of the Company outstanding
immediately prior to such recommendation do not represent (either by
remaining outstanding or by being converted into voting securities of
a surviving or parent entity) at least 60% or more of the combined
voting power of the outstanding voting securities of the Company or
such surviving or parent entity; or
<PAGE>
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or there is consummated an agreement for
the sale or disposition by the Company of all or substantially all of
the Company's assets (or any transaction have a similar effect).
(d) Definition of "Change in Control Price." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the
amount of cash and fair market value of property that is the highest
price per share paid (including extraordinary dividends) in any
transaction triggering the Change in Control or any liquidation of
shares following a sale of substantially all assets of the Company, or
(ii) the highest Fair Market Value per share at any time during the
60-day period preceding and 60-day period following the Change in
Control.
10. ADDITIONAL AWARD FORFEITURE PROVISIONS.
(a) Forfeiture of Options and Other Awards and Gains Realized
Upon Prior Option Exercises or Award Settlements. Unless otherwise
determined by the Committee, each Award granted hereunder shall be
subject to the following additional forfeiture conditions, to which
the Participant, by accepting an Award hereunder, agrees. If any of
the events specified in Section 10(b)(i), (ii), or (iii) occurs (a
"Forfeiture Event"), all of the following forfeitures will result:
(i) The unexercised portion of the Option, whether or not
vested, and any other Award not then settled (except for an Award
that has not been settled solely due to an elective deferral by
the Participant and otherwise is not forfeitable in the event of
any termination of service of the Participant) will be immediately
forfeited and canceled upon the occurrence of the Forfeiture
Event; and
(ii) The Participant will be obligated to repay to the
Company, in cash, within five business days after demand is made
therefor by the Company, the total amount of Award Gain (as
defined herein) realized by the Participant upon each exercise of
an Option or settlement of an Award (regardless of any elective
deferral) that occurred on or after (A) the date that is six
months prior to the occurrence of the Forfeiture Event, if the
Forfeiture Event occurred while the Participant was employed by
the Company or a subsidiary or affiliate, or (B) the date that is
six months prior to the date the Participant's employment by the
Company or a subsidiary or affiliate terminated, if the Forfeiture
Event occurred after the Participant ceased to be so employed. For
purposes of this Section, the term "Award Gain" shall mean (i), in
respect of a given Option exercise, the product of (X) the Fair
Market Value per share of Stock at the date of such exercise
(without regard to any subsequent change in the market price of
shares) minus the exercise price times (Y) the number of shares as
to which the Option was exercised at that date, and (ii), in
respect of any other settlement of an Award granted to the
Participant, the Fair Market Value of the cash or Stock paid or
payable to Participant (regardless of any elective deferral) less
any cash or the Fair Market Value of any Stock or property (other
than an Award or award which would have itself then been
forfeitable hereunder and excluding any payment of tax
withholding) paid by the Participant to the Company as a condition
of or in connection such settlement.
(b) Events Triggering Forfeiture. The forfeitures specified in
Section 10(a) will be triggered upon the occurrence of any one of the
following Forfeiture Events at any time during the Participant's
employment by the Company or a subsidiary or affiliate or during the
one-year period following termination of such employment:
(i) The Participant, acting alone or with others, directly
or indirectly, prior to a Change in Control, (A) engages, either
as employee, employer, consultant, advisor, or director, or as an
owner, investor, partner, or shareholder unless the Participant's
interest is insubstantial, in any business in an area or region in
which the Company conducts business at the date the event occurs,
which is directly in competition with a business then conducted by
the Company or a subsidiary or affiliate; (B) induces any customer
or supplier of the Company or a subsidiary or affiliate, or other
company with
<PAGE>
which the Company or a subsidiary or affiliate has a business
relationship, to curtail, cancel, not renew, or not continue his
or her or its business with the Company or any subsidiary or
affiliate; or (C) induces, or attempts to influence, any employee
of or service provider to the Company or a subsidiary or
affiliate to terminate such employment or service. The Committee
shall, in its discretion, determine which lines of business the
Company conducts on any particular date and which third parties
may reasonably be deemed to be in competition with the Company.
For purposes of this Section 10(b)(i), a Participant's interest
as a shareholder is insubstantial if it represents beneficial
ownership of less than five percent of the outstanding class of
stock, and a Participant's interest as an owner, investor, or
partner is insubstantial if it represents ownership, as
determined by the Committee in its discretion, of less than five
percent of the outstanding equity of the entity;
(ii) The Participant discloses, uses, sells, or otherwise
transfers, except in the course of employment with or other
service to the Company or any subsidiary or affiliate, any
confidential or proprietary information of the Company or any
subsidiary or affiliate, including but not limited to information
regarding the Company's current and potential customers,
organization, employees, finances, and methods of operations and
investments, so long as such information has not otherwise been
disclosed to the public or is not otherwise in the public domain,
except as required by law or pursuant to legal process, or the
Participant makes statements or representations, or otherwise
communicates, directly or indirectly, in writing, orally, or
otherwise, or takes any other action which may, directly or
indirectly, disparage or be damaging to the Company or any of its
subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations, except
as required by law or pursuant to legal process; or
(iii) The Participant fails to cooperate with the Company or
any subsidiary or affiliate by making himself or herself available
to testify on behalf of the Company or such subsidiary or
affiliate in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, or otherwise fails to
assist the Company or any subsidiary or affiliate in any such
action, suit, or proceeding by providing information and meeting
and consulting with members of management of, other
representatives of, or counsel to, the Company or such subsidiary
or affiliate, as reasonably requested.
(c) Agreement Does Not Prohibit Competition or Other Participant
Activities. Although the conditions set forth in this Section 10 shall be
deemed to be incorporated into an Award, a Participant is not thereby
prohibited from engaging in any activity, including but not limited to
competition with the Company and its subsidiaries and affiliates. Rather,
the non-occurrence of the Forfeiture Events set forth in Section 10(b) is
a condition to the Participant's right to realize and retain value from
his or her compensatory Options and Awards, and the consequence under the
Plan if the Participant engages in an activity giving rise to any such
Forfeiture Event are the forfeitures specified herein. The Company and
the Participant shall not be precluded by this provision or otherwise
from entering into other agreements concerning the subject matter of
Section 10(a) and 10(b).
(d) Committee Discretion. The Committee may, in its discretion,
waive in whole or in part the Company's right to forfeiture under this
Section, but no such waiver shall be effective unless evidenced by a
writing signed by a duly authorized officer of the Company. In addition,
the Committee may impose additional conditions on Awards, by inclusion of
appropriate provisions in the document evidencing or governing any such
Award.
<PAGE>
11. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company
may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other
benefits under any Award until completion of such registration or
qualification of such Stock or other required action under any federal
or state law, rule or regulation, listing or other required action
with respect to any stock exchange or automated quotation system upon
which the Stock or other securities of the Company are listed or
quoted, or compliance with any other obligation of the Company, as the
Committee may consider appropriate, and may require any Participant to
make such representations, furnish such information and comply with or
be subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Stock or payment of other
benefits in compliance with applicable laws, rules, and regulations,
listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or
permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock
or payment of benefits under any Award or the imposition of any other
conditions on such issuance, delivery or payment, to the extent that
such postponement or other condition would represent a greater burden
on a Participant than existed on the 90th day preceding the Change in
Control.
(b) Limits on Transferability; Beneficiaries. No Award or other
right or interest of a Participant under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation
or liability of such Participant to any party (other than the Company or
a subsidiary or affiliate thereof), or assigned or transferred by such
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant
or his or her guardian or legal representative, except that (i) Awards
and related rights shall be transferred to a Participant's Beneficiary or
Beneficiaries upon the death of the Participant, and (ii) Awards and
other rights (other than ISOs and SARs in tandem therewith) may be
transferred to one or more Beneficiaries during the lifetime of the
Participant, and rights thereunder may be exercised by such transferees
in accordance with the terms of such Award, but only if and to the extent
such transfers are then permitted by the Committee, subject to any terms
and conditions which the Committee may impose thereon (including
limitations the Committee may deem appropriate in order that offers and
sales under the Plan will meet applicable requirements of registration
forms under the Securities Act of 1933 specified by the Securities and
Exchange Commission). A Beneficiary or other person claiming any rights
under the Plan from or through any Participant shall be subject to all
terms and conditions of the Plan and any Award document applicable to
such Participant, except as otherwise determined by the Committee, and to
any additional terms and conditions deemed necessary or appropriate by
the Committee.
