NEW YORK--(BUSINESS WIRE)-- International Flavors & Fragrances Inc. (NYSE: IFF), a leading global creator of flavors and fragrances for the consumer staples and products industry, today announced results for the fourth quarter and full year 2008. Earnings per share (EPS) on a reported basis were $.62 in the 2008 fourth quarter versus $.58 in the prior year quarter. For the full year, reported earnings per share were $2.87, compared to $2.82 in 2007.

Excluding items affecting comparability, fourth quarter adjusted EPS (“Adjusted EPS”) were $.50 in 2008 versus $0.53 in the fourth quarter 2007. The 2008 fourth quarter reported EPS includes a $.22 benefit related to prior years’ tax settlements and a $.10 restructuring charge pertaining to a performance improvement plan initiated during the quarter. The 2007 fourth quarter reported EPS included a $.05 gain on an asset sale.

On a comparable basis, excluding items from both periods, 2008 full year Adjusted EPS of $2.76 represents a 4% improvement over the prior year Adjusted EPS of $2.66. Full year 2008 Adjusted EPS excludes restructuring charges, employee separation costs, implementation costs related to our global shared service center, an insurance recovery and benefits from prior years’ tax settlements. Adjusted EPS for the year 2007 excludes a pension curtailment loss, gains on asset sales and benefits from prior years’ tax settlements. The reconciliation of adjusted items including Adjusted EPS for the fourth quarter and full year is set forth in the table included in this release.

“I am generally pleased with our 2008 financial performance, especially in light of the challenging economic and market conditions we faced this year," said Robert M. Amen, Chairman and Chief Executive Officer. “Our Flavors business continues to outperform our competition and is well-positioned for future growth. Our Fragrances business improved its performance in the fourth quarter but ended the year slightly below 2007 results. Excellent progress was made in some areas of the Fragrances business, especially in Greater Asia and Fragrance Ingredients, but we have additional opportunities to improve.”

Mr. Amen continued, “Margin pressure increased through most of 2008 as a result of higher input costs and weaker sales mix. In the fourth quarter, we were able to largely mitigate these factors and reduce the year-over-year gap in operating margins through internal improvements and cost recovery initiatives. Importantly, we made good progress against many of our strategic initiatives. I remain cautiously optimistic about 2009.”

FOURTH QUARTER 2008

Sales in local currency increased 2% versus the comparable period in 2007, whereas reported sales of $539 million were down 3% due to the strengthening U.S. dollar. Net income in 2008 was $49 million compared to $47 million in 2007. The 2008 results include $17 million of tax benefits related to prior years’ tax settlements and an $8 million after-tax restructuring charge related to the performance improvement plan. The 2007 results include a $4 million after-tax gain on the sale of assets. Excluding these items, adjusted net income decreased $3 million to $40 million in 2008. The decline is mainly attributable to interest expense ($3 million) and unfavorable exchange rate impacts, partially offset by margin improvement efforts.

Flavors Business Unit

Local currency sales were up 3% in the 2008 quarter, driven by growth in Greater Asia and North America. Sales in Latin America were flat, reflecting a significant weakening of these currencies as well as lower volumes. Reported sales worldwide declined 1%, reflecting the stronger U.S. dollar. Operating profit declined by $9 million to $32 million in 2008. The decline reflects unfavorable exchange rate impacts, rising input costs and allocated expenses (including incentive compensation expense), offset in part by higher volumes and pricing. Additionally, the results include $3 million of restructuring costs associated with the performance improvement plan.

Fragrances Business Unit

Fragrance sales in local currency were flat versus the comparable period last year. Lower Fine and Beauty Care sales in Europe were offset by strong growth in Greater Asia and 2% growth in the Fragrance Ingredients business. Reported sales were down 4% as a result of a stronger U.S. dollar. Operating profit was $41 million, an increase of $4 million versus the comparable period last year. Lower incentive compensation expense ($10 million), and pricing and margin improvement efforts more than offset the effect of unfavorable exchange rates, higher input costs and a less favorable sales mix. The 2008 period also included $2 million of restructuring costs associated with the performance improvement plan.

Sales performance by region and product category follows:

Fourth Quarter 2008 Highlights

• Gross profit, as a percentage of sales, was 39.8% compared with 40.7% in the prior year quarter, a marked improvement from the year-over-year comparison in the second and third quarters.
• Research and Development expense decreased approximately 3% to $52 million, largely due to a stronger U.S. dollar. As a percentage of sales, it remained flat versus 2007 at 9.7%.
• Selling and Administrative expense, as a percentage of sales, decreased slightly to 17.5% versus 17.8% in 2007. The improvement reflects lower incentive compensation expense ($6 million) and cost containment efforts offset by planned increases to support growth.
• We initiated a performance improvement plan that will affect approximately 90 positions globally that resulted in a $12 million restructuring charge for severance.
• Other income, net in 2008, decreased $5 million from the prior year quarter, mainly due to a gain on asset sales in 2007.
• Interest expense totaled $19 million, increasing $3 million compared to the 2007 quarter, primarily due to the cost of a U.S. LIBOR-EURIBOR interest rate swap.
• The effective tax rate was a 26.4% benefit compared to a 26.2% expense in 2007. Excluding $20 million of benefits in 2008, mainly related to tax settlements, the current quarter effective tax rate would have been 25.3% compared to 25.7% in 2007 excluding the gain on asset sales ($6 million pre-tax, $4 million after-tax).

FULL YEAR 2008

Reported sales totaled $2,389 million, up 5% from 2007; Flavor and Fragrance sales increased 9% and 2%, respectively. 2008 sales benefited from the weaker U.S. dollar for most of the year. At comparable exchange rates, sales would have increased 2% over the prior year. Net Income was $230 million versus $247 million in 2007. The change is mainly attributable to $32 million of higher interest expense in 2008, partially offset by higher volume and favorable currency impacts.

