424B5
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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-209889

 

This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS SUPPLEMENT, DATED SEPTEMBER 20, 2018

PROSPECTUS SUPPLEMENT

(to Prospectus dated August 6, 2018)

 

€                

 

 

LOGO

INTERNATIONAL FLAVORS & FRAGRANCES INC.

€                 % Senior Notes due 20    

€                 % Senior Notes due 20    

 

 

We are offering €             aggregate principal amount of     % Senior Notes due 20     (the “20     notes”) and €             aggregate principal amount of     % Senior Notes due 20     (the “20     notes” and, together with the 20     notes, the “notes”). The 20     notes will bear interest at a rate of     % per annum and will mature on                 , 20    . The 20     notes will bear interest at a rate of     % per annum and will mature on                 , 20    . Interest on the notes will accrue from                 , 2018, and will be payable annually in cash in arrears on                of each year, beginning on                 , 2019.

We may, at our option, redeem the notes in whole or in part at any time or from time to time prior to maturity at the redemption price described in the section “Description of the Notes—Optional Redemption” in this prospectus supplement. In addition, we may redeem all, but not part, of the notes in the event of certain changes in tax laws of the United States and other jurisdictions. Upon an occurrence of a “Change of Control Triggering Event” (as defined herein), we will be required to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest to, but not including, the date of repurchase.

On May 7, 2018, International Flavors & Fragrances Inc. (“IFF”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Frutarom Industries Ltd., a company organized under the laws of the State of Israel (“Frutarom”), and Icon Newco Ltd., a company organized under the laws of the State of Israel and a wholly owned subsidiary of IFF (“Merger Sub”). Pursuant to the Merger Agreement, subject to the satisfaction or waiver of specified conditions, and in accordance with the Companies Law 5759-1999 of the State of Israel (together with the rules and regulations thereunder, the “ICL”), Merger Sub will merge with and into Frutarom (the “Merger”), with Frutarom continuing as the surviving company in the Merger and a wholly owned subsidiary of IFF.

This notes offering is not contingent on the completion of the Merger or any additional financing. However, if the closing of the Merger has not occurred on or prior to February 7, 2019, or, if prior to such date, the Merger Agreement is terminated, we will be required to redeem all of the notes on the Special Mandatory Redemption Date (as defined herein) at a redemption price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest to, but not including, the Special Mandatory Redemption Date. See “Description of the Notes—Special Mandatory Redemption.”

The notes are our direct, unsecured and unsubordinated obligations and will rank equally with all of our other unsecured and unsubordinated indebtedness from time to time outstanding.

Currently there is no public market for the notes. We intend to apply to list the notes on the New York Stock Exchange (the “NYSE”). The listing application will be subject to approval by the NYSE. If such listing is obtained, we have no obligation to maintain such listing, and we may delist the notes at any time. We expect trading in the notes on the NYSE to begin within 30 days after the initial issuance of the notes.

 

 

Investing in the notes involves significant risks. See “Risk Factors” in this prospectus supplement and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, including our Annual Report on Form 10-K for the year ended December 31, 2017.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per 20    
    Note    
    Total for 20    
    Notes    
     Per 20    
    Note    
    Total for 20    
    Notes    
 

Public offering price(1)

                                                                     

Underwriting discount

                                                

Proceeds, before expenses, to International Flavors & Fragrances Inc.

                                   

 

(1)

Plus accrued interest, if any, from                , 2018, if settlement occurs after that date.

We expect that delivery of the notes will be made to investors in book-entry form through a common depository for Clearstream Banking, société anonyme, and Euroclear Bank, S.A./N.V., against payment on or about                 , 2018.

 

 

Joint Book-Running Managers

 

Morgan Stanley   BNP PARIBAS   Citigroup   J.P. Morgan

The date of this prospectus supplement is                 , 2018.


Table of Contents
TABLE OF CONTENTS       
Prospectus Supplement    Page  

SUMMARY

     S-1  

SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF IFF

     S-9  

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FRUTAROM

     S-11  

RISK FACTORS

     S-12  

CURRENCY CONVERSION

     S-25  

FORWARD-LOOKING STATEMENTS

     S-26  

USE OF PROCEEDS

     S-28  

CAPITALIZATION

     S-29  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     S-31  

DESCRIPTION OF THE NOTES

     S-52  

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

     S-65  

CERTAIN EUROPEAN UNION TAX CONSIDERATIONS

     S-68  

UNDERWRITING

     S-69  

LEGAL MATTERS

     S-74  

EXPERTS

     S-74  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     S-75  

FRUTAROM INDUSTRIES LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

Prospectus    Page  

ABOUT THIS PROSPECTUS

     1  

THE COMPANY

     2  

RISK FACTORS

     3  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     4  

USE OF PROCEEDS

     6  

RATIO OF EARNINGS TO FIXED CHARGES

     7  

DESCRIPTION OF COMMON STOCK

     8  

DESCRIPTION OF DEBT SECURITIES

     10  

DESCRIPTION OF PURCHASE CONTRACTS

     19  

DESCRIPTION OF UNITS

     20  

PLAN OF DISTRIBUTION

     21  

LEGAL MATTERS

     23  

EXPERTS

     23  

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

     23  

 

 

Unless we have indicated, or the context otherwise requires, references in this prospectus supplement to “IFF,” “the Company,” “we,” “us,” “our,” or similar terms are to International Flavors & Fragrances Inc. and its subsidiaries.

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

We are providing information to you about this offering in two parts. The first part is this prospectus supplement, which provides the specific details regarding this offering. The second part is the accompanying prospectus, which provides general information. Generally, when we refer to this “prospectus,” we are referring to both documents combined. This prospectus supplement may add, update or change information contained in or incorporated by reference in the accompanying prospectus. Some of the information contained in or incorporated by reference in the accompanying prospectus may not apply to this offering. If the information in this prospectus supplement or the information incorporated by reference in this prospectus supplement is inconsistent with information contained in or incorporated by reference in the accompanying prospectus, you should rely on the information in this prospectus supplement or the information incorporated by reference in this prospectus supplement.

We are responsible for the information contained and incorporated by reference in this prospectus supplement, the accompanying prospectus and in any free writing prospectus with respect to this offering filed by us with the Securities and Exchange Commission (the “SEC”). We have not, and the underwriters have not, authorized anyone to give you any other information, and we take no responsibility for any other information that others may give you. This prospectus supplement, the accompanying prospectus and any such free writing prospectus may be used only for the purposes for which they have been prepared. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus supplement, the accompanying prospectus, any free writing prospectus and the documents incorporated by reference herein and therein is accurate as of any date other than their respective dates. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.

References in this prospectus supplement and the accompanying prospectus to “$” and “U.S. dollars” are to the currency of the United States. References to “€” and “euros” in this prospectus supplement and the accompanying prospectus are to the currency of the member states of the European Monetary Union that have adopted or that adopt the single currency in accordance with the treaty establishing the European Community, as amended by the Treaty on European Union.

Unless we specifically state otherwise, the information in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, does not give effect to the Merger.

The notes are being offered for sale only in jurisdictions where it is lawful to make such offers. The distribution of this prospectus supplement and the accompanying prospectus and the offering of the notes in certain jurisdictions may be restricted by law. Persons outside the United States who receive this prospectus supplement and the accompanying prospectus should inform themselves about and observe any such restrictions. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. See “Underwriting” in this prospectus supplement.

IN CONNECTION WITH THIS OFFERING, MORGAN STANLEY & CO. INTERNATIONAL PLC (THE “STABILIZING MANAGER”) (OR ANY PERSON ACTING ON BEHALF OF ANY STABILIZING MANAGER) MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. THIS STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. HOWEVER, STABILIZATION MAY NOT NECESSARILY OCCUR. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY CEASE AT ANY TIME, BUT

 

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IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILIZATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILIZING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILIZING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.

MiFID II Product Governance / Professional Investors and ECPS Only Target Market

Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the notes has led to the conclusion that: (i) the target market for the notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, “MiFID II”); and (ii) all channels for distribution of the notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the notes (a “distributor”) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.

Notice to Prospective Investors in the European Economic Area

The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the “Insurance Mediation Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”). Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. This prospectus supplement and the accompanying prospectus have been prepared on the basis that any offer of notes in any Member State of the EEA will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of notes. This prospectus supplement and the accompanying prospectus are not a prospectus for the purposes of the Prospectus Directive.

Notice to Prospective Investors in the United Kingdom

In addition, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at: (i) in the United Kingdom, persons having professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or persons falling within Article 49(2)(a) to (d) of the Order; (ii) persons who are outside the United Kingdom; and (iii) any other persons to whom it may otherwise lawfully be distributed (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to, and will be engaged in only with, relevant persons.

 

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SUMMARY

This summary is not complete and does not contain all of the information that may be important to you. You should read the entire prospectus supplement and accompanying prospectus carefully, including the section entitled “Risk Factors,” as well as the documents incorporated by reference, before making an investment decision.

The Company

We are a leading innovator of sensory experiences that move the world. We co-create unique products that consumers taste, smell, or feel in fine fragrances and beauty, detergents and household goods, and food and beverages. Our approximately 7,300 team members globally take advantage of our capabilities in consumer insights, research and product development (“R&D”), creative expertise and customer intimacy to partner with our customers in developing innovative and differentiated offerings for consumer products. We believe that our collaborative approach will generate market share gains for our customers.

Our international presence positions us to serve both our global customers and the increasing number of regional and high-end and middle-market specialty consumer goods producers. We operate thirty-seven manufacturing facilities and sixty-nine creative centers and application laboratories located in thirty-seven different countries. We partner with our customers to develop over 46,000 products that are provided to customers in approximately 162 countries.

We principally compete in the flavors and fragrances market, which is part of a larger market that supplies a wide variety of ingredients and compounds used in consumer products. The broader market includes large multi-national companies and smaller regional and local participants that supply products such as seasonings, texturizers, spices, enzymes, certain food-related commodities, fortified products and cosmetic ingredients. The global market for flavors and fragrances has expanded consistently, primarily as a result of an increase in demand for, and an increase in the variety of, consumer products containing flavors and fragrances. Management estimates that in 2017 the flavors and fragrances market was approximately $24.8 billion, and forecasted to grow approximately 2-3% by 2021, primarily driven by expected growth in emerging markets.

In 2017, we achieved sales of approximately $3.4 billion, making us one of the top four companies in the global flavors and fragrances sub-segment of the broader consumer products ingredients and compounds market. We believe that our global presence, diversified business platform, broad product portfolio and global and regional customer base position us to achieve long-term growth as the flavors and fragrances markets expand.

We operate in two business segments, Flavors and Fragrances. In 2017, our Flavors business represented 48% of our sales, while our Fragrances business represented 52% of sales. Our business is geographically diverse, with sales to customers in the four regions set forth below:

 

Region

   % of 2017 Sales  

Europe, Africa, Middle East

     31

Greater Asia

     27

North America

     27

Latin America

     15

We are committed to winning in emerging markets. We believe that more significant future growth potential for the flavors and fragrances industry, and for our business, exists in the emerging markets (all markets except North America, Japan, Australia, and Western, Southern and Northern Europe). Over the past five years our currency neutral sales growth rate in emerging markets has outpaced that of developed markets. We expect this long-term trend to continue for the foreseeable future.



 

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We have operated in some of the largest emerging markets for multiple decades. As a result of these established operations, sales in emerging markets represented 48% of 2017 sales and 51% of 2016 sales. As our customers seek to grow their businesses in emerging markets, we provide them the ability to leverage our long-standing international presence and extensive market knowledge to help drive their brands in these markets. To stay competitive in our industry, we must adapt to rapidly shifting consumer preferences and customer demands. We believe our consumer insights and customer relationships help to drive innovation that benefits us and our customers. During 2017, our 25 largest customers accounted for 50% of our sales. Sales to our largest customer across all end-use categories accounted for 11% to 12% of our sales for each of the last three fiscal years. These sales were principally in our Fragrances business.

Our Strategic Priorities

We are focused on generating sustainable profitable growth in our business and positioning our portfolio for long-term growth. We have continued to execute against the four pillars of our Vision 2020 strategy originally announced in 2015 and refreshed in 2017, which focuses on building differentiation and accelerating growth to create shareholder value:

 

(1)

Innovating Firsts—We seek to strengthen our position by driving differentiation in priority R&D platforms across both businesses. In 2017, we launched three captive fragrance molecules and three new flavor modulators. We achieved continued growth of our sweetness and savory modulation portfolio sales and encapsulated-related sales. We also launched Re-Imagine, a program to accelerate flavor innovation and increase agility to capture unmet opportunities in the changing food and beverage market.

 

(2)

Winning Where We Compete—Our goal is to achieve a #1 or #2 market leadership position in key markets and categories and with specific customers. In 2017, we grew our sales in both our Flavors and Fragrances businesses in North America and the Middle East and Africa geographic area we targeted for growth. We also created Tastepoint by IFF, designed to leverage our expertise in and to service the middle-market customer in North America, and opened an expanded facility in Cairo, Egypt to support our regional focus on growth in the Middle East and Africa.

 

(3)

Becoming Our Customers’ Partner of Choice—Our goal is to attain commercial excellence by providing our customers with in-depth, local consumer understanding, industry-leading innovation, outstanding service and the highest quality products. In 2017, we introduced IFF Taste Design, a combination of artisanal, handcrafted techniques and proprietary technologies that drive consumer preference and market differentiation. In addition, we were rated gold by EcoVadis for sustainability, received an “A” rating and were awarded leadership status for our climate change and an “A-” for water management strategy by CDP.

 

(4)

Strengthening and Expanding the Portfolio—We actively pursue value-creation through partnerships, collaborations, and acquisitions within flavors, fragrances and adjacencies. We prioritize opportunities that provide (i) access to new technologies, (ii) the ability to increase our market share in key markets and with key customers or (iii) access to adjacent products or services that will position us to leverage our expertise in science and technology and our customer base. During 2017, we acquired Fragrance Resources to further improve our market position with regional customers in specialty fine fragrances, and PowderPure to further expand product offerings of clean label flavors solutions. We also became the first sensorial innovator of flavors, fragrances and cosmetic actives to join the MIT Media Lab, a leader in research and technologies that transform the everyday for consumers around the world.

General

Our principal executive offices are located at 521 West 57th Street, New York, New York 10019. Our telephone number at that location is (212) 765-5500. Our home page on the internet is www.iff.com. Other than



 

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the information expressly set forth or incorporated by reference, the information contained, or referred to, on our website is not part of this prospectus supplement or the accompanying prospectus.

Recent Developments

Acquisition of Frutarom

On May 7, 2018, IFF entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Frutarom Industries Ltd., a company organized under the laws of the State of Israel (“Frutarom”), and Icon Newco Ltd., a company organized under the laws of the State of Israel and a wholly owned subsidiary of IFF (“Merger Sub”). Frutarom, through its subsidiaries, develops, produces and markets flavors and fine ingredients used in manufacturing food, beverages, flavors and fragrances, pharma/nutraceuticals, cosmetics and personal care products.

We believe that the acquisition of Frutarom will provide us with several strategic and financial benefits, including:

 

   

Differentiated Portfolio with Enhanced Capabilities: In addition to IFF’s and Frutarom’s complementary flavor capabilities, we expect that Frutarom’s portfolio will provide opportunities to expand into attractive and fast-growing categories, such as natural colors, enzymes, antioxidants and health ingredients. We believe that the combined company’s increased breadth of products will provide complementary offerings and expanded choices to its customers.

 

   

Complementary and Growing Customer Base: We expect that Frutarom’s customer base will provide IFF with increased exposure to fast-growing small- and mid-sized customers, including private label manufacturers.

 

   

Synergy Potential: IFF and Frutarom expect to realize approximately $145 million of run-rate cost synergies by the third full year after the completion of the merger, with approximately 25% of such synergies expected to be achieved in the first full year. We believe that cross-selling opportunities and integrated solutions will provide revenue synergies, creating further value to shareholders over time.

Pursuant to the Merger Agreement, subject to the satisfaction or waiver of specified conditions, and in accordance with the ICL, Merger Sub will merge with and into Frutarom, with Frutarom continuing as the surviving company in the Merger and a wholly owned subsidiary of IFF. We refer in this prospectus supplement to our acquisition of Frutarom pursuant to the Merger Agreement as the “Merger.” Under the terms of the Merger Agreement, for each share of outstanding stock of Frutarom, Frutarom shareholders will receive $71.19 in cash and 0.2490 of a share of IFF’s common stock, or an aggregate of approximately $4,238.8 million and 14.8 million shares based on the number of Frutarom’s outstanding ordinary shares and share-based awards as of May 7, 2018, the date of the Merger Agreement.

Consummation of the Merger is subject to customary closing conditions. The shareholders of Frutarom approved the Merger on August 6, 2018, and we have obtained regulatory clearance under antitrust laws for the Merger. The completion of the Merger is not subject to the approval of IFF shareholders or the receipt of financing by IFF. As of the date of this prospectus supplement, the completion of the Merger remains subject to the following closing conditions: (i) receipt of all governmental and stock exchange approvals necessary for the issuance and listing of shares of IFF common stock as contemplated by the Merger Agreement, (ii) the absence of any order, or the enactment of any law, prohibiting the Merger; (iii) subject to certain exceptions, the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations



 

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under the Merger Agreement; and (iv) the absence of any material adverse effect on Frutarom or the Company since the date of the Merger Agreement. The Merger Agreement also contains certain termination rights for IFF and Frutarom.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the full text of such agreement. The Merger Agreement is an exhibit to the registration statement to which this prospectus supplement relates.

Merger Financing

IFF anticipates that approximately $4.3 billion will be required to pay the aggregate cash portion of the Merger consideration to the Frutarom shareholders and to pay fees and expenses relating to the Merger.

In addition to the proceeds from this notes offering, IFF intends to obtain or otherwise incur, or has obtained or incurred, additional financing for the Merger as follows:

 

   

U.S. Notes Offering. We expect to offer, pursuant to a separate prospectus supplement, additional senior notes denominated in U.S. dollars (the “USD notes”) at varying maturities. This prospectus supplement is not an offer with respect to the potential USD notes offering.

 

   

Common Stock and Tangible Equity Units Offerings. On September 17, 2018, we completed a public offering of a total of 12,667,947 shares of our common stock, including 1,151,632 shares for which the underwriters for the common stock offering exercised in full their option to purchase additional shares. On September 17, 2018, we also completed a public offering of a total of 16,500,000 of our 6.00% tangible equity units (“Units”), including 1,500,000 Units for which the underwriters for the Units offering exercised in full their option to purchase additional Units to cover over-allotments. We raised approximately $2,401 million in aggregate net proceeds from these offerings, including full exercise of the options for the respective offerings, after deducting the underwriting discounts and commissions and estimated offering expenses.

 

   

Term Loan. On June 6, 2018, IFF entered into a senior unsecured term loan credit agreement (the “New Term Loan”) with the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent, that provides for a three-year $350 million senior unsecured term loan facility. The commitments under the New Term Loan terminate on February 7, 2019 or, under certain circumstances, on May 7, 2019.

In connection with entering into the Merger Agreement, IFF entered into a debt commitment letter, dated as of May 7, 2018, with Morgan Stanley Senior Funding, Inc., that provided for a commitment for an up to $5.45 billion 364-day bridge loan facility (the “Bridge Facility”) to the extent IFF has not received $5.45 billion of net cash proceeds (and/or qualified bank commitments) from a combination of (a) the issuance by IFF of a combination of equity securities, equity-linked securities and/or unsecured debt securities and/or (b) unsecured term loans, in each case, at or prior to completion of the Merger. The commitments under the debt commitment letter terminate on February 7, 2019 or, under certain circumstances, on May 7, 2019. Although we do not currently expect to incur any borrowings under the Bridge Facility, there can be no assurance that such borrowings will not be made. In that regard, we may be required to borrow under the Bridge Facility if we do not generate sufficient net proceeds from this notes offering, an anticipated offering of USD notes, the common stock and tangible equity units offerings or unsecured term loans to finance the Merger and related fees and expenses.

Completion of this notes offering is not contingent on completion of the Merger and the Merger is not contingent on the completion of this notes offering. However, if for any reason the closing of the Merger has not occurred on or prior to February 7, 2019, or, if prior to such date, the Merger Agreement is terminated, then in either case we will be required to redeem the notes as described under “Description of the Notes—Special Mandatory Redemption.”



 

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In addition, if the Merger is not consummated, we do not expect any debt under the New Term Loan to be incurred.

We cannot assure you that we will complete the Merger or any of the other financing transactions on the terms contemplated in this prospectus supplement or at all.

About Frutarom

Frutarom is a global company established in Israel in 1933 and operating in the global flavors and specialty fine ingredients markets. Frutarom, through its subsidiaries, develops, produces and markets flavors and fine ingredients used in manufacturing food, beverages, flavors and fragrances, pharma/nutraceuticals, cosmetics and personal care products. As of December 31, 2017, Frutarom operated 72 production sites, 90 research and development laboratories, and 109 sales offices in Europe, North America, Latin America, Israel, Asia, Africa and New Zealand, and employed 5,223 people throughout the world. In 2017, Frutarom marketed and sold over 70,000 products to more than 30,000 customers in more than 150 countries.

Frutarom operates in two main activities which constitute its core businesses and are reported as business segments in its financial statements: flavors activity and specialty fine ingredients activity. In addition, as part of a comprehensive solution offered to customers, Frutarom imports and markets raw materials manufactured by third parties. This activity is presented as part of trade and marketing operations, which is not a core business.

Frutarom generated sales of $1,362.4 million, $1,147.0 million, and $872.8 million for the twelve months ended December 31, 2017, December 31, 2016, and December 31, 2015, respectively. Sales for the six months ended June 30, 2018 and June 30, 2017 were $786.1 million and $646.1 million, respectively. During the twelve months ended December 31, 2017, December 31, 2016, and December 31, 2015, Frutarom’s net income was $151.6 million, $111.1 million, and $96.1 million, respectively. Net income for the six months ended June 30, 2018 and June 30, 2017 was $98.6 million and $70.9 million, respectively.



 

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The Offering

 

Issuer

International Flavors & Fragrances Inc., a New York corporation.

 

Securities Offered

€         aggregate principal amount of     % Senior Notes due 20     (the “20     notes”).

 

  €         aggregate principal amount of     % Senior Notes due 20     (the “20     notes”).

 

Maturity Date

The 20     notes will mature on                 , 20         and the 20     notes will mature on                 , 20        , in each case unless previously redeemed.

 

Interest

Interest will accrue at an annual rate of     % on the 20     notes. Interest will accrue at an annual rate of     % on the 20     notes. Interest on the notes will be paid annually in cash in arrears on              of each year, beginning on                 , 2019.

 

Ranking

The notes are our direct, unsecured and unsubordinated obligations and will rank equally with all of our other unsecured and unsubordinated indebtedness from time to time outstanding. See “Description of the Notes—Ranking” in this prospectus supplement.

 

Special Mandatory Redemption

If the closing of the Merger has not occurred on or prior to February 7, 2019, or, if prior to such date, the Merger Agreement is terminated, then in either case we must redeem all of the notes at a redemption price equal to 101% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the redemption date. See “Description of the Notes—Special Mandatory Redemption.”

 

Optional Redemption

We may redeem the notes, at our option, in whole or in part at any time or from time to time before maturity, at the redemption price described in this prospectus supplement. See “Description of the Notes—Optional Redemption” in this prospectus supplement.

 

Repurchase Upon Change of Control Triggering Event

Upon the occurrence of a “Change of Control Triggering Event,” as described in “Description of the Notes—Offer to Repurchase Upon a Change of Control Triggering Event” in this prospectus supplement, we will be required to make an offer to repurchase the notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest to, but not including, the date of repurchase.