<PAGE>
(c) Adjustments. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash
or property other than Stock), recapitalization, forward or reverse
split, Stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or
other similar corporate transaction or event affects the Stock such that
an adjustment is determined by the Committee to be appropriate under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may
be delivered in connection with Awards granted thereafter, including all
applicable limitations specified in Section 4(a), (ii) the number and
kind of shares of Stock by which annual per-person Award limitations are
measured under Section 5, (iii) the number and kind of shares of Stock
subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or,
if deemed appropriate, the Committee may make provision for a payment of
cash or property to the holder of an outstanding Option (subject to
Section 11(k)). In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals and any
hypothetical funding pool relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, events described in
the preceding sentence, as well as acquisitions and dispositions of
businesses and assets) affecting the Company, any subsidiary or affiliate
or other business unit, or the financial statements of the Company or any
subsidiary or affiliate, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or affiliate or business unit
thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other
circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that the existence of such
authority (i) would cause Options, SARs, or Performance Awards granted
under Section 8 to Participants designated by the Committee as Covered
Employees and intended to qualify as "performance-based compensation"
under Code Section 162(m) and regulations thereunder to otherwise fail to
qualify as "performance-based compensation" under Code Section 162(m) and
regulations thereunder, or (ii) would cause the Committee to be deemed to
have authority to change the targets, within the meaning of Treasury
Regulation 1.162-27(e)(4)(vi), under the performance goals relating to
Options or SARs granted to Covered Employees and intended to qualify as
"performance-based compensation" under Code Section 162(m) and
regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or
affiliate is authorized to withhold from any Award granted, any
payment relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving
an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to
make cash payments in respect thereof in satisfaction of a
Participant's withholding obligations, either on a mandatory or
elective basis in the discretion of the Committee. Other
provisions of the Plan notwithstanding, only the minimum amount
of Stock deliverable in connection with an Award necessary to
satisfy statutory withholding requirements will be withheld.
(ii) Required Consent to and Notification of Code Section
83(b) Election. No election under Section 83(b) of the Code (to
include in gross income in the year of transfer the amounts
specified in Code Section 83(b)) or under a similar provision of
the laws of a jurisdiction outside the United States may be made
unless expressly permitted by the terms of the Award document or
by action of the Committee in writing prior to the making of such
election. In any case in which a Participant is permitted to make
such an election in connection with an Award, the Participant
shall notify the Company of such election within ten days of
filing notice of the election with the Internal Revenue Service or
other governmental authority, in addition to any filing and
notification required pursuant to regulations issued under Code
Section 83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying
Disposition Under Code Section 421(b). If any Participant shall
make any disposition of shares of Stock delivered pursuant to the
<PAGE>
exercise of an Incentive Stock Option under the circumstances
described in Code Section 421(b) (relating to certain
disqualifying dispositions), such Participant shall notify the
Company of such disposition within ten days thereof.
(e) Changes to the Plan. The Board may amend, suspend or
terminate the Plan or the Committee's authority to grant Awards under
the Plan without the consent of shareholders or Participants;
provided, however, that any amendment to the Plan shall be submitted
to the Company's shareholders for approval not later than the earliest
annual meeting for which the record date is after the date of such
Board action if such shareholder approval is required by any federal
or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or
quoted and the Board may otherwise, in its discretion, determine to
submit other amendments to the Plan to shareholders for approval; and
provided further, that, without the consent of an affected
Participant, no such Board action may materially and adversely affect
the rights of such Participant under any outstanding Award. Without
the approval of shareholders, the Committee will not amend or replace
previously granted Options in a transaction that constitutes a
"repricing," as such term is used in Instruction 3 to Item
402(b)(2)(iv) of Regulation S-K, as promulgated by the Securities and
Exchange Commission. The Committee shall have no authority to waive or
modify any other Award term after the Award has been granted to the
extent that the waived or modified term was mandatory under the Plan.
(f) Right of Setoff. The Company or any subsidiary or affiliate
may, to the extent permitted by applicable law, deduct from and set off
against any amounts the Company or a subsidiary or affiliate may owe to
the Participant from time to time, including amounts payable in
connection with any Award, owed as wages, fringe benefits, or other
compensation owed to the Participant, such amounts as may be owed by the
Participant to the Company, including but not limited to amounts owed
under Section 10(a), although the Participant shall remain liable for any
part of the Participant's payment obligation not satisfied through such
deduction and setoff. By accepting any Award granted hereunder, the
Participant agrees to any deduction or setoff under this Section 11(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
or obligation to deliver Stock pursuant to an Award, nothing contained in
the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that
the Committee may authorize the creation of trusts and deposit therein
cash, Stock, other Awards or other property, or make other arrangements
to meet the Company's obligations under the Plan. Such trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan
by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of
the Board or a committee thereof to adopt such other incentive
arrangements, apart from the Plan, as it may deem desirable, including
incentive arrangements and awards which do not qualify under Code Section
162(m), and such other arrangements may be either applicable generally or
only in specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee, in the event of a
forfeiture of an Award with respect to which a Participant paid cash
consideration, the Participant shall be repaid the amount of such cash
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that Options and SARs granted to Covered Employees and other
Awards designated as Awards to Covered Employees subject to Section 7
shall constitute qualified "performance-based compensation" within the
meaning of Code Section 162(m) and regulations thereunder, unless
otherwise determined by the Committee at the time of allocation of an
Award. Accordingly, the terms of Sections 7(b), (c), and (d), including
the definitions of Covered Employee and other terms used therein, shall
be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Participant
will be a Covered Employee with respect to a fiscal
<PAGE>
year that has not yet been completed, the term Covered Employee as
used herein shall mean only a person designated by the Committee as
likely to be a Covered Employee with respect to a specified fiscal
year. If any provision of the Plan or any Award document relating to a
Performance Award that is designated as intended to comply with Code
Section 162(m) does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary
to conform to such requirements, and no provision shall be deemed to
confer upon the Committee or any other person discretion to increase
the amount of compensation otherwise payable in connection with any
such Award upon attainment of the applicable performance objectives.
(k) Certain Limitations Relating to Accounting Treatment of
Awards. Other provisions of the Plan notwithstanding, the Committee's
authority under the Plan (including under Sections 8(c), 8(d), 11(c) and
11(d)) is limited to the extent necessary to ensure that any Option or
other Award of a type that the Committee has intended to be subject to
fixed accounting with a measurement date at the date of grant or the date
performance conditions are satisfied under APB 25 shall not become
subject to "variable" accounting solely due to the existence of such
authority, unless the Committee specifically determines that the Award
shall remain outstanding despite such "variable" accounting. In addition,
other provisions of the Plan notwithstanding, (i) if any right under this
Plan would cause a transaction to be ineligible for pooling-of-interests
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, such right shall be automatically adjusted so that
pooling-of-interests accounting shall be available, including by
substituting Stock or cash having a Fair Market Value equal to any cash
or Stock otherwise payable in respect of any right to cash which would
cause the transaction to be ineligible for pooling-of-interests
accounting, and (ii) if any authority under Section 9(c) would cause a
transaction to be ineligible for pooling-of-interests accounting that
would, but for such authority, be eligible for such accounting treatment,
such authority shall be limited to the extent necessary so that such
transaction would be eligible for pooling-of-interests accounting.
(l) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan and any Award
document shall be determined in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of laws, and
applicable provisions of federal law.
(m) Awards to Participants Outside the United States. The
Committee may modify the terms of any Award under the Plan made to or
held by a Participant who is then resident or primarily employed outside
of the United States in any manner deemed by the Committee to be
necessary or appropriate in order that such Award shall conform to laws,
regulations, and customs of the country in which the Participant is then
resident or primarily employed, or so that the value and other benefits
of the Award to the Participant, as affected by foreign tax laws and
other restrictions applicable as a result of the Participant's residence
or employment abroad shall be comparable to the value of such an Award to
a Participant who is resident or primarily employed in the United States.
