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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2003
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Commission file number 1-4858
-----------------------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
---------------------------------------
(Exact Name of Registrant as specified in its charter)
New York 13-1432060
- ---------------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
521 West 57th Street, New York, N.Y. 10019-2960
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No[ ]
Number of shares outstanding as of July 31, 2003: 94,196,470
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(Unaudited)
6/30/03 12/31/02
Assets --------- --------
- ------
Current Assets:
Cash & Cash Equivalents $ 15,426 $ 14,858
Short-term Investments 455 307
Trade Receivables 385,130 327,306
Allowance For Doubtful Accounts (14,574) (12,933)
Inventories: Raw Materials 229,122 222,161
Work in Process 15,272 12,680
Finished Goods 197,242 186,762
------------ ------------
Total Inventories 441,636 421,603
Deferred Income Taxes 66,160 67,176
Other Current Assets 87,955 48,432
------------ ------------
Total Current Assets 982,188 866,749
------------ ------------
Property, Plant & Equipment, At Cost 962,230 950,214
Accumulated Depreciation (471,197) (429,715)
------------ ------------
491,033 520,499
------------ ------------
Goodwill, net 642,655 642,655
Intangible Assets, net 133,732 140,048
Other Assets 71,435 62,743
------------ ------------
Total Assets $ 2,321,043 $ 2,232,694
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Bank Loans and Current Portion of Long-term Debt $ 67,406 $ 11,684
Commercial Paper 227,901 37,979
Accounts Payable-Trade 102,609 104,007
Dividends Payable 14,975 14,138
Income Taxes 47,859 38,496
Other Current Liabilities 147,531 153,193
------------ ------------
Total Current Liabilities 608,281 359,497
------------ ------------
Other Liabilities:
Long-term Debt 712,936 1,007,085
Deferred Gains 75,076 24,834
Retirement and Other Liabilities 271,526 266,600
------------ ------------
Total Other Liabilities 1,059,538 1,298,519
------------ ------------
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 104,869 109,735
Restricted Stock (4,963) (5,723)
Retained Earnings 1,436,877 1,382,539
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (89,262) (138,175)
Accumulated Gains on Derivatives
Qualifying as Hedges (net of tax) 1,392 733
Minimum Pension Liability Adjustment (75,038) (75,038)
------------ ------------
1,388,345 1,288,541
Treasury Stock, at cost - 22,168,536 shares in '03
and 21,507,668 in '02 (734,134) (712,876)
Note Receivable from Officer (987) (987)
------------ ------------
Total Shareholders' Equity 653,224 574,678
------------ ------------
Total Liabilities and Shareholders' Equity $ 2,321,043 $ 2,232,694
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
3 Months Ended 6/30
-----------------------------
2003 2002
---- ----
Net Sales $ 482,611 $ 476,336
---------- ----------
Cost of Goods Sold 275,235 272,612
Research and Development Expenses 38,897 35,022
Selling and Administrative Expenses 72,888 78,921
Amortization 3,158 3,158
Nonrecurring Charges 6,715 9,242
Interest Expense 7,957 9,294
Other (Income) Expense, Net 2,371 (807)
---------- ----------
407,221 407,442
---------- ----------
Income Before Taxes on Income 75,390 68,894
Taxes on Income 23,992 23,493
---------- ----------
Net Income 51,398 45,401
Other Comprehensive Income:
Foreign Currency Translation Adjustments 40,883 21,552
Accumulated Gain (Losses) on Derivatives
Qualifying as Hedges (net of tax) 1,480 (1,167)
---------- ----------
Comprehensive Income $ 93,761 $ 65,786
========== ==========
Net Income Per Share - Basic $0.55 $0.48
Net Income Per Share - Diluted $0.54 $0.47
Average Number of Shares Outstanding - Basic 93,782 94,572
Average Number of Shares Outstanding - Diluted 94,874 96,029
Dividends Declared Per Share $0.16 $0.15
6 Months Ended 6/30
-----------------------------
2003 2002
---- ----
Net Sales $ 948,835 $ 922,180
---------- ----------
Cost of Goods Sold 545,682 532,476
Research and Development Expenses 77,859 70,192
Selling and Administrative Expenses 149,003 154,307
Amortization 6,316 6,316
Nonrecurring Charges 27,104 9,242
Interest Expense 16,070 19,721
Other (Income) Expense, Net 4,897 (2,772)
---------- ----------
826,931 789,482
---------- ----------
Income Before Taxes on Income 121,904 132,698
Taxes on Income 38,489 45,350
---------- ----------
Net Income 83,415 87,348
Other Comprehensive Income:
Foreign Currency Translation Adjustments 48,913 11,594
Accumulated Gains on Derivatives
Qualifying as Hedges (net of tax) 659 3,229
---------- ----------
Comprehensive Income $ 132,987 $ 102,171
========== ==========
Net Income Per Share - Basic $0.89 $0.92
Net Income Per Share - Diluted $0.88 $0.91
Average Number of Shares Outstanding - Basic 93,970 94,553
Average Number of Shares Outstanding - Diluted 95,077 96,106
Dividends Declared Per Share $0.31 $0.30
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited)
6 Months Ended 6/30
-----------------------------------
2003 2002
---------- ----------
Cash Flows From Operating Activities:
- -------------------------------------
Net Income $ 83,415 $ 87,348
Adjustments to reconcile to net cash provided by operations:
Depreciation and amortization 43,018 42,398
Deferred income taxes (20,260) (8,247)
Changes in assets and liabilities:
Current receivables (35,189) (49,123)
Inventories 2,943 25,884
Current payables (9,647) (9,969)
Other, net (6,993) (2,031)
--------- ----------
Net cash provided by operations 57,287 86,260
--------- ----------
Cash Flows From Investing Activities:
- ------------------------------------
Proceeds from investments 33 32
Purchases of investments (161) (13)
Additions to property, plant and equipment (26,725) (41,623)
Proceeds from disposal of assets 96,895 56,724
--------- ----------