 

Redemption for Tax Reasons

We may redeem all, but not part, of each series of notes in the event of certain changes in the tax laws of the United States or certain other jurisdictions. This redemption would be at 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest on the notes to be redeemed to the date fixed for redemption. See “Description of the Notes—Redemption for Tax Reasons.”


 

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Currency of Payment

All payments of interest and principal, including payments made upon any redemption of the notes, will be payable in euros. If the euro is unavailable to us due to the imposition of exchange controls or other circumstances beyond our control or if the euro is no longer being used by the then member states of the European Monetary Union that have adopted the euro as their currency or for the settlement of transactions by public institutions of or within the international banking community, then all payments in respect of the notes will be made in U.S. dollars until the euro is again available to us or so used. The amount payable on any date in euros will be converted into U.S. dollars on the basis of the then most recently available market exchange rate for the euro. Any payment in respect of the notes so made in U.S. dollars will not constitute an event of default under the notes or the indenture. See “Description of the Notes—Issuance in Euros; Payment on the Notes” in this prospectus supplement.

 

Covenants

The notes and the indenture relating to the notes limit, among other things, our ability to engage in mergers or consolidations, to create liens, to enter into sale and lease-back transactions and to transfer or lease all or substantially all of our assets. See “Description of the Notes—Certain Covenants” in this prospectus supplement.

 

Additional Amounts

Subject to certain exceptions and limitations set forth herein, we will pay additional amounts as may be necessary to ensure that every net payment on a note to a beneficial owner that is not a U.S. person, after deduction or withholding by us or any of our paying agents for or on account of any present or future tax, duty, assessment or other governmental charge imposed upon or as a result of such payment by the United States and certain other jurisdictions, will not be less than the amount provided in such note to be then due and payable. See “Description of the Notes—Payment of Additional Amounts.”

 

Additional Notes

We may, from time to time and without the consent of the holders, create and issue additional notes with the same terms (including maturity and interest payment terms) as, and ranking equally and ratably with, the notes initially offered in this offering, provided, however, that unless such additional notes are issued pursuant to a “qualified reopening” of the original notes, are otherwise treated as part of the same “issue” of debt instruments as the original notes or are issued with no more than a de minimis amount of original discount, in each case for United States federal income tax purposes, the additional notes will have a different CUSIP number. There is no limit on the amount of notes that can be issued under the indenture governing the notes.

 

Use of Proceeds

We estimate that the net proceeds to us from this notes offering, after deducting underwriting discounts and estimated offering expenses payable by us, will be approximately €         million. We intend to use



 

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the net proceeds from this offering to pay a portion of the consideration for the Merger and to pay related fees and expenses.

 

Sinking Fund

None.

 

Book-entry; Denomination and Form

The notes will be issued only in registered, book-entry form. One or more global notes will be deposited with a common depository on behalf of Clearstream, société anonyme, and Euroclear Bank S.A./N.V. and registered in the name of the common depositary or its nominee. Except in the limited circumstances described in this prospectus supplement, owners of beneficial interests in the notes will not be entitled to have notes registered in their names, will not receive or be entitled to receive notes in definitive form and will not be considered holders of notes under the indenture. The notes will be issued in minimum denominations of €100,000 and in integral multiples of €1,000 in excess thereof.

 

Risk Factors

Investing in the notes involves significant risks. See “Risk Factors” in this prospectus supplement, as well as other information included in or incorporated by reference into this prospectus supplement and the accompanying prospectus, including our Annual Report on Form 10-K for the year ended December 31, 2017, for a discussion of the factors you should carefully consider before deciding to invest in the notes.

 

Listing

We intend to apply to list the notes on the New York Stock Exchange (the “NYSE”). The listing application will be subject to approval by the NYSE. If such a listing is obtained, we have no obligation to maintain such listing, and we may delist the notes at any time. We expect trading in the notes on the NYSE to begin within 30 days after the original issue date.

 

Trustee

U.S. Bank National Association.

 

Paying Agent

Elavon Financial Services DAC, UK Branch.

 

Transfer Agent and Registrar

U.S. Bank National Association.

 

Governing Law

State of New York.

 

CUSIP for 20     notes

 

 

ISIN for 20     notes

 

 

Common Code for 20     notes

 

 

CUSIP for 20     notes

 

 

ISIN for 20     notes

 

 

Common Code for 20     notes

 


 

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SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF IFF

The following table presents selected historical consolidated financial data for IFF and unaudited pro forma combined financial data for IFF and Frutarom as of the dates and for the periods indicated. The historical statement of income data and cash flow data for IFF for the fiscal years ended December 31, 2017, 2016 and 2015 and the historical balance sheet data as of December 31, 2017 and 2016 have been obtained from IFF’s audited consolidated financial statements included in IFF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is incorporated by reference into this prospectus supplement and accompanying prospectus. The historical statement of income data and cash flow data for IFF for the six-month periods ended June 30, 2018 and 2017 and the historical balance sheet data as of June 30, 2018 have been obtained from IFF’s unaudited interim consolidated financial statements included in IFF’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is incorporated by reference into this prospectus supplement and accompanying prospectus. The historical balance sheet data as of June 30, 2017 has been derived from IFF’s unaudited consolidated financial statements included in IFF’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which is not incorporated by reference into this prospectus supplement or accompanying prospectus. The historical statement of income data for IFF included below for the fiscal years ended December 31, 2017, 2016 and 2015 and IFF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is incorporated by reference into this prospectus supplement and accompanying prospectus, have not been revised to reflect the required retrospective adoption of the Financial Accounting Standards Board amendment to Compensation—Retirement Benefits guidance (ASU 2017-07), which we refer to as the “FASB amendment”, as the guidance had no impact on net income and the effect of the revision was not material for those periods. For more information on the adoption of the FASB amendment, please refer to IFF’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is incorporated by reference into this prospectus supplement and accompanying prospectus. The unaudited pro forma combined financial data are based upon the historical consolidated financial data of IFF and Frutarom, after giving effect to the merger as of the dates and for the periods indicated. The unaudited pro forma combined financial data should be read in conjunction with the financial statements presented in “Unaudited Pro Forma Condensed Combined Financial Information” in this prospectus supplement and the related notes thereto.



 

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The results of operations for the six-month period ended June 30, 2018 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2018, and you should not assume the results of operations for any past periods indicate results for any future period. The information set forth below should be read together with the other information contained in IFF’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and IFF’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. See the section entitled “Incorporation of Certain Information by Reference.”

 

    Pro Forma
Combined
    Historical International
Flavors &
Fragrances Inc.
    Pro Forma
Combined
    Historical International Flavors &
Fragrances Inc.
 
Dollars in thousands except per
share amounts
  Six-Month
Period Ended
June 30,
    Six-Month Period Ended
June 30,
    Year Ended
December 31,
    Year Ended December 31,  
    2018     2018     2017     2017     2017     2016     2015  

Statement of Income Data:

             

Net sales

  $ 2,637,054     $ 1,850,944     $ 1,671,154     $ 4,761,115     $ 3,398,719     $ 3,116,350     $ 3,023,189  

Cost of goods sold

    1,513,347       1,046,419       935,088       2,763,527       1,919,718       1,717,280       1,671,590  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    1,123,707       804,525       736,066       1,997,588       1,479,001       1,399,070       1,351,599  

Research and development expenses

    184,014       153,244       144,887       339,113       286,026       254,263       246,101  

Selling and administrative expenses

    429,236       300,051       283,023       816,476       557,311       566,224       494,517  

Restructuring and other charges, net

    1,903       1,903       10,934       19,371       19,711       (1,700     7,594  

Amortization of acquisition-related intangibles

    92,147       18,769       15,561       176,711       34,694       23,763       15,040  

Gain on sales of fixed assets

    504       1,195       (89     1,750       (184     (10,836     –    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

    415,903       329,363       281,750       644,167       581,443       567,356       588,347  

Interest expense

    126,269       69,841       30,363       160,033       65,363       52,989       46,062  

Other (income) expense, net

    (33,161     (21,232     (29,140     (36,454     (20,965     (9,350     3,184  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes

    322,795       280,754       280,527       520,588       537,045       523,717       539,101  

Taxes on income

    59,844       52,190       54,968       232,820       241,380       118,686       119,854  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (Including noncontrolling interest)

    262,951           287,768        

Less: noncontrolling interest

    3,205           4,895        
 

 

 

       

 

 

       

Net Income

    259,746       228,564       225,559       282,873       295,665       405,031       419,247  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

             

Basic

    2.34       2.89       2.85       2.54       3.73       5.07       5.19  

Diluted

    2.31       2.87       2.84       2.52       3.72       5.05       5.16  

Cash dividends declared per share

      1.38       1.28         2.66       2.40       2.06  

Balance Sheet Data at Period End:

             

Total Assets

  $ 12,795,113     $ 4,673,442     $ 4,618,875       $ 4,598,926     $ 4,016,984    

Long-term debt

    4,086,344       1,717,189       1,636,338         1,632,186       1,066,855    

Total Shareholders’ Equity including noncontrolling interest

    5,976,925       1,756,203       1,680,086         1,689,294       1,631,134    


 

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SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FRUTAROM

The following table presents selected historical consolidated financial data for Frutarom as of the dates and for the periods indicated. Frutarom’s financial data has been prepared under International Financial Reporting Standards (“IFRS”), as issued by the International Auditing Standards Board (“IASB”). The balance sheet data as of December 31, 2017 and 2016 and the statement of income data and cash flow data for the fiscal years ended December 31, 2017, 2016 and 2015 have been obtained from Frutarom’s audited annual consolidated financial statements, which are included in this prospectus supplement. The financial data as of and for the six-month periods ended June 30, 2018 and 2017 have been obtained from Frutarom’s unaudited, interim consolidated financial statements, which are included in this prospectus supplement.

The results of operations for the six-month period ended June 30, 2018 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2018, and you should not assume the results of operations for any past periods indicate results for any future period. The information set forth below should be read together with the other information contained in Frutarom’s audited annual consolidated financial statements and unaudited interim consolidated financial statements, which are included in this prospectus supplement.

 

Dollars in thousands except per  share amounts    Six-Month Period Ended June 30,      Year Ended December 31,  
             2018                     2017              2017      2016      2015  

Statement of Income Data:

             

Sales

   $ 786,110     $ 646,120      $ 1,362,396      $ 1,147,041      $ 872,796  

Cost of sales

     466,928       398,243        837,271        709,488        534,737  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     319,182       247,877        525,125        437,553        338,059  

Selling, marketing, research and development expenses – net

     134,697       101,792        220,014        196,001        141,237  

General and administrative expenses

     51,179       45,601        92,155        81,637        63,742  

Other expenses – net

     (315     385        3,392        11,772        2,826  

Group’s share of earnings of companies accounted for at equity

     1,326       444        1,402        1,113        –    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     134,947       100,543        210,966        149,256        130,254  

Financial Expenses – net

     12,758       10,204        24,606        12,841        12,197  

Income before taxes on income

     122,189       90,339        186,360        136,415        118,057  

Income tax

     23,600       19,413        34,797        25,346        21,972  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

     98,589       70,296        151,563        111,069        96,085  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share:

             

Basic

     1.64       1.17        2.52        1.85        1.62  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Fully diluted

     1.63       1.17        2.51        1.84        1.60  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends declared per share

          0.12        0.11        0.09  

Balance Sheet Data at Period End:

             

Total Assets

   $ 2,255,414     $ 1,790,072      $ 1,947,188      $ 1,585,461     

Long term loans, net of current maturities

     399,833       260,339        262,151        299,576     

Total equity

     921,420       768,856        878,913        664,604     


 

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RISK FACTORS

An investment in the notes involves significant risks. You should consult with your own financial and legal advisers and carefully consider, among other matters, the following risks and those described in our Annual Report on Form 10-K for the year ended December 31, 2017, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, respectively, and the other documents incorporated herein by reference. You should carefully consider the risks described in those reports and the other information in this prospectus supplement and accompanying prospectus before you decide to invest in the notes. Such risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect us. If any of those risks were to occur, our financial condition, operating results and prospects, as well as the value of the notes, could be materially adversely affected.

Risks Related to Our Business

For a discussion of risks related to our business and operations, please see “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2017, as well as similar disclosures contained in our other filings with the SEC that are incorporated by reference in this prospectus supplement and the accompanying prospectus. See “Incorporation of Certain Information by Reference.”

Risks Related to the Merger

If we are unable to complete the Merger, in a timely manner or at all, our business may be adversely affected.

Our and Frutarom’s obligations to consummate the Merger are subject to the satisfaction or waiver of the following customary conditions, including: (i) the approval of the Merger Agreement and the Merger by the shareholders of Frutarom, which was obtained on August 6, 2018; (ii) regulatory clearance under antitrust laws, which has been received; (iii) receipt of all governmental and stock exchange approvals necessary for the issuance and listing of shares of IFF common stock as contemplated by the Merger Agreement, (iv) the absence of any order, or the enactment of any law, prohibiting the Merger; (v) subject to certain exceptions, the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the Merger Agreement; and (vi) the absence of any material adverse effect on Frutarom or our company since the date of the Merger Agreement. Furthermore, our ability to access the bridge financing facility is subject to customary conditions. As many of these conditions are outside of our control, we cannot assure you if the conditions to the completion of the Merger and the associated financings will be satisfied in a timely manner or at all which may affect when and whether the Merger will occur. Furthermore, if the Merger is not completed and the Merger Agreement is terminated, we may suffer other consequences that could adversely affect our business and results of operations, including the following:

 

   

we have incurred and will continue to incur costs relating to the Merger (including significant legal and financial advisory fees) and many of these costs are payable by us whether or not the Merger is completed;

 

   

matters relating to the Merger (including integration planning) may require substantial commitments of time and resources by our management team, which could otherwise have been devoted to our historical core businesses or other opportunities that may have been beneficial to us;

 

   

we may be subject to legal proceedings related to the Merger or the failure to complete the Merger;

 

   

the failure to consummate the Merger may result in negative publicity and a negative impression of us in the investment community; and

 

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any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our customers, suppliers and employees, may continue or intensify in the event the Merger is not consummated.

We may not realize the benefits anticipated from the Merger, which could adversely affect our business.

The Merger, if completed, will be our largest acquisition to date. The anticipated benefits from the Merger are, necessarily, based on projections and assumptions about the combined businesses of our company and Frutarom, which may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully and efficiently integrate the business and operations of Frutarom with our business and achieve the expected synergies. We may encounter significant challenges with successfully integrating and recognizing the anticipated benefits of the potential Merger, including the following:

 

   

potential disruption of, or reduced growth in, our historical core businesses, due to diversion of management attention and uncertainty with our current customer and supplier relationships;

 

   

challenges arising from the expansion of our product offerings into adjacencies with which we have limited experience, including flavor ingredients, food additives and nutraceuticals;

 

   

challenges arising from the expansion into those Frutarom jurisdictions where we do not currently operate or have significant operations;

 

   

coordinating and integrating research and development teams across technologies and products to enhance product development while reducing costs;

 

   

consolidating and integrating corporate, information technology, finance and administrative infrastructures, and integrating and harmonizing business systems, which may be more difficult than anticipated due to the significant number of acquisitions completed by Frutarom over the past few years;

 

   

coordinating sales and marketing efforts to effectively position our capabilities and the direction of product development;

 

   

difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Frutarom’s business with our business;

 

   

limitations prior to the completion of the Merger on the ability of management of our company and of Frutarom to conduct planning regarding the integration of the two companies;

 

   

the increased scale and complexity of our operations resulting from the Merger;

 

   

retaining key employees, suppliers and other partners of our company and Frutarom;

 

   

retaining and efficiently managing Frutarom’s expanded and decentralized customer base;

 

   

obligations that we will have to counterparties of Frutarom that arise as a result of the change in control of Frutarom;

 

   

difficulties in anticipating and responding to actions that may be taken by competitors in response to the transaction; and

 

   

the assumption of and exposure to unknown or contingent liabilities of Frutarom.

 

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In addition, our anticipated benefits of the transaction with Frutarom contemplate significant cost-saving synergies. Consequently, even if we are able to successfully integrate the operations of Frutarom with ours, we may not realize the full benefits of the transactions if we are unable to identify and implement the anticipated cost savings or if the actions taken to implement such cost-savings have unintended consequences on our other business operations.

If we do not successfully manage these issues and the other challenges inherent in integrating an acquired business of the scale of Frutarom, then we may not achieve the anticipated benefits of the Merger, we could incur unanticipated expenses and charges and our operating results could be materially and adversely affected.

Uncertainty about the Merger may adversely affect our relationships with customers and employees, which could negatively affect our business, whether or not the Merger is completed.

The announcement of the Merger on May 7, 2018, whether or not completed, may cause uncertainties in our relationships with our customers which could impair our ability to or expand our historical customer sales growth. Furthermore, uncertainties about the Merger may cause our current and prospective employees to experience uncertainty about their future with us. These uncertainties may impair our ability to retain, recruit or motivate key employees which could affect our business.

The Merger may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.

The financial results of the combined company, following IFF’s acquisition of Frutarom, may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our integration of the business and operations of Frutarom. Furthermore, as a result of the transaction we will record a significant amount of goodwill and other intangible assets on our consolidated financial statements, which could be subject to impairment based upon future adverse changes in our business or prospects including our inability to recognize the benefits anticipated by the transaction.

In addition, upon the acquisition of Frutarom we will assume all their liabilities, including unknown and contingent liabilities that Frutarom assumed in connection with their acquisitions, that we failed or were unable to identify in the course of performing due diligence. Frutarom has completed 47 acquisitions since 2011, including 22 since the beginning of 2016. Our ability to accurately identify and assess the magnitude of the liabilities assumed by Frutarom in these acquisitions may be limited by, among other things, the information available to us and Frutarom and the limited operating experience that Frutarom has with these acquired entities. Furthermore, Frutarom has additional future obligations regarding certain of these acquisitions including outstanding earn-out obligations and put options requiring Frutarom to purchase additional shares in the target company, which we will assume upon consummation of the transaction. If we are not able to completely assess the scope of these liabilities or if these liabilities are neither probable nor estimable at this time, our future financial results could be adversely affected by unanticipated reserves or charges, unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition.

The regulatory approvals required in connection with the Merger may not be obtained or may contain materially burdensome conditions.

Completion of the Merger is conditioned upon the receipt of certain regulatory approvals, and we cannot provide assurance that these approvals will be obtained. If any conditions or changes to the proposed structure of the Merger are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the Merger or reducing the anticipated benefits of the Merger. If we agree to any material conditions in order to obtain any approvals required to complete the Merger, the business and results of operations of the combined company may be adversely affected.

 

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The use of cash and incurrence of significant indebtedness in connection with the financing of the Merger may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions.

The Merger will be financed in part by the use of our cash on hand, the incurrence of a significant amount of indebtedness and issuances of equity. As of June 30, 2018, we had approximately $322.4 million of cash and cash equivalents and approximately $1,723.7 million of total debt outstanding. In connection with the Merger, we expect to incur significant new debt. The proceeds from the new debt are expected to be used to pay part of the purchase price, refinance existing debt of both our company and Frutarom and pay transaction related fees and expenses. If we are unable to raise financing on acceptable terms, we may need to rely on our bridge loan facility, which may result in higher borrowing costs and a shorter maturity than those from other anticipated financing alternatives. The use of cash on hand and indebtedness to finance the Merger will reduce our liquidity and could cause us to place more reliance on cash generated from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow for working capital, dividend and capital expenditure needs or to pursue other potential strategic plans. The increased indebtedness may also have the effect, among other things, of limiting our ability to obtain additional financing, if needed, limiting our flexibility in the conduct of our business and making us more vulnerable to economic downturns and adverse competitive and industry conditions.

Risks Related to the Notes

The notes will be subject to the prior claims of any secured creditors, and if a default occurs, we may not have sufficient funds to fulfill our obligations under the notes.

The notes are unsecured obligations, ranking equally with our other senior unsecured indebtedness and effectively junior to any secured indebtedness we may incur. If we incur secured debt, our assets securing any such indebtedness will be subject to prior claims by our secured creditors. In the event of the bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding up of the Company, our assets that secure debt will be available to pay obligations on the notes only after all debt secured by those assets has been repaid in full. Holders of the notes will participate in any remaining assets ratably with all of our other unsecured and unsubordinated creditors, including trade creditors. If there are not sufficient assets remaining to pay all these creditors, then all or a portion of the notes then outstanding would remain unpaid.

The notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The notes are our obligations exclusively and not of any of our subsidiaries. In the year ended December 31, 2017, International Flavors & Fragrances Inc. generated approximately 21% of our consolidated net sales and 14% of our consolidated gross profit (excluding intercompany sales) at the parent level, while our subsidiaries generated approximately 79% of our consolidated net sales and 86% of our consolidated gross profit. Our subsidiaries are separate legal entities that have no obligation to pay any amounts due under the notes or to make any funds available therefor, whether by dividends, loans or other payments. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors, including trade creditors of our subsidiaries, will have priority with respect to the assets of such subsidiaries over our claims (and therefore the claims of our creditors, including holders of the notes). Consequently, the notes will be structurally subordinated to all liabilities, including trade payables, of our subsidiaries and any subsidiaries that we may in the future acquire or establish. As of June 30, 2018, our subsidiaries had approximately $759.4 million of outstanding liabilities on an actual basis and $759.4 million of outstanding liabilities on an as adjusted basis, in each case including trade payables, but excluding intercompany liabilities and deferred gains.

In addition, the indenture governing the notes permits our subsidiaries to incur additional indebtedness, and does not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by our subsidiaries.

 

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We may incur additional indebtedness.

As of June 30, 2018, we had $1,723.7 million of debt outstanding and we intend to issue a total of $3.2 billion of debt to finance the Merger, including the USD notes and the notes offered hereby. The indenture governing the notes does not prohibit us from incurring additional unsecured indebtedness in the future. We are also permitted to incur additional secured indebtedness that would be effectively senior to the notes subject to limitations described in the section “Description of the Notes—Certain Covenants” in this prospectus supplement. The indenture governing the notes also permits unlimited additional borrowings by our subsidiaries that are effectively senior to the notes. In addition, the indenture does not contain any restrictive covenants limiting our ability to pay dividends or make payments on junior or other indebtedness.

Our credit ratings may not reflect all risks of an investment in the notes.

The notes are expected to be rated by at least one nationally recognized statistical rating organization. The ratings of the notes may not reflect the potential impact of all risks related to structure and other factors on any trading market for, or trading value of, the notes. In addition, real or anticipated changes in our credit ratings will generally affect any trading market for, or trading value of, the notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. There is no assurance that a credit rating will remain for any given period of time or that a credit rating will not be lowered or withdrawn by the relevant rating agency if, in its judgment, circumstances so warrant. In the event that a credit rating assigned to the notes or to us is subsequently lowered for any reason, no person or entity is obliged to provide any additional support or credit enhancement with respect to the notes, and the market value of the notes is likely to be adversely affected.

An active trading market for the notes may not develop.

The notes are a new issue of securities for which there is currently no established trading market. Although we intend to apply for listing of the notes for trading on the NYSE, no assurance can be given that the notes will become or will remain listed or that an active trading market for the notes will develop or, if developed, that it will continue. If an NYSE listing of the notes is obtained, we have no obligation to maintain such listing, and we may delist the notes at any time. Certain of the underwriters have informed us that they currently intend to make a market in the notes, but they have no obligation to do so and may discontinue making a market at any time without notice. If an active trading market does not develop or is not sustained, the market price and liquidity of the notes may be adversely affected and you may be unable to resell your notes at a particular time, at their fair market value or at all.

If an active trading market does develop, many factors could adversely affect the market price of the notes.