An Award may be modified under this Section 11(m) in a manner that is
inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation or
result in actual liability under Section 16(b) for the Participant whose
Award is modified.
<PAGE>
(n) Limitation on Rights Conferred under Plan. Neither the Plan
nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible
Person or Participant or in the employ or service of the Company or a
subsidiary or affiliate, (ii) interfering in any way with the right of
the Company or a subsidiary or affiliate to terminate any Eligible
Person's or Participant's employment or service at any time, (iii) giving
an Eligible Person or Participant any claim to be granted any Award under
the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly
issued or transferred shares of Stock in accordance with the terms of an
Award or an Option is duly exercised. Except as expressly provided in the
Plan and an Award document, neither the Plan nor any Award document shall
confer on any person other than the Company and the Participant any
rights or remedies thereunder.
(o) Severability; Entire Agreement. If any of the provisions of
this Plan or any Award document is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be
deemed modified to the extent, but only to the extent, of such
invalidity, illegality or unenforceability, and the remaining provisions
shall not be affected thereby; provided, that, if any of such provisions
is finally held to be invalid, illegal, or unenforceable because it
exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be
modified to the minimum extent necessary to modify such scope in order to
make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the
subject matter thereof and supersede all prior agreements, promises,
covenants, arrangements, communications, representations and warranties
between them, whether written or oral with respect to the subject matter
thereof.
(p) Plan Effective Date and Termination. The Plan shall become
effective if, and at such time as, the shareholders of the Company have
approved it by the affirmative votes of the holders of a majority of the
voting securities of the Company present, or represented, and entitled to
vote on the subject matter at a duly held meeting of shareholders. Unless
earlier terminated by action of the Board of Directors, the Plan will
remain in effect until such time as no Stock remains available for
delivery under the Plan and the Company has no further rights or
obligations under the Plan with respect to outstanding Awards under the
Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>5
<FILENAME>file004.txt
<DESCRIPTION>2000 SUPPLEMENTAL STOCK AWARD PLAN
<TEXT>
<PAGE>
Exhibit 10.9
INTERNATIONAL FLAVORS & FRAGRANCES INC.
- --------------------------------------------------------------------------------
2000 SUPPLEMENTAL STOCK AWARD PLAN
AS AMENDED AND RESTATED MARCH 9, 2004
- --------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
- --------------------------------------------------------------------------------
2000 SUPPLEMENTAL STOCK AWARD PLAN
AS AMENDED AND RESTATED MARCH 9, 2004
- --------------------------------------------------------------------------------
Page
----
1. Purpose.................................................. 1
2. Definitions.............................................. 1
3. Administration........................................... 2
4. Stock Subject to Plan.................................... 3
5. Eligibility ............................................. 3
6. Specific Terms of Awards................................. 4
7. Certain Provisions Applicable to Awards.................. 7
8. Change in Control........................................ 7
9. Additional Award Forfeiture Provisions................... 10
10. General Provisions....................................... 12
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
2000 SUPPLEMENTAL STOCK AWARD PLAN
AS AMENDED AND RESTATED MARCH 9, 2004
1. PURPOSE. The purpose of this 2000 Supplemental Stock Award Plan (the
"Plan") is to aid International Flavors & Fragrances Inc., a New York
corporation (the "Company"), in attracting, retaining, motivating and rewarding
employees, other than executive officers and directors of the Company, and
certain other persons who provide substantial services to the Company or its
subsidiaries or affiliates, to provide for equitable and competitive
compensation opportunities, to recognize individual contributions and reward
achievement of Company goals, and promote the creation of long-term value for
shareholders by closely aligning the interests of Participants with those of
shareholders. The Plan authorizes stock-based incentives for Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Award" means any Option, SAR, Restricted Stock, Deferred
Stock, Stock granted as a bonus or in lieu of another award, Dividend
Equivalent, Other Stock-Based Award, or Performance Award, together with
any related right or interest, granted to a Participant under the Plan.
(b) "Beneficiary" means any family member or members, including
by marriage or adoption, any trust in which the Participant or any
family member or members have more than 50% of the beneficial
interest, and any other entity in which the Participant or any family
member or members own more than 50% of the voting interests, in each
case designated by the Participant in his most recent written
Beneficiary designation filed with the Committee as entitled to
exercise rights or receive benefits in connection with the Award (or
any portion thereof), or if there is no surviving designated
Beneficiary, then the person, persons, trust or trusts entitled by
will or the laws of descent and distribution to exercise rights or
receive benefits in connection with the Award on behalf or in lieu of
such non-surviving designated Beneficiary.
(c) "Board" means the Company's Board of Directors.
(d) "Change in Control" and related terms have the meanings
specified in Section 8.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a
proposed regulation) thereunder shall include any successor provisions
and regulations.
(f) "Committee" means a committee of two or more directors
designated by the Board to administer the Plan; provided, however, that,
directors appointed or serving as members of a Board committee designated
as the Committee shall not be employees of the Company or any subsidiary
or affiliate. The full Board may perform any function of the Committee
hereunder, and the Committee may delegate authority as provided in
Section 3(b), in which case the term "Committee" shall refer to the Board
or such delegee.
(g) "Deferred Stock" means a right, granted to a Participant
under Section 6(e), to receive Stock or other Awards or a combination
thereof at the end of a specified deferral period. Such Awards may be
denominated as "Restricted Stock Units" as well.
(h) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g), to receive cash, Stock, other Awards
or other property equal in value to all or a specified portion of the
dividends paid with respect to a specified number of shares of Stock.
(i) "Effective Date" means the effective date specified in
Section 10(o).
(j) "Eligible Person" has the meaning specified in Section 5.
<PAGE>
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule
(including a proposed rule) thereunder shall include any successor
provisions and rules.
(l) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or under
procedures established by the Committee. Unless otherwise determined by
the Committee, the Fair Market Value of Stock shall be the closing sale
price reported on the composite tape of the New York Stock Exchange on
the day as of which such value is being determined or, if there is no
sale on that day, then on the last previous day on which a sale was
reported.
(m) "Option" means a right, granted to a Participant under
Section 6(b), to purchase Stock or other Awards at a specified price
during specified time periods.
(n) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h).
(o) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(p) "Performance Award" means a conditional right, granted to a
Participant under Section 6(i), to receive Stock or other Awards or
payments, as determined by the Committee, based upon performance criteria
specified by the Committee.
(q) "Restricted Stock" means Stock granted to a Participant
under Section 6(d) which is subject to certain restrictions and to a
risk of forfeiture.
(r) "Stock" means the Company's Common Stock, and any other
equity securities of the Company that may be substituted or
resubstituted for Stock pursuant to Section 10(c).
(s) "Stock Appreciation Rights" or "SAR" means a right granted
to a Participant under Section 6(c).
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered
by the Committee, which shall have full and final authority, in each
case subject to and consistent with the provisions of the Plan, to
select Eligible Persons to become Participants; to grant Awards; to
determine the type and number of Awards, the dates on which Awards may
be exercised and on which the risk of forfeiture or deferral period
relating to Awards shall lapse or terminate, the acceleration of any
such dates, the expiration date of any Award, whether, to what extent,
and under what circumstances an Award may be settled, or the exercise
price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters
relating to, Awards; to prescribe documents evidencing or setting
terms of Awards (such Award documents need not be identical for each
Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto; to construe and
interpret the Plan and Award documents and correct defects, supply
omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan. Decisions of the
Committee with respect to the administration and interpretation of the
Plan shall be final, conclusive, and binding upon all persons
interested in the Plan, including Participants, Beneficiaries,
transferees under Section 10(b) and other persons claiming rights from
or through a Participant, and shareholders.
(b) Manner of Exercise of Committee Authority. The Committee may
delegate to officers or managers of the Company or any subsidiary or
affiliate, or committees thereof, the authority, subject to such terms as
the Committee shall determine, to perform such functions, including
administrative functions, as the Committee may determine. The express
grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee.