Net cash provided by investing activities 70,042 15,120
--------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Cash dividends paid to shareholders (28,240) (28,404)
Increase (decrease) in bank loans 1,533 (9,148)
Net change in commercial paper outstanding 189,922 (58,384)
Proceeds from long-term debt 33,686 1,896
Repayments of long-term debt (299,103) (4,697)
Proceeds from issuance of stock under stock option
and employee stock purchase plans 9,941 26,087
Purchase of treasury stock (35,868) (44,532)
--------- ----------
Net cash used in financing activities (128,129) (117,182)
--------- ----------
Effect of exchange rate changes on cash and cash equivalents 1,368 1,396
--------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 568 (14,406)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,858 48,521
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,426 $ 34,115
========= ==========
Interest Paid $ 25,092 $ 31,000
Income Taxes Paid $ 58,014 $ 42,944
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
These interim statements and management's related discussion and analysis should
be read in conjunction with the consolidated financial statements and their
related notes, and management's discussion and analysis of results of operations
and financial condition included in the Company's 2002 Annual Report on Form
10-K. These interim statements are unaudited. In the opinion of the Company's
management, all normal recurring adjustments necessary for a fair presentation
of the results for the interim periods have been made.
STOCK PLANS:
The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its stock plans. No compensation
expense for stock options is reflected in net earnings, as all options granted
under such plans have an exercise price not less than the market value of the
common stock on the date of grant. The following table illustrates the effect on
net income and net income per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123
for the period presented:
Three Months Ended June 30, Six Months Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net income, as reported $51,398 $45,401 $83,415 $87,348
- ------------------------------------------------------------------------------------------------------------------------------
Deduct: Total stock-based employee compensation expense
determined under fair value method for all stock option
awards, net of related tax effects 3,525 4,584 6,639 9,813
- ------------------------------------------------------------------------------------------------------------------------------
Pro-forma net income $47,873 $40,817 $76,776 $77,535
- ------------------------------------------------------------------------------------------------------------------------------
Net income per share:
- ------------------------------------------------------------------------------------------------------------------------------
Basic - as reported $ 0.55 $ 0.48 $0.89 $0.92
- ------------------------------------------------------------------------------------------------------------------------------
Basic - pro-forma $ 0.51 $ 0.43 $0.82 $0.82
- ------------------------------------------------------------------------------------------------------------------------------
Diluted - as reported $ 0.54 $ 0.47 $0.88 $0.91
- ------------------------------------------------------------------------------------------------------------------------------
Diluted - pro-forma $ 0.50 $ 0.43 $0.81 $0.81
- ------------------------------------------------------------------------------------------------------------------------------
These pro-forma amounts may not be representative of future disclosures because
the estimated fair value of stock options is amortized to expense over the
vesting period, and a different number of options may be granted in future
years.
SALE OF NEW YORK HEADQUARTERS:
In June 2003, the Company entered an agreement for the sale of its New York
corporate headquarters. Under the terms of the sale agreement, the Company sold
the land, building and associated improvements to an unrelated third party for
$91.0 million in cash. Concurrently, the Company entered into a long-term lease
with respect to the space it currently occupies (approximately 40% of the
building). The lease is classified as an operating lease in accordance with
Statement of Financial Accounting Standards No. 13, Accounting for Leases. The
gain realized on the sale, after transaction costs, of $52.7 million, has been
deferred and will be credited to income over the 27.5-year lease term. The lease
agreement provides for renewal options of up to 30 years. Payments under the
lease approximate $5.1 million annually for the first four years and increase to
$5.3 million annually in the fifth year. Total lease obligations for 2003 are
$2.7 million, for 2004 to 2007 are $5.1 million and for 2008 are $5.3 million
annually; the aggregate lease obligation is $170.7 million.
As a result of the above transactions, combined with the sale and leaseback of
the Company's Hazlet and South Brunswick, New Jersey facilities in 2002, the
Company has cumulative deferred gains on disposition of real estate properties
totaling $78.1 million and $26.0 million at June 30, 2003 and December 31, 2002,
respectively, which will be credited to income over the initial term of the
corresponding leases. At June 30, 2003 and December 31, 2002, $75.1 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.
5
NET INCOME PER SHARE:
Stock options to purchase 5,041,370 and 4,979,261 shares were outstanding for
the second quarter and the first six months of 2003, respectively, and 2,676,834
and 2,698,918 shares for the second quarter and first six months of 2002,
respectively, but were not included in the computation of diluted net income per
share for the respective periods because the options' exercise prices were
greater than the average market price of the common shares in the respective
periods.