The market price of the notes will depend on many factors, including:

 

   

ratings on our debt securities assigned by the credit rating agencies;

 

   

the market demand for securities similar to the notes and the interest of securities dealers in making a market for the notes;

 

   

the number of holders of the notes;

 

   

the prevailing interest rates being paid by other companies similar to us;

 

   

our financial condition, financial performance and future prospects;

 

   

the market price of our common stock;

 

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the prospects for companies in our industry generally; and

 

   

the overall condition of the financial markets.

Historically, the market for investment grade debt has been subject to disruptions that have caused volatility in prices of securities similar to the notes. It is possible that the market for the notes will be subject to disruptions. Any disruptions may have a negative effect on holders of the notes, regardless of our financial condition and performance and our prospects.

An increase in market interest rates could result in a decrease in the value of the notes.

In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if you purchase fixed rate notes and market interest rates increase, the market value of your fixed rate notes may decline. We cannot predict the future level of market interest rates.

The notes may not be a suitable investment for all investors.

You must determine the suitability of your investment in light of your own circumstances. In particular, you should (1) have sufficient knowledge and experience to make a meaningful evaluation of the notes, the merits and risks of investing in the notes and the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus; (2) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of your particular financial situation, an investment in the notes and the impact the notes will have on your overall investment portfolio; (3) have sufficient financial resources and liquidity to bear all of the risks of an investment in the notes; (4) understand thoroughly the terms of the notes and be familiar with the behavior of any relevant indices and financial markets; and (5) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect your investment and your ability to bear the applicable risks.

To the extent we would be required to repurchase the notes upon a Change of Control Triggering Event or a special mandatory redemption, we may not have sufficient cash at such time to repurchase all the notes plus all other notes subject to a Change of Control Triggering Event or special mandatory redemption repurchase obligation.

The notes will require us to offer to repurchase all or any part of the notes upon the occurrence of a Change of Control Triggering Event, as defined in the “Description of the Notes—Repurchase Upon Change of Control Triggering Event” section of this prospectus supplement. We may in the future issue additional notes and enter into additional debt instruments that require us to repurchase or repay the principal amount of debt outstanding (plus, in certain circumstances a premium) upon the occurrence of a Change of Control Triggering Event or similar event.

In addition, the notes will be subject to a special mandatory redemption in the event that the closing of the Merger has not occurred on or prior to February 7, 2019, or, if prior to such date, the Merger Agreement is terminated. The Special Mandatory Redemption Price (as defined herein) will be equal to 101% of the aggregate principal amount of the applicable series of notes, plus accrued and unpaid interest to, but excluding, the redemption date. See “Description of the Notes—Special Mandatory Redemption.”

We are not obligated to place the proceeds from this notes offering in escrow prior to the closing of the Merger or to provide a security interest in those proceeds, and there are no other restrictions on our use of these proceeds during such time. Accordingly, we will need to fund any change of control or special mandatory redemption using proceeds that we have voluntarily retained or from other sources of liquidity. If such event were to occur, we may not have sufficient financial resources available to satisfy all those obligations, and consequently we may not be able satisfy our obligations to repurchase your notes.

 

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Holders of the notes may not be able to determine when a change of control giving rise to their right to have the notes repurchased has occurred following a sale of “substantially all” of our assets.

The definition of “change of control” in the notes includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of our and our subsidiaries’ assets. There is no precise, established and binding interpretation of the phrase “substantially all” under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a sale, lease, transfer, conveyance or other disposition of “substantially all” our and our subsidiaries’ assets. As a result, in certain circumstances, it may be unclear whether a Change of Control Triggering Event has occurred and therefore whether a holder of notes has the right to require us to repurchase those notes.

We may redeem the notes at our option, which may adversely affect your return on the notes.

The notes are redeemable at our option, and we may, therefore, choose to redeem all or part of the notes at any time prior to the maturity date, including at times when prevailing interest rates are relatively low. In the event that we redeem the notes prior to maturity, you may not be able to reinvest the proceeds you receive from the redemption in a comparable security at an effective interest rate as high as the interest rate on your notes being redeemed.

The special mandatory redemption provision of the notes may adversely affect the trading prices and your expected return on such notes.

As a result of the special mandatory redemption provision of the notes, the trading prices of such notes may not reflect the financial results of our business or macroeconomic factors. In addition, if the notes are redeemed prior to maturity, you may not be able to reinvest the amount received upon a redemption in a comparable security at an effective interest rate as high as that of the notes. You will have no rights under the special mandatory redemption provision if the Merger closes within the prescribed time frame, nor will you have any right to require us to repurchase your notes if, between the closing of this notes offering and the closing of the Merger, we experience any changes (including any material changes) in our business or financial condition, or if the terms of the Merger Agreement change, including in material respects.

An investment in the notes by a purchaser whose home currency is not the euro entails significant risks.

All payments of interest on and the principal of the notes and any redemption price for the notes will be made in euros. An investment in the notes by a purchaser whose home currency is not the euro entails significant risks. These risks include the possibility of significant changes in rates of exchange between the holder’s home currency and the euro and the possibility of the imposition or subsequent modification of foreign exchange controls. These risks generally depend on factors over which we have no control, such as economic, financial and political events and the supply of and demand for the relevant currencies. In the past, rates of exchange between the euro and certain currencies have been highly volatile, and each holder should be aware that volatility may occur in the future. Fluctuations in any particular exchange rate that have occurred in the past, however, are not necessarily indicative of fluctuations in the rate that may occur during the term of the notes. Depreciation of the euro against the holder’s home currency would result in a decrease in the effective yield of the notes below its coupon rate and, in certain circumstances, could result in a loss to the holder.

The notes permit us to make payments in U.S. dollars if we are unable to obtain euros and market perceptions concerning the instability of the euro could materially adversely affect the value of the notes.

If the euro is unavailable to us due to the imposition of exchange controls or other circumstances beyond our control, if the euro is no longer being used by the then member states of the European Monetary Union that have adopted the euro as their currency or if the euro is no longer being used by public institutions of or within the

 

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international banking community for the settlement of transactions, then all payments in respect of the notes will be made in U.S. dollars until the euro is again available to us or so used. The amount payable on any date in euros will be converted into U.S. dollars on the basis of the then most recently available market exchange rate for the euro. Any payment in respect of the notes so made in U.S. dollars will not constitute an event of default under the notes or the indenture governing the notes. This exchange rate may be materially less favorable than the rate in effect at the time the notes were issued or as would be determined by applicable law. Such developments, or market perceptions concerning the instability of the euro and related issues, could materially adversely affect the value of the notes and you may lose a significant amount of your investment in the notes.

In a lawsuit for payment on the notes, an investor may bear currency exchange risk.

The indenture is, and notes will be, governed by the laws of the State of New York. Under New York law, a New York state court rendering a judgment on the notes would be required to render the judgment in euros. However, the judgment would be converted into U.S. dollars at the exchange rate prevailing on the date of entry of the judgment. Consequently, in a lawsuit for payment on the notes, investors would bear currency exchange risk until a New York state court judgment is entered, which could be a significant amount of time. A federal court sitting in New York with diversity jurisdiction over a dispute arising in connection with the notes would apply the foregoing New York law.

In courts outside of New York, investors may not be able to obtain a judgment in a currency other than U.S. dollars. For example, a judgment for money in an action based on the notes in many other U.S. federal or state courts ordinarily would be enforced in the United States only in U.S. dollars. The date used to determine the rate of conversion of euros into U.S. dollars would depend upon various factors, including which court renders the judgment and when the judgment is rendered.

Trading in the applicable clearing systems is subject to minimum denomination requirements.

The terms of the notes provide that notes will be issued with a minimum denomination of €100,000 and multiples of €1,000 in excess thereof. It is possible that the applicable clearing systems may process trades which could result in amounts being held in denominations smaller than the minimum denominations. If definitive notes are required to be issued in relation to such notes in accordance with the provisions of the relevant global notes, a holder who does not have the minimum denomination or any integral multiple of €1,000 in excess thereof in its account with the relevant clearing system at the relevant time may not receive all of its entitlement in the form of definitive notes unless and until such time as its holding satisfies the minimum denomination requirement.

The European Commission has proposed a financial transaction tax in certain member states of the European Union which, if adopted, could apply in certain circumstances to secondary market trades of the notes both within and outside of those participating Member States.

The European Commission has published a proposal for a directive for a common financial transaction tax, or FTT, in Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, to which we refer as the participating Member States. However, Estonia has since stated that it will not participate.

The proposed FTT has very broad scope and could, if introduced in its current form, apply to certain dealings in the notes (including secondary market transactions) in certain circumstances.

Under the European Commission’s proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

 

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The FTT remains subject to negotiation between participating Member States and the legality of the proposal is uncertain. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional Member States may decide to participate and/or certain of the participating Member States may decide to withdraw.

Prospective holders of, and investors in, the notes are advised to seek their own professional advice in relation to the FTT.

Risks Related to Frutarom

In addition to the risks we face, Frutarom also faces the following risks.

Frutarom’s operations are subject to effects of the global economy.

Due to the nature and type of its global activity, Frutarom is exposed to fluctuations in the global economy. Economic crisis and recession in various countries in which Frutarom operates could curb demand for Frutarom’s products and significantly slow down the development and launch of new products by Frutarom customers.

Frutarom’s operations in emerging markets are subject to political, economic and legal developments that are less predictable than those in developed markets.

Frutarom operates in a number of countries besides the United States and Western Europe, such as Russia, Ukraine, Turkey, Slovenia, Kazakhstan, China, countries in South and Central America (including Brazil, Guatemala, Peru, Chile and Mexico) and countries in northern, southern and western Africa, and is therefore exposed to political, economic and legal developments in these countries which are generally less predictable than in developed countries. Frutarom’s facilities in these countries could be subject to disruption as a result of economic and/or political instability as well as from nationalization and/or expropriation of assets situated there. There is also substantial risk relating to restrictions on Frutarom in collecting payment from its customers, distributors, or agents, as well as foreign exchange restrictions which could impede Frutarom’s ability to realize its profits or to sell its assets in these countries. While none of the emerging market countries in which Frutarom operates impose foreign exchange restrictions that affect Frutarom, such restrictions existed not long ago and there is no assurance that they will not be reinstated in the future.

Fluctuations or devaluations in currencies may negatively affect Frutarom’s results of operations.

Over 70% of Frutarom’s sales in 2017 were conducted in currencies other than the U.S. dollar, mainly the euro, Russian Ruble, Pound Sterling, Swiss Franc, New Israeli Shekel, Chinese Yuan, Canadian Dollar, Brazilian Real, South African Rand, Peruvian Nuevo Sol and Mexican Peso, and changes in exchange rates affect Frutarom’s reported results in US dollar terms. In addition, in cases of extreme fluctuations in exchange rates, and since a large part of the raw materials used in the manufacture of Frutarom’s products is paid for in U.S. dollars, in euros, or other currencies, there is no assurance that Frutarom can completely update its selling prices denominated in local currency (which is different from the currency used in buying the raw material) and maintain its margin. Frutarom does not generally undertake external hedging action nor does it use other financial instruments for protection against currency fluctuations. For further information see Frutarom’s audited financial statements included in this prospectus supplement.

Frutarom operates in a highly competitive industry.

Frutarom faces competition from large multinationals as well as medium-sized, small and local companies across the sectors in which it operates. Some of Frutarom’s competitors have greater financial and technological resources, larger sales and marketing platforms and more established reputation, and may therefore be better equipped to adapt to changes and industry trends.

 

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The global market for flavors is characterized by close relations between flavor manufacturers and their customers, particularly with regard to large multinationals. Furthermore, many large multinational customers, along with increasing numbers of medium-sized customers in recent years, sometimes limit the number of their suppliers and work predominantly with a list of “approved suppliers.” To compete more effectively under these conditions, Frutarom must invest more resources in customer relations, in R&D and in matching products to customers’ needs in order to provide high quality and efficient service. Any failure to maintain good relations with its customers, forge strong relations with new customers, or secure the status of “approved supplier” with some of its customers could lead to substantial adverse effects on Frutarom’s business, operating results and financial condition.

The specialty fine ingredients market is more price sensitive than the flavors market and is characterized by relatively lower profit margins. Some fine ingredients products manufactured by Frutarom are less unique and more replaceable by competitors’ products. Production overcapacity for fine ingredients globally could also negatively impact Frutarom’s sales and profitability. Although as part of its strategy Frutarom focuses on specialty fine ingredients with higher profit margins, there is no assurance that operating margins will not erode in the future, which could substantially impact Frutarom’s business, operating results and financial condition.

Increased environmental, health and safety regulations or the loss of necessary environmental permits could adversely affect Frutarom’s operating results and financial condition.

Frutarom is subject to a variety of international and domestic health, safety and environmental statutes in the various countries in which it operates. In general, there is a trend towards increased regulation in the fields of Frutarom’s activities. This trend stems from, among other things, growing consumer sensitivity concerning the inclusion of flavor additives in food products and the fact that regulators perceive nutraceuticals, medical food and functional food products as having medicinal attributes. In some countries such products may be subjected to the same standards and regulations as applied to drugs or targeted regulation for these categories. In addition, regulators in different countries can change regulations applying to infant nutrition or clinical nutrition for the elderly in a way that might affect Frutarom’s sales in these categories. Frutarom has identified the markets for nutraceuticals, functional food, specialty fine ingredients for infant nutrition, especially infant formulas, and clinical nutrition for the elderly as important to its future growth. The subjecting of these markets to increased regulation could give rise to additional expenses which might have an adverse effect on Frutarom’s business, operating results and financial condition.

Companies such as Frutarom that operate in the flavor and fine ingredients industry make use of, manufacture, sell, and distribute substances that are sometimes considered hazardous and are therefore subject to extensive regulation concerning the storage, handling, manufacture, transport, use and disposal of such substances and their components and byproducts. Frutarom’s production and R&D activities in the various countries where it operates are subject to various regulations and standards relating to air emissions, sewage treatment and the use, handling and discharge of hazardous material as well as clean-up of existing environmental contamination. Any further tightening of such laws and regulations could have a substantial adverse effect on Frutarom’s business, operating results and financial condition.

In addition to covering its ongoing environmental compliance costs, Frutarom might also incur nonrecurring charges associated with remedial action needed to be taken at its production sites. As environment-related incidents cannot be foreseen with any certainty, the sums that Frutarom allocates or will allocate for such matters may turn out to be inadequate. Ongoing and nonrecurring environment-related expenses could each have a substantial adverse effect on Frutarom’s business, operating results and financial condition.

Frutarom is required to obtain various environmental permits concerning operations at its various production facilities and to meet the conditions set by these permits. The expansion of existing plants is also subject to securing necessary permits. Such permits might be unilaterally revoked or modified by the issuer, or might be for a limited amount of time. Any cancellation, modification and/or failure to renew or obtain a permit could have a significant adverse effect on Frutarom’s business, operating results and financial condition.

 

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Failure to comply with environmental, health and safety laws and regulations may expose Frutarom to civil and criminal liability.

The laws and regulations concerning the environment, health and safety may subject Frutarom to civil and/or criminal liability for non-compliance or environmental pollution. Environmental, health and safety laws may include criminal sanctions (including substantial penalties) for violating them. Some environmental laws also include provisions imposing complete responsibility for the release of hazardous substances into the environment which could result in Frutarom becoming liable for clean-up efforts without any negligence or fault on its part. Other environmental laws impose liability jointly and severally, which could expose Frutarom to responsibility for cleaning up environmental pollution caused by others.

In addition, some environmental, health and safety laws are applied retroactively and could impose responsibility for acts done in the past even if such acts were carried out in accordance with the relevant legal provisions in force at the time. Criminal or civil liability under such laws may have significant adverse effects on Frutarom’s business, operating results and financial condition.

Frutarom may also become subjected to claims for personal injury or property damage arising from exposure to hazardous substances. Laws in the major countries where Frutarom operates permit legal proceedings to be instituted against it if personal injury or environmental contamination was ostensibly caused by activity at its production sites in these countries. Such legal proceedings could also be instituted by private individuals or non-governmental organizations.

Fluctuations in prices of raw materials needed for producing Frutarom’s products may negatively impact its results of operations.

The price, quality and availability of the main raw materials that Frutarom uses, especially in the field of natural products, are subject to fluctuations arising from global supply and demand. Many raw materials used by Frutarom are agricultural products whose prices, quality and availability could be affected by, among other things, poor weather conditions. Frutarom does not normally conduct futures transactions in raw materials and is exposed to price fluctuations in the raw materials it uses according to changes in global trends for prices of these raw materials. In recent periods, there has been a rise in the prices of a number of principal raw materials used by Frutarom, and such trends may have a significant adverse effect on Frutarom’s business, operating results and financial condition.

The inability to obtain raw materials due to the loss of third party suppliers or unavailability of raw materials could impair Frutarom’s sales and adversely affect its operating results.

Frutarom is dependent on third parties for the supply of raw materials needed for manufacturing its products. Although Frutarom purchases raw materials from a very wide range of suppliers and no individual supplier accounted for more than 3% of its total raw material usage in 2017, and even though there is more than one supplier for most of the raw materials bought by Frutarom and they are usually readily available, there is no assurance that this will also continue to be the case in the future. Severe weather conditions may cause a significant shortage of natural raw materials used by Frutarom. A shortage of these raw materials could impair Frutarom’s sales for a certain period of time and adversely affect its operating results.

Product liability claims against Frutarom and potential damages under those claims could have significant adverse effects on Frutarom’s business, operating results and financial condition.

Frutarom is exposed to product liability risk, particularly due to the fact that it supplies flavors to the food and beverage, flavor and fragrance, functional food, pharma/nutraceutical and personal care industries. Should Frutarom be found responsible in a large claim of this type, its insurance coverage might be inadequate to cover damages and/or legal expenses. A lack of adequate insurance coverage could result in a significant adverse effect

 

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on Frutarom’s business, operating results and financial condition. Product liability claims brought against Frutarom could damage its reputation as well as put heavy demand on management’s time and efforts, and this could have significant adverse effects on Frutarom’s business regardless of the outcome of the claim.

The inability to integrate the businesses acquired by Frutarom during its recent growth period may lead to disruptions in its business and failure to capitalize on anticipated synergies.

A key element of Frutarom’s growth strategy has been growth through the acquisition of flavor and specialty fine ingredients manufacturers. In line with this strategy, Frutarom has made many strategic acquisitions of companies and business activities in recent years. The integration of acquired activities involves a number of risks, including possible adverse effects on Frutarom’s operating results, the loss of customers, the consuming of senior management’s time and attention, and the failure to retain key personnel including managers of the acquired activities, along with risks associated with unanticipated events in the integration of the operations, technologies, systems and services of the acquired business. In addition, Frutarom may be unable to capitalize on the anticipated synergies (including those aimed at cost savings) inherent in such acquisitions. Failure in successfully integrating its acquisitions could have adverse effects on Frutarom’s business, operating results and financial condition.

The rapid growth, as in recent years, in both Frutarom’s activities and its geographical spread requires effective management to ensure that the financial benefits, tapping of synergies and the economies of scale are achieved. An inability to adapt to the rapid growth could result in losses or acquisition costs that will not be recovered as quickly as anticipated, if at all. Such circumstances could have significant adverse effects on Frutarom’s business, its operating results and financial condition.

The loss of skilled personnel, members of senior management or other key employees could negatively impact Frutarom’s ability to compete and implement its strategy.

Frutarom’s continued future success depends on its ability to attract and retain proficient flavorists (flavor developers), lab technicians and other skilled personnel. Frutarom operates in a highly specialized market where product quality is of critical importance and having skilled personnel is necessary for ensuring the supply of high quality products. If a number of such employees were to leave at the same time, Frutarom could encounter difficulties in finding replacements with equivalent experience and abilities, a situation which could impair Frutarom’s R&D capabilities. Furthermore, Frutarom’s continued success depends to a large extent on its senior management team. The loss of services from members of senior management or other key employees could have a negative impact on Frutarom’s results and its ability to implement its strategy. A failure to recruit and retain skilled personnel or members of senior management could have a significant adverse effect on Frutarom’s business, operating results and financial condition.

The inability to protect its intellectual property or the loss of exclusive use of its proprietary formulas to create flavors may have a significant adverse impact on Frutarom’s business, operating results and financial condition.

Frutarom’s business relies on intellectual property, mainly consisting of formulas used to create its flavors. Frutarom does not register these formulas but they are kept highly confidential and considered trade secrets and, as such, are accessible to just a very limited circle of people within Frutarom. Although Frutarom believes it is not significantly reliant on any individual intellectual property right, proprietary formula, patent or license, a breach of confidentiality with respect to the formulas or loss of access to them and/or the future expiration of intellectual property rights could have a significant adverse impact on Frutarom’s business, operating results and financial condition.

 

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Frutarom relies, in part, on confidentiality agreements, ownership of intellectual property, and non-competition agreements with employees, vendors and third parties in order to protect its intellectual property. It is possible that these agreements will be breached and that Frutarom may lack an adequate remedy for any such breach. Disputes may arise concerning the ownership of intellectual property or the extent to which the confidentiality agreements remain in force. Furthermore, Frutarom’s trade secrets may become revealed to its competitors or developed independently by them, in which case Frutarom will not be able to enjoy exclusive use of some of its formulas or maintain confidentiality concerning its products.

 

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CURRENCY CONVERSION

Unless otherwise specified, the euro/U.S. dollar exchange rate used in this prospectus supplement is €1.00 = $1.1656, as announced by the U.S. Federal Reserve Board on September 17, 2018.

Investors will be subject to foreign exchange risk as to payments of principal and interest that may have important economic and tax consequences to them. See “Risk Factors.”

 

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FORWARD-LOOKING STATEMENTS

Statements in this prospectus supplement and the documents incorporated by reference, 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 and include statements concerning (i) our ability to achieve long-term sustainable growth and increase shareholder value, (ii) growth potential in the emerging markets, (iii) the anticipated impact of our acquisitions on our market position within key markets, (iv) our competitive position in the market and expected financial results in 2018, (v) expected savings from profit improvement initiatives, (vi) expected capital expenditures and cost pressures in 2018, (vii) the impact of legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) on the Company’s effective tax rate in 2018, (viii) the expected level of share repurchases under the Company’s share repurchase program, (ix) our ability to innovate and execute on specific consumer trends and demands, (x) timing of completion or relocation of our plants in China, (xi) expected increases in raw material costs in 2018, (xii) the impact of operational performance, cost reduction efforts and mix enhancement on margin improvement, and (xiii) the amount of expected pension contributions in 2018. These forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Certain of such forward-looking information may be identified by such terms as “expect,” “anticipate,” “believe,” “intend,” “outlook,” “may,” “estimate,” “should,” and “predict” and similar terms or variations thereof. Such forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements. Such factors include, among others, those discussed in the “Risk Factors” section of this prospectus supplement and the following:

 

   

the impact of the Merger;

 

   

our ability to effectively compete in our market, and to successfully develop new products that appeal to our customers and consumers;

 

   

our ability to provide our customers with innovative, cost-effective products;

 

   

the impact of a disruption in our manufacturing operations;

 

   

the impact of the BASF Group supply chain disruption on the supply and price of a key ingredient in 2018;

 

   

our ability to implement our Vision 2020 strategy;

 

   

the impact of the recently-enacted Tax Act on our effective tax rate in 2018 and beyond;

 

   

our ability to successfully market to our expanding and decentralized Flavors customer base;

 

   

our ability to react in a timely manner to changes in the consumer products industry related to health and wellness;

 

   

our ability to establish and maintain collaborations, joint ventures or partnerships, which lead to the development or commercialization of products;

 

   

our ability to benefit from our investments and expansion in emerging markets;

 

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the impact of international operations that are subject to regulatory, political, economic, currency exchange and other risks, including in countries such as Turkey and Argentina;

 

   

the impact of economic uncertainty which may adversely affect demand for consumer products using flavors and fragrances;

 

   

our ability to attract and retain talented employees;

 

   

our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws;

 

   

our ability to realize the expected cost savings and efficiencies from our profitability improvement initiatives and the optimization of our manufacturing facilities;

 

   

volatility and increases in the price of raw materials, energy and transportation;

 

   

our ability to maintain the integrity of our raw materials, supply chain and finished goods, and comply with applicable regulations;

 

   

our ability to successfully manage our inventory and/or working capital balances;

 

   

the impact of violations of the U.S. Foreign Corrupt Practices Act or similar U.S. or foreign anti-bribery and anti-corruption laws and regulations in the markets in which we operate;

 

   

our ability to protect our intellectual property rights;

 

   

uncertainties regarding the outcome of, or funding requirements, related to litigation or settlement of pending litigation, uncertain tax positions or other contingencies;

 

   

the impact of any future impairment of our tangible or intangible long-lived assets;

 

   

the impact of changes in our tax rates, tax liabilities, the adoption of new United States or international tax legislation, or changes in existing tax laws;

 

   

our ability to successfully estimate the impact of certain accounting and tax matters; and

 

   

the potential adverse impact of Brexit on currency exchange rates, global economic conditions and cross-border agreements that affect our business.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. For additional information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see “Risk Factors” in this prospectus supplement and the accompanying prospectus, as well as the risks described in the “Risk Factors” section of the Company’s most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q and as may be included from time to time in our reports filed with the SEC.