(c) Limitation of Liability. The Committee and each member
thereof, and any person acting pursuant to authority delegated by the
Committee, shall be entitled, in good faith, to rely or act upon any
<PAGE>
report or other information furnished by any executive officer, other
officer or employee of the Company or a subsidiary or affiliate, the
Company's independent auditors, consultants or any other agents assisting
in the administration of the Plan. Members of the Committee, any person
acting pursuant to authority delegated by the Committee, and any officer
or employee of the Company or a subsidiary or affiliate acting at the
direction or on behalf of the Committee or a delegee shall not be
personally liable for any action or determination taken or made in good
faith with respect to the Plan, and shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to
any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 10(c), the total number of shares of
Stock reserved and available for delivery in connection with Awards under
the Plan shall be 4,500,000 shares; provided, however, that the total
number of shares which may be issued and delivered in connection with
Awards other than Options and SARs shall not exceed 100,000. Any shares
of Stock delivered under the Plan shall consist of authorized and
unissued shares, unless the Company's General Counsel determines that
treasury shares shall be delivered under the Plan.
(b) Share Counting Rules. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs
from the number of shares previously counted in connection with an Award;
provided, however, that shares withheld in payment of taxes upon vesting
of Restricted Stock and shares equal to the number of outstanding shares
surrendered in payment of the exercise price or taxes relating to an
Award shall not become available again under the Plan if the withholding
or surrender transaction occurs more than ten years after the date of
adoption of the Plan, and otherwise shares shall not become available
under this Section 4(b) in an event that would constitute a "material
revision" of the Plan subject to shareholder approval under then
applicable rules of the New York Stock Exchange. Shares subject to an
Award that is canceled, expired, forfeited, settled in cash or otherwise
terminated without a delivery of shares to the Participant will again be
available for Awards, and shares withheld in payment of the exercise
price or taxes relating to an Award and shares equal to the number
surrendered in payment of any exercise price or taxes relating to an
Award shall be deemed to constitute shares not delivered to the
Participant and shall be deemed to again be available for Awards under
the Plan. In addition, in the case of any Award granted in substitution
for an award of a company or business acquired by the Company or a
subsidiary or affiliate, shares issued or issuable in connection with
such substitute Award shall not be counted against the number of shares
reserved under the Plan, but shall be available under the Plan by virtue
of the Company's assumption of the plan or arrangement of the acquired
company or business.
5. ELIGIBILITY. Awards may be granted under the Plan only to Eligible
Persons. For purposes of the Plan, an "Eligible Person" means a person who is
not an executive officer or director of the Company but who is an employee of
the Company or any subsidiary or affiliate, a consultant or other person who
provides substantial services to the Company or a subsidiary or affiliate, or a
person who has been offered employment by the Company or a subsidiary or
affiliate, provided that such prospective employee or consultant or other person
may not receive any payment or exercise any right relating to an Award until
such person has commenced employment with or providing of services to the
Company or a subsidiary or affiliate. An employee on leave of absence may be
considered as still in the employ of the Company or a subsidiary or affiliate
for purposes of eligibility for participation in the Plan. For purposes of the
Plan, a joint venture in which the Company or a subsidiary has a substantial
direct or indirect equity investment shall be deemed an affiliate, if so
determined by the Committee.
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall
determine, including terms requiring forfeiture of Awards in the event
of termination of employment or service by the Participant and terms
permitting a Participant to make elections relating to his or her
Award. The Committee shall retain full power and discretion with
respect to any term or condition of an Award that is not mandatory
under the Plan. The Committee shall require the payment of lawful
consideration for an Award to the extent necessary to satisfy the
requirements of the New York
<PAGE>
Business Corporation Law, and may otherwise require payment of
consideration for an Award except as limited by the Plan.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such
Option, subject to Sections 6(f) and 7(a).
(ii) Option Term; Time and Method of Exercise. The
Committee shall determine the term of each Option. The Committee
shall determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in part
(including based on achievement of performance goals and/or
future service requirements), the methods by which such exercise
price may be paid or deemed to be paid and the form of such
payment (subject to Section 10(j)), including, without
limitation, cash, Stock, other Awards or awards granted under
other plans of the Company or any subsidiary or affiliate, or
other property (including notes and other contractual obligations
of Participants to make payment on a deferred basis, such as
through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by or forms in which Stock
will be delivered or deemed to be delivered in satisfaction of
Options to Participants (including deferred delivery of shares
representing the Option "profit," at the election of the
Participant or as mandated by the Committee, with such deferred
shares subject to any vesting, forfeiture or other terms as the
Committee may specify).
(c) Stock Appreciation Rights. The Committee is authorized to
grant SAR's to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the
Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise (or, in the case of a
"Limited SAR," the Fair Market Value determined by reference to
the Change in Control Price, as defined under Section 8(d)
hereof) over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine at the date
of grant or thereafter, the time or times at which and the
circumstances under which a SAR may be exercised in whole or in
part (including based on achievement of performance goals and/or
future service requirements), the method of exercise, method of
settlement, form of consideration payable in settlement, method by
or forms in which Stock will be delivered or deemed to be
delivered to Participants, and whether or not a SAR shall be
free-standing or in tandem or combination with any other Award.
Limited SARs that may only be exercised in connection with a
Change in Control or other event as specified by the Committee may
be granted on such terms, not inconsistent with this Section 6(c),
as the Committee may determine.
(d) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and
conditions:
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee may
impose, which restrictions may lapse separately or in combination
at such times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise and under such
other circumstances as the Committee may determine at the date of
grant or thereafter. Except to the extent restricted under the
terms of the Plan and any Award document relating to the
Restricted Stock, a Participant granted Restricted Stock shall
have all of the rights of a shareholder, including the right to
vote the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee).
<PAGE>
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the
applicable restriction period, Restricted Stock that is at that
time subject to restrictions shall be forfeited and reacquired by
the Company; provided that the Committee may provide, by rule or
regulation or in any Award document, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Restricted Stock will lapse in whole or in part,
including in the event of terminations resulting from specified
causes.
(iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, the Committee may
require that such certificates bear an appropriate legend
referring to the terms, conditions and restrictions applicable to
such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of
an Award of Restricted Stock, the Committee may require that any
dividends paid on a share of Restricted Stock shall be either (A)
paid with respect to such Restricted Stock at the dividend
payment date in cash, in kind, or in a number of shares of
unrestricted Stock having a Fair Market Value equal to the amount
of such dividends, or (B) automatically reinvested in additional
Restricted Stock or held in kind, which shall be subject to the
same terms as applied to the original Restricted Stock to which
it relates, or (C) deferred as to payment, either as a cash
deferral or with the amount or value thereof automatically deemed
reinvested in shares of Deferred Stock, other Awards or other
investment vehicles, subject to such terms as the Committee shall
determine or permit a Participant to elect. Unless otherwise
determined by the Committee, Stock distributed in connection with
a Stock split or Stock dividend, and other property distributed
as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with
respect to which such Stock or other property has been
distributed.
(e) Deferred Stock. The Committee is authorized to grant
Deferred Stock to Participants, which are rights to receive Stock,
other Awards, or a combination thereof at the end of a specified
deferral period, subject to the following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur
upon expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions on transferability,
risk of forfeiture and other restrictions, if any, as the
Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future
service requirements), separately or in combination, in
installments or otherwise, and under such other circumstances as
the Committee may determine at the date of grant or thereafter.
Deferred Stock may be satisfied by delivery of Stock, other
Awards, or a combination thereof (subject to Section 10(j)), as
determined by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award document evidencing the
Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; provided that
the Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock
will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) Dividend Equivalents. Unless otherwise determined by
the Committee, Dividend Equivalents on the specified number of
shares of Stock covered by an Award of Deferred Stock shall be
either (A) paid with respect to such Deferred Stock at the
dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends,
or (B) deferred with respect to such Deferred Stock, either as a
cash deferral or with the amount or value thereof automatically
deemed reinvested in additional Deferred Stock, other Awards or
other investment vehicles having a Fair Market Value equal to the
amount of such dividends, as the Committee shall determine or
permit a Participant to elect.