SEGMENT INFORMATION:
The Company's reportable segment information, based on geographic region,
follows. The Company evaluates the performance of its geographic areas based on
operating profit, excluding interest expense, other income and expense, certain
unallocated expenses, the effects of nonrecurring items and accounting changes,
and income tax expense.
Three Months Ended June 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 151,918 $ 197,961 $11,653 $50,896 $70,183 $ -- $ 482,611
- ------------------------------------------------------------------------------------------------------------------------------------
Transfers between areas 18,216 40,431 58 347 5,057 (64,109) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 170,134 $ 238,392 $11,711 $51,243 $75,240 $ (64,109) $ 482,611
====================================================================================================================================
Segment profit $ 22,353 $ 54,909 $ 3,206 $ 8,124 $12,500 $ 688 $ 101,780
=======================================================================================================================
Corporate and other unallocated
expenses (9,347)
Nonrecurring charge (6,715)
Interest expense (7,957)
Other income (expense), net (2,371)
-------------
Income before taxes on income $ 75,390
====================================================================================================================================
Three Months Ended June 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 159,830 $ 180,861 $10,166 $57,365 $68,114 $ -- $ 476,336
- ------------------------------------------------------------------------------------------------------------------------------------
Transfers between areas 21,085 35,722 748 196 3,582 (61,333) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 180,915 $ 216,583 $10,914 $57,561 $71,696 $ (61,333) $ 476,336
====================================================================================================================================
Segment profit $ 23,091 $ 47,938 $ 2,814 $12,542 $13,122 $ 249 $ 99,756
=======================================================================================================================
Corporate and other unallocated
expenses (13,133)
Nonrecurring charge (9,242)
Interest expense (9,294)
Other income (expense), net 807
------------
Income before taxes on income $ 68,894
====================================================================================================================================
Six Months Ended June 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 292,612 $ 394,332 $22,019 $102,202 $137,670 $ -- $ 948,835
- ------------------------------------------------------------------------------------------------------------------------------------
Transfers between areas 39,531 80,508 306 546 10,061 (130,952) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 332,143 $ 474,840 $22,325 $102,748 $147,731 $(130,952) $ 948,835
====================================================================================================================================
Segment profit $ 36,459 $ 108,776 $ 5,645 $ 17,823 $ 24,062 $ (877) $ 191,888
=======================================================================================================================
Corporate and other unallocated
expenses (21,913)
Nonrecurring charge (27,104)
Interest expense (16,070)
Other income (expense), net (4,897)
-------------
Income before taxes on income $ 121,904
====================================================================================================================================
6
Six Months Ended June 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
North India Latin Asia
(Dollars in thousands) America Europe Region America Pacific Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 308,439 $ 346,858 $18,887 $ 114,605 $ 133,391 $ -- $ 922,180
- ------------------------------------------------------------------------------------------------------------------------------------
Transfers between areas 42,278 63,134 797 356 7,023 (113,588) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total sales $ 350,717 $ 409,992 $19,684 $ 114,961 $ 140,414 $(113,588) $ 922,180
====================================================================================================================================
Segment profit $ 38,311 $ 86,572 $ 4,691 $ 26,398 $ 28,152 $ (151) $ 183,973
=======================================================================================================================
Corporate and other unallocated
expenses (25,084)
Nonrecurring charge (9,242)
Interest expense (19,721)
Other income (expense), net 2,772
-------------
Income before taxes on income $ 132,698
====================================================================================================================================
NONRECURRING AND OTHER CHARGES:
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 2002 Annual Report on Form 10-K, in October 2000,
the Company announced a significant reorganization, including management
changes, consolidation of production facilities and related actions.
The Company recorded nonrecurring pre-tax charges of $6.7 million ($4.4 million
after tax) and $27.1 million ($17.9 million after tax) in the three-month and
six-month periods ended June 30, 2003, respectively; essentially all elements of
these charges relate to employee terminations. The Company eliminated in excess
of 40 and 190 positions during the three-month and six-month periods ended June
30, 2003, respectively, principally in its North American and European operating
regions. The pre-tax nonrecurring charges recorded for the second quarter 2003
relate to operations in North America including corporate ($2.4 million), Europe
($3.6 million), Latin America ($0.1 million) and Asia Pacific ($0.6 million).
The pre-tax nonrecurring charges recorded for the six month period ended June
30, 2003 relate to operations in North America including corporate ($15.2
million), Europe ($8.5 million), Latin America ($0.4 million) and Asia Pacific
($3.0 million).
At the time the reorganization was announced, the Company expected to incur
approximately $90 million to $100 million in related pre-tax costs; certain
actions remain to be taken during the course of 2003, and the Company
anticipates that total expected pre-tax costs will now approximate $110 million.
The increase in anticipated costs is due to a combination of additional actions
now contemplated under the reorganization, and the impact of the weaker US
dollar to the extent such actions take place outside the United States. To date,
the Company has recorded approximately $101 million of the expected pre-tax
charges.
Movements in the liabilities related to the nonrecurring charges were as follows
(in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
----------------------------------------------
Balance December 31, 2002 $ 3.4 $ .4 $ 3.8
Additional charges 25.8 1.3 27.1
Cash and other costs (8.7) - (8.7)
------ ------ ------
Balance June 30, 2003 $ 20.5 $ 1.7 $ 22.2
====== ====== ======
The balance of the employee-related liabilities will be utilized by 2006 as
severance and other benefit obligations to affected employees are satisfied; the
asset-related charges will be utilized by 2004 on decommissioning and disposal
of the affected equipment.