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. The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this prospectus supplement and the accompanying prospectus, or included in any of our periodic reports filed with the SEC and incorporated by reference into this prospectus supplement could materially and adversely impact our results of operations, financial condition and liquidity and our future financial results.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this notes offering, after deducting underwriting discounts and estimated offering expenses payable by us, will be approximately €             million. We intend to use the net proceeds from this offering to pay a portion of the consideration for the Merger and to pay related fees and expenses. See “Summary—Recent Developments.”

Completion of this notes offering is not contingent on completion of the Merger and completion of the Merger is not contingent on the completion of this notes offering. However, if for any reason the closing of the Merger has not occurred on or prior to February 7, 2019, or, if prior to such date, the Merger Agreement is terminated, then in either case we will be required to redeem the notes as described under “Description of the Notes—Special Mandatory Redemption.” See “Summary—Recent Developments.”

The following table outlines the sources and uses of funds for the Merger, reflecting the exercise by the underwriters of their respective options to purchase additional shares of common stock in the common stock offering and additional tangible equity units in the tangible equity units offering. The table assumes that the Merger, this notes offering, the expected USD notes offering and the common stock and tangible equity units offerings are completed simultaneously, but the common stock and tangible equity units offerings have already been completed and this notes offering and the expected USD notes offering are expected to occur before completion of the Merger. Amounts in the table are in millions of dollars and are estimated, and actual amounts may vary from the estimated amounts.

 

Sources of Funds

   

Uses of Funds

 
(in millions)       

Cash and cash equivalents

   $ 33     Merger consideration(3)   $ 6,331  

New Term Loan

     350     Merger and offering fees and expenses(4)     186  

Common stock offering(1)

     1,650    

Repayment of outstanding indebtedness(5)(6)

    1,047  

Tangible equity units offering(1)

     825    

Breakage costs related to debt repayment

    39  

Notes offered hereby and in the expected USD notes offering(1)(2)

     2,750     General corporate purposes     40  

Equity consideration to Frutarom shareholders and option holders(3)

     2,035      
  

 

 

     

 

 

 

Total Sources

   $ 7,643     Total Uses   $ 7,643  
  

 

 

     

 

 

 

 

(1)

Before underwriting discounts and expenses.

(2)

             million euro converted at an exchange rate of U.S. $1.1656 per euro, as of September 17, 2018.

(3)

Based on the number of Frutarom’s outstanding ordinary shares and share-based awards as of June 30, 2018 and a price per share of our common stock of $136.49, which was the closing price of our common stock on the NYSE on September 17, 2018.

(4)

Includes estimated underwriting discounts and expenses of this offering, the expected USD notes offering, the common stock and tangible equity units offerings and the Merger.

(5)

On September 17, 2018, we prepaid in full our (i) $100 million in aggregate principal amount of 6.35% Series B Senior Notes due 2019, (ii) $50 million in aggregate principal amount of 6.50% Series C Senior Notes due 2022 and (iii) $100 million in aggregate principal amount of 6.79% Series D Senior Notes due 2027.

(6)

We intend to repay approximately $797 million of outstanding Frutarom debt. The calculation of the amount of Frutarom’s debt to be repaid is as of June 30, 2018, and reflects the conversion into U.S. dollars of indebtedness denominated in foreign currencies (primarily euros) based on exchange rates as of June 30, 2018.

 

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CAPITALIZATION

The following sets forth our capitalization on a consolidated basis as of June 30, 2018:

 

   

on an actual basis;

 

   

on a pro forma as adjusted basis to reflect our common stock offering (reflecting the exercise of the underwriters’ option to purchase additional shares of our common stock), our tangible equity units offering (reflecting the exercise of the underwriters’ over-allotment option to purchase additional tangible equity units), the issuance and sale of notes offered hereby, after deducting underwriting discounts and estimated offering expenses payable by us, our expected offering of USD notes, the New Term Loan and the Merger.

This table should be read in conjunction with the other sections of this prospectus supplement and our consolidated financial statements and related notes incorporated by reference in this prospectus supplement and the accompanying prospectus. See “Incorporation of Certain Information by Reference” in this prospectus supplement. In addition, investors should not place undue reliance on the as adjusted or pro forma as adjusted information included below because this offering is not contingent upon completion of any of the transactions reflected in the adjustments below.

 

(in thousands)    As of June 30, 2018  
   Actual      Pro Forma
As Adjusted
 

Cash and cash equivalents

   $ 322,423      $ 523,897  
  

 

 

 

Commercial paper

             
  

 

 

    

 

 

 

Long-term debt:

     

Credit facilities

     103,988        103,998  

Series B, C, D Senior Notes(1)

     249,776         

3.20% Senior Notes due 2023

     298,823        298,823  

1.75% Senior Notes due 2024

     573,514        573,514  

4.375% Senior Notes due 2047

     492,941        492,941  

Senior amortizing notes that are components of the tangible equity units(2)

            135,075  

Notes offered hereby(3)

         

USD notes expected to be issued

         

New Term Loan

            347,429  

Other

     4,647        4,647  

Total debt(4)

     1,723,689     
  

 

 

    

 

 

 

Shareholders’ equity:

     

Common stock

     14,470        16,053  

Capital in excess of par value(5)

     167,432        3,765,054  

Retained earnings

     3,992,452        3,908,033  

Accumulated other comprehensive loss

     (692,498      (692,498

Treasury stock, at cost

     (1,732,001      (1,030,611

Total shareholders’ equity(6)

     1,749,855        5,966,031  
  

 

 

    

 

 

 

Total capitalization

   $ 3,473,544      $    
  

 

 

    

 

 

 

 

(1)

Includes (i) $100,000 aggregate principal amount 6.35% Series B Senior Notes due 2019, (ii) $50,000,000 aggregate principal amount 6.50% Series C Senior Notes due 2022 and (iii) $100,000,000 aggregate principal amount 6.79% Series D Senior Notes due 2027, which we prepaid in full on September 17, 2018.

 

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(2)

Each tangible equity unit includes an amortizing note. Approximately 17% of the stated amount of the tangible equity units is represented by the amortizing notes.

 

(3)

             million euro converted at an exchange rate of U.S. $1.1656 per euro as of September 17, 2018.

 

(4)

As of June 30, 2018, we had approximately $104.0 million outstanding under our revolving credit facility (including 90 million euro converted at an exchange rate of U.S. $1.1554 per euro as of June 30, 2018) and no borrowings outstanding under our commercial paper program.

 

(5)

Each tangible equity unit includes a purchase contract. We account for the purchase contracts that are components of the tangible equity units as equity and record the initial fair value of these purchase contracts, net of the underwriting discounts and estimated offering expenses allocated to the purchase contracts, as additional paid-in capital. The exact amount we record as additional paid-in capital will not be determined until our determination of the final offering expenses of, and our finalization of accounting treatment with respect to, the tangible equity units offering. Approximately 83% of the stated amount of the tangible equity units is represented by the purchase contracts and the underwriting discounts and estimated offering expenses allocated to the purchase contracts.

 

(6)

Does not include noncontrolling interest.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On May 7, 2018, IFF, Frutarom and Merger Sub entered into a merger agreement that provides for the acquisition of Frutarom by IFF. Subject to the satisfaction or waiver of certain other closing conditions, IFF will acquire Frutarom through the merger of Merger Sub with and into Frutarom, with Frutarom surviving the merger and becoming a wholly owned subsidiary of IFF.

The following unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the merger and certain other adjustments listed below.

The unaudited pro forma condensed combined balance sheet as of June 30, 2018, and the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively, are presented herein. The unaudited pro forma condensed combined balance sheet combines the unaudited consolidated balance sheets of IFF and Frutarom as of June 30, 2018, and gives effect to the merger as if it occurred on June 30, 2018. The unaudited pro forma condensed combined statements of operations combine the historical results of IFF and Frutarom for the six months ended June 30, 2018, and the year ended December 31, 2017, and give effect to the merger as if it occurred on January 1, 2017. The historical financial information has been adjusted to give effect to pro forma adjustments that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the unaudited condensed combined statements of operations, expected to have a continuing impact on the combined entity’s condensed results.

The merger of IFF and Frutarom will be accounted for using the acquisition method of accounting as per the provisions of Accounting Standards Codification 805, “Business Combinations”, which we refer to as ASC 805, with IFF representing the accounting acquirer under this guidance. The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of Regulation S-X and primarily give effect to the merger adjustments, which include:

 

   

Adjustments to reconcile Frutarom’s historical audited and unaudited financial statements prepared in accordance with IFRS as issued by the IASB to U.S. GAAP;

 

   

Conforming accounting policies and presentation;

 

   

Application of the acquisition method of accounting in connection with the merger;

 

   

Adjustments to reflect repayment of certain existing debt facilities of Frutarom and IFF as well as financing arrangements entered into in connection with the merger; and

 

   

Effect of acquisition-related costs in connection with the merger.

The pro forma adjustments included in this document are subject to modification based on changes in interest rates, changes in share prices, the final determination of the fair value of the assets acquired and liabilities assumed, additional analysis, and additional information that may become available, which may cause the final adjustments to be materially different from the pro forma condensed combined financial statements presented below. Following the consummation of the merger, IFF management will perform a detailed review of Frutarom’s accounting policies in an effort to determine if differences in accounting policies require further reclassification of Frutarom’s results of operations or reclassification of assets or liabilities to conform to IFF’s accounting policies and classification. As a result, IFF may subsequently identify additional material differences in the accounting policies which could have a material impact on the unaudited pro forma combined financial information.

The unaudited pro forma condensed combined financial information presented is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the merger had been completed on the dates set forth above, nor is it indicative of future results or financial position of the combined company. Additionally, the final determination of the purchase price and the

 

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purchase price allocation, upon the completion of the merger, will be based on Frutarom’s net assets acquired as of that date and will depend on a number of factors that cannot be predicted with certainty at this time. The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the merger or potential divestitures that may occur prior to, or subsequent to, the completion of the merger or any acquisition and integration costs that may be incurred. The pro forma adjustments, which IFF believes are reasonable under the circumstances, are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma condensed combined financial information. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. Any changes to IFF’s stock price, from September 17, 2018 through the date the merger is completed, will also change the purchase price, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the pro forma condensed combined financial statements presented in this document.

The unaudited pro forma condensed combined financial information should be read in conjunction with the notes to the unaudited pro forma condensed combined financial information, Frutarom’s audited financial statements for the year ended December 31, 2017 and Frutarom’s unaudited quarterly financial statements for the quarterly period ended June 30, 2018, as well as IFF’s consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the year ended December 31, 2017 and IFF’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2018

 

(In thousands, except per-share data)                                      
    Historical                                
    IFF
(US GAAP)
    FRUTAROM
(US GAAP)
    Purchase
Accounting
Adjustments
    Notes     Other Pro
Forma
Adjustments
    Notes     Total  

Assets

             

Current Assets:

             

Cash and Cash Equivalents

  $ 322,423     $ 119,807     $ (4,258,273     3     $ 4,339,940       6k     $ 523,897  

Trade receivables, net

    723,855       321,797                       1,045,652  

Inventory

    695,192       338,881       33,119       6c               1,067,192  

Prepaid expenses and other current assets

    285,110       27,949               (26,141     6h       286,918  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Current Assets

    2,026,580       808,434       (4,225,154       4,313,799         2,923,659  

Property, plant and equipment, net

    867,629       336,591                       1,204,220  

Goodwill

    1,148,586       589,250       3,723,185       6b               5,461,021  

Other intangible assets, net

    391,426       442,647       2,087,353       4               2,921,426  

Deferred income taxes assets

    82,204       4,512                       86,716  

Other assets

    157,017       41,054                       198,071  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Assets

  $ 4,673,442     $ 2,222,488     $ 1,585,384       $ 4,313,799       $ 12,795,113  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current Liabilities:

             

Short term borrowings

    6,500       397,601               198,088       6f       602,189  

Accounts payable

    315,656       225,998                       541,654  

Dividends payable

    54,488             21,093       3               75,581  

Other current liabilities

    322,726       26,359       47,007       4       (35,080     6l       361,012  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Current Liabilities

    699,370       649,958       68,100         163,008         1,580,436  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Long-term debt

    1,717,189       399,833               1,969,322       6f       4,086,344  

Retirement liabilities

    226,221       33,690                       259,911  

Deferred income tax liabilities

          66,234       401,790       6d               468,024  

Other liabilities

    274,459       19,802       (2,186     4               292,075  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Other Liabilities

    2,217,869       519,559       399,604         1,969,322         5,106,354  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Redeemable Noncontrolling Interest

          131,398                       131,398  

Shareholders’ Equity:

             

Common Stock

    14,470       17,094       (17,094     6e       1,583       6f       16,053  

Capital in excess of par value

    167,432       116,132       1,217,185       6e       2,264,305       6f       3,765,054  

Treasury stock, at cost

    (1,732,001     (3,693     705,083       6e               (1,030,611

Other equity

    3,299,954       787,494       (787,494     6e       (84,419     6e       3,215,535  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Shareholders’ Equity

    1,749,855       917,027       1,117,680         2,181,469         5,966,031  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Noncontrolling interest

    6,348       4,546                       10,894  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Shareholders’ Equity including NCI

    1,756,203       921,573       1,117,680         2,181,469         5,976,925  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

Total Liabilities and Shareholders’ Equity

  $ 4,673,442     $ 2,222,488     $ 1,585,384       $ 4,313,799       $ 12,795,113  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

 

See the accompanying “Notes to the Unaudited Pro Forma Condensed Combined Financial Information”, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2018

 

(In thousands, except per-share data)                                        
     Historical                                  
     IFF
(US GAAP)
    FRUTAROM
(US GAAP)
    Purchase
Accounting
Adjustments
    Notes      Other Pro
Forma
Adjustments
    Notes      Total  

Revenue:

                

Net sales

   $ 1,850,944     $ 786,110     $        $        $ 2,637,054  

Cost of goods sold

     1,046,419       466,928                         1,513,347  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Gross profit

     804,525       319,182                         1,123,707  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Expenses:

                

Research and development expenses

     153,244       30,770                         184,014  

Selling and administrative expenses

     300,051       141,640                (12,455     6h        429,236  

Restructuring and other charges, net

     1,903                               1,903  

Amortization of acquisition-related intangibles

     18,769       13,466       59,912       6a                 92,147  

Gain on sales of fixed assets

     1,195       (691                       504  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total expenses

     475,162       185,185       59,912          (12,455        707,804  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Operating profit

     329,363       133,997       (59,912        12,455          415,903  

Other income (expense):

                        

Interest expense

     69,841       12,758                43,670       6f        126,269  

Other (income) expense, net

     (21,232     (950              (10,979     6g        (33,161
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total other income (expense)

     48,609       11,808                32,691          93,108  

Income before taxes

     280,754       122,189       (59,912        (20,236        322,795  

Taxes on income

     52,190       23,600       (11,503     6a        (4,443     6j        59,844  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net income (Including Noncontrolling Interests)

     228,564       98,589       (48,409        (15,793        262,951  

Less: noncontrolling interests

           3,205                         3,205  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

   $ 228,564     $ 95,384     $ (48,409      $ (15,793      $ 259,746  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net income per share—basic

   $ 2.89     $ 1.60               $ 2.34  

Net income per share—diluted

   $ 2.87     $ 1.59               $ 2.31  

Basic shares outstanding

     79,041       59,678                 111,208  

Diluted shares outstanding

     79,347       60,057                 112,677  

See the accompanying “Notes to the Unaudited Pro Forma Condensed Combined Financial Information”, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2017

 

(In thousands, except per-share data)                                        
     IFF
(US GAAP)
    FRUTAROM
(US GAAP)
    Purchase
Accounting
Adjustments
    Notes      Other Pro
Forma
Adjustments
    Notes      Total  

Revenue:

                

Net sales

   $ 3,398,719     $ 1,362,396     $        $        $ 4,761,115  

Cost of goods sold

     1,919,718     $ 837,271                6,538       6i      $ 2,763,527  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Gross profit

     1,479,001       525,125                (6,538        1,997,588  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Expenses:

                

Research and development expenses

     286,026       43,644                9,443       6i        339,113  

Selling and administrative expenses

     557,311       246,332                12,833       6i        816,476  

Restructuring and other charges, net

     19,711       (340                       19,371  

Amortization of acquisition-related intangibles

     34,694       22,193       119,824       6a                 176,711  

Gain on sales of fixed assets

     (184     1,934                         1,750  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total expenses

     897,558       313,763       119,824          22,276          1,353,421  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Operating profit

     581,443       211,362       (119,824        (28,814        644,167  

Other (income) expense:

                

Interest expense

     65,363       10,075                84,595       6f        160,033  

Other (income) expense, net

     (20,965     13,325                (28,814     6i        (36,454
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total other (income) expense

     44,398       23,400                55,781          123,579  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Income before taxes

     537,045       187,962       (119,824        (84,595        520,588  

Taxes on income

     241,380       35,105       (23,486     6a        (20,179     6j        232,820  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net income (Including Noncontrolling Interests)

     295,665       152,857       (96,338        (64,416        287,768  

Less: noncontrolling interests

           4,895                         4,895  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

     295,665       147,962       (96,338        (64,416        282,873  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Net income per share—basic

     3.73       2.49                 2.54  

Net income per share—diluted

     3.72       2.48                 2.52  

Basic shares outstanding

     79,070       59,342                 111,237  

Diluted shares outstanding

     79,370       59,632                 112,700  

See the accompanying “Notes to the Unaudited Pro Forma Condensed Combined Financial Information”, which are an integral part hereof. The pro forma adjustments are explained in the notes below.

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(In US$ thousands, except per share data and as otherwise noted)

Note 1—Description of Business Combination

On May 7, 2018, International Flavors & Fragrances (“IFF”) entered into an Agreement and Plan of Merger (the “merger agreement”) with Frutarom Industries Ltd., a company organized under the laws of the State of Israel (“Frutarom”) and Icon Newco Ltd., a company organized under the laws of the State of Israel and a wholly owned subsidiary of IFF (“Merger Sub”). Pursuant to the merger agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into Frutarom (the “merger”), with Frutarom continuing as the surviving company in the merger and a wholly owned subsidiary of IFF.

At the completion of the merger, each ordinary share, par value Israeli New Shekel (to be referred as “NIS”) 1.00 per share, of Frutarom (the “Frutarom ordinary shares”) issued and outstanding immediately prior to the completion of the merger (other than Frutarom ordinary shares held by Frutarom as treasury stock (dormant shares) or held directly or indirectly by IFF, Merger Sub or any wholly owned subsidiary of Frutarom) will be converted into the right to receive (i) $71.19 in cash (the “cash consideration”) and (ii) 0.249 of a validly issued, fully paid and non-assessable share of common stock, par value $0.125 per share, of IFF (“IFF common stock”), with cash in lieu of fractional shares of IFF common stock otherwise issuable (such shares of IFF common stock and any such cash in lieu of fractional shares, together with the cash consideration, the “merger consideration”), in each case without interest and subject to applicable tax withholding.

At the completion of the merger, each Frutarom stock option and Frutarom restricted stock award that is outstanding and vested as of immediately prior to the completion of the merger, will be canceled in exchange for the right to receive the merger consideration in respect of each net share subject to such vested Frutarom stock option or Frutarom restricted stock award, less applicable tax withholding. For this purpose, “net share” means, with respect to a Frutarom stock option or Frutarom restricted stock award, the quotient of (i) the product of (A) the excess, if any, of the value of the merger consideration (calculated as specified in the merger agreement) over the exercise price or purchase price per Frutarom ordinary share (as applicable) subject to such Frutarom stock option or Frutarom restricted stock award, multiplied by (B) the number of Frutarom ordinary shares subject to such Frutarom stock option or Frutarom restricted stock award, divided by (ii) the value of the merger consideration.

The merger agreement provides for the Frutarom board of directors to declare a special dividend, on a per share basis, equal to the product of (a) 0.249 and (b) the aggregate per share value of IFF dividends with a record date after the date of the merger agreement and prior to the closing of the merger.

Note 2—Basis of Presentation

The accompanying unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X and was based on the historical financial statements of IFF and Frutarom as of and for the year ended December 31, 2017 and as of and for the six months ended June 30, 2018. IFF is deemed to be the accounting acquirer and the pro forma adjustments are preliminary and are based on estimates that are subject to change. The combined group will not be a “foreign private issuer” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Exchange Act, accordingly the pro forma information of the combined group is prepared in accordance with U.S. GAAP.

The unaudited pro forma condensed combined statements of operations were prepared using:

 

   

the historical unaudited consolidated statements of operations and comprehensive income of IFF for the six months ended June 30, 2018;

 

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the historical audited consolidated statements of operations and comprehensive income of IFF for the year ended December 31, 2017;

 

   

the historical unaudited condensed consolidated statements of operations of Frutarom for the six months ended June 30, 2018; and

 

   

the historical audited consolidated income statement of Frutarom for the year ended December 31, 2017.

IFF’s historical audited and unaudited financial statements were prepared in accordance with U.S. GAAP and presented in thousands of U.S. dollars. Frutarom’s historical audited and unaudited financial statements were prepared in accordance with IFRS as issued by the IASB and presented in thousands of U.S. dollars. Certain reclassifications were made to align Frutarom’s financial statement presentation with that of IFF (see Note 5).

Frutarom’s historical audited and unaudited financial statements were reconciled to U.S. GAAP. In addition, a preliminary review of IFRS to U.S. GAAP differences and related accounting policies has been completed based on information made available to date (see Note 5 for further information). However, following the consummation of the merger, IFF management will conduct a detailed review. As a result of that review, IFF management may identify differences that, when finalized, could have a material impact on the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined statements of operations also include certain purchase accounting adjustments, including items expected to have a continuing impact on the condensed combined results.

Note 3—Estimated Purchase Price

Pursuant to the merger, shareholders of Frutarom will receive $71.19 in cash and 0.249 shares of IFF’s common stock for each Frutarom ordinary share held prior to the merger. If the aggregate number of shares of IFF common stock to be issued pursuant to the merger agreement would exceed 19.9% of the issued and outstanding shares of IFF common stock immediately prior to the entry into the merger agreement, rounded down to the nearest whole share, the exchange ratio will be reduced by the minimum extent necessary such that the foregoing clause is no longer true, and the cash component of the merger consideration will also be increased accordingly.