Flavors Business Unit

Flavors delivered reported sales growth in all regions—most notably in Latin America and Greater Asia. We had good results across most categories, with beverages and confectionary the strongest. For the year, sales in local currency increased 6% driven by new wins, strong volume gains in the emerging markets and price increases. Reported sales increased 9% to $1.1 billion. Operating profit increased $11 million to $198 million despite higher input costs, investments in strategic initiatives and restructuring charges.

Fragrances Business Unit

Total Fragrance sales in local currency declined approximately 1% for the year. This reflects good growth in Greater Asia, Latin America and in Ingredients that were offset by lower volumes in Fine & Beauty Care, most notably in North America, during the first half of the year. On a reported basis, sales increased 2% aided by foreign exchange impacts. Operating profit declined $11 million to $199 million principally related to lower volume, higher input costs, unfavorable sales mix and restructuring charges.

Sales performance by region and product category follows:

Full Year 2008 Highlights

• Gross profit, as a percentage of sales, was 40.6% compared with 41.8% in 2007. The decline was mainly due to higher input costs and sales mix that was partially offset by volume growth in Flavors, price recovery across both business units and favorable exchange rate impacts.
• Research and Development expense, as a percentage of sales, was 8.9%, up slightly from the prior year.
• Selling and Administrative expense, as a percentage of sales, was 16.0% in 2008 compared to 16.5% in 2007. The year 2008 includes $3 million of expense for employee separation and the Global Shared Service implementation, as well as an insurance recovery. Excluding these items, Selling and Administrative expense would have been 15.8% of sales. The decrease reflects lower incentive compensation expense ($22 million) partially offset by investments to support growth in emerging markets.
• Other income, net in 2008, decreased $8 million from 2007, mainly due to asset sales in 2007.
• Interest expense totaled $74 million compared to $42 million during the year 2007. The increase reflects borrowings incurred during the third quarter of 2007 as well as the impact of higher costs on U.S. LIBOR-EURIBOR interest rate swaps, principally during the second half of 2008.
• The effective tax rate was 18.1 % compared to a rate of 24.8 % in the prior year. Both 2008 and 2007 included benefits principally related to tax settlements of $26 million and $10 million, respectively. Excluding these benefits, the 2008 effective tax rate would have been 27.3 % compared to a rate of 27.9 % for 2007. The lower effective tax rate for the current year was the result of a greater share of consolidated pre-tax earnings in lower tax jurisdictions.
• $178 million cash on-hand, significant drawdown capacity available on our multi-year credit facility as of December 31, 2008.

About IFF

International Flavors & Fragrances Inc. (NYSE: IFF), is a leading global creator of flavors and fragrances used in a wide variety of consumer products and packaged goods. Consumers experience these unique scents and tastes in fine fragrances and beauty care, detergents and household goods, as well as beverages, confectionery and food products. The Company leverages its competitive advantages of brand understanding and consumer insight combined with its focus on R&D and innovation, to provide customers with differentiated product offerings. A member of the S&P 500 Index, IFF has sales, manufacturing and creative facilities in 31 countries worldwide. For more information, please visit our Web site at www.iff.com.

Individuals interested in receiving future updates on IFF via e-mail can register at http://ir.iff.biz.

Audio Web Cast

An audio Web cast, to discuss the Company's fourth quarter and full year 2008 financial results and outlook, will be held today at 9:00 a.m. ET. Interested parties can access the Web cast and accompanying slide presentation on the Company's Web site at www.iff.com, under the Investor Relations section. For those unable to listen to the live broadcast, a replay will be available on the Company's Web site approximately one hour after the event and will remain available on the IFF Web site until February 19, 2009.

Cautionary Statement Under The Private Securities Litigation Reform Act of 1995

Statements in this quarterly release, 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 current assumptions, estimates and expectations. Certain of such forward-looking information may be identified by such terms as “expect”, “anticipate”, “believe”, “outlook”, “guidance”, “may” and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest and other savings, earnings and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements involve significant risks, uncertainties and other factors. Actual results of the Company may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions in the Company’s markets, especially given the current disruption in global economic conditions, including economic and recessionary pressures; energy and commodity prices; decline in consumer confidence and spending; significant fluctuations in the value of the U.S. dollar; population health and political uncertainties, and the difficulty in projecting the short and long-term effects of global economic conditions; rising interest rates; continued volatility and deterioration of the capital and credit markets, including continued disruption in the commercial paper market, and any adverse impact on our cost of and access to capital and credit; fluctuations in the price, quality and availability of raw materials; the Company’s ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation in the Company’s principal foreign markets, especially given the current disruptions to such currency markets, and the impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; the outcome of uncertainties related to litigation; 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 U.S. and foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.

Any public statements or disclosures by IFF following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.

Certain other factors which may impact our financial results or which may cause actual results to differ from such forward-looking statements are also discussed in the Company’s periodic reports files with the Securities and Exchange Commission and available on the IFF Web site at www.iff.com under “Investor Relations”. You are urged to carefully consider all such factors.

This supplemental schedule provides adjusted non-GAAP financial information and a quantitative reconciliation of the difference between the non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP

These non-GAAP financial measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company believes that it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period to period comparative basis, the relative impact of employee separation costs, restructuring charges, insurance recovery, Global Shared Service implementation costs, gains on asset disposals, benefit of tax settlements, and a pension curtailment charges. The adjusted information is intended to be more indicative of the Company’s core operating results.

Source: International Flavors & Fragrances Inc.

International Flavors & Fragrances Inc.
Investor:
Richard O'Leary, 212-708-7291
Interim CFO
or
Media:
Joseph Faranda, 212-515-7959
VP, Marketing & Communications