<PAGE>
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of obligations of the Company or a subsidiary or affiliate
to pay cash or deliver other property under the Plan or under other plans
or compensatory arrangements, subject to such terms as shall be
determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to
receive cash, Stock, other Awards, or other property equivalent to all or
a portion of the dividends paid with respect to a specified number of
shares of Stock. Dividend Equivalents may be awarded on a free-standing
basis or in connection with another Award. The Committee may provide that
Dividend Equivalents shall be paid or distributed when accrued or shall
be deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to restrictions on transferability,
risks of forfeiture and such other terms as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants
such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related
to, Stock or factors that may influence the value of Stock, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for
Stock, Awards with value and payment contingent upon performance of
the Company or business units thereof or any other factors designated
by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries or affiliates or other business units. The Committee
shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such
consideration, paid for at such times, by such methods, and in such
forms, including, without limitation, cash, Stock, other Awards,
notes, or other property, as the Committee shall determine. Cash
awards, as an element of or supplement to any other Award under the
Plan, may also be granted pursuant to this Section 6(h).
(i) Performance Awards. The Committee is authorized to grant
Performance Awards to Participants. Performance Awards may be denominated
as a number of shares of Stock, shares of Stock having a specified cash
value at a future date, or a number of other Awards (or a combination)
which may be earned upon achievement or satisfaction of performance
conditions specified by the Committee. In addition, the Committee may
specify that any other Award shall constitute a Performance Award by
conditioning the right of a Participant to exercise the Award or have it
settled, and the timing thereof, upon achievement or satisfaction of such
performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of
performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions.
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee,
be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted
under another plan of the Company, any subsidiary or affiliate, or any
business entity to be acquired by the Company or a subsidiary or
affiliate, or any other right of a Participant to receive payment from
the Company or any subsidiary or affiliate. Awards granted in addition
to or in tandem with other Awards or awards may be granted either as
of the same time as or a different time from the grant of such other
Awards or awards. Subject to Section 10(j), the Committee may
determine that, in granting a new Award, the in-the-money value or
other value of any surrendered Award or award may be applied to reduce
the exercise price of any Option, grant price of any SAR, or purchase
price of any other Award.
(b) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee.
(c) Form and Timing of Payment under Awards; Deferrals. Subject
to the terms of the Plan (including Section 10(j)) and any applicable
Award document, payments to be made by the Company or a subsidiary or
affiliate upon the exercise of an Option or other Award or settlement
of an Award may be made
<PAGE>
in such forms as the Committee shall determine, including, without
limitation, cash, Stock, other Awards or other property, and may be
made in a single payment or transfer, in installments, or on a
deferred basis. The settlement of any Award may be accelerated, and
cash paid in lieu of Stock in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more
specified events (subject to Section 10(j)). Installment or deferred
payments may be required by the Committee (subject to Section 10(e))
or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting
of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
(d) Loan Provisions. With the consent of the Committee, and
subject at all times to, and only to the extent, if any, permitted under
and in accordance with, laws and regulations and other binding
obligations or provisions applicable to the Company (including applicable
margin regulations), the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option
or other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes
due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or
loans hereunder and to determine the amount, terms, and provisions of any
such loan or loans, including the interest rate, if any, to be charged in
respect of any such loan or loans, whether the loan or loans are to be
with or without recourse against the borrower, the terms on which the
loan is to be repaid and conditions, if any, under which the loan or
loans may be forgiven.
8. CHANGE IN CONTROL.
(a) Effect of "Change in Control" on Non-Performance Based
Awards. In the event of a "Change in Control," the following
provisions shall apply to non-performance based Awards, including
Awards as to which performance conditions previously have been
satisfied or are deemed satisfied under Section 8(b), unless otherwise
provided by the Committee in the Award document:
(i) All deferral of settlement, forfeiture conditions and
other restrictions applicable to Awards granted under the Plan
shall lapse and such Awards shall be fully payable as of the time
of the Change in Control without regard to deferral and vesting
conditions, except to the extent of any waiver by the Participant
or other express election to defer beyond a Change in Control and
subject to applicable restrictions set forth in Section 10(a);
(ii) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable
and vested as of the time of the Change in Control and shall
remain exercisable and vested for the balance of the stated term
of such Award without regard to any termination of employment or
service by the Participant other than a termination for "cause"
(as defined in any employment or severance agreement between the
Company or a subsidiary or affiliate and the Participant then in
effect or, if none, as defined by the Committee and in effect at
the time of the Change in Control), subject only to applicable
restrictions set forth in Section 10(a); and
(iii) The Committee may, in its discretion, determine to
extend to any Participant who holds an Option the right to elect,
during the 60-day period immediately following the Change in
Control, in lieu of acquiring the shares of Stock covered by such
Option, to receive in cash the excess of the Change in Control
Price over the exercise price of such Option, multiplied by the
number of shares of Stock covered by such Option, and to extend to
any Participant who holds other types of Awards denominated in
shares the right to elect, during the 60-day period immediately
following the Change in Control, in lieu of receiving the shares
of Stock covered by such Award, to receive in cash the Change in
Control Price multiplied by the number of shares of Stock covered
by such Award.
(b) Effect of "Change in Control" on Performance-Based Awards.
In the event of a "Change in Control," with respect to an outstanding
Award subject to achievement of performance goals and conditions, such
performance goals and conditions shall be deemed to be met or exceeded
if and to the extent so
<PAGE>
provided by the Committee in the Award document governing such Award
or other agreement with the Participant.
(c) Definition of "Change in Control." A "Change in Control"
shall be deemed to have occurred if, after the Effective Date, there
shall have occurred any of the following:
(i) Any "person," as such term is used in Section 13(d) and 14(d) of the
Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), acquires voting securities of the Company and immediately
thereafter is a "40% Beneficial Owner." For purposes of this provision, a
"40% Beneficial Owner" shall mean a person who is the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 40% or more of the combined
voting power of the Company's then-outstanding voting securities; provided,
however, that the term "40% Beneficial Owner" shall not include any person
who was a beneficial owner of outstanding voting securities of the Company
at February 20, 1990, or any person or persons who was or becomes a
fiduciary of any such person or persons who is, or in the aggregate, are a
"40% Beneficial Owner" (an "Existing Shareholder"), including any group
that may be formed which is comprised solely of Existing Shareholders,
unless and until such time after February 20, 1990 as any such Existing
Shareholder shall have become the beneficial owner (other than by means of
a stock dividend, stock split, gift, inheritance or receipt or exercise of,
or accrual of any right to exercise, a stock option granted by the Company
or receipt or settlement of any other stock-related award granted by the
Company) by purchase of any additional voting securities of the Company;
and provided further, that the term "40% Beneficial Owner" shall not
include any person who shall become the beneficial owner of 40% or more of
the combined voting power of the Company's then-outstanding voting
securities solely as a result of an acquisition by the Company of its
voting securities, until such time thereafter as such person shall become
the beneficial owner (other than by means of a stock dividend or stock
split) of any additional voting securities and becomes a 40% Beneficial
Owner in accordance with this Section 8(c)(i);
(ii) Individuals who on September 1, 2000 constitute the Board, and any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened election consent, including but not
limited to a consent solicitation, relating to the election of directors of
the Company) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on
September 1, 2000 or whose election or nomination for election was
previously so approved or recommended, cease for any reason to constitute
at least a majority thereof;
(iii) There is consummated a merger, consolidation, recapitalization, or
reorganization of the Company, or a reverse stock split of any class of
voting securities of the Company, if, immediately following consummation of
any of the foregoing, either (A) individuals who, immediately prior to such
consummation, constitute the Board do not constitute at least a majority of
the members of the board of directors of the Company or the surviving or
parent entity, as the case may be, or (B) the voting securities of the
Company outstanding immediately prior to such recommendation do not
represent (either by remaining outstanding or by being converted into
voting securities of a surviving or parent entity) at least 60% or more of
the combined voting power of the outstanding voting securities of the
Company or such surviving or parent entity; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or there is consummated an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets (or any transaction have a similar effect).
(d) Definition of "Change in Control Price." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the
amount of cash and fair market value of property that is the highest
price
<PAGE>
per share paid (including extraordinary dividends) in any transaction
triggering the Change in Control or any liquidation of shares
following a sale of substantially all assets of the Company, or (ii)
the highest Fair Market Value per share at any time during the 60-day
period preceding and 60-day period following the Change in Control.