The Company has established accruals relating primarily to employee separation
costs, facility closure costs and other actions relating to the integration of
certain Bush Boake Allen (BBA) operations into the Company. Costs associated
with these integration actions were recognized as a component of the purchase
accounting which resulted in an adjustment to goodwill; such costs did not
directly impact current earnings.
Movements in acquisition accounting accruals were as follows (in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
------------------------------------------
Balance December 31, 2002 $ 6.0 $ 1.1 $ 7.1
Cash and other costs (2.3) (1.1) (3.4)
----- ----- -----
Balance June 30, 2003 $ 3.7 $ -- $ 3.7
===== ===== =====
The balance of the accruals is expected to be utilized in 2003 as severance
obligations to affected employees are satisfied.
COMPREHENSIVE INCOME:
Changes in the accumulated other comprehensive income component of shareholders'
equity were as follows:
- ------------------------------------------------------------------------------------------------------------------------
Accumulated gains on Minimum Pension
2003 (Dollars in thousands) Translation derivatives Obligation, net of
adjustments qualifying as hedges tax Total
---------------------------------------------------------------------------------------
Balance December 31, 2002 $(138,175) $ 733 $(75,038) $(212,480)
Change 48,913 659 - 49,572
---------------------------------------------------------------------------------------
Balance June 30, 2003 $( 89,262) $ 1,392 $(75,038) $(162,908)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Accumulated gains Minimum Pension
2002 (Dollars in thousands) Translation (losses) on derivatives Obligation, net of
adjustments qualifying as hedges tax Total
---------------------------------------------------------------------------------------
Balance December 31, 2001 $(156,266) $(2,261) $(20,009) $(178,536)
Change 11,594 3,229 - 14,823
---------------------------------------------------------------------------------------
Balance June 30, 2002 $(144,672) $ 968 $(20,009) $(163,713)
- ------------------------------------------------------------------------------------------------------------------------
BORROWINGS:
Debt consists of the following (Dollars in thousands):
Rate Maturities June 30, 2003 December 31, 2002
---- ---------- ------------- -----------------
Commercial paper (U.S.) $ 227,901 $ 37,979
Bank loans 16,166 10,979
Current portion of long-term debt 51,240 705
------------------------------------
Total current debt 295,307 49,663
------------------------------------
U.S. dollars 6.45% 2006 498,543 699,112
Euro facility 2.55% 2005-06 18,088 106,018
Japanese Yen notes 2.45% 2008-11 128,986 126,824
Japanese Yen notes 1.74% 2005 9,672 10,012
Other 2004-12 13,348 1,587
------------------------------------
668,637 943,553
Deferred realized gain on interest rate swaps 42,763 57,868
FAS 133 Adjustment 1,536 5,664
------------------------------------
Total long-term debt 712,936 1,007,085
------------------------------------
Total debt $1,008,243 $1,056,748
====================================
8
At June 30, 2003, commercial paper maturities did not extend beyond July 23,
2003. At June 30, 2003, the weighted average interest rate on total borrowings
was 3.2% compared to 3.3% at December 31, 2002.
During the first quarter, the Company repurchased $149 million of its 6.45%
Notes that were to mature in 2006. In April 2003, the Company repurchased an
additional $51 million of the Notes. All repurchases were funded with commercial
paper. As a result of premiums paid for the Notes repurchased during the second
quarter and six-month period ended June 30, 2003, the Company incurred pre-tax
losses, included in Other (Income) Expense, of $1.5 million and $4.2 million,
respectively.
The Company amended its interest rate swaps on three occasions during 2003. The
first amendment reduced the notional amount of the swaps from $700 million to
$500 million in anticipation of the Company's debt repurchase initiative. The
second amendment reduced the notional value of the swaps to $350 million.
Thirdly, in May 2003, the Company eliminated all remaining swaps related to the
Notes. On elimination of the floating rate swaps, the interest rate on the 6.45%
coupon rate Notes was effectively fixed for the balance of their term at
approximately 3.5%.
INTANGIBLE ASSETS, NET:
The following tables reflect the carrying values for Intangible assets and
Accumulated amortization at December 31, 2002 and June 30, 2003.
June 30, 2003 June 30, 2003
(Dollars in thousands) Gross Carrying Value Accumulated Amortization
-------------------- ------------------------
Goodwill $ 684,189 $ 41,534
Other indefinite lived intangibles 19,200 1,184
Trademarks and other 149,786 34,070
--------- --------
Total $ 853,175 $ 76,788
========= ========
December 31, 2002 December 31, 2002
(Dollars in thousands) Gross Carrying Value Accumulated Amortization
-------------------- ------------------------
Goodwill $ 684,189 $ 41,534
Other indefinite lived intangibles 19,200 1,184
Trademarks and other 149,786 27,754
--------- --------
Total $ 853,175 $ 70,472
========= ========
Estimated amortization expense will be $3.2 million per quarter for 2003 to
2006. Estimated amortization expense will be $3.2 million for the first three
quarters of 2007, $1.8 million in the fourth quarter of 2007, and $1.1 million
per quarter in 2008.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year's financial
statements to conform to fiscal 2003 classifications.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
- ----------
Worldwide net sales for the second quarter of 2003 totaled $482.6 million,
increasing 1.3% in comparison to the prior year quarter. Sales for the second
quarter 2002 included $4.3 million attributable to non-core flavors businesses
in North America that the Company disposed of during 2002; excluding such sales
from the 2002 results, second quarter 2003 sales increased 2.2% in comparison to
the prior year. Reported sales for the 2003 quarter benefited from the
strengthening of various currencies, most notably the Euro, the Japanese Yen and
the Australian dollar, in relation to the U.S. dollar; had exchange rates
remained constant, sales for the second quarter 2003 would have declined
approximately 5% in comparison to the prior year quarter, excluding sales
attributable to the non-core businesses from the 2002 results.