 

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The following table summarizes the components of the preliminary estimated purchase price:

 

(In USD thousands, except share data and exchange ratio)            

Estimated Frutarom’s shares outstanding(i)

        59,654,657  

Cash consideration per share(ii)

      $ 71.19  
     

 

 

 

Total cash paid to shareholders of Frutarom

      $ 4,246,815  

Estimated cash paid to vested stock option holders(iii)

        11,458  

Estimated accrual for unvested stock option holders(iv)

        17,007  

Estimated closing dividend payable(v)

        21,093  
     

 

 

 

Estimated cash portion of purchase price

   A    $ 4,296,373  
     

 

 

 

Estimated Frutarom’s shares outstanding

        59,654,657  

Exchange ratio(vi)

        0.249  

Total common shares of IFF to be issued(viii)

        14,854,010  

IFF’s share price(vii)

        136.49  
     

 

 

 

Total equity consideration paid to shareholders of Frutarom

      $ 2,027,424  

Estimated equity consideration paid to vested stock Frutarom option holders(iii)

        7,283  
     

 

 

 

Estimated equity portion of purchase price

   B    $ 2,034,707  
     

 

 

 

Total estimated consideration to be paid

   A+B    $ 6,331,080  
     

 

 

 

 

(i)

Number of shares outstanding as of June 30, 2018.

(ii)

Cash consideration per share as per the merger agreement.

(iii)

Estimated cash and equity consideration payable to the vested Frutarom stock option holders on a diluted basis.

(iv)

Estimated pro rata portion of the unvested Frutarom stock options attributable to pre-combination services. The pro forma adjustment has been recorded in other current liabilities.

(v)

Estimated aggregate dividend payable to Frutarom shareholders prior to closing considering the exchange ratio, as set forth in the merger agreement, and cash dividends declared by IFF prior to closing. The aggregate amount of cash dividends declared per share of IFF with a record date occurring on or after the date of the merger agreement and prior to closing is equal to $1.42 per share. The amount is subject to change if IFF’s dividend rate changes prior to closing. The pro forma adjustment has been recorded in dividends payable.

(vi)

Exchange ratio as set forth in the merger agreement.

(vii)

Closing price of IFF’s common stock on the New York Stock Exchange on September 17, 2018.

(viii)

Common shares of IFF to be issued to Frutarom as merger consideration will be issued out of treasury shares of IFF (See Note 6(e)).

The final estimated merger consideration could significantly differ from the amounts presented in the unaudited pro forma condensed combined financial information due to movements in IFF’s common stock price up to the closing date of the merger. A sensitivity analysis related to the fluctuation in the IFF’s common stock price was performed to assess the impact a hypothetical change of 10% on the closing price of IFF’s common stock on September 17, 2018, would have on the estimated merger consideration and goodwill as of the closing date. The following table shows the change in stock price, estimated merger consideration and goodwill:

 

     Purchase Price      Estimated Goodwill  

As presented in the pro forma combined financial statements

     6,331,080        4,312,435  

10% increase in common stock price

     6,535,509        4,516,864  

10% decrease in common stock price

     6,126,651        4,108,006  

 

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Note 4—Preliminary Purchase Price Allocation

Under the acquisition method of accounting, Frutarom’s assets and liabilities will be recorded at fair value at the date of the completion of the merger and combined with the historical carrying amounts of the assets and liabilities of IFF. In the unaudited pro forma condensed combined balance sheet, IFF’s cost to acquire Frutarom has been allocated to the assets acquired, liabilities assumed and goodwill based upon management’s preliminary estimate of what their respective fair values would be as if the merger closed on June 30, 2018. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material.

IFF has not completed a full, detailed valuation analysis necessary to determine the fair values of Frutarom’s identifiable assets to be acquired, liabilities to be assumed and redeemable and non-redeemable noncontrolling interest. The preliminary calculation of assets acquired and liabilities assumed performed for the purposes of these unaudited pro forma condensed combined financial statements was primarily limited to the identification and calculation of preliminary values for the intangible assets, property and equipment, inventory, deferred taxes and contingent consideration. The calculations necessary to estimate the fair values of the assets acquired and liabilities assumed have been performed based on publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions, as there are limitations on the type of information that can be exchanged between IFF and Frutarom at this time. Where applicable, the benchmark information was corroborated with an income approach methodology such as the relief from royalty or multi-period excess earnings method. IFF will continue to refine its identification and valuation of assets to be acquired and the liabilities to be assumed as further information becomes available.

The estimated values of the assets acquired, liabilities assumed and redeemable and non-redeemable noncontrolling interest will remain preliminary until after closing of the merger, at which time IFF will determine the fair values of assets acquired and liabilities assumed. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion of the merger and will be based on the fair values of the assets acquired and liabilities assumed as of the merger closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial statements.

The following is a preliminary estimate of the assets to be acquired and the liabilities to be assumed by IFF in the merger, reconciled to the estimate of total consideration expected to be transferred (in USD thousands):

 

     Frutarom’s
U.S. GAAP
     Fair Value
Adjustments
     Fair value  
     (Note 5)                

Purchase Consideration

           6,331,080  

Identifiable net assets:

        

Inventories

     338,881        33,119        372,000  

Property, plant and equipment

     336,591               336,591  

Identifiable intangible assets

     442,647        2,087,353        2,530,000  

Deferred tax assets

     4,512               4,512  

All other assets (excluding goodwill)

     510,607               510,607  

Existing contingent consideration

     (42,186      2,186        (40,000

Transaction bonus

            (30,000      (30,000

Deferred tax liabilities

     (66,234      (401,790      (468,024

All other liabilities

     (1,061,097             (1,061,097
  

 

 

    

 

 

    

 

 

 

Total identifiable net assets

     463,721        1,690,868        2,154,589  

Redeemable Noncontrolling interest

     (131,398             (131,398

Noncontrolling interest

     (4,546             (4,546

Goodwill

     589,250        3,723,185        4,312,435  
  

 

 

    

 

 

    

 

 

 

Total

   $ 917,027      $ 5,414,053      $ 6,331,080  
  

 

 

    

 

 

    

 

 

 

 

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The amount allocated to identifiable intangible assets has been attributed to the following assets (in thousands):

 

     Estimated Useful
Life
   Amount  

Product Formulas

   10 years    $ 340,000  

Trade name

   20 years      140,000  

Customer relationships

   20 years      2,050,000  
     

 

 

 

Total identifiable intangible assets

      $ 2,530,000  
     

 

 

 

These intangible assets will be amortized over the estimated useful lives on a straight line basis. IFF believes that it represents the pattern in which economic benefits will be consumed.

In addition, pursuant to the merger agreement, the Frutarom board has the right to grant a transaction bonus to its CEO and selected employees before the merger is consummated to the extent of up to $20 million each. The transaction bonus to the CEO will be payable immediately prior to the closing of the merger. As of the date of this filing, management believes that the Frutarom board will approve the transaction bonus. The transaction bonus to employees is payable in two installments (i) 50% at closing and (ii) 50% after the completion of one year of service (subject to the terms of the merger agreement). IFF has determined that $30 million is a pre-merger expense to be accrued by Frutarom due to the fact that the transaction bonus was entered into by or on behalf of Frutarom. See table below (in USD thousands):

 

     Pre-combination
expense
     Post-combination
expense
 

CEO

   $ 20,000         

Selected employees

     10,000        10,000  
  

 

 

    

 

 

 

Total bonus

   $ 30,000      $ 10,000  
  

 

 

    

 

 

 

Accordingly, pro forma condensed combined balance sheet has been adjusted to reflect an adjustment of $30,000 for transaction bonus payable by Frutarom, declared before the merger is consummated. This amount together with $17,007 for the accrual for unvested Frutarom stock options attributable to pre-combination services (see Note 3) has been shown as an adjustment to other current liabilities.

Note 5—Adjustments to Frutarom’s Historical Financial Statements to Conform to U.S. GAAP

Frutarom’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB, which differs in certain material respects from U.S. GAAP.

The unaudited U.S. GAAP information includes a statement of financial position and statements of income of Frutarom derived from the historical consolidated financial statements as of and for the six months ended June 30, 2018 and the year ended December 31, 2017, prepared in accordance with IFRS as issued by the IASB. This balance sheet as of June 30, 2018 and statements of operations for the year ended December 31, 2017 and for the six months ended June 30, 2018 have been adjusted to reflect Frutarom’s consolidated statement of financial position and statements of profit or loss on a U.S. GAAP basis.

 

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Certain balances presented in the historical Frutarom’s financial statements included within the unaudited pro forma condensed combined financial information have been reclassified to conform the presentation to that of IFF as indicated in the tables as below:

UNAUDITED FRUTAROM US GAAP BALANCE SHEET

As of June 30, 2018

 

     Frutarom
(IFRS)
    Reclassification
Adjustments
    Notes      IFRS to
U.S. GAAP
Adjustments
    Notes      FRUTAROM
(U.S. GAAP)
 

Assets

              

Current Assets:

              

Cash and Cash Equivalents

   $ 119,807                       $ 119,807  

Accounts receivable:

                      

Trade

     296,906       (296,906     5a                  

Other

     24,891       (24,891     5a                  

Trade receivables, net

       321,797       5a                 321,797  

Prepaid expenses and advances to suppliers

     27,949       (27,949     5b                  

Prepaid expenses and other current assets

       27,949       5b                 27,949  

Inventory

     338,881                         338,881  
  

 

 

   

 

 

      

 

 

      

 

 

 
     808,434                         808,434  
  

 

 

   

 

 

      

 

 

      

 

 

 

Non-Current Assets:

              

Property, plant and equipment

     369,517                (32,926     5o        336,591  

Intangible assets

     1,031,897       (589,250     5c                 442,647  

Goodwill

           589,250       5c                 589,250  

Investment in associates and available for sale assets

     27,481       (27,481     5d                  

Deferred income tax assets

     4,512                         4,512  

Others

     13,573       (13,573     5d                  

Other assets

       41,054       5d                 41,054  
  

 

 

   

 

 

      

 

 

      

 

 

 
     1,446,980                (32,926        1,414,054  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Assets

   $ 2,255,414              $ (32,926      $ 2,222,488  
  

 

 

   

 

 

      

 

 

      

 

 

 

Liabilities and equity

              

Current liabilities

              

Short term bank credit and loans and current maturities of long-term loans

     397,601       (397,601     5e                  

Short-term borrowings

           397,601       5e                 397,601  

Accounts payable:

                      

Trade

     104,565       (104,565     5f              

Other

     156,365       (156,365     5g                  

Accounts Payable

           225,998       5f, 5g                 225,998  

Leases

     7,757                (7,757     5o         

Dividends payable

                              

Other current liabilities

           34,932       5g        (8,573     5n        26,359  
  

 

 

   

 

 

      

 

 

      

 

 

 
     666,288                (16,330        649,958  
  

 

 

   

 

 

      

 

 

      

 

 

 

NON-CURRENT LIABILITIES:

              

Long-term loans, net of current maturities

     399,833                         399,833  

Retirement benefit obligations, net

     33,690                         33,690  

Deferred income tax liabilities

     66,234                     66,234  

Leases

     25,322                (25,322     5o         

Liability for shareholders of subsidiaries and other

     142,627       (19,802     5h        (122,825     5n         

Other liabilities

           19,802       5h                 19,802  
  

 

 

   

 

 

      

 

 

      

 

 

 
     667,706                (148,147        519,559  
  

 

 

   

 

 

      

 

 

      

 

 

 

TOTAL LIABILITIES

     1,333,994                (164,477        1,169,517  

Redeemable Noncontrolling Interest

            131,398       5n        131,398  

Equity attributable to owners of the parent:

              

Ordinary shares

     17,094                         17,094  

Other capital surplus

     116,132       (116,132     5i                  

Capital in excess of par value

       116,132       5i                 116,132  

Translation differences

     (85,299     85,299       5j                  

Retained earnings

     872,640       (872,640     5j                  

Less-cost of company shares held by the company

     (3,693     3,693       5j                  

Treasury stock, at cost

           (3,693     5j                 (3,693

Other equity

       787,341       5j        153       5n        787,494  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Shareholders’ Equity

     916,874                153          917,027  

Noncontrolling interest

     4,546                         4,546  
  

 

 

   

 

 

      

 

 

      

 

 

 

TOTAL EQUITY

   $ 921,420              $ 153        $ 921,573  
  

 

 

   

 

 

      

 

 

      

 

 

 

TOTAL EQUITY AND LIABILITIES

   $ 2,255,414              $ (32,926      $ 2,222,488  
  

 

 

   

 

 

      

 

 

      

 

 

 

 

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UNAUDITED FRUTAROM US GAAP STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

 

     Frutarom
IFRS
    Reclassification
Adjustments
    Notes      IFRS to U.S. GAAP
Adjustments
    Notes      Frutarom
U.S. GAAP
 

Revenue:

              

Net sales

     786,110                         786,110  

Cost of Sales

     466,928       (466,928     5k                  

Cost of goods sold

           466,928       5k                 466,928  
  

 

 

   

 

 

      

 

 

      

 

 

 

Gross profit

     319,182                         319,182  

Selling, marketing, research and development expenses—net

     134,697       (134,697     5l                  

Research and development expenses

           30,770       5l                 30,770  

Selling and administrative expenses

           141,640       5l                 141,640  

General and administrative expenses

     51,179       (51,179     5l                  

Amortization of acquisition-related intangibles

           13,466       5l                 13,466  

Other expenses—net

     (315     315       5l                  

Gain on sales of fixed assets

           (691     5l                 (691

Group’s share of earnings of companies accounted for at equity

     (1,326     1,326       5l                  
  

 

 

   

 

 

      

 

 

      

 

 

 

Income From Operations

     134,947       (950                 133,997  

Financial Expenses—net

     12,758       (12,758     5m                  

Interest Expense

           12,758       5m                 12,758  

Other (income) expense, net

       (950     5l                 (950
  

 

 

   

 

 

      

 

 

      

 

 

 

Income Before Taxes on Net Income

     122,189                         122,189  

Income Tax

     23,600                         23,600  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net income (Including
Noncontrolling Interests)

     98,589                         98,589  

Less: noncontrolling interests

     756                2,449       5n        3,205  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

     97,833                (2,449        95,384  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net income per share — basic

     1.64                 1.60  

Net income per share — diluted

     1.63                 1.59  

 

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UNAUDITED FRUTAROM US GAAP STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

 

     Frutarom
IFRS
    Reclassification
Adjustments
    Notes    IFRS to U.S. GAAP
Adjustments
    Notes    Frutarom
U.S. GAAP
 

Revenue:

              

Net sales

   $ 1,362,396     $        $        $ 1,362,396  

Cost of Sales

     837,271       (837,271   5k                

Cost of goods sold

           837,271     5k               837,271  
  

 

 

   

 

 

      

 

 

      

 

 

 

Gross profit

     525,125                         525,125  

Selling, marketing, research and development expenses—net

     220,014       (220,014   5l                

Research and development expenses

           43,644     5l               43,644  

Selling and administrative expenses

           246,332     5l               246,332  

General and administrative expenses

     92,155       (92,155   5l                

Amortization of acquisition-related intangibles

           22,193     5l           22,193  

Restructuring and other charges, net

           (340   5l           (340

Other expenses—net

     3,392       (3,392   5l                

Gain on sales of fixed assets

           1,934     5l               1,934  

Group’s share of earnings of companies accounted for at equity

     (1,402     1,402     5l                
  

 

 

   

 

 

      

 

 

      

 

 

 

Income From Operations

     210,966       396                   211,362  

Financial Expenses—net

     24,606       (24,606   5m                

Interest Expense

           10,075     5m               10,075  

Other (income) expense, net

       14,927     5l, 5m      (1,602   5p      13,325  
  

 

 

   

 

 

      

 

 

      

 

 

 

Income Before Taxes on Net Income

     186,360                1,602          187,962  
  

 

 

   

 

 

      

 

 

      

 

 

 

Income Tax

     34,797                308     5p      35,105  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net income (Including
Noncontrolling Interests)

     151,563                1,294          152,857  

Less: noncontrolling interests

     1,884                3,011     5n      4,895  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

   $ 149,679     $        $ (1,717      $ 147,962  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net income per share—basic

   $ 2.52               $ 2.49  

Net income per share—diluted

   $ 2.51               $ 2.48  

 

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Adjustments included in the column “Reclassification Adjustments” are as follows:

Represents certain reclassifications of historical Frutarom’s financial statement line items to conform to the expected financial statement line items of the combined group including:

Balance sheet items:

 

a)

Accounts receivable: Trade and Other have been reclassified to Trade receivables, net;

 

b)

Prepaid expenses and advances to suppliers have been reclassified to Prepaid expenses and other current assets;

 

c)

The portion of intangible assets that relates to goodwill was classified separately as goodwill;

 

d)

Investment in associates and available for sale assets and Others have been reclassified to Other assets;

 

e)

Short term bank credit and loans and current maturities of long-term loans have been reclassified to Short-term borrowings;

 

f)

Accounts payable: Trade has been reclassified to Accounts Payable;

 

g)

Accounts payable: Other has been reclassified as follows: (i) an amount of $34,932 that represents $8,572 of Put-Option liability and $26,360 of the current portion of Contingent consideration, has been reclassified to Other current liabilities, and (ii) the remaining balance of $121,433 has been reclassified to Accounts Payable. See Note 5(h) for the reclassification for the long-term portion of the contingent consideration.

 

h)

The portion of liability for shareholders of subsidiaries and other that relates to long term portion of contingent consideration has been reclassified to Other liabilities;

 

i)

Other capital surplus has been reclassified to Capital in excess of par value; and

 

j)

Translation differences and Retained earnings have been condensed into other equity. Cost of company shares held by Frutarom have been reclassified to Treasury stock, at cost.

Statement of income items:

 

k)

Cost of Sales have been reclassified to Cost of goods sold;

 

l)

Selling, marketing, research and development expenses—net, General and administrative expenses, Other expenses—net and Group’s share of earnings of companies accounted for at equity have been reclassified in accordance with IFF’s presentation as below:

 

Frutarom’s Presentation    Year ended
Dec 31, 2017
    Period ended
June 30, 2018
   

IFF’s Presentation

   Year ended
Dec 31, 2017
    Period ended
June 30, 2018
 

Selling, marketing, research and development expenses—net

   $ 220,014     $ 134,697    

Research and development expenses

   $ 43,644     $ 30,770  

General and administrative expenses

     92,155       51,179    

Selling and administrative expenses

     246,332       141,640  

Other expenses—net

     3,392       (315  

Restructuring and other charges, net

     (340      

Group’s share of earnings of companies accounted

     (1,402     (1,326  

Amortization of acquisition-related intangibles

     22,193       13,466  
      

Losses (Gain) on sales of fixed assets

     1,934       (691
      

Other (income) expense, net

     396       (950
  

 

 

   

 

 

      

 

 

   

 

 

 
   $ 314,159     $ 184,235        $ 314,159     $ 184,235  
  

 

 

   

 

 

      

 

 

   

 

 

 

 

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m)

The Portion of Financial Expenses – net that relates to expenses on debt have been reclassified to Interest Expense and the remaining portion that relates to foreign exchange gain or loss has been reclassified to Other (income) expenses, net.

Adjustments included in the column “IFRS to U.S. GAAP Adjustments” are as follows:

The following adjustments have been made to convert Frutarom’s historical balance sheet as of June 30, 2018 and statement of operations for the six months ended June 30, 2018 and the year ended December 31, 2017 to U.S. GAAP for purposes of the pro forma presentation:

 

n)

Reflects an adjustment to reclassify put option liability as redeemable noncontrolling interest to mezzanine equity. As part of several acquisitions effected by Frutarom, the noncontrolling interest holders of the acquired entities were granted an option to sell (“Put option”) their respective interests to Frutarom. In accordance with IFRS, Frutarom recognized a liability for such put options. Under U.S. GAAP, IFF determined the put options cannot be separated from the noncontrolling interest and the combination of a noncontrolling interest and the redemption feature require classification of such noncontrolling interest as a redeemable noncontrolling interest in the combined balance sheet. Further, those noncontrolling interests which are not currently redeemable but are probable to become redeemable are measured using the present value of the redemption value as of the earliest redemption date and the noncontrolling interests which are currently redeemable are measured at the maximum redemption amount. IFF has reviewed the computation of liabilities for put option under IFRS and determined that the amounts to be recorded for redeemable non-controlling interest under U.S. GAAP would be materially the same as the amount of such liabilities for put option recorded under IFRS. Accordingly, the unaudited pro forma condensed combined balance sheet as at June 30, 2018 was adjusted to reclassify the current and non-current portion of liability for put option that represented redeemable portion of noncontrolling interest as mezzanine equity which is presented between total liabilities and shareholders’ equity. In addition, as a result of the reclassification to mezzanine equity, a portion of the profit has been allocated to the relevant NCI in accordance with U.S. GAAP.

 

o)

For the year ended December 31, 2017, Frutarom accounted for the lease arrangements entered into under IAS 17—Leases (“IAS 17”). Frutarom has elected to early adopt IFRS 16—Leases (“IFRS 16”) issued by the IASB, as of January 1, 2018, which requires entities to recognize a lease liability that reflects future lease payments and a “right-of-use” asset in all lease arrangements, with no distinction between capital/finance and operating leases subject to an exemption of certain short term leases or leases of low value assets. As a result of the early adoption of IFRS 16, Frutarom has recorded its operating leases as a “right to use” asset along with a corresponding lease liability in its historical balance sheet for the six months ended June 30, 2018. Regarding all leases, Frutarom applied the transitional provisions under IFRS 16 such that it initially recognized a liability at the commencement date at an amount equal to the present value of the lease payments during the lease, discounted using the effective interest rate as of that date, and concurrently recognized a right-of-use asset at an amount identical to the liability. As a result, adoption of the standard had no impact on equity and retained earnings of Frutarom as of initial application. IFF will adopt ASC 842 beginning January 1, 2019. Accordingly, IFF will reverse changes made by Frutarom under IFRS 16 and leases are accounted for under ASC 840 for the six months ending June 30, 2018.

 

p)

Expected return on plan assets—Under IFRS, companies calculate a net interest cost (income) by applying the discount rate to the net pension benefit obligation or asset, while U.S. GAAP requires companies to calculate a separate return on plan assets using an estimated long-term rate of return on plan assets. The interest cost on the pension benefit obligation is generally the same under both IFRS and U.S. GAAP.

 

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The following is a summary of the calculation of the pro forma statement of operations adjustment of $1.6 million for the year ended December 31, 2017 relating to the expected return on plan assets. This adjustment is due to the different asset return rates used for IFRS versus U.S. GAAP and has been calculated using the following methodology:

 

Plan Asset

   $ 28,699  

Rate Differential:

  

Expected rate on plan assets

     6.63%  

Weighted average discount rate

     1.04%  

Difference in rates

     5.58%  

Pro forma adjustment

   $ 1,602  

The expected long-term rate of return on pension plan assets was estimated based on the plan’s investment strategy and asset allocation, historical capital market performance, and historical performance.

The tax impact of the pro forma statement of operations adjustment was estimated using Frutarom’s statutory tax rate in the jurisdictions expected to be impacted.

An adjustment for the six months ended June 30, 2018 has not been calculated since management believes that the adjustment is not material.

No pro forma balance sheet adjustment is required because the amounts recorded for pension assets and obligations will not change materially as a result of purchase accounting.

Note 6 –Pro Forma Adjustments

Adjustments included in the unaudited pro forma condensed combined balance sheet are represented by the following:

 

a)

Represents the adjustments to recognize additional amortization expense related to the increased basis of intangible assets (see Note 4), which have been recorded at estimated fair value on a pro forma basis and will be amortized over the estimated useful lives on a straight line basis. As part of the preliminary valuation analysis, IFF identified intangible assets related to product formulas, trade name and customer relationships.