9. ADDITIONAL AWARD FORFEITURE PROVISIONS.
(a) Forfeiture of Options and Other Awards and Gains Realized
Upon Prior Option Exercises or Award Settlements. Unless otherwise
determined by the Committee, each Award granted hereunder shall be
subject to the following additional forfeiture conditions, to which
the Participant, by accepting an Award hereunder, agrees. If any of
the events specified in Section 9(b)(i), (ii), or (iii) occurs (a
"Forfeiture Event"), all of the following forfeitures will result:
(i) The unexercised portion of the Option, whether or not
vested, and any other Award not then settled (except for an Award
that has not been settled solely due to an elective deferral by
the Participant and otherwise is not forfeitable in the event of
any termination of service of the Participant) will be immediately
forfeited and canceled upon the occurrence of the Forfeiture
Event; and
(ii) The Participant will be obligated to repay to the
Company, in cash, within five business days after demand is made
therefor by the Company, the total amount of Award Gain (as
defined herein) realized by the Participant upon each exercise of
an Option or settlement of an Award (regardless of any elective
deferral) that occurred on or after (A) the date that is six
months prior to the occurrence of the Forfeiture Event, if the
Forfeiture Event occurred while the Participant was employed by
the Company or a subsidiary or affiliate, or (B) the date that is
six months prior to the date the Participant's employment by the
Company or a subsidiary or affiliate terminated, if the Forfeiture
Event occurred after the Participant ceased to be so employed. For
purposes of this Section, the term "Award Gain" shall mean (i), in
respect of a given Option exercise, the product of (X) the Fair
Market Value per share of Stock at the date of such exercise
(without regard to any subsequent change in the market price of
shares) minus the exercise price times (Y) the number of shares as
to which the Option was exercised at that date, and (ii), in
respect of any other settlement of an Award granted to the
Participant, the Fair Market Value of the cash or Stock paid or
payable to Participant (regardless of any elective deferral) less
any cash or the Fair Market Value of any Stock or property (other
than an Award or award which would have itself then been
forfeitable hereunder and excluding any payment of tax
withholding) paid by the Participant to the Company as a condition
of or in connection such settlement.
(b) Events Triggering Forfeiture. The forfeitures specified in
Section 9(a) will be triggered upon the occurrence of any one of the
following Forfeiture Events at any time during the Participant's
employment by the Company or a subsidiary or affiliate or during the
one-year period following termination of such employment:
(i) The Participant, acting alone or with others, directly
or indirectly, prior to a Change in Control, (A) engages, either
as employee, employer, consultant, advisor, or director, or as an
owner, investor, partner, or shareholder unless the Participant's
interest is insubstantial, in any business in an area or region in
which the Company conducts business at the date the event occurs,
which is directly in competition with a business then conducted by
the Company or a subsidiary or affiliate; (B) induces any customer
or supplier of the Company or a subsidiary or affiliate, or other
company with which the Company or a subsidiary or affiliate has a
business relationship, to curtail, cancel, not renew, or not
continue his or her or its business with the Company or any
subsidiary or affiliate; or (C) induces, or attempts to influence,
any employee of or service provider to the Company or a subsidiary
or affiliate to terminate such employment or service. The
Committee shall, in its discretion, determine which lines of
business the Company conducts on any particular date and which
third parties may reasonably be deemed to be in competition with
the Company. For purposes of this Section 9(b)(i), a Participant's
interest as a shareholder is insubstantial if it represents
beneficial ownership of less than five percent of the outstanding
class of stock, and a Participant's interest as an owner,
investor, or partner is insubstantial if it represents ownership,
as determined by the Committee in its discretion, of less than
five percent of the outstanding equity of the entity;
<PAGE>
(ii) The Participant discloses, uses, sells, or otherwise
transfers, except in the course of employment with or other
service to the Company or any subsidiary or affiliate, any
confidential or proprietary information of the Company or any
subsidiary or affiliate, including but not limited to information
regarding the Company's current and potential customers,
organization, employees, finances, and methods of operations and
investments, so long as such information has not otherwise been
disclosed to the public or is not otherwise in the public domain,
except as required by law or pursuant to legal process, or the
Participant makes statements or representations, or otherwise
communicates, directly or indirectly, in writing, orally, or
otherwise, or takes any other action which may, directly or
indirectly, disparage or be damaging to the Company or any of its
subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations, except
as required by law or pursuant to legal process; or
(iii) The Participant fails to cooperate with the Company or
any subsidiary or affiliate by making himself or herself available
to testify on behalf of the Company or such subsidiary or
affiliate in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, or otherwise fails to
assist the Company or any subsidiary or affiliate in any such
action, suit, or proceeding by providing information and meeting
and consulting with members of management of, other
representatives of, or counsel to, the Company or such subsidiary
or affiliate, as reasonably requested.
(c) Agreement Does Not Prohibit Competition or Other Participant
Activities. Although the conditions set forth in this Section 9 shall be
deemed to be incorporated into an Award, a Participant is not thereby
prohibited from engaging in any activity, including but not limited to
competition with the Company and its subsidiaries and affiliates. Rather,
the non-occurrence of the Forfeiture Events set forth in Section 9(b) is
a condition to the Participant's right to realize and retain value from
his or her compensatory Options and Awards, and the consequence under the
Plan if the Participant engages in an activity giving rise to any such
Forfeiture Event are the forfeitures specified herein. The Company and
the Participant shall not be precluded by this provision or otherwise
from entering into other agreements concerning the subject matter of
Section 9(a) and 9(b).
(d) Committee Discretion. The Committee may, in its discretion,
waive in whole or in part the Company's right to forfeiture under this
Section, but no such waiver shall be effective unless evidenced by a
writing signed by a duly authorized officer of the Company. In addition,
the Committee may impose additional conditions on Awards, by inclusion of
appropriate provisions in the document evidencing or governing any such
Award.
10. GENERAL PROVISIONS.
(a) Compliance with Legal and Other Requirements. The Company
may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Stock or payment of other
benefits under any Award until completion of such registration or
qualification of such Stock or other required action under any federal
or state law, rule or regulation, listing or other required action
with respect to any stock exchange or automated quotation system upon
which the Stock or other securities of the Company are listed or
quoted, or compliance with any other obligation of the Company, as the
Committee may consider appropriate, and may require any Participant to
make such representations, furnish such information and comply with or
be subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Stock or payment of other
benefits in compliance with applicable laws, rules, and regulations,
listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or
permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock
or payment of benefits under any Award or the imposition of any other
conditions on such issuance, delivery or payment, to the extent that
such postponement or other condition would represent a greater burden
on a Participant than existed on the 90th day preceding the Change in
Control.
<PAGE>
(b) Limits on Transferability; Beneficiaries. No Award or other
right or interest of a Participant under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation
or liability of such Participant to any party (other than the Company or
a subsidiary or affiliate thereof), or assigned or transferred by such
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant
or his or her guardian or legal representative, except that (i) Awards
and related rights shall be transferred to a Participant's Beneficiary or
Beneficiaries upon the death of the Participant, and (ii) Awards and
other rights may be transferred to one or more Beneficiaries during the
lifetime of the Participant, and rights thereunder may be exercised by
such transferees in accordance with the terms of such Award, but only if
and to the extent such transfers are then permitted by the Committee,
subject to any terms and conditions which the Committee may impose
thereon (including limitations the Committee may deem appropriate in
order that offers and sales under the Plan will meet applicable
requirements of registration forms under the Securities Act of 1933
specified by the Securities and Exchange Commission). A Beneficiary or
other person claiming any rights under the Plan from or through any
Participant shall be subject to all terms and conditions of the Plan and
any Award document applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and conditions
deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash
or property other than Stock), recapitalization, forward or reverse
split, Stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or
other similar corporate transaction or event affects the Stock such that
an adjustment is determined by the Committee to be appropriate under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may
be delivered in connection with Awards granted thereafter, including al
applicable limitations specified in Section 4(a), (ii) the number and
kind of shares of Stock subject to or deliverable in respect of
outstanding Awards, (iii) any fixed market price of Common Stock referred
to in a performance condition or otherwise incorporated as a term of an
Award, and (iv) the exercise price, grant price or purchase price
relating to any Award or, if deemed appropriate, the Committee may make
provision for a payment of cash or property to the holder of an
outstanding Option (subject to Section 10(j)). In addition, the Committee
is authorized to make adjustments in the terms and conditions of, and the
criteria included in, Awards (including Performance Awards and
performance goals relating thereto) in recognition of unusual or
nonrecurring events (including, without limitation, events described in
the preceding sentence, as well as acquisitions and dispositions of
businesses and assets) affecting the Company, any subsidiary or affiliate
or other business unit, or the financial statements of the Company or any
subsidiary or affiliate, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or affiliate or business unit
thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other
circumstances deemed relevant.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or
affiliate is authorized to withhold from any Award granted, any
payment relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving
an Award, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to
make cash payments in respect thereof in satisfaction of a
Participant's withholding obligations, either on a mandatory or
elective basis in the discretion of the Committee. Other
provisions of the Plan notwithstanding, only the minimum amount
of Stock deliverable in connection with an Award necessary to
satisfy statutory withholding requirements will be withheld.