Sales for the second quarter reflected continued weak customer order activity,
most significantly in Europe and North America, and to a lesser extent in Latin
America and parts of Asia Pacific. Sales for the second quarter 2003 reflected
the following:
o North America flavor and fragrance sales each declined by 6% reflecting
weak economic conditions and ongoing customer efforts to reduce inventory
levels. Functional fragrance and chemical sales declined approximately 8%.
Fine fragrance sales, reflecting the benefit of several new wins, were
essentially flat with the prior year quarter despite the difficult economic
environment. Excluding the $4.3 million of sales attributable to the
non-core flavors businesses disposed of from the 2002 comparatives, flavor
sales declined 1% in the 2003 second quarter and total sales for the region
declined 4%.
o Local currency flavor sales in Europe decreased 3%, resulting in a 16%
increase in reported dollar sales. Fragrance sales declined 11% in local
currency, resulting in an 8% increase in reported dollar sales. Overall,
the region's sales declined 8% in local currency terms and increased 11% in
dollars. The local currency performance reflected the persistent economic
weakness in much of the European region, most notably in France, Germany,
Switzerland and the U.K., where sales performance was weakest in comparison
to the 2002 second quarter.
o Local currency sales in Asia Pacific declined 3%, resulting in a 3%
increase in reported dollar sales. Local currency fragrance sales were flat
in comparison to the prior year quarter, resulting in a 5% increase in
reported dollars. Local currency flavor sales declined 5%, resulting in a
1% increase in reported dollars. Australia and the Philippines accounted
for the sales decline in the quarter, more than offsetting mid-to-high
single digit sales growth in the other major countries in the region.
o Latin America sales declined 10%, mainly due to persistent weakness in
Brazil, Mexico, Venezuela and Colombia. Fragrance sales in the region
declined 13%. Flavor sales increased 3%, benefiting from a 21% increase in
Brazil; the strong gain in Brazil was partially offset by declines in
Mexico, Venezuela and Colombia.
o India sales increased 2% in local currency and 7% in reported dollars. This
performance was led by a 12% local currency increase in flavor sales; this
increase was partially offset by a decline of 6% in fragrance sales for the
quarter.
Sales for the six-month period ending June 30, 2003 totaled $948.8 million,
increasing 2.9% in comparison to the prior year period. Sales for the 2002
six-month period included $9.4 million attributable to non-core flavors
businesses in North America that the Company disposed of during 2002; excluding
such sales from the 2002 results, sales for the six-month period ended June 30,
2003 increased 3.9% in comparison to the prior year period. Reported sales for
the 2003 period benefited from the strengthening of various currencies, most
notably the Euro, the Japanese Yen and the Australian dollar, in relation to the
U.S. dollar; had exchange rates remained constant, sales for the first six
months in 2003 would have declined approximately 4% in comparison to the prior
year period, excluding sales attributable to the non-core businesses from the
2002 results.
10
Sales for the six month period reflected the following:
o North America flavor and fragrance sales declined by 8% and 6%,
respectively; in total the region declined by 7%, reflecting weak economic
conditions and ongoing customer efforts to reduce inventory levels.
Functional fragrance and chemical sales declined 9%. Fine fragrance sales,
reflecting the benefit of several new wins, were essentially flat with the
prior year period. Excluding the $9.4 million of sales attributable to the
non-core flavors businesses disposed of from the 2002 comparatives, flavor
sales declined 2% in the 2003 six month period and total sales for the
region declined 5%.
o Local currency flavor sales in Europe were flat in comparison to the prior
year period, resulting in a 19% increase in reported dollar sales.
Fragrance sales declined 7% in local currency, resulting in a 13% increase
in reported dollar sales. Overall, the region's sales declined 4% in local
currency terms and increased 15% in dollars. The local currency performance
reflected the persistent economic weakness in much of the European region.
o Local currency sales in Asia Pacific declined 2%, resulting in a 3%
increase in reported dollar sales. Local currency fragrance sales increased
3% in comparison to the prior year period, resulting in an 8% increase in
reported dollars. Local currency flavor sales declined 5% and were flat in
reported dollars. Sales performance for the six-month period was weakest in
Japan, the Philippines and Australia.
o Latin America sales declined 8%, mainly due to persistent economic weakness
throughout the entire region. Fragrance sales declined 9%, while flavor
sales decreased 3%.
o India sales increased 9% in local currency and 13% in reported dollars.