The following table summarizes the estimated fair values of Frutarom’s identifiable intangible assets and their estimated useful lives and uses a straight line method of amortization (in USD thousands):

 

     Estimated Fair
Value
     Estimated Useful
Life (in Years)
     For the Six
Months Ended
June 30, 2018
     For the Year
Ended December 31
2017
 

Intangible assets

           

Product formulas

     340,000        10        17,000        34,000  

Trade name

     140,000        20        3,500        7,000  

Customer relationships

     2,050,000        20        51,250        102,500  
  

 

 

       

 

 

    

 

 

 
     2,530,000           71,750        143,500  
  

 

 

          

Less: Historical amortization expense

           11,838        23,676  
        

 

 

    

 

 

 

Pro forma adjustment

         $ 59,912      $ 119,824  
        

 

 

    

 

 

 

The estimated tax impact of the fair market value adjustments on the amortization expense is reflected in the statements of operations using the weighted average statutory tax rate of the jurisdictions expected to be impacted.

 

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A 10% change in the valuation of definite lived intangible assets would cause a corresponding increase or decrease in the balance of goodwill and would also cause a corresponding increase or decrease in the annual amortization expense of approximately $14,350.

 

b)

The pro forma condensed combined balance sheet has been adjusted to reflect the elimination of Frutarom’s historical goodwill of $589,250 and to record goodwill resulting from the merger of $4,312,435. Recorded goodwill is calculated as the difference between the fair value of the purchase price paid and the preliminary values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. See Note 4 for the calculation of the amount of preliminary goodwill recognized in connection with the merger.

 

c)

The pro forma condensed combined balance sheet has been adjusted to step up Frutarom’s inventory to a fair value of approximately $372,000, an increase of $33,119 from the carrying value. This fair value estimate of inventory is preliminary and is determined based on the assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their best use. The final fair value determination for inventories may differ from this preliminary determination. No adjustment to the unaudited pro forma condensed combined statement of operations has been recorded since the step up of inventory does not have a continuing impact on the combined company.

 

d)

The pro forma condensed balance sheet has been adjusted to include the adjustment to deferred tax liabilities, on a preliminary basis, of $401,790 resulting from the pro forma fair value adjustments for inventory, intangible assets (excluding goodwill which is not tax deductible), and liabilities utilizing a weighted average statutory rate for the jurisdictions expected to be impacted. Because the tax rate used for these pro forma financial statements is an estimate, it will likely vary from the actual rate in periods subsequent to the completion of the merger and those differences may be material.

 

e)

The pro forma condensed combined balance sheet has been adjusted to reflect an adjustment of $917,027 to eliminate Frutarom’s historical shareholders’ equity, which represents the historical book value of Frutarom’s net assets, as a result of the merger. The pro forma adjustment to equity also reflects the issue of IFF shares to Frutarom out of the treasury shares of the Company as part of the purchase consideration (Note 3). The cost to reissue treasury stock is determined using the average cost method. See table below for more details:

 

     Reversal of
Frutarom’s
equity
     Issue of
IFF’s shares
to Frutarom
     Pro forma
adjustment
 

Common Stock

     (17,094             (17,094

Capital in excess of par value

     (116,132      1,333,317        1,217,185  

Treasury stock, at cost

     3,693        701,390        705,083  

Other equity

     (787,494             (787,494
  

 

 

    

 

 

    

 

 

 

Total

   $ (917,027    $ 2,034,707      $ 1,117,680  
  

 

 

    

 

 

    

 

 

 

 

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In addition, other pro forma adjustments to other equity include the following adjustments:

 

     Amount      Tax
impact
     Pro forma
adjustment
 

Adjustment related to extinguishment of IFF’s debt (Note 6f)

     (38,841      8,173        (30,668

Adjustment related to acquisition related cost (Note 6h)

     (38,046             (38,046

Adjustment related to bridge finance commitment fee (Note 6h)

     (29,224      6,838        (22,386

Adjustment related to fair valuation of derivatives (Note 6g)

     8,463        (1,782      6,681  
     

 

 

    

 

 

 

Total

      $ 13,229      $ (84,419
     

 

 

    

 

 

 

 

f)

IFF expects to finance the merger with a combination of up to $3.2 billion of new debt, cash on hand and up to $2.3 billion in equity. The financing is expected to consist of (i) issuing new par value debt in the form of notes of approximately $2,750 million at a weighted average effective interest rate of 3.44% per annum with maturities ranging from 2 – 30 years, a portion of which will be denominated in currencies other than the U.S. dollar (ii) obtaining a new term loan facility of up to $350 million (iii) the recent issuance of new Tangible Equity Units (TEU) of $825 million, securities consisting of (a) 3-year prepaid common stock purchase contract of approximately $685.5 million and (b) 3-year amortizing bond of approximately $139.5 million at an effective interest rate of 5.83%, and (iv) the recent issuance of new common shares for $1,650 million.

Based on the expected structure of the TEUs, IFF expects the purchase contract component of the TEUs to meet equity classification which has been reflected as such in the unaudited pro forma condensed combined balance sheet. The classification of the TEU will be subject to detailed assessment once finalized and a different conclusion may result in a material impact on these unaudited pro forma condensed combined financial information.

IFF has entered into a debt commitment letter with Morgan Stanley Senior Funding, Inc. to obtain a 364-day bridge facility of up to $5,450 million to the extent IFF does not receive $5,450 million of net cash proceeds from the financing arrangements discussed above. This bridge facility is not expected to be utilized, and thus the fee of the bridge facility financing totaling $39.8 million is not included in the calculation of pro forma interest expense but will be considered an acquisition related cost (see Note 6(h)). On June 6, 2018, IFF entered into a term loan credit agreement to replace a portion of the bridge facility, reducing the amount of the bridge facility by $350 million. If IFF is not able to consummate the financing discussed above, and instead must utilize the bridge facility to fund the acquisition, the adjustment to annual interest expense is expected to be approximately $66.2 million for the six months ended June 30, 2018 and $132.3 million for the year ended December 31, 2017 respectively. Financial expenses related to the amortization of the fee for bridge financing recognized by IFF during the six months ended June 30, 2018, amounting to $10.6 million, have been removed for pro forma purposes, since it does not have a continuing impact (see Note 6(h)). In addition, the accrual created by the Company for the bridge financing fee of $12 million as of June 30, 2018 has been reversed to reflect the total impact of estimated bridge facility financing to cash and retained earnings on pro forma balance sheet (see Note 6(l))

IFF intends to retire all of Frutarom’s existing debt utilizing funds raised by the expected financing arrangements above. Additionally, in connection with the merger, IFF intends to prepay in full IFF’s current outstanding senior secured notes due 2019-2027. Pursuant to this, IFF will incur certain pre-payment penalties and swap unwind costs. These transactions will be treated as an extinguishment of debt, with a loss of $38.8 million associated with the pre-payment of senior secured notes due 2019-2027 along with swap unwind fee. The loss on extinguishment is reflected in the unaudited pro forma balance sheet as a reduction of retained earnings and a reduction of cash as it will be expensed by IFF. It is not reflected in the pro forma statement of operations due to its nonrecurring nature.

 

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The following pro forma adjustments have been recorded in the pro forma condensed combined balance sheet in relation to the new debt (in USD thousands):

 

     As of
June 30,
2018
 

Term loan

     350,000  

Senior notes

     2,750,000  

Debt portion of TEUs

     139,472  

Debt issuance costs

     (24,852

Extinguishment of Frutarom’s existing debt

     (797,434

Repayment of IFF’s existing debt

     (249,776
  

 

 

 

Pro forma adjustment

   $ 2,167,410  
  

 

 

 

Allocated to:

  

Short-term borrowings

     198,088  

Long-term debt

     1,969,322  
  

 

 

 

Pro forma adjustment

   $ 2,167,410  
  

 

 

 

The following pro forma adjustments have been recorded in the pro forma condensed combined balance sheet in relation to the issuance of equity, net of issuance costs (in USD thousands):

 

     Issue of
common stock
     Equity
portion of
Tangible
equity units
     Pro forma
adjustment
 

Common Stock

     1,583               1,583  

Capital in excess of par value

     1,600,392        663,913        2,264,305  
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,601,975      $ 663,913      $ 2,265,888  
  

 

 

    

 

 

    

 

 

 

The following pro forma adjustments have been recorded in the pro forma condensed combined statements of operations (in USD thousands):

 

     Six Months
Ended June 30,
2018
     Year Ended
December 31,
2017
 

Interest expense on Term Loan

     4,528        12,679  

Interest expense TEU notes

     2,543        6,964  

Interest on Senior Notes

     41,057        91,465  

Frutarom Interest Expense

     (10,600      (10,075

Retirement of IFF Senior Notes

     (8,219      (16,438

Reversal of fee recognized for bridge financing

     (10,576       

Reversal of mark-to-market gain recognized foreign currency forward (note 6g)

     24,937         
  

 

 

    

 

 

 

Total pro forma adjustment

   $ 43,670      $ 84,595  
  

 

 

    

 

 

 

The weighted-average interest rate on the new term loan, new senior notes and amortizing bond (TEU) as of the issuance is expected to be 3.62%. The actual financing and terms of the financing will be subject to market conditions. A 1/8% change in interest rates on the debt to be incurred as part of the merger would result in a change in interest expense of $5.1 million annually.

 

g)

IFF entered into deal contingent foreign currency forward contract and interest rate swaps. The deal contingent foreign currency forward serves as an economic hedge of the Euro denominated portion of the senior notes to be issued, while the deal contingent interest rate swaps serve as an economic hedge of the

 

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  underlying interest rate of the USD denominated senior notes. Upon securing the permanent financing, IFF intends to net settle these derivatives with the financial institutions by making or receiving payment. The foreign currency forward and interest rate swaps have not been considered to be designated as a hedge for the purposes of pro forma financial information. As of September 17, 2018, the foreign currency forward had a fair value of a gain of approximately $14,645 and the interest rate swaps had a fair value of a loss of approximately $6,182. For the purpose of the unaudited pro forma financial statements, recognition of these derivatives have been considered an event that is directly attributable to the merger, however, since these are deal contingent, there is no continuing impact. Accordingly, the pro forma balance sheet has been adjusted to reflect the fair value of these derivatives as of September 17, 2018, as if these derivatives were settled on the said date increasing cash and retained earnings. No future impact on pro forma statement of operations is considered due its non-recurring nature. However, during the six months ended June 30, 2018, IFF recognized $24,937 of mark-to-market gain related to interest rate swaps under Financing expenses – net, and $10,979 of mark-to-market loss relates to foreign current forward under Other (income) expenses, net. The unrealized gain/loss recognized by IFF on mark-to-market valuation of these derivatives during the six months ended June 30, 2018, has been eliminated from the pro forma statement of operations, since it does not have a continuing impact. The pro forma adjustments were tax effected using the worldwide weighted average statutory tax rate in the jurisdictions to which the adjustments are expected to relate.

 

h)

The pro forma condensed combined balance sheet has been adjusted to reflect an adjustment of $93,801 for estimated acquisition-related costs consisting of bridge facility financing fees of $39,800 and professional, legal and other acquisition-related fees of $50,501. Pursuant to the requirements for the preparation of pro forma financial information under Article 11 of Regulation S-X, these acquisition-related costs are not included in the pro forma condensed combined statements of operations, since these costs are nonrecurring. During the six months ended June 30, 2018, IFF recognized $12,455 as acquisition-related expenses. The Company paid $2,605 of these expenses and $9,850 are accrued as liability in the balance sheet as of June 30, 2018. The remaining costs expected to be paid in the future are reflected in the unaudited pro forma condensed combined balance sheet as a decrease to cash and cash equivalents, with the related tax benefits reflected as a decrease in other current liabilities and the after tax impact presented as a decrease to retained earnings. The acquisition-related costs recognized by IFF during the six months ended June 30, 2018, have been eliminated from the pro forma statement of operation, since it does not have a continuing impact. The adjustment related to acquisition-related cost in the pro forma financial statements is summarized below:

 

     Total
estimated
cost
     Paid until
June 30,
2018
    Pro Forma
adjustment
to cash
     Expense
recognized during
Six Months ended
June 30, 2018
    Pro forma
adjustment to
retained
earnings
 

Bridge financing fee

     39,800        (24,716     15,084        (10,576     29,224  

Acquisition-related cost

     50,501        (2,605     47,896        (12,455     38,046  
       

 

 

      

 

 

 
        $ 62,980        $ 67,270  
       

 

 

      

 

 

 

 

i)

The pro forma condensed combined statement of operation has been adjusted for the impact of the adoption of ASU 2017-07—Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, to present the non-service components of periodic pension cost to “Other (income) expense, net” in the pro forma condensed combined statements of operations.

 

j)

The estimated tax impact of the interest expense adjustments have been reflected in the pro forma condensed combined statement of operation using the weighted average statutory tax rate of the jurisdictions expected to be impacted. Because the tax rate used for these pro forma financial statements is an estimate, it will likely vary from the actual rate in periods subsequent to the completion of the business combination and those differences may be material.

 

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k)

The following table summarizes the pro forma adjustments to cash and cash equivalent (in USD thousands):

 

     Pro Forma
adjustment
 

Proceeds from debt financing (Note 6f)

     2,167,410  

Proceeds from equity financing (Note 6f)

     2,265,888  

Prepayment penalty and loss-unwind fee (Note 6f)

     (38,841

Payment of Acquisition-related cost (Note 6h)

     (62,980

Net payment upon settlement of derivatives (Note 6g)

     8,463  
  

 

 

 

Total

   $ 4,339,940  
  

 

 

 

 

l)

The following table summarizes the pro forma adjustments to other current liabilities (in USD thousands):

 

     Pro Forma
adjustment
 

Tax impact of adjustment posted (Note 6e)

     13,229  

Reversal of accrual created for bridge financing fee (Note 6f)

     12,001  

Reversal of accrual created for acquisition related cost (Note 6h)

     9,850  
  

 

 

 
   $ 35,080  
  

 

 

 

Note 7—Pro Forma Earnings Per Share

The following table presents the calculation of pro forma combined basic and diluted net loss per share of common stock, after giving effect to:

 

  (a)

the preliminary estimated number of shares of IFF common stock to be issued as part of purchase consideration calculated using the exchange ratio;

 

  (b)

the preliminary estimated number of shares of IFF common stock to be issued in order to finance the acquisition; and

 

  (c)

the dilutive impact of equity portion of the tangible equity units

for the year ended December 31, 2017 and the six months ended June 30, 2018 (in USD thousands, except per share amounts):

 

     Year Ended
December 31, 2017
     Six Months Ended
June 30, 2018
 

Pro forma net profit attributable to stockholders

     282,873        259,746  

Weighted average number of IFF shares outstanding—Basic

     79,070        79,041  

IFF shares issued to Frutarom as part of purchase consideration (Note 3)

     14,907        14,907  

Fresh equity of common stock to finance the acquisition (Note 6f)

     12,089        12,089  

Common stock issuable upon conversion of Tangible equity units

     5,171        5,171  
  

 

 

    

 

 

 

Pro forma weighted average number shares outstanding—Basic

     111,237        111,208  

Weighted average number of IFF shares outstanding—Diluted

     79,370        79,347  

IFF shares issued to Frutarom as part of purchase consideration (Note 3)

     14,907        14,907  

Fresh equity of common stock to finance the acquisition (Note 6f)

     12,089        12,089  

Diluted common stock issuable upon conversion of Tangible equity units

     6,334        6,334  
  

 

 

    

 

 

 
     112,700        112,677  

Pro forma net income per share of common stock—Basic

     2.54        2.34  

Pro forma net income per share of common stock—Diluted

     2.52        2.31  

 

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DESCRIPTION OF THE NOTES

The following description supplements and, to the extent inconsistent therewith, replaces the description of the general terms and provisions of the debt securities set forth in the accompanying prospectus.

The notes will be governed by an indenture, dated as of March 2, 2016, between us and U.S. Bank National Association, as trustee, as supplemented by a supplemental indenture with respect to the notes. We refer to the indenture, as so supplemented, as the “indenture.” The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

The following discussion summarizes the material provisions of the notes and the indenture. Because this is only a summary, it is not complete and does not describe every aspect of the notes and the indenture, and is subject to, and is qualified in its entirety by reference to, all the provisions of the indenture, including definitions of certain terms in the indenture. You should read the indenture for provisions that may be important to you, but which are not included in this summary.

General

We are offering €         aggregate principal amount of our 20                notes and €         aggregate principal amount of our 20                notes. We may from time to time, without giving notice to or seeking the consent of the holders of the original notes, issue notes having the same ranking and the same interest rate, maturity and other terms as the original notes. Any additional notes having such similar terms, together with the applicable original notes, will constitute a single series of notes under the indenture, provided that any such further notes are issued pursuant to a “qualified reopening” of the original notes, are otherwise treated as part of the same “issue” of debt instruments as the original notes or are issued with no more than a de minimis amount of original discount, in each case for U.S. federal income tax purposes.

The 20                notes will bear interest at     % per annum and the 20                notes will bear interest at     % per annum. Interest on the notes will accrue from                 , 2018, and will be payable annually in cash in arrears on                 of each year, beginning                 , 2019, to holders of record at the close of business on                 (whether or not that date is a business day), immediately preceding such interest payment date. The 20                notes will mature on                 , 20                  and the 20                notes will mature on                 , 20    .

Interest on the notes will be computed on the basis of the actual number of days in the period for which interest is being calculated and the actual number of days from and including the last date on which interest was paid on the notes, to but excluding the next scheduled interest payment date. This payment convention is referred to as ACTUAL/ACTUAL (ICMA) as defined in the rulebook of the International Capital Market Association.

Any payment otherwise required to be made in respect of the notes on a date that is not a business day may be made on the next succeeding business day with the same force and effect as if made on that date. No additional interest will accrue as a result of a delayed payment. A “business day” is defined in the indenture as any day, other than a Saturday or Sunday, (1) which is not a day on which banking institutions in The City of New York or The City of London are authorized or required by law or executive order to close and (2) on which the Trans-European Automated Real-time Gross Settlement Express Transfer system (the TARGET2 system), or any successor thereto, operates.

The notes will be issued only in fully registered, book-entry form without coupon and in minimum denominations of €100,000 and in integral multiples of €1,000 above that amount. The notes will be represented by one or more global securities registered in the name of the nominee of the common depositary, for, and in respect of interests held through, Clearstream and Euroclear. Except as described below under “—Book-Entry Issuance; Delivery and Form,” the notes will not be issuable in certificated form.

 

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Ranking

The notes will be our direct, unsecured and unsubordinated obligations and will rank equally with all of our existing and future other unsecured and unsubordinated indebtedness. The notes will be effectively subordinated to any of our existing and future secured indebtedness, to the extent of the assets securing such indebtedness, and will be effectively subordinated to all liabilities of our subsidiaries, including trade payables.

Issuance in Euros; Payment on the Notes

Initial holders will be required to pay for the notes in euros, and all payments on the notes will be payable in euros; provided that if on or after the date of this prospectus supplement the euro is unavailable to us due to the imposition of exchange controls or other circumstances beyond our control or if the euro is no longer being used by the then member states of the European Monetary Union that have adopted the euro as their currency or for the settlement of transactions by public institutions of or within the international banking community, then all payments in respect of the notes will be made in U.S. dollars until the euro is again available to us or so used. The amount payable on any date in euros will be converted into U.S. dollars on the basis of the then most recently available market exchange rate for the euro. Any payment in respect of the notes so made in U.S. dollars will not constitute an event of default under the notes or the indenture. Neither the trustee nor the paying agent will have any responsibility for obtaining exchange rates, effecting conversions or otherwise handling redenominations in connection with the foregoing. Investors will be subject to foreign exchange risks as to payments on the notes that may have important economic and tax consequences to them. See “Risk Factors” in this prospectus supplement.

Place of Payment; Transfer and Exchange

The place or places where payments will be made, where the notes may be surrendered for registration of transfer, exchange or redemption and where notices may be given to us in respect of the notes will initially be the office of the paying agent at 125 Old Broad Street, Fifth Floor, London, EC2N 1AR (or such other office of the paying agent in London, United Kingdom as agreed to by the Company and the paying agent); provided, however, that the payment of interest may be made at our option by check mailed to the address of the person entitled thereto at such address as shall appear in the security register.

Special Mandatory Redemption

The Company expects to use the net proceeds from this offering as partial consideration for the Merger, as described under the heading “Use of Proceeds.” If the closing of the Merger has not occurred on or prior to February 7, 2019, or if, prior to such date, the Merger Agreement is terminated (each, a “Special Mandatory Redemption Event”), the provisions set forth below will be applicable.

Upon the occurrence of a Special Mandatory Redemption Event, each series of the notes will be redeemed in whole by us at a special mandatory redemption price (the “Special Mandatory Redemption Price”) equal to 101% of the aggregate principal amount of the applicable series of notes, plus accrued and unpaid interest on the principal amount of such series of the notes to, but not including, the Special Mandatory Redemption Date (as defined below).

Upon the occurrence of a Special Mandatory Redemption Event, the Company shall promptly (but in no event later than five business days following such Special Mandatory Redemption Event) notify the trustee in writing of such event, and the trustee shall, no later than five business days following receipt of such notice from the Company, notify the holders (the date on which such notification is distributed, the “Redemption Notice Date”), that the notes will be redeemed on the 10th business day following the Redemption Notice Date (such date, the “Special Mandatory Redemption Date”), in each case in accordance with the applicable provisions of the indenture. The trustee, upon receipt of the notice specified above, on the Redemption Notice Date shall notify

 

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each holder in accordance with the applicable provisions of the indenture that all of the outstanding notes shall be redeemed at the Special Mandatory Redemption Price on the Special Mandatory Redemption Date automatically and without any further action by the holders of any series of the notes. Prior to the opening of business on the Special Mandatory Redemption Date, the Company shall deposit with the paying agent, or the trustee, funds sufficient to pay the Special Mandatory Redemption Price for each series of notes. If such deposit is made as provided above, the notes will cease to bear interest on and after the Special Mandatory Redemption Date.

Upon the occurrence of the closing of the Merger, the foregoing provisions regarding the special mandatory redemption will cease to apply.

Optional Redemption

We may redeem each series of notes, in whole or in part, at our option, at any time prior to                 , 20                (                months prior to the maturity date) with respect to the 20                notes, and                 , 20                (                months prior to the maturity date) with respect to the 20                notes, at a redemption price equal to the greater of the following amounts:

 

   

100% of the principal amount of the notes to be redeemed on that redemption date; and

 

   

the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed on that redemption date, excluding accrued and unpaid interest on the redemption date, discounted to the redemption date on an annual basis (ACTUAL/ACTUAL (ICMA) (as defined in the rulebook of the International Capital Markets Association)) at the applicable Comparable Government Bond Rate (as defined below), plus                basis points in the case of the 20        notes and                 basis points in the case of the 20                notes;

plus, in each case, accrued and unpaid interest on the notes being redeemed to, but excluding, the redemption date.

On or after                 , 20                (                months prior to the maturity date) with respect to the 20                notes, and                 , 20                (                months prior to the maturity date) with respect to the 20                notes, the redemption price for the notes to be redeemed will be equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest on the notes to be redeemed to, but excluding, the redemption date.

Notwithstanding the foregoing, installments of interest on notes that are due and payable on interest payment dates falling on or prior to a redemption date will be payable on the interest payment date to the registered holders as of the close of business on the relevant record date in accordance with the notes and the indenture.

We will mail notice of any redemption at least 30 days, but not more than 60 days, before the redemption date to each registered holder of the notes to be redeemed. Once notice of redemption is mailed, the notes called for redemption will become due and payable on the redemption date and at the applicable redemption price, plus accrued and unpaid interest to the redemption date. The notice of redemption will state any conditions applicable to a redemption and the amount of notes to be redeemed.