(ii) Required Consent to and Notification of Code Section
83(b) Election. No election under Section 83(b) of the Code (to
include in gross income in the year of transfer the amounts
specified in Code Section 83(b)) or under a similar provision of
the laws of a jurisdiction outside the United States may be made
unless expressly permitted by the terms of the Award document or
by action of the Committee in writing prior to the making of such
election. In any case in which a Participant is
<PAGE>
permitted to make such an election in connection with an Award,
the Participant shall notify the Company of such election within
ten days of filing notice of the election with the Internal
Revenue Service or other governmental authority, in addition to
any filing and notification required pursuant to regulations
issued under Code Section 83(b) or other applicable provision.
(e) Changes to the Plan. The Board may amend, suspend or
terminate the Plan or the Committee's authority to grant Awards under
the Plan without the consent of shareholders or Participants;
provided, however, that, without the consent of an affected
Participant, no such Board action may materially and adversely affect
the rights of such Participant under any outstanding Award. The
Committee shall have no authority to waive or modify any other Award
term after the Award has been granted to the extent that the waived or
modified term was mandatory under the Plan.
(f) Right of Setoff. The Company or any subsidiary or affiliate
may, to the extent permitted by applicable law, deduct from and set off
against any amounts the Company or a subsidiary or affiliate may owe to
the Participant from time to time, including amounts payable in
connection with any Award, owed as wages, fringe benefits, or other
compensation owed to the Participant, such amounts as may be owed by the
Participant to the Company, including but not limited to amounts owed
under Section 9(a), although the Participant shall remain liable for any
part of the Participant's payment obligation not satisfied through such
deduction and setoff. By accepting any Award granted hereunder, the
Participant agrees to any deduction or setoff under this Section 10(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
or obligation to deliver Stock pursuant to an Award, nothing contained in
the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that
the Committee may authorize the creation of trusts and deposit therein
cash, Stock, other Awards or other property, or make other arrangements
to meet the Company's obligations under the Plan. Such trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan
by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of
the Board or a committee thereof to adopt such other incentive
arrangements, apart from the Plan, as it may deem desirable, and such
other arrangements may be either applicable generally or only in specific
cases.
(i) Payments in the Event of Forfeitures; Fractional Shares.
Unless otherwise determined by the Committee, in the event of a
forfeiture of an Award with respect to which a Participant paid cash
consideration, the Participant shall be repaid the amount of such cash
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Certain Limitations Relating to Accounting Treatment of
Awards. Other provisions of the Plan notwithstanding, the Committee's
authority under the Plan (including under Sections 7(c), 7(d), 10(c) and
10(d)) is limited to the extent necessary to ensure that any Option or
other Award of a type that the Committee has intended to be subject to
fixed accounting with a measurement date at the date of grant or the date
performance conditions are satisfied under APB 25 shall not become
subject to "variable" accounting solely due to the existence of such
authority, unless the Committee specifically determines that the Award
shall remain outstanding despite such "variable" accounting. In addition,
other provisions of the Plan notwithstanding, (i) if any right under this
Plan would cause a transaction to be ineligible for pooling-of-interests
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, such right shall be automatically adjusted so that
pooling-of-interests accounting shall be available, including by
substituting Stock or cash having a Fair Market Value equal to any cash
or Stock otherwise payable in respect of any right to cash which would
cause the transaction to be ineligible for pooling-of-interests
accounting, and (ii) if any authority under Section 8(c) would cause a
transaction to be ineligible for pooling-of-interests accounting that
would, but for such authority, be eligible for such accounting treatment,
such authority shall be limited to the extent necessary so that such
transaction would be eligible for pooling-of-interests accounting.
<PAGE>
(k) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan and any Award
document shall be determined in accordance with the laws of the State of
New York, without giving effect to principles of conflicts of laws, and
applicable provisions of federal law.
(l) Awards to Participants Outside the United States. The
Committee may modify the terms of any Award under the Plan made to or
held by a Participant who is then resident or primarily employed outside
of the United States in any manner deemed by the Committee to be
necessary or appropriate in order that such Award shall conform to laws,
regulations, and customs of the country in which the Participant is then
resident or primarily employed, or so that the value and other benefits
of the Award to the Participant, as affected by foreign tax laws and
other restrictions applicable as a result of the Participant's residence
or employment abroad shall be comparable to the value of such an Award to
a Participant who is resident or primarily employed in the United States.
An Award may be modified under this Section 10(l) in a manner that is
inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation.
(m) Limitation on Rights Conferred under Plan. Neither the Plan
nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible
Person or Participant or in the employ or service of the Company or a
subsidiary or affiliate, (ii) interfering in any way with the right of
the Company or a subsidiary or affiliate to terminate any Eligible
Person's or Participant's employment or service at any time, (iii) giving
an Eligible Person or Participant any claim to be granted any Award under
the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
shareholder of the Company unless and until the Participant is duly
issued or transferred shares of Stock in accordance with the terms of an
Award or an Option is duly exercised. Except as expressly provided in the
Plan and an Award document, neither the Plan nor any Award document shall
confer on any person other than the Company and the Participant any
rights or remedies thereunder.
(n) Severability; Entire Agreement. If any of the provisions of
this Plan or any Award document is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be
deemed modified to the extent, but only to the extent, of such
invalidity, illegality or unenforceability, and the remaining provisions
shall not be affected thereby; provided, that, if any of such provision
is finally held to be invalid, illegal, or unenforceable because it
exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be
modified to the minimum extent necessary to modify such scope in order to
make such provision enforceable hereunder. The Plan and any Award
documents contain the entire agreement of the parties with respect to the
subject matter thereof and supersede all prior agreements, promises,
covenants, arrangements, communications, representations and warranties
between them, whether written or oral with respect to the subject matter
thereof.
(o) Plan Effective Date and Termination. The Plan shall become
effective at November 14, 2000. Unless earlier terminated by action of
the Board of Directors, the Plan will remain in effect until such time as
no Stock remains available for delivery under the Plan and the Company
has no further rights or obligations under the Plan with respect to
outstanding Awards under the Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>file005.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
LIST OF SUBSIDIARIES OF INTERNATIONAL FLAVORS & FRAGRANCES INC.
Below is a list of the subsidiaries of the Company. Each subsidiary does
business under the name identified below. All of the voting stock of each
subsidiary is owned, either directly or indirectly, by the Company, except where
noted and except, in certain instances for directors' qualifying shares.