This performance was led by a 14% local currency increase in flavor sales
with fragrances increasing by 5% in comparison to the prior year comparable
period.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the second quarter 2003 and 2002 are detailed below.
SECOND QUARTER
---------------
2003 2002
---- ----
Cost of Goods Sold 57.0% 57.2%
Research and Development Expenses 8.1% 7.4%
Selling and Administrative Expenses 15.1% 16.6%
Cost of goods sold, as a percentage of net sales, decreased from the prior year
primarily due to a combination of favorable sales mix and the benefit of
operations closed in the second half of 2002; such closures related to the
integration of IFF and BBA manufacturing facilities.
Research and development expenses were somewhat higher due to increased
activities in this area. Research and Development expenses are expected to
approximate 8% of sales on a full year basis. Selling and administrative
expenses declined as a percentage of sales primarily as a result of
reorganization activities.
Other (Income) Expense in the quarter amounted to expense of $2.4 million
primarily due to the $1.5 million loss on the repurchase of $51 million of the
6.45% Notes. Other (Income) Expense was $(0.8) million of income in the second
quarter of 2002, primarily due to exchange gains in Argentina; there were no
significant exchange gains or losses in the second quarter 2003.
Interest expense declined from 2002 due to reduced borrowing levels, the general
decline in interest rates and the continuing benefits of the US dollar and Yen
interest rate swaps the Company has entered into. The average interest on
borrowings during the second quarter 2003 was 3.2% compared to 3.3% in the 2002
second quarter.
11
The effective tax rate for the second quarter of 2003 was 31.8% compared to
34.1% for the comparable 2002 quarter. The 2003 effective rate reflects the
benefit of the nonrecurring charges taken in the quarter; many of these charges
were taken in high tax jurisdictions, including the United States. Excluding the
tax benefit of the nonrecurring charges, the effective tax rate for the quarter
would have been 32%.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first six months 2003 and 2002 are detailed below.
FIRST SIX MONTHS
----------------
2003 2002
---- ----
Cost of Goods Sold 57.5% 57.7%
Research and Development Expenses 8.2% 7.6%
Selling and Administrative Expenses 15.7% 16.7%
Cost of goods sold, as a percentage of net sales, decreased from the prior year
primarily due to a combination of favorable sales mix and the benefit of
operations closed in the second half of 2002; such closures related to the
integration of IFF and BBA manufacturing facilities.
Research and development expenses were somewhat higher due to increased
activities in this area. Research and Development expenses are expected to
approximate 8% of sales on a full year basis. Selling and administrative
expenses declined as a percentage of sales primarily as a result of
reorganization activities.
Other (Income) Expense for the first six months amounted to expense of $4.9
million primarily due to the $4.2 million loss on the repurchase of $200 million
of the 6.45% Notes. Other (Income) Expense totaled $(2.8) million of income for
the first six months of 2002, primarily related to exchange gains in Argentina;
in 2003 there were no similar exchange gains.
Interest expense declined from 2002 due to reduced borrowing levels, the general
decline in interest rates and the continuing benefits of the US dollar and Yen
interest rate swaps the Company has entered into. The average interest on
borrowings during the first six months of 2003 was 3.3% compared to 3.5% in the
comparable 2002 period.
The effective tax rate for the first six months of 2003 was 31.6% compared to
34.2% for the comparable first six months of 2002. The 2003 effective rate
reflects the benefit of the nonrecurring charges taken in the first six months;
many of these charges were taken in high tax jurisdictions, including the United
States. Excluding the tax benefit of the nonrecurring charges, the effective tax
rate for the first six months of 2003 would have been 32%.
NONRECURRING AND OTHER CHARGES
- ------------------------------
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 2002 Annual Report on Form 10-K, in October 2000,
the Company announced a significant reorganization, including management
changes, consolidation of production facilities and related actions.
The Company recorded nonrecurring pre-tax charges of $6.7 million ($4.4 million
after tax) and $27.1 million ($17.9 million after tax) in the three-month and
six-month periods ended June 30, 2003, respectively; essentially all elements of
these charges relate to employee terminations. The Company eliminated in excess
of 40 and 190 positions during the three-month and six-month periods ended June
30, 2003, respectively, principally in its North American and European operating
regions. The pre-tax nonrecurring charges recorded for the second quarter 2003
relate to operations in North America including corporate ($2.4 million), Europe
($3.6 million), Latin America ($0.1 million) and Asia Pacific ($0.6 million).
The pre-tax nonrecurring charges recorded for the six month period ended June
30, 2003 relate to operations in North America including corporate ($15.2
million), Europe ($8.5 million), Latin America ($0.4 million) and Asia Pacific
($3.0 million).
12
At the time the reorganization was announced, the Company expected to incur
approximately $90 million to $100 million in related pre-tax costs; certain
actions remain to be taken during the course of 2003, and the Company
anticipates that total expected pre-tax costs will now approximate $110 million.
The increase in anticipated costs is due to a combination of additional actions
now contemplated under the reorganization, and the impact of the weaker US
dollar to the extent such actions take place outside the United States. To date,
the Company has recorded approximately $101 million of the expected pre-tax
charges. On completion, the reorganization is expected to yield annual savings
approximating $25 million to $30 million. A portion of these savings is to be
reinvested in the business, although a substantial portion is expected to
contribute to improving earnings.