Comparable Government Bond” means, in relation to any Comparable Government Bond Rate calculation, at the discretion of an independent investment bank selected by the Company, a German government bond (Bundesanleihe) whose maturity is closest to the maturity of the notes of the applicable series being redeemed, or if such independent investment bank in its discretion determines that such similar bond is not in issue, such other German government bond as such independent investment bank may, with the advice of three brokers of, and/or market makers in, German government bonds selected by such independent investment bank, determine to be appropriate for determining the Comparable Government Bond rate.

 

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“Comparable Government Bond Rate” means the price, expressed as a percentage (rounded to three decimal places, with 0.0005 being rounded upwards), at which the gross redemption yield on the notes of the applicable series being redeemed, if they were to be purchased at such price on the third business day prior to the date fixed for redemption, would be equal to the gross redemption yield on such business day of the Comparable Government Bond on the basis of the middle market price of the Comparable Government Bond prevailing at 11:00 a.m. (London time) on such business day as determined by an independent investment bank selected by the Company.

On and after the redemption date, interest will cease to accrue on the notes or any portion of the notes called for redemption, unless we default in the payment of the redemption price and accrued interest. On or before the redemption date, we will deposit with a paying agent, or the trustee, money sufficient to pay the redemption price of and accrued interest on the notes to be redeemed on that date. If less than all of the notes are to be redeemed, the notes to be redeemed will be selected by the trustee, in accordance with the applicable depositary procedures; provided, however, that no notes of a principal amount of €100,000 or less shall be redeemed in part.

The notes are also subject to redemption prior to maturity if certain changes in U.S. tax law occur. If such changes occur, the notes may be redeemed at a redemption price of 100% of their principal amount plus accrued and unpaid interest to the date of redemption. See “—Redemption for Tax Reasons.”

Sinking Fund

The notes will not be entitled to the benefit of any mandatory redemption or sinking fund.

Offer to Repurchase Upon Change of Control Triggering Event

Upon a Change of Control Triggering Event (as defined below), unless we have previously exercised any right to redeem the notes as described above under “—Optional Redemption,” each holder of notes will have the right to require us to repurchase all or any part (in minimum denominations of €100,000 or integral multiples of €1,000 in excess thereof) of such holder’s notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, we will offer payment in cash equal to 101% of the aggregate principal amount of such notes repurchased plus accrued and unpaid interest, if any, on the notes repurchased, to, but excluding, the date of repurchase (the “Change of Control Payment”).

Within 30 days following the date upon which the Change of Control Triggering Event occurs, or, at our option, prior to any Change of Control but after the public announcement of the pending Change of Control, we will mail a notice to each holder of notes, with a copy to the trustee, describing the terms of the Change of Control Offer and offering to repurchase the notes. Such notice will state, among other things, the purchase date, which must be no earlier than 30 days and no later than 60 days from the date such notice is mailed, other than as may be required by law (the “Change of Control Payment Date”). If the notice is mailed prior to the date of consummation of the Change of Control, it will state that the Change of Control Offer is conditioned on the Change of Control being completed on or prior to the Change of Control Payment Date.

We will comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Triggering Event provisions of the indenture and the notes, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Change of Control Triggering Event provisions by virtue of compliance with such securities laws or regulations.

We will not be required to make a Change of Control Offer if a third party makes an offer to purchase the notes at a purchase price equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid

 

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interest, if any, on such notes to the date of purchase, in the manner, at the times and otherwise in compliance with the requirements for a Change of Control Offer made by us and such third party purchases all the notes properly tendered and not withdrawn under its offer.

On the Change of Control Payment Date, we will, to the extent lawful:

 

   

accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;

 

   

deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

 

   

deliver or cause to be delivered to the trustee for cancellation the notes properly accepted together with an officers’ certificate stating the aggregate principal amount of the notes being purchased by us.

For purposes of the foregoing discussion of a repurchase at the option of holders upon the occurrence of a Change of Control, the following definitions are applicable:

Change of Control” means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of our properties or assets and of our subsidiaries’ properties or assets taken as a whole to any “person” (as that term is used in Section 13(d)(3) and Section 14(d) of the Exchange Act) other than us or one of our subsidiaries; (2) the adoption of a plan relating to our liquidation or dissolution; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any “person” (as defined in clause (1) above) becomes the beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of our then outstanding Voting Stock (measured by voting power rather than number of shares); or (4) we consolidate with, or merge with or into, any Person, or any Person consolidates with, or merges with or into, us, in any such event pursuant to a transaction in which any of our outstanding Voting Stock or Voting Stock of such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of our Voting Stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the Voting Stock of the surviving Person immediately after giving effect to such transaction.

Change of Control Triggering Event” means the occurrence of both (1) a Change of Control and (2) a Ratings Event.

Investment Grade” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P, or if applicable, the equivalent investment grade credit rating from any substitute Rating Agency selected by us.

Moody’s” means Moody’s Investors Service, Inc. and its successors.

Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity, and includes a “person” as used in Section 13(d)(3) of the Exchange Act.

Rating Agencies” means (1) each of Moody’s and S&P; and (2) if either of Moody’s or S&P ceases to rate the notes or fails to make a rating of the notes publicly available for reasons outside of our control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by us (as certified by a resolution of our board of directors) as a replacement agency for Moody’s or S&P, or both as the case may be.

 

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Ratings Event” means the occurrence of the events described in (1) or (2) below on any date during the period commencing 60 days prior to the date of the public notice of the occurrence of a Change of Control or our intention to effect a Change of Control and ending 60 days following consummation of such Change of Control (the “Trigger Period”), which Trigger Period shall be extended so long as the rating of the notes is under publicly announced consideration for possible downgrade by either of the Rating Agencies: (1) in the event the notes are rated by both Rating Agencies as investment grade, the rating of the notes shall be reduced so that the notes are rated below investment grade by both Rating Agencies, or (2) in the event the notes are rated investment grade by one Rating Agency and below investment grade by the other Rating Agency, the rating of the notes by either Rating Agency shall be decreased by one or more gradations (including gradations within rating categories, as well as between rating categories) so that the notes are then rated below investment grade by both Rating Agencies.

S&P” means S&P Global Ratings, a division of S&P Global, Inc. and its successors.

Voting Stock” of a Person means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency.

Certain Covenants

Limitations on Liens

We will not, and will not permit any Restricted Subsidiary (as defined below) to, issue, incur, create, assume or guarantee any debt for borrowed money (collectively referred to as “Debt”) secured by any mortgage, security interest, pledge, lien, charge or other encumbrance (each a “Lien” and collectively, “Liens”) on any Principal Property (as defined below) or shares of stock (or other equivalents of or interests in equity) or indebtedness of a Restricted Subsidiary, unless the notes, and, at our option, any other indebtedness or guarantee ranking equally with such notes, are secured equally and ratably with, or at our option, prior to, such secured Debt, for so long as such Debt is so secured.

This restriction will not apply to Debt secured by:

 

   

liens on property, shares of stock or indebtedness of an entity existing at the time it becomes a Restricted Subsidiary, but not created in anticipation of the transaction in which such entity becomes a Restricted Subsidiary;

 

   

liens on property acquired by us or a Restricted Subsidiary existing at the time of acquisition by us or a Restricted Subsidiary;

 

   

liens on property acquired by us or a Restricted Subsidiary and created prior to, at the time of, or within 180 days after the acquisition of such property, or the completion of construction, the completion of improvements or the commencement of substantial commercial operation of such property, for the purpose of financing all or any part of the purchase price of such property, such construction or the making of such improvements;

 

   

liens on property, shares of stock or indebtedness of an entity existing at the time such entity is merged into or consolidated with us or a Restricted Subsidiary or at the time of a sale, lease or other disposition of all or substantially all of the properties of an entity as an entirety or substantially as an entirety to us or a Restricted Subsidiary, provided that the lien was not incurred in contemplation of such merger or consolidation or sale, lease or other disposition;

 

   

liens on our or a Restricted Subsidiary’s property or in favor of governmental bodies to secure payments of amounts owed under contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such liens;

 

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liens to secure indebtedness owing to us or a Restricted Subsidiary;

 

   

liens existing on the date of the initial issuance of the notes; and

 

   

any extension, renewal or replacement of any Lien referred to above or of any Debt secured by that Lien; provided, however, that such extension, renewal or replacement Lien will secure no larger an amount of Debt than that existing at the time of such extension, renewal or replacement.

Notwithstanding the restrictions described above, we or a Restricted Subsidiary may issue, incur, create, assume or guarantee Debt secured by a Lien which would otherwise be subject to the foregoing restrictions without equally and ratably securing the notes, provided that after giving effect to the Debt secured by such Lien, the aggregate amount of all Debt so secured by Liens, not including Liens permitted above, does not exceed the greater of (1) 15% of Consolidated Net Tangible Assets (as defined below) or (2) $100 million.

Limitations on Sale and Lease-back Transactions

Sale and Lease-Back Transactions (as defined below) by us or any Restricted Subsidiary of any Principal Property, other than any such transaction involving a lease for a term of not more than three years or any such transaction between us and one of our Restricted Subsidiaries or between Restricted Subsidiaries, are prohibited unless at the effective time of such transaction:

 

   

we or the Restricted Subsidiary would be entitled, pursuant to the covenant relating to “Limitation on Liens,” without equally and ratably securing the notes, to incur Debt secured by a Lien on the Principal Property involved in such transaction in an amount at least equal to the Attributable Debt (as defined below) with respect to such Sale and Lease-Back Transaction; or

 

   

we or the Restricted Subsidiary applies, within 180 days of the effective date of the Sale and Lease-Back Transaction, an amount equal to the greater of (1) the net proceeds of such sale or (2) the Attributable Debt with respect to such Sale and Lease-Back Transaction, to either, or a combination of, (x) the prepayment or retirement, other than any mandatory retirement, mandatory prepayment or sinking fund payment or payment at maturity, of debt for borrowed money of us or a Restricted Subsidiary, other than debt subordinate to the notes or debt to us or a Restricted Subsidiary, that matures more than 12 months after its creation or (y) the purchase, construction or development of other comparable property.

Certain Definitions

For purposes of the foregoing discussion of certain covenants, the following definitions are applicable:

Attributable Debt” as used with respect to a Sale and Lease-Back Transaction, means, at the time of determination, the lesser of (a) the fair market value of the Principal Property leased, as determined in good faith by our Board of Directors, or (b) the present value of the total net amount of rent required to be paid under such lease during the remaining term thereof, including any period for which such lease has been extended, discounted at the rate of interest set forth or implicit in the terms of such lease, as determined in good faith by our Board of Directors, compounded semi-annually.

Consolidated Net Tangible Assets” means, as of any particular time, the aggregate amount of assets included on our consolidated balance sheet as of the end of the last fiscal quarter for which financial information is available, less applicable reserves and other properly deductible items, after deducting from such amount:

 

   

all current liabilities, including current maturities of long-term indebtedness and current maturities of obligations under capital leases; and

 

   

the total of the net book values of all assets of us and our Subsidiaries properly classified as intangible assets under U.S. generally accepted accounting principles, including goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangible assets.

 

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Principal Property” means the land, improvements, buildings and fixtures (including any leasehold interest therein), constituting the principal corporate office, any manufacturing plant or any manufacturing or research or engineering facility, whether owned at or acquired after the date of the indenture, that is owned or leased by us or a Restricted Subsidiary, that is located within the continental United States, and that has a net book value at the time of the determination in excess of the greater of 10% of our Consolidated Net Tangible Assets or $50 million, unless our Board of Directors has determined in good faith that such property is not material to the operation of the business conducted by us and our Subsidiaries taken as a whole; provided, however, for purposes of the indenture, our corporate office located at 521 West 57th Street, New York, New York 10019-2960 will not be deemed a Principal Property.

Restricted Subsidiary” means any Subsidiary (1) substantially all of whose property is located within the continental United States, (2) which owns a Principal Property and (3) in which our investment exceeds 1% of the aggregate amount of assets included on our consolidated balance sheet as of the end of the last fiscal quarter for which financial information is available. However, the term “Restricted Subsidiary” does not include any Subsidiary that is principally engaged in certain types of leasing and financing activities.

Sale and Lease-Back Transaction” means any arrangement with any person providing for the leasing by us or any Restricted Subsidiary of any Principal Property, whether owned at the date of the issuance of the notes or thereafter acquired, excluding temporary leases of a term, including renewal periods, of not more than three years, that has been or is to be sold or transferred by us or any Restricted Subsidiary to such person with the intention of taking back a lease of this property.

Subsidiary” means (a) any corporation at least a majority of whose outstanding voting stock shall at the time be owned, directly or indirectly, by us or by one or more of our subsidiaries or by us and one or more of our subsidiaries, (b) any general partnership, limited liability company, joint venture or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by us, or by one or more of our subsidiaries, or by us and one or more of our subsidiaries and (c) any limited partnership of which we or any of our subsidiaries is a general partner.

Redemption for Tax Reasons

If, as a result of any change in, or amendment to, the laws (or any regulations or rulings promulgated under the laws) of the United States (or any political subdivision or taxing authority of or in the United States), or any change in, or amendments to, an official position regarding the application or interpretation of such laws, regulations or rulings, which change or amendment is announced or becomes effective on or after the date of this prospectus supplement, we become or will become obligated, based upon a written opinion of independent counsel selected by us, to pay additional amounts as described herein under the heading “—Payment of Additional Amounts” with respect to a series of notes, and we cannot avoid such obligation by reasonable measures available to us, then we may at our option redeem, in whole, but not in part, such series of notes on not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of their principal amount, together with interest accrued but unpaid on those notes to (but excluding) the date fixed for redemption, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which we would be obliged to pay additional amounts as a payment in respect of the notes then due.

Payment of Additional Amounts

All payments of principal and interest in respect of the notes will be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, duties, assessments or other governmental charges of whatever nature required to be deducted or withheld by the United States or any political subdivision or taxing authority of or in the United States, unless such withholding or deduction is required by law.

 

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If such withholding or deduction is required by law, we will pay such additional amounts on the notes as will result in receipt by each beneficial owner of a note that is not a United States Person (as defined below) of such amounts (after all such withholding or deduction, including on any additional amounts) as would have been received by such beneficial owner had no such withholding or deduction been required. The foregoing obligation, however, to make any payment of additional amounts will not apply:

 

  1.

to any tax, assessment or other governmental charge that would not have been imposed but for the holder or beneficial owner, a fiduciary, settlor, beneficiary, member or shareholder of the holder or beneficial owner, or a person holding a power over an estate or trust administered by a fiduciary holder or beneficial owner, being treated as:

 

  a.

being or having been present in, or engaged in a trade or business in, the United States, being treated as having been present in, or engaged in a trade or business in, the United States, or having or having had a permanent establishment in the United States;

 

  b.

having a current or former connection with the United States (other than a connection arising solely as a result of the ownership of the notes, the receipt of any payment in respect of the notes or the enforcement of any rights under the indenture), including being or having been a citizen or resident of the United States or treated as being or having been a resident thereof;

 

  c.

being or having been a personal holding company, a passive foreign investment company or a controlled foreign corporation for U.S. federal income tax purposes, a foreign tax exempt organization, or a corporation that has accumulated earnings to avoid United States federal income tax;

 

  d.

being or having been a “10-percent shareholder,” as defined in section 871(h)(3) of the United States Internal Revenue Code of 1986, as amended (the “Code”), or any successor provision, of us; or

 

  e.

being a bank receiving payments on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business, within the meaning of section 881(c)(3) of the Code or any successor provision;

 

  2.

to any beneficial owner that is not the sole beneficial owner of the notes, or a portion of the notes, or that is a fiduciary, partnership or limited liability company, but only to the extent that a beneficiary or settlor with respect to the fiduciary, a beneficial owner or member of the partnership or limited liability company would not have been entitled to the payment of an additional amount had the beneficiary, settlor, beneficial owner or member received directly its beneficial or distributive share of the payment;

 

  3.

to any tax, assessment or other governmental charge that would not have been imposed but for the failure of the holder or beneficial owner (or their agents) to comply with certification, identification or information reporting requirements concerning the nationality, residence, identity or connection with the United States of the holder or beneficial owner of the notes, if compliance is required by statute, by regulation of the United States or any taxing authority therein or by an applicable income tax treaty to which the United States is a party as a precondition to exemption from such tax, assessment or other governmental charge;

 

  4.

to any tax, assessment or other governmental charge that is imposed otherwise than by withholding or deducting by us or a paying agent from the payment;

 

  5.

to any estate, inheritance, gift, sales, excise, transfer, wealth, capital gains or personal property tax or similar tax, assessment or other governmental charge;

 

  6.

to any tax, assessment or other governmental charge that would not have been imposed but for the presentation by the holder of any note, where presentation is required, for payment on a date more than 30 days after the date on which payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later;

 

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  7.

to any tax, assessment or other governmental charge required to be withheld or deducted that is imposed on a payment pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version of such Sections that is substantively comparable and not materially more onerous to comply with), any Treasury regulations promulgated thereunder, or any other official interpretations thereof (collectively, “FATCA”), any agreement (including any intergovernmental agreement) entered into in connection therewith, or any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA or an intergovernmental agreement in respect of FATCA;

 

  8.

any tax, assessment or other governmental charge that is imposed or withheld solely by reason of a change in law, regulation, or administrative or judicial interpretation that becomes effective more than 15 days after the payment becomes due or is duly provided for, whichever occurs later; or

 

  9.

in the case of any combination of items (1) through (8).

Except as specifically provided under this heading “—Payment of Additional Amounts,” we will not be required to pay additional amounts in respect of any tax, assessment or other governmental charge. References in this prospectus supplement and the accompanying prospectus to any payment on the notes include the related payment of additional amounts, as applicable.

As used under this heading “—Payment of Additional Amounts” and under the heading “—Redemption for Tax Reasons,” the term “United States” means the United States of America, any state thereof, and the District of Columbia, and the term “United States Person” means a citizen or individual resident of the United States, a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) that is created or organized in or under the laws of the United States, or any State thereof or the District of Columbia, an estate whose income is subject to U.S. federal income tax regardless of its source, or a trust (i) if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) that validly elects to be treated as a U.S. person for U.S. federal income tax purposes.

Book-Entry; Delivery and Form

Global Notes

The notes will be represented by one or more global notes in definitive, fully registered, book-entry form. The global notes will be deposited with or on behalf of the common depositary for, and in respect of interests held through, Euroclear and Clearstream. We will not issue certificated securities to you, except in the limited circumstances described in “Description of Debt Securities—Global Securities” in the accompanying prospectus. Each global note will be issued to the common depositary, which will keep a computerized record of its participants whose clients have purchased the notes. Each participant will then keep a record of its own clients. Unless it is exchanged in whole or in part for a certificated note, a global note may not be transferred. The common depositary, its nominees and their successors may, however, transfer a global note as a whole to one another, and these transfers are required to be recorded on our records or a register to be maintained by the trustee.

Clearstream and Euroclear

The descriptions of the operations and procedures of Euroclear and Clearstream set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. Neither we nor the underwriters take any responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters.

 

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We have been advised by Euroclear and Clearstream, respectively, as follows:

Euroclear. Euroclear advises that it was created in 1968 to hold securities for its participants and to clear and settle transactions between Euroclear participants and between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Euroclear provides various other services, including securities lending and borrowing, and interfaces with domestic markets in several countries. All operations are conducted by Euroclear Bank, S.A./N.V. and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with Euroclear Bank, not the cooperative. The cooperative establishes policy for Euroclear on behalf of Euroclear participants. Euroclear participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters (“Euroclear participants”). Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.

Securities clearance accounts and cash accounts with the Euroclear Bank are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the “Euroclear terms and conditions”). The Euroclear terms and conditions govern transfers of securities and cash within Euroclear, withdrawals of securities and cash from Euroclear, and receipts of payment with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Bank acts under the Euroclear terms and conditions only on behalf of Euroclear participants, and has no record of or relationship with persons holding through Euroclear participants.

Distributions with respect to notes held beneficially through Euroclear will be credited to the cash accounts of Euroclear participants in accordance with the Euroclear terms and conditions, to the extent received by the Euroclear Bank and by Euroclear.

Clearstream. Clearstream is incorporated under the laws of Luxembourg as a professional depositary. Clearstream holds securities for Clearstream participants, and facilitates the clearance and settlement of securities transactions between Clearstream participants through electronic book-entry changes in accounts of Clearstream participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to its participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in several countries. As a professional depositary, Clearstream is subject to regulation by the Luxembourg Monetary Institute. Clearstream participants are financial institutions around the world, including securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the underwriters. Indirect access to Clearstream is also available to others, such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a Clearstream participant either directly or indirectly.

Distributions with respect to the notes held beneficially through Clearstream will be credited to cash accounts of Clearstream participants in accordance with its rules and procedures, to the extent received by Clearstream.

Euroclear and Clearstream Arrangements

So long as Euroclear or Clearstream or their nominee or their common depositary is the registered holder of the global securities, Euroclear, Clearstream or such nominee or common depositary, as the case may be, will be considered the sole owner or holder of the notes represented by such notes for all purposes under the indenture and the notes. Payments of principal, interest and additional amounts, if any, in respect of the global securities will be made to Euroclear, Clearstream or such nominee or common depositary, as the case may be, as registered holder thereof. None of us, the trustee, any underwriter and any affiliate of any of the above or any person by

 

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whom any of the above is controlled (as such term is defined in the Securities Act of 1933, as amended) will have any responsibility or liability for any records relating to or payments made on account of beneficial ownership interests in the global securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Distribution of principal and interest with respect to the global security will be credited in euros to the extent received by Euroclear or Clearstream from the trustee or the paying agent, as applicable, to the cash accounts of Euroclear or Clearstream customers in accordance with the relevant system’s rules and procedures.

Because Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having an interest in the global securities to pledge such interest to persons or entities which do not participate in the relevant clearing system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.

The holdings of book-entry interests in the global securities through Euroclear and Clearstream will be reflected in the book-entry accounts of each such institution. As necessary, the registrar will adjust the amounts of the global securities on the register for the accounts of the common depositary to reflect the amounts of notes held through Euroclear and Clearstream, respectively.

Initial Settlement

Investors holding their notes through Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional eurobonds in registered form. Notes will be credited to the securities custody accounts of Euroclear and Clearstream holders on the settlement date against payment for value on the settlement date.

Secondary Market Trading

Because the purchaser determines the place of delivery, it is important to establish at the time of trading of any notes where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date.

Secondary market sales of book-entry interests in the notes held through Euroclear or Clearstream to purchasers of book-entry interests in the global securities through Euroclear or Clearstream will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream and will be settled using the procedures applicable to conventional eurobonds in same-day funds.

You should be aware that investors will only be able to make and receive deliveries, payments and other communications involving the notes through Euroclear and Clearstream on days when those systems are open for business. Those systems may not be open for business on days when banks, brokers and other institutions are open for business in the United States.

In addition, because of time-zone differences there may be problems with completing transactions involving Euroclear and Clearstream on the same business day as in the United States. U.S. investors who wish to transfer their interests in the notes, or to make or receive a payment or delivery of the notes, on a particular day, may find that the transactions will not be performed until the next business day in Luxembourg or Brussels, depending on whether Euroclear or Clearstream is used.

Euroclear and Clearstream will credit payments to the cash accounts of Euroclear participants or Clearstream customers in accordance with the relevant system’s rules and procedures, to the extent received by its depositary. Clearstream or the Euroclear Operator, as the case may be, will take any other action permitted to be taken by a holder under the indenture on behalf of a Euroclear participant or Clearstream customer only in accordance with its relevant rules and procedures.

 

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Euroclear and Clearstream have agreed to the foregoing procedures in order to facilitate transfers of the notes among participants of Euroclear and Clearstream. However, they are under no obligation to perform or continue to perform those procedures, and they may discontinue those procedures at any time.