<TABLE>
<CAPTION>
<S> <C>
Name of Subsidary Place of Incorporation
International Flavors & Fragrances I.F.F. (Nederland) B.V. The Netherlands
Aromatics Holdings Limited Ireland
IFF-Benicarlo, S.A. Spain
International Flavours & Fragrances (China) Ltd. China
Irish Flavours and Fragrances Limited Ireland
International Flavours & Fragrances I.F.F. (Great Britain) Ltd. England
International Flavors & Fragrances I.F.F. (Italia) S.r.l. Italy
International Flavors & Fragrances I.F.F. (Deutschland) G.m.b.H. Germany
International Flavors & Fragrances I.F.F. (Switzerland) A.G. Switzerland
International Flavors & Fragrances I.F.F. (France) S.a.r.l. France
International Flavors & Fragrances (Hong Kong) Ltd. Hong Kong
International Flavors & Fragrances (Japan) Ltd. Japan
International Flavors & Fragrances S.A.C.I. Argentina
I.F.F. Essencias e Fragrancias Ltda. Brazil
International Flavours & Fragrances (Australia) Pty. Ltd. Australia
P.T. Essence Indonesia Indonesia
International Flavors & Fragrances (Mexico) S.A. de C.V. Mexico
IFF Mexico Manufactura, S.A. de C.V. Mexico
International Flavors & Fragrances I.F.F. (Espana) S.A. Spain
International Flavors & Fragrances (Poland) Sp.z.o.o. Poland
IFF Trading Company B.V. The Netherlands
International Flavors & Fragrances (Hangzhou) Co. Ltd (1) China
International Flavors & Fragrances I.F.F. (S.A.) (Pty) Ltd. South Africa
The PAKS Corporation New York
International Flavors & Fragrances I.F.F. (Canada) Ltd. Canada
IFF FSC Inc. U.S. Virgin Islands
Alva Insurance Ltd. Bermuda
van Ameringen-Haebler, Inc. New York
International Flavors & Fragrances (Caribe) Inc. Delaware
Sabores y Fragrancias S.A. Colombia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
IFF Sabores y Fragrancias de Chile Ltda. Chile
International Flavors & Fragrances I.F.F. (Sverige) A.B. Sweden
International Flavors & Fragrances I.F.F. (Norge) A.S. Norway
IFF Aroma Esans Sanay A.S. Turkey
International Flavors & Fragrances I.F.F. (Israel) Ltd. Israel
Misr Co. for Aromatic Products (MARP) S.A.E. Egypt
International Flavors & Fragrances I.F.F. (Portugal) Lds. Portugal
International Flavors & Fragrances (Zimbabwe) (Private) Ltd. Zimbabwe
International Flavours & Fragrances (Mauritius) Ltd. Mauritius
Speciality Fragrances (India) Private Limited India
International Flavors & Fragrances (Philippines) Inc. Philippines
International Flavors & Fragrances (Asia Pacific) Pte. Ltd. Singapore
International Flavours & Fragrances (Thailand) Ltd. Thailand
International Flavors & Fragrances (Korea) Inc. Korea
Laboratoire Monique Remy SAS France
International Flavors & Fragrances (Nederland) Holding B.V. The Netherlands
International Flavors & Fragrances Ardenne S.a.r.l. Luxembourg
International Flavors & Fragrances (Luxembourg) S.a.r.l. Luxembourg
International Flavors & Fragrances (Luxembourg) Holding S.a.r.l. Luxembourg
International Flavours & Fragrances (GB) Holdings Limited United Kingdom
IFF International Inc. New York
IFF Financial Services Ireland
International Flavors & Fragrances Global Holding S.a.r.l. Luxembourg
IFF Capital Services Ireland
IFF (Gibraltar) Limited Gibraltar
IFF Australia Holdings Pty Limited Australia
IFF Chemical Holdings Inc. Delaware
IFF (Gibraltar) Holdings Gibraltar
IFF Mexico Holdings LLC Delaware
IFF Latin American Holdings (Espana) SL Spain
IFF Augusta Limited England
Fragrance Ingredients Holdings Inc. Delaware
Bush Boake Allen Inc. Virginia
Bush Boake Allen (Chile) S.A. Chile
Bush Boake Allen Industria E Commercial do Brasil Limitada Brazil
Bush Boake Allen Controladora S.A. de C.V. Mexico
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Bush Boake Allen (Nominees) Limited England
Bush Boake Allen Holdings (U.K.) Limited England
Bush Boake Allen Pension Investments Limited England
Bush Boake Allen (Executive Pension Trustees) Limited England
Bush Boake Allen (Pension Trustees) Limited England
Bush Boake Allen (Works Pension Trustees) Limited England
Bush Boake Allen Limited England
W.J. Bush & Co., Inc. Delaware
GMB Proteins Limited England
Bush Boake Allen Australia Pty Ltd. Australia
Bush Boake Allen (Guangzhou) Co. Ltd. China
A. Boake, Roberts And Company (Holding), Limited England
Bush Boake Allen (New Zealand) Limited New Zealand
International Flavours & Fragrances (New Zealand) Limited New Zealand
International Flavors & Fragrances Singapore Pte. Ltd. Singapore
Bush Boake Allen (Malaysia) SDN. BHD. (Kuala Lumpur) Malaysia
Bush Boake Allen Denmark ApS. Denmark
Bush Boake Allen France France
Bush Boake Allen Zimbabwe (Private) Limited Zimbabwe
International Flavours & Fragrances (India) Limited (2) India
Hindustan Flavours and Fragrances (International) Limited (3) India
Bush Boake Allen (Jamaica) Limited (4) Jamaica
Bush Boake Allen (SA) (Proprietary) Limited South Africa
Bush Boake Allen (Thailand) Limited Thailand
Bush Boake Allen, Moscow, Ltd. Russia
Bush Boake Allen Benelux B.V. Netherlands
International Flavors & Fragrances I.F.F. (Norden) AB Sweden
Bush Boake Allen (C.R.) s.r.o. Czech Republic
Stafford Specialty Ingredients Limited England
Bush Boake Allen Pakistan (Private) Limited (5) Pakistan
Asian Investments, Inc. Delaware
Fragrance Holdings Private Limited India
Essence Scientific Research Private Limited India
Jamaica Extracts Limited (6) Jamaica
Bush Boake Allen Barbados Inc. Barbados
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Bush Boake Allen Enterprises Ltd. England
Bush Boake Allen Holdings I B.V. The Netherlands
Bush Boake Allen Holdings II B.V. The Netherlands
Celessence International Limited (7) England
</TABLE>
- ------------------------------------------------
(1) 90% of the voting stock of International Flavors & Fragrances (Hangzhou)
Co. Ltd., is owned, directly or indirectly, by the Company.
(2) 93.1% of the voting stock of International Flavours & Fragrances (India)
Limited is owned, directly or indirectly, by the Company.
(3) 93.1% of the voting stock of Hindustan Flavours and Fragrances
(International) Limited is owned, directly or indirectly, by the Company.
(4) 70% of the voting stock of Bush Boake Allen (Jamaica) Limited is owned,
directly or indirectly, by the Company.
(5) 50% of the voting stock of Bush Boake Allen Pakistan (Private) Limited is
owned, directly or indirectly, by the Company.
(6) 58% of the voting stock of Jamaica Extracts Limited is owned, directly or
indirectly, by the Company.
(7) 70% of the voting stock of Celessence International Limited is owned,
directly or indirectly, by the Company.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>file006.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-46932 and No. 333-59689) and Form S-8 (No.
333-102825, No. 333-61072, No. 333-51436, No. 333-50752 and No. 33-54423) of
International Flavors & Fragrances Inc. of our reports dated January 27, 2004
relating to the financial statements and financial statement schedule, which
appear in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
March 11, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>file007.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
EXHIBIT 31.1
------------
CERTIFICATION
I, Richard A. Goldstein, certify that:
1. I have reviewed this annual report on Form 10-K of International Flavors
& Fragrances Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation, of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: March 11, 2004 By: /s/ Richard A. Goldstein
------------------------------------
Name: Richard A. Goldstein
Title: Chairman of the Board and
Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>file008.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>
EXHIBIT 31.2
------------
CERTIFICATION
I, Douglas J. Wetmore, certify that:
1. I have reviewed this annual report on Form 10-K of International Flavors
& Fragrances Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation, of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: March 11, 2004 By: /s/ Douglas J. Wetmore
--------------------------------------
Name: Douglas J. Wetmore
Title: Senior Vice President and
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>10
<FILENAME>file009.txt
<DESCRIPTION>CERTIFICATIONS
<TEXT>
<PAGE>
EXHIBIT 32
----------
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of International Flavors &
Fragrances Inc. (the "Company") for the year ended December 31, 2003, as filed
with the Securities and Exchange Commission on the date hereof, (the "Report"),
each of the undersigned officers of the Company hereby certifies, pursuant to 18
U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the
Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: March 11, 2004
/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
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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