Movements in the liabilities related to the nonrecurring charges were as follows
(in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
-----------------------------------------------
Balance December 31, 2002 $ 3.4 $ .4 $ 3.8
Additional charges 25.8 1.3 27.1
Cash and other costs (8.7) - (8.7)
------ ------- ------
Balance June 30, 2003 $ 20.5 $ 1.7 $ 22.2
====== ======= ======
The balance of the employee-related liabilities will be utilized by 2006 as
severance and other benefit obligations to affected employees are satisfied; the
asset-related charges will be utilized by 2004 on decommissioning and disposal
of the affected equipment.
The Company has established accruals relating primarily to employee separation
costs, facility closure costs and other actions relating to the integration of
certain BBA operations into the Company. Costs associated with these integration
actions were recognized as a component of the purchase accounting which resulted
in an adjustment to goodwill; such costs did not directly impact current
earnings.
Movements in acquisition accounting accruals were as follows (in millions):
EMPLOYEE- ASSET-RELATED
RELATED AND OTHER TOTAL
-----------------------------------------------
Balance December 31, 2002 $ 6.0 $ 1.1 $ 7.1
Cash and other costs (2.3) (1.1) (3.4)
------ ------- ------
Balance June 30, 2003 $ 3.7 $ -- $ 3.7
====== ======== -=====
The balance of the accruals is expected to be utilized in 2003 as severance
obligations to affected employees are satisfied.
FINANCIAL CONDITION
- -------------------
Cash, cash equivalents and short-term investments totaled $15.9 million at June
30, 2003. Working capital, at June 30, 2003 was $373.9 million compared to
$507.3 million at December 31, 2002. The change in working capital is a direct
result of the repurchase of a portion of the Company's 6.45% five year Notes
which was financed with commercial paper; this transaction is discussed in more
detail below. Gross additions to property, plant and equipment during the second
quarter and first six months of 2003 were $15.4 million and $26.7 million,
respectively.
At June 30, 2003, the Company's outstanding commercial paper had an average
interest rate of 1.3%. Commercial paper maturities did not extend beyond July
23, 2003. Bank loans and current portion of long-term debt is $67.4 million at
June 30, 2003, which includes $50 million in Europe borrowed under the Company's
long term facility.
13
The Company amended its interest rate swaps on three occasions during 2003. The
first amendment reduced the notional amount of the swaps from $700 million to
$500 million in anticipation of the Company's debt repurchase initiative. The
second amendment reduced the notional value of the swaps to $350 million.
Thirdly, in May 2003, the Company eliminated all remaining swaps related to the
Notes. On elimination of the floating rate swaps, the interest rate on the 6.45%
coupon rate Notes was effectively fixed for the balance of their term at
approximately 3.5%.
At December 31, 2002, the Company had $1,057 million of debt outstanding,
including deferred gains on interest swap transactions approximating $58
million; debt included $700 million of 6.45% long-term Notes maturing in May
2006. During the first quarter 2003, the Company repurchased $149 million of the
Notes; in the second quarter 2003, the Company repurchased an additional $51
million 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. The Company expects, based on
current commercial paper borrowing rates, to save approximately $4.0 million
annually in interest expense as a benefit of replacing the Notes with commercial
paper; interest expense savings in 2003 is expected to approximate $3.0 million.
As a result of premiums paid for the Notes repurchased during the second quarter
and six-month period ended June 30, 2003, the Company incurred pre-tax losses,
included in Other (Income) Expense, of $1.5 million and $4.2 million,
respectively. The Company does not anticipate additional repurchases of Notes
this year.
In January and April 2003, the Company paid a quarterly cash dividend of $.15
per share to shareholders. This amount is unchanged from the 2002 quarterly
dividend. The Company announced an increase in the dividend to $.16 per share
effective with the dividend paid in July 2003. The increased payout, on an
annualized basis, represents approximately 30% of current year forecast earnings
per share and is consistent with the Company's long-term plan to pay dividends
approximating 30-35% of yearly earnings. The Company repurchased approximately
0.5 million shares in the second quarter and approximately 1.1 million shares
for the first six months of 2003. Repurchases will be made from time to time on
the open market or through private transactions as market and business
conditions warrant. The repurchased shares will be available for use in
connection with the Company's employee benefit plans and for other general
corporate purposes. At June 30, 2003, the Company had $61.6 million remaining
under its authorized October 2002 repurchase plan.
The Company anticipates that its financing requirements will be funded from
internal sources and credit facilities currently in place. Cash flows from
operations are sufficient to fund the Company's anticipated capital spending,
dividends and other requirements including debt reduction.
SALE OF NEW YORK HEADQUARTERS
- -----------------------------
In June 2003, the Company entered an agreement for the sale of its New York
corporate headquarters. Under the terms of the sale agreement, the Company sold
the land, building and associated improvements to an unrelated third party for
$91.0 million in cash. Concurrently, the Company entered into a long-term lease
with respect to the space it currently occupies (approximately 40% of the
building). The lease is classified as an operating lease in accordance with
Statement of Financial Accounting Standards No. 13, Accounting for Leases. The
gain realized on the sale, after transaction costs, of $52.7 million, has been
deferred and will be credited to income over the 27.5-year lease term. The lease
agreement provides for renewal options of up to 30 years. Payments under the
lease approximate $5.1 million annually for the first four years and increase to
$5.3 million annually in the fifth year. Total lease obligations for 2003 are
$2.7 million, for 2004 to 2007 are $5.1 million and for 2008 are $5.3 million
annually; the aggregate lease obligation is $170.7 million.