The information in this section concerning Euroclear and Clearstream and their book-entry systems has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy of that information.

None of IFF, the underwriters or the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of the beneficial interests in a global security, or for maintaining, supervising or reviewing any records relating to such beneficial interests.

Notices

Notices to holders of the notes will be sent by mail or email to the registered holders, or otherwise in accordance with the procedures of the applicable depositary.

Defeasance

The defeasance provisions described in the accompanying prospectus under “Description of Debt Securities—Discharge, Defeasance and Covenant Defeasance” will be applicable to the notes; provided that the coin or currency unit to be deposited with the trustee under such provisions shall be the euro.

Governing Law

The indenture and the notes will be governed by, and construed in accordance with, the laws of the State of New York.

Concerning the Trustee, Paying Agent, Transfer Agent and Registrar

The trustee with respect to the notes is U.S. Bank National Association. Elavon Financial Services DAC, UK Branch will act as the paying agent with respect to the notes. U.S. Bank National Association will act as transfer agent and registrar with respect to the notes.

Listing

We intend to apply to list the notes on the NYSE. The listing application will be subject to approval by the NYSE. We currently expect trading in the notes on the NYSE to begin within 30 days after the initial issuance of the notes. If such a listing is obtained, we have no obligation to maintain such listing and we may delist the notes at any time. Currently there is no public market for the notes.

 

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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. federal income tax considerations that may be relevant to a holder of a note. This summary is based on provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, laws, rulings and decisions now in effect, all of which are subject to change, possibly with retroactive effect. This summary deals only with beneficial owners of notes that will hold notes as capital assets, and does not address particular tax considerations that may be applicable to investors that are subject to special tax rules, such as banks, tax-exempt entities, insurance companies, regulated investment companies, dealers in securities, traders in securities electing to mark to market for U.S. tax accounting purposes, persons that will hold notes as a position in a “straddle” or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction, entities or arrangements taxed as partnerships or the partners therein, persons subject to the alternative minimum tax, nonresident alien individuals present in the United States for 183 days or more during a taxable year, U.S. expatriates or persons that have a “functional currency” other than the U.S. dollar.

This summary addresses only U.S. federal income tax consequences, and does not address consequences arising under state, local or foreign tax laws or the Medicare tax on net investment income. Investors should consult their tax advisors in determining the tax consequences to them of holding notes under such tax laws, as well as the application to their particular situation of the U.S. federal income tax considerations discussed below.

As used herein, a “U.S. holder” is a beneficial owner of a note that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise will be subject to U.S. federal income taxation on a net income basis in respect of the note. A “Non-U.S. holder” is a beneficial owner of a note that is an individual, corporation, estate, or trust that is not a U.S. holder.

U.S. holders that use an accrual method of accounting for tax purposes (“accrual method holders”) generally are required to include certain amounts in income no later than the time such amounts are reflected on certain financial statements (the “book/tax conformity rule”). The application of the book/tax conformity rule thus may require the accrual of income earlier than would be the case under the general tax rules described below, although it is not clear to what types of income the book/tax conformity rule applies. This rule generally is effective for tax years beginning after December 31, 2017 or, for debt securities issued with original issue discount, for tax years beginning after December 31, 2018. Accrual method holders should consult their tax advisors regarding the potential applicability of the book/tax conformity rule to their particular situation.

U.S. Holders

Payments of Interest. Payments of stated interest (which includes the related payment of additional amounts, if any, as described under “Description of the Notes—Payment of Additional Amounts”) generally will be taxable to a U.S. holder as ordinary interest income at the time it accrues or is actually or constructively received, in accordance with the holder’s method of accounting for U.S. federal income tax purposes. It is expected, and this discussion assumes, that the notes will be issued with no more than a de minimis amount of original issue discount (“OID”). In general, however, if the notes are not issued with less than de minimis OID, a U.S. holder will be required to include OID in gross income, as ordinary income, under a “constant-yield method” before the receipt of cash attributable to such income, regardless of the U.S. holder’s regular method of accounting for U.S. federal income tax purposes. OID generally will be accrued in euros and translated into dollars at the average exchange rate in effect during the interest accrual period (or portion thereof within the U.S. holder’s taxable year). The U.S. holder generally will recognize foreign currency gain or loss to the extent the amount accrued in euros differs from the U.S. dollar value of these amounts when received.

A U.S. holder that uses the cash method of accounting for U.S. federal income tax purposes and that receives a payment of interest will be required to include in ordinary income the U.S. dollar value of the euro interest payment determined on the date the payment is received, regardless of whether the payment is in fact

 

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converted to U.S. dollars. A U.S. holder that uses the accrual method of accounting for U.S. federal income tax purposes will accrue interest income on a note in euros and translate the amount accrued into U.S. dollars based on the average exchange rate in effect during the interest accrual period (or portion thereof within the holder’s taxable year), or at the U.S. holder’s election, at the spot rate of exchange on the last day of the accrual period (or the last day of the taxable year within such accrual period if the accrual period spans more than one taxable year), or at the spot rate of exchange on the date of receipt, if that date is within five business days of the last day of the accrual period. A U.S. holder that makes this election must apply it consistently to all debt instruments from year to year and cannot change the election without the consent of the Internal Revenue Service (the “IRS”).

A U.S. holder that uses an accrual method of accounting for U.S. federal income tax purposes will recognize foreign currency gain or loss, as the case may be, on the receipt of an interest payment made with respect to a note if the exchange rate in effect on the date the payment is received differs from the rate applicable to a previous accrual of that interest income. This foreign currency gain or loss generally will be treated as ordinary income or loss and will not be treated as an adjustment to interest income received on the note.

Sale, Exchange and Retirement of Notes. Upon the sale, exchange or retirement of a note, a U.S. holder generally will recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement (less any accrued interest, which will be taxable as such) and the U.S. holder’s tax basis in such note.

A U.S. holder’s adjusted tax basis in a note generally will be the U.S. dollar value of the purchase price of that note on the date of purchase. The amount realized upon the sale, exchange or retirement of a note will be the U.S. dollar value of the currency received calculated at the exchange rate in effect on the date the instrument is sold, exchanged or retired. If the notes are treated as traded on an established securities market, a U.S. holder who uses the cash method, and if it so elects, a U.S. holder who uses the accrual method, will determine the U.S. dollar value of the amount realized by translating such amount at the spot rate on the settlement date of the sale. The election available to U.S. holders that use the accrual method in respect of the purchase and sale of notes traded on an established securities market must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS. U.S. holders should consult their own tax advisors about the availability of this treatment (and in the case of accrual method holders, the advisability of making this election).

Subject to the foreign currency rules discussed below, gain or loss recognized by a U.S. holder on a sale or other taxable disposition (including early redemption) of a note generally will be capital gain or loss and will be long-term capital gain or loss if, at the time of such sale or disposition, the notes have been held for more than one year. Certain non-corporate U.S. holders (including individuals) may be eligible for preferential rates of taxation in respect of long-term capital gains. The deductibility of capital losses is subject to limitations.

Gain or loss recognized by a U.S. holder on the sale, exchange or retirement of a note generally will be treated as ordinary income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which the U.S. holder held the note. This foreign currency gain or loss will not be treated as an adjustment to interest income received on the notes. In addition, upon the sale, exchange or retirement of a note, an accrual method holder may realize foreign currency gain or loss attributable to amounts received in respect of accrued and unpaid interest. The amount of foreign currency gain or loss realized with respect to principal and accrued interest will, however, be limited to the amount of overall gain or loss realized on the disposition. For an accrual method holder that does not make the election described above, the foreign currency gain or loss may include amounts attributable to changes in exchange rates between the trade date and the settlement date of the note.

Reportable Transactions. A U.S. holder that participates in a “reportable transaction” will be required to disclose its participation to the IRS. The scope and application of these rules is not entirely clear. A U.S. holder may be required to treat a foreign currency exchange loss relating to a note as a reportable transaction if the loss exceeds $50,000 in a single taxable year if the U.S. holder is an individual or trust, or higher amounts for other

 

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U.S. holders. In the event the acquisition, ownership or disposition of a note constitutes participation in a “reportable transaction” for purposes of these rules, a U.S. holder will be required to disclose its investment to the IRS, currently on Form 8886. Prospective purchasers should consult their tax advisors regarding the application of these rules.

Non-U.S. Holders

Payments of Interest. Subject to the discussions below under “ —FATCA” and “Information Reporting and Backup Withholding,” payments of interest (which includes the related payment of additional amounts, if any, as described under “Description of the Notes—Payment of Additional Amounts”) on the notes to a Non-U.S. holder generally will be exempt from U.S. federal income and withholding tax under the portfolio interest exemption, provided that (i) the Non-U.S. holder properly certifies as to its foreign status by providing a properly executed IRS Form W-8BEN or W-8BEN-E (or appropriate substitute form) to the applicable withholding agent; (ii) the Non-U.S. holder does not actually or constructively own 10% or more of the total combined voting power of our stock entitled to vote; and (iii) the Non-U.S. holder is not a controlled foreign corporation that is related to us actually or constructively through stock ownership.

Sale, Exchange and Retirement of Notes. Subject to the discussions below under “ —FATCA” and “Information Reporting and Backup Withholding,” a Non-U.S. holder generally will not be subject to U.S. federal income tax on gain recognized on a sale, exchange or retirement of notes.

FATCA. Under the U.S. tax rules known as the Foreign Account Tax Compliance Act (“FATCA”), a holder or beneficial owner of notes generally will be subject to 30% U.S. withholding tax on interest payments on the notes (and, starting on January 1, 2019, principal payments on the notes and gross proceeds from the sale or other taxable disposition (including early redemption) of the notes) if the holder or beneficial owner is not FATCA compliant, or holds its notes through a foreign financial institution that is not FATCA compliant. In order to be treated as FATCA compliant, a holder or beneficial owner must provide us or an applicable financial institution certain documentation (usually an IRS Form W-8BEN or W-8BEN-E) containing information about its identity, its FATCA status, and if required, its direct and indirect U.S. owners. For a foreign financial institution to be FATCA compliant, it generally must enter into an agreement with the U.S. government to report, on an annual basis, certain information regarding accounts with or interests in the institution held by certain United States persons and by certain non-U.S. entities that are wholly or partially owned by United States persons, or must satisfy similar requirements under an intergovernmental agreement between the United States and another country (an “IGA”). These requirements may be modified by the adoption or implementation of a particular IGA or by future U.S. Treasury Regulations. If any taxes are required to be deducted or withheld from any payments in respect of the notes as a result of a beneficial owner or intermediary’s failure to comply with the foregoing rules, no additional amounts will be paid on the notes as a result of the deduction or withholding of such tax.

Documentation that holders provide in order to be treated as FATCA compliant may be reported to the IRS and other tax authorities, including information about a holder’s identity, its FATCA status, and if applicable, its direct and indirect U.S. owners. Prospective investors should consult their tax advisors about how information reporting and the possible imposition of withholding tax under FATCA may apply to their investment in the notes.

Information Reporting and Backup Withholding

Information returns will be filed with the IRS in connection with payments on the notes made to, and the proceeds of dispositions of notes effected by, certain U.S. holders. In addition, certain U.S. holders may be subject to backup withholding in respect of such amounts if they do not provide their taxpayer identification numbers to the person from whom they receive payments. Certain information returns will be filed with the IRS in connection with payments on the notes made to Non-U.S. holders, and Non-U.S. holders may be required to comply with applicable certification procedures to establish that they are not U.S. holders in order to avoid the application of other information reporting requirements and backup withholding. The amount of any backup withholding from a payment to a U.S. or Non-U.S. holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.

 

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CERTAIN EUROPEAN UNION TAX CONSIDERATIONS

The Proposed Financial Transaction Tax

The European Commission has published a proposal for a directive for a common financial transaction tax, or FTT, in Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain, to which we refer as the participating Member States. However, Estonia has since stated that it will not participate. The proposed FTT has very broad scope and could, if introduced in its current form, apply to certain dealings in the notes (including secondary market transactions) in certain circumstances.

Under the European Commission’s proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

The FTT remains subject to negotiation between participating Member States and the legality of the proposal is uncertain. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional Member States may decide to participate and/or certain of the participating Member States may decide to withdraw. Prospective holders of, and investors in, the notes are advised to seek their own professional advice in relation to the FTT.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus supplement, the underwriters named below, for whom Morgan Stanley & Co. International plc, BNP Paribas, Citigroup Global Markets Limited and J.P. Morgan Securities plc are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the principal amount of notes indicated below:

 

Underwriters

   Principal Amount of
20     Notes
     Principal Amount of
20     Notes
 

Morgan Stanley & Co. International plc

                                   

BNP Paribas

     

Citigroup Global Markets Limited

     

J.P. Morgan Securities plc

     
  

 

 

    

 

 

 

Total

                                                           
  

 

 

    

 

 

 

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the notes subject to their acceptance of the notes from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the notes offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the notes offered by this prospectus supplement if any such notes are taken.

The underwriters initially propose to offer the notes to the public at the offering prices listed on the cover page of this prospectus supplement. In addition, the underwriters initially propose to offer the notes to certain dealers at prices that represent a concession not in excess of     % of the principal amount, with respect to the 20    notes, or     % of the principal amount, with respect to the 20    notes. Any underwriter may allow, and any such dealer may reallow, a concession not in excess of     % of the principal amount, with respect to with respect to the 20    notes, or     % of the principal amount, with respect to the 20    notes, to certain other dealers. After the initial offering of the notes, the underwriters may from time to time vary the offering price and other selling terms. The underwriters may offer and sell notes through certain of their affiliates.

The following table shows the underwriting discounts that we will pay to the underwriters in connection with the offering:

 

     Per
20     Note
    Total for
the
20     Notes
     Per
20     Note
    Total for
the
20     Notes
 

Underwriting discounts to be paid by us

                                                     

The estimated offering expenses payable by us, exclusive of the underwriting discounts, are approximately €1,286,891.

Each series of notes is a new issue of securities, and there is no existing trading market for the notes. We intend to apply to list the notes on the NYSE. We expect trading in the notes on the NYSE to begin within 30 days after the initial issuance of the notes. If such listing is obtained, we have no obligation to maintain such listing and we may delist the notes at any time. The underwriters have advised us that they intend to make a market in the notes, but they are not obligated to do so. The underwriters may discontinue any market making in the notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the notes or that an active public market for any series of notes will develop, that you will be able to sell your notes at a particular time or that the prices you receive when you sell will be favorable. If an active public trading market for any series of notes does not develop, the market price and liquidity of those notes may be adversely affected.

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that underwriters may be required to make in respect of those liabilities.

 

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We have agreed, during the period from the date of the underwriting agreement until the business day immediately following the delivery of the notes, not to offer, sell, contract to sell or otherwise dispose of any debt securities or warrants to purchase or otherwise acquire debt securities issued by us that are substantially similar to the notes without the prior written consent of the representatives, subject to certain exceptions.

In connection with the offering, the underwriters are permitted to engage in transactions that stabilize the market price of each series of notes. Such transactions consist of bids or purchases to peg, fix or maintain the price of such series of notes. If the underwriters create a short position in the notes of any series in connection with the offering, i.e., if they sell more notes of such series than are on the cover page of this prospectus, the underwriters may reduce that short position by purchasing notes of such series in the open market. Purchases of a security to stabilize the price or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of any series of notes. In addition, neither we nor any of the underwriters makes any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

In connection with this offering, Morgan Stanley & Co. International plc (the “stabilizing manager”) (or any person acting on behalf of any stabilizing manager) may over-allot or effect transactions with a view to supporting the market price of the notes at a level higher than that which might otherwise prevail. This stabilizing, if commenced, may be discontinued at any time. However, stabilization may not necessarily occur. Any stabilization action may begin on or after the date on which adequate public disclosure of the terms of the offer of the notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the notes and 60 days after the date of the allotment of the notes. Any stabilization action or over-allotment must be conducted by the stabilizing manager (or persons acting on behalf of the stabilizing manager) in accordance with all applicable laws and rules.

The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased notes sold by or for the account of such underwriter in stabilizing or short covering transactions.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging. financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses. In addition, Morgan Stanley & Co. LLC, an affiliate of Morgan Stanley & Co. International plc, has acted as our financial adviser in connection with the Merger. In connection with the Merger, we entered into a term loan credit agreement with an affiliate of Morgan Stanley & Co. International plc, as administrative agent, and the lenders party thereto, including affiliates of Morgan Stanley & Co. International plc, BNP Paribas, Citigroup Global Markets Limited and J.P. Morgan Securities plc, pursuant to which the lenders committed to provide, subject to certain conditions, a senior unsecured term loan facility in an original aggregate principal amount of up to $350 million, maturing three years after the funding date thereunder. Also in connection with the Merger, we and certain of our subsidiaries entered into Amendment No. 2 to the Credit Agreement with Citibank, N.A. as administrative agent, and the lenders party thereto, including affiliates of Morgan Stanley & Co. International plc, BNP Paribas, Citigroup Global Markets Limited and J.P. Morgan Securities plc, which amended and restated the Credit Agreement, dated as of November 9, 2011, amended and restated as of December 2, 2016 and amended as of May 21, 2018 among us, certain of our subsidiaries, the lenders party thereto, and Citibank, N.A. as administrative agent (as so amended and restated, the “Revolving Credit Agreement”). The Revolving Credit Agreement, among other things, provides a five-year $1.0 billion senior unsecured revolving loan credit facility. Some of the underwriters and their respective affiliates are or will be lenders under the senior unsecured term loan facility, the senior unsecured revolving loan credit facility and

 

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the Bridge Facility, and funding of the Merger with the proceeds from this notes offering and the common stock and tangible equity units offerings will result in the reduction of the lenders’ obligations under the Bridge Facility. Certain of the underwriters in this offering also acted as underwriters in the common stock offering and the tangible equity units offering, either directly or through affiliates.

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

Selling Restrictions

Canada

The notes may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

European Economic Area

The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the “Insurance Mediation Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”). Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. This prospectus supplement and the accompanying prospectus have been prepared on the basis that any offer of notes in any Member State of the EEA will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of notes. This prospectus supplement and the accompanying prospectus are not a prospectus for the purposes of the Prospectus Directive.

 

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United Kingdom

In addition, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at: (i) in the United Kingdom, persons having professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or persons falling within Article 49(2)(a) to (d) of the Order; (ii) persons who are outside the United Kingdom; and (iii) any other persons to whom it may otherwise lawfully be distributed (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to, and will be engaged in only with, relevant persons.

Hong Kong

The notes may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Japan

The notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, as amended (the “Financial Instruments and Exchange Law”), and each underwriter will not offer or sell any of the notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

Singapore

This prospectus supplement and the accompanying prospectus have not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the notes are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is

 

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an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferred within six months after that corporation or that trust has acquired the notes under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or(3) the transfer is by operation of law.

Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1), we have determined, and hereby notify all relevant persons (as defined in Section 309A of the SFA) that the notes are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Switzerland

The notes may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (the “SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under, art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.

Neither this document nor any other offering or marketing material relating to the notes or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this document nor any other offering or marketing material relating to the offering, us, or the notes have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of notes will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of notes has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the “CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the notes.

 

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LEGAL MATTERS

Certain legal matters with respect to the validity of the notes offered under this prospectus supplement will be passed upon for us by Cleary Gottlieb Steen & Hamilton, LLP, New York, New York. Certain legal matters relating to the offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.

EXPERTS

The financial statements of International Flavors & Fragrances Inc. and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this prospectus supplement by reference to International Flavors & Fragrances Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Frutarom Industries Ltd. as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 included in this prospectus supplement have been so included in reliance on the report of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, independent accountants, given on the authority of said firm as experts in auditing and accounting.

 

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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

We are “incorporating by reference” into this prospectus supplement specific documents that we file with the SEC, which means that we can disclose important information to you by referring you to those documents that are considered part of this prospectus supplement. Information that we file subsequently with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below, and any future documents that we file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until we sell all of the securities offered by this prospectus supplement.

We incorporate by reference into this prospectus supplement the following documents filed by us with the SEC, other than information furnished pursuant to Item 2.02 or Item 7.01 of Form 8-K, each of which should be considered an important part of this prospectus supplement:

 

Commission Filing (File No. 001-04858)

  

Period Covered or Date of Filing

Annual Report on Form 10-K (including the portions of our Proxy Statement on Schedule 14A for our 2018 Annual Meeting of Shareholders filed with the Commission on March 23, 2018 that are incorporated herein by reference)

   Year Ended December 31, 2017

Quarterly Reports on Form 10-Q

   Quarter Ended March 31, 2018 and June 30, 2018

Current Reports on Form 8-K

   May 3, 2018, May 7, 2018, May 9, 2018, May 24, 2018, June 8, 2018, August 3, 2018, August 27, 2018, September 10, 2018, September 17, 2018 and September 20, 2018

All subsequent documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until we sell all of the securities offered by this prospectus supplement

  

We will provide to each person to whom a prospectus supplement and the accompanying prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in this prospectus supplement and the accompanying prospectus but not delivered with this prospectus supplement and the accompanying prospectus.

You may request a copy of each of our filings at no cost, by writing or telephoning us at the following address or telephone number:

International Flavors & Fragrances Inc.

Attention: Investor Relations

521 West 57th Street

New York, NY 10019

Phone: (212) 765-5500

 

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FRUTAROM INDUSTRIES LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Auditors

     F-2  

Consolidated Financial Statements

  

Consolidated Statement of Financial Position as of December  31, 2017 and 2016

     F-3  

Consolidated Income Statement and Statement of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015

     F-6  

Consolidated Statement of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015

     F-7  

Consolidated Statement of Cash Flows for the Years Ended December  31, 2017, 2016 and 2015

     F-10  

Notes to the Consolidated Financial Statements

     F-12  

Condensed Consolidated Interim Financial Information

  

Condensed Consolidated Statements of Financial Position as of June  30, 2018 and 2017

     F-77  

Condensed Consolidated Statements of Income for the Six and Three Month Period Ended June 30, 2018 and 2017

     F-79  

Condensed Consolidated Statements of Comprehensive Income for the Six and Three Month Period Ended June 30, 2018 and 2017

     F-80  

Condensed Consolidated Statements of Changes in Equity for the Six and Three Month Period Ended June 30, 2018 and 2017

     F-81  

Condensed Consolidated Statements of Cash Flows for the Six and Three Month Period Ended June 30, 2018 and 2017

     F-86  

Explanatory Notes to the Condensed Consolidated Financial information

     F-88  

 

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LOGO

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of

FRUTAROM INDUSTRIES LTD.

We have audited the accompanying consolidated financial statements of Frutarom Industries Ltd. (hereafter—the Company) which comprise the consolidated statements of financial position as of December 31, 2017 and 2016, and the related consolidated statements of income, of comprehensive income, changes in equity and cash flows for each of the three years in the period ended on December 31, 2017.

Management and Board of Directors’ Responsibility for the Consolidated Financial Statements

Management and Board of Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management and Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frutarom Industries Ltd. as of December 31, 2017 and 2016, and their results of operations and their cash flows for each of the three years in the period ended on December 31, 2017, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

 

Haifa, Israel                /s/ Kesselman & Kesselman
June 14, 2018                    Certified Public Accountant (Isr.)
   A member firm of PricewaterhouseCoopers International Limited

 

Kesselman & Kesselman, Building 25, MATAM, P.O BOX 15084 Haifa, 3190500, Israel

Telephone: +972 -4- 8605000, Fax:+972 -4- 8605001, www.pwc.com/il

 

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FRUTAROM INDUSTRIES LTD.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

            As of December 31  
     Note      2017      2016  
            U.S. dollars in thousands  

Assets

        

CURRENT ASSETS:

     

Cash and cash equivalents

     19        118,214        113,528  

Accounts receivable:

     16        

Trade