As a result of the above transactions, combined with the sale and leaseback of
the Company's Hazlet and South Brunswick, New Jersey facilities in 2002, the
Company has cumulative deferred gains on disposition of real estate properties
totaling $78.1 million and $26.0 million at June 30, 2003 and December 31, 2002,
respectively, which will be credited to income over the initial term of the
corresponding leases. At June 30, 2003 and December 31, 2002, $75.1 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.
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, the
impact of certain charges 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 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, the impact of exchange rate
fluctuations and the impact such specifically identified charges have on results
and financial condition.
14
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- -------------------------------------------------------------------------------
Statements in this quarterly report, which are not historical facts or
information, are "forward-looking statements" within the meaning of The Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on management's reasonable current assumptions and expectations. Such
forward-looking statements 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
There are no material changes in market risk from the information provided in
the Company's Form 10-K for the year ended December 31, 2002 filed with the
Securities and Exchange Commission.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
The Company's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective.
The Company's Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Company's internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
15
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
The shareholders of the Company voted on one item at the Annual Meeting
of Shareholders held on May 14, 2003: the election of eight directors.
At the Annual Meeting, at which 83,094,992 shares, or 88.29%, of the
Company's Common Stock, were represented in person or by proxy, the eight
nominees for director were duly elected to the Company's Board of Directors.
There was no solicitation of proxies in opposition to these nominees. Votes were
cast for election of directors as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Margaret Hayes Adame 79,515,485 3,579,507
Gunter Blobel 79,814,988 3,280,004
J. Michael Cook 79,509,101 3,585,891
Peter A. Georgescu 79,821,333 3,273,659
Richard A. Goldstein 81,082,048 2,012,944
Alexandra A. Herzan 82,122,420 972,572
Arthur C. Martinez 79,507,123 3,587,869
William D. Van Dyke, III 62,441,284 20,653,708
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
10(a) Amendment to Retirement Agreement dated as of March 31, 2003
between Julian W. Boyden, former Executive Vice President of
the Company, and the Company.
10(b) Separation Agreement dated as of March 31, 2003 between Robert
J. Gordon, Former Vice President, Global Account Sales, of the
Company, and the Company.
31.1 Certification of Richard A. Goldstein, Chairman of the Board
and Chief Executive Officer of the Company, Pursuant to
Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer of the Company, Pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002,
signed by Richard A. Goldstein, Chairman of the Board and
Chief Executive Officer of the Company, and Douglas J.
Wetmore, Senior Vice President and Chief Financial Officer of
the Company.
(b) Reports on Form 8-K
-------------------
The Company filed or furnished the following Reports on Form
8-K since the beginning of the quarter for which this report
on Form 10-Q is filed:
o Report on Form 8-K dated April 3, 2003 furnishing under
Items 9 and 12 a copy of a Company press release dated
April 3, 2003 regarding the Company's reorganization
plan and sales and earnings outlook for the first
quarter of 2003.
16
o Report on Form 8-K dated April 28, 2003 furnishing
under Items 9 and 12 a copy of a Company press release
dated April 28, 2003 regarding the Company's financial
results for the first quarter of 2003.
o Report on Form 8-K dated May 14, 2003 furnishing under
Item 9 a copy of a Company press release dated May 14,
2003 announcing an increase in the Company's quarterly
cash dividend.
o Report on Form 8-K dated April 2, 2003 filed with the
Securities and Exchange Commission on June 2, 2003
relating to pending litigation.
o Report on Form 8-K dated July 7, 2003 furnishing under
Items 9 and 12 a copy of a Company press release dated
July 7, 2003 reporting certain information regarding
the Company's sales and earnings outlook for the second
quarter of 2003.
o Report on Form 8-K dated July 24, 2003 furnishing under
Items 9 and 12 a copy of a Company press release dated
July 24, 2003 regarding the Company's financial results
for the second quarter and six months ended June 30,
2003.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: August 12, 2003 By: /S/ DOUGLAS J. WETMORE
------------------------
Douglas J. Wetmore, Senior Vice President
and Chief Financial Officer
Dated: August 12, 2003 By: /S/ STEPHEN A. BLOCK
----------------------
Stephen A. Block, Senior Vice President,
General Counsel and Secretary
18
EXHIBIT INDEX
Number Description
- ------ ------------
10(a) Amendment to Retirement Agreement dated as of March 31, 2003
between Julian W. Boyden, former Executive Vice President of
the Company, and the Company.
10(b) Separation Agreement dated as of March 31, 2003 between Robert
J. Gordon, Former Vice President, Global Account Sales, of the
Company, and the Company.
31.1 Certification of Richard A. Goldstein, Chairman of the Board
and Chief Executive Officer of the Company, Pursuant to
Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Douglas J. Wetmore, Senior Vice President and
Chief Financial Officer of the Company, Pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002,
signed by Richard A. Goldstein, Chairman of the Board and
Chief Executive Officer of the Company, and Douglas J.
Wetmore, Senior Vice President and Chief Financial Officer of
the